As filed with the Securities and Exchange Commission on March 11, 2022.
Registration No. 333-260969
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LIONHEART ACQUISITION CORPORATION II
(Exact name of registrant as specified
in its charter)
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Delaware
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6770
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84-4117825
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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4218 NE 2nd Avenue
Miami, Florida 33137
(305) 573-3900
(Address, including zip code, and telephone number, including area code, of
registrant’s principal executive offices)
Ophir Sternberg
4218 NE 2nd Avenue
Miami, Florida 33137
(305) 573-3900
(Name, address, including zip code, and telephone number, including area code, of
agent for service)
Copies to
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Steven D. Pidgeon
Andrew D. Ledbetter
DLA Piper LLP (US)
2525 East Camelback Road
Phoenix, Arizona 85016-4232
Telephone: (480) 606-5100
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Alexandra Plasencia
General Counsel
MSP Recovery, LLC
2701 Le Jeune Road, Floor 10
Coral Gables, Florida 33134
Telephone: (305) 614-2222
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Michael J. Aiello
Matthew Gilroy
Amanda Fenster
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Telephone: (212) 310-8000
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Approximate date of commencement of proposed sale
of the securities to the public: As soon as practicable after this registration statement becomes effective and upon completion of the merger.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: ☐
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) 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 Form 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 emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.:
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☒
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Smaller reporting company
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☒
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Emerging growth company
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☒
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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. ☐
If applicable, place an ☒ in the box to designate the appropriate rule
provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ☐
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ☐
The registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary proxy statement/prospectus is not complete and may be changed. We may not sell the securities
described herein until the registration statement filed with the Securities and Exchange Commission is declared effective. This preliminary proxy statement/prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROXY STATEMENT/PROSPECTUS
DATED MARCH 11, 2022 SUBJECT TO COMPLETION
LIONHEART ACQUISITION CORPORATION II
4218 NE 2nd Avenue
Miami, Florida 33137
Dear Stockholder:
On July 11, 2021, Lionheart Acquisition Corporation II, a Delaware
corporation (“we,” “us,” “our,” or the “Company”), entered into a Membership Interest Purchase Agreement (as it may be amended, supplemented or otherwise modified from time to time in accordance with its terms, the “MIPA”) by and among the
Company, Lionheart II Holdings, LLC, a newly formed wholly owned subsidiary of the Company (“Opco”), the MSP Purchased Companies (as defined in the MIPA) (collectively, “MSP”), the members of MSP (the “Members”), and John H. Ruiz, in his
capacity as the representative of the Members (the “Members’ Representative”).
Pursuant to the MIPA, the Members will sell and assign all of their
membership interests in MSP to Opco in exchange for non-economic voting shares of Class V common stock, par value $0.0001, of the Company (“Class V Common Stock”) and non-voting economic Class B Units of Opco (“Class B Units,” and each pair
consisting of one share of Class V Common Stock and one Class B Unit, an “Up-C Unit”) or, pursuant to notice delivered to the Company, with respect to all or a portion of the Up-C Units to be received by each such Member, one share of Class A
Common Stock in lieu of each Up-C Unit (such transaction, the “Business Combination”).
Following the closing of the Business Combination (the “Closing”),
the Company will be organized in an “Up-C” structure in which the business of MSP and its subsidiaries will be held directly or indirectly by Opco, and the Company will own all of the voting economic Class A Units of Opco and the Members and
their designees will own all of the non-voting economic Class B Units in accordance with the terms of the first amended and restated limited liability company agreement of Opco (the “LLC Agreement”) to be entered into at the Closing. Each Up-C
Unit may be exchanged for either, at the Company’s option, (a) cash or (b) one share of Class A common stock, par value $0.0001, of the Company (“Class A Common Stock”), subject to the provisions set forth in the LLC Agreement.
Subject to the terms and conditions set forth in the MIPA, the
aggregate consideration to be paid to the Members (or their designees) will consist of (i) 3,250,000,000 Up-C Units and (ii) rights to receive payments under the tax receivable agreement to be entered into at the Closing. Of the Up-C Units to
be issued to certain Members at the Closing, 6,000,000 (the “Escrow Units”) will be deposited into an escrow account with Continental Stock Transfer and Trust Company to satisfy any indemnification claims that may be brought pursuant to the
MIPA.
In connection with the Business Combination, and to provide
additional consideration to holders of Class A Common Stock that do not redeem their shares of Class A Common Stock, the Company intends, subject to compliance with applicable law, to declare a dividend comprising an aggregate of
approximately 1,029,000,000 newly issued warrants, each to purchase one share of Class A Common Stock for an exercise price of $11.50 per share (the “New Warrants”), conditioned upon the consummation of any redemptions by the holders of
Class A Common Stock and the Closing, to the holders of record of the Class A Common Stock as of the close of business on the date of Closing (the “Closing Date”), which is expected to include the 5,750,000 shares of Class A Common Stock into
which Founder Shares will convert in connection with the Business Combination, after giving effect to the waiver of the right, title and interest in, to or under, participation in any such dividend by the Members, on behalf of themselves and
any of their designees. The number of New Warrants to be distributed in respect of each share of unredeemed Class A Common Stock is contingent upon, and will vary with, the aggregate number of shares of Class A Common Stock that are redeemed
in connection with the Business Combination. Assuming no additional redemptions (after giving effect to the redemption of 10,946,369 shares of Class A Common Stock in connection with the Company stockholder vote to approve the amendment to
the Company’s charter to extend the date by which the Company must complete an initial business combination from February 18, 2022 to August 18, 2022) (the “no redemption scenario”) and that the distribution is made, holders of Class A Common
Stock who do not redeem their shares would receive at least 56 New Warrants per share of Class A Common Stock they hold, which would proportionally increase if other holders elect to redeem their shares of Class A Common Stock. Pursuant to
the terms of the LLC Agreement, at least twice a month, to the extent any New Warrants have been exercised in accordance with their terms, the Company following the Business Combination is required to purchase from the MSP Principals (as
defined in the LLC Agreement), proportionately, the number of Up-C Units or shares of Class A Common Stock owned by such MSP Principal equal to the aggregate amount of the exercise price received in connection with exercise of the New
Warrants during an applicable period (the “Aggregate Exercise Price”) divided by the Warrant Exercise Price (as defined in the LLC Agreement) in exchange for the Aggregate Exercise Price. For more information, see the LLC Agreement attached
hereto as Annex D. Pursuant to the terms of the Existing Warrant Agreement (as defined in the accompanying proxy statement/prospectus), the exercise price of the Public Warrants and
Private Warrants could decrease to $0.0001 after giving effect to the issuance of the New Warrants.
Following the Closing, the Company will have two classes of
authorized common stock. The shares of Class A Common Stock and the shares of Class V Common Stock each will be entitled to one vote per share on matters submitted to a vote of stockholders. Holders of the Class V Common Stock will not have
any of the economic rights in the Company (including rights to dividends and distributions upon liquidation) provided to holders of the Class A Common Stock. Holders of Class V Common Stock will also hold Class B Units, and will have economic
rights in Opco. Following the Closing, assuming the no redemption scenario and excluding the impact of any outstanding warrants or New Warrants, John H. Ruiz, the Chief Executive Officer (“CEO”) and founder of MSP will control approximately
65.22% of the combined voting power of the capital stock of the Company, and Frank C. Quesada, the Chief Legal Officer (“CLO”) of MSP, will control approximately 27.36% of the combined voting power of the capital stock of the Company (in each
case, assuming no attributed ownership based on Messrs. Ruiz and Quesada’s investment in VRM) (See “Certain Relationships and Related Party Transactions” beginning on page [243]). Such ownership percentages will be affected by the level of redemptions by Public Stockholders and the exercise of outstanding warrants or New Warrants. See “Summary—Ownership of the Post-Combination
Company.”
In connection with the Closing, the Class B common stock, par value
$0.0001 per share, of the Company (the “Class B Common Stock”), issued prior to the initial public offering of the Company, held by our sponsor, Lionheart Equities, LLC (the “Sponsor”), and certain other Company stockholders will automatically
convert into shares of Class A Common Stock on a one-for-one basis. In addition, the Sponsor and certain members of our board of directors and/or management team have agreed to (a) vote all of their shares of Class B Common Stock and all of
their shares of Class A Common Stock in favor of the Business Combination and each other proposal described in the accompanying proxy statement/prospectus, (b) certain restrictions on their shares of Class A Common Stock and (c) in the case of
the Sponsor, bear any transaction costs in excess of $60,000,000 that are allocable to the Company in accordance with the MIPA.
Our publicly traded Class A Common Stock, redeemable warrants to
purchase one share of Class A Common Stock (“Public Warrants”) and Units comprising one share of Class A Common Stock and one-half of one Public Warrant (“Units”) are currently listed
on The Nasdaq Capital Market (“Nasdaq”) under the symbols “LCAP,” “LCAPW” and “LCAPU,”
respectively. We intend to apply to continue the listing of our publicly traded
Class A Common Stock and Public Warrants on Nasdaq under the symbols “MSPR” and “LCAPW,” respectively, and apply to list the New Warrants under the symbol “MSPRW,” upon the closing of the Business Combination. If issued, the New Warrants are
expected to trade promptly following their issuance. At the Closing, each Unit will separate into its components, comprising one share of Class A Common Stock and one-half of one Public Warrant.
The Company will hold a special meeting of stockholders in lieu of
the 2022 annual meeting (the “Special Meeting”) to consider matters relating to the proposed Business Combination. In connection with the Special Meeting, you will be asked to consider and vote upon (i) a proposal (the “Business Combination
Proposal”) to approve the MIPA, a copy of which is attached to the accompanying proxy statement/prospectus as Annex A, and the transactions contemplated thereby; (ii) a proposal to approve, for purposes
of complying with applicable listing rules of Nasdaq, the issuance of more than 20% of the Company’s issued and outstanding common stock and voting power in connection with the Business Combination (the “Nasdaq Proposal”); (iii) a proposal to
adopt the Second Amended and Restated Certificate of Incorporation of the Company (the “Proposed Charter”) in the form attached hereto as Annex B (the “Charter Approval Proposal”); (iv) separate
proposals with respect to certain governance provisions in the Proposed Charter, which are being separately presented in accordance with requirements of the Securities and Exchange Commission (the “SEC”) and which will be voted upon on a
non-binding advisory basis (the “Non-Binding Governance Proposals”); (v) a proposal to elect seven directors to serve staggered terms on the Company’s Board of Directors (the “LCAP Board”) until the first, second and third annual meetings of
stockholders following the Business Combination, as applicable, and until their respective successors are duly elected and qualified (the “Director Election Proposal”); (vi) a proposal to approve and adopt the MSP Recovery, Inc. 2022 Omnibus
Incentive Plan, a copy of which is attached hereto as Annex J (the “Incentive Plan”), including the authorization of the initial share reserve under the Incentive Plan (the “Incentive Plan Proposal”);
and (vii) a proposal to adjourn the Special Meeting to a later date or dates, if necessary, (A) to ensure that any supplement or amendment to the accompanying proxy statement/prospectus that the LCAP Board has determined in good faith is
required by applicable law to be disclosed to Company stockholders and for such supplement or amendment to be promptly disseminated to Company stockholders prior to the Special Meeting, (B) if, as of the time for which the Special Meeting is
originally scheduled, there are insufficient shares of common stock represented (either in person or by proxy) to constitute a quorum necessary to conduct business at the Special Meeting or (C) to permit further solicitation and vote of proxies
if there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Nasdaq Proposal, the Charter Approval Proposal, the Director Election Proposal or the Incentive Plan Proposal (the
“Adjournment Proposal”). Each of these proposals is more fully described in the accompanying proxy statement/prospectus, which each stockholder is encouraged to read carefully.
The Special Meeting will be held at a.m. Eastern Time, on ,
2022, in virtual format.
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES OF
COMMON STOCK YOU OWN. To ensure your representation at the Special Meeting, please complete and return the enclosed proxy card or submit your proxy by following the instructions contained in the accompanying proxy statement/prospectus and on
your proxy card. Please submit your proxy promptly whether or not you expect to attend the Special Meeting. Submitting a proxy now will NOT prevent you from being able to vote in person at the Special Meeting. If you hold your shares in “street
name,” you should instruct your broker, bank, or other nominee how to vote in accordance with the voting instruction form you receive from your broker, bank, or other nominee.
The LCAP Board has unanimously approved the MIPA and the
transactions contemplated thereby and recommends that the Company’s stockholders vote “FOR” the approval of the MIPA, and “FOR” the other matters to be considered
at the Special Meeting. When you consider the LCAP Board’s recommendation of these proposals, you should keep in mind that our directors and officers have interests in the Business Combination that may conflict with your interests as a
stockholder. Please see the section entitled “Proposal No. 1—The Business Combination Proposal—Interests of Certain Persons in the Business Combination” for additional information.
The accompanying proxy statement/prospectus
provides you with detailed information about the proposed Business Combination. It also contains or references information about us and MSP and certain related matters. You are encouraged to read the proxy statement/prospectus, including the
financial statements and annexes and other documents referred to therein carefully and in their entirety. In particular, you should read the “Risk Factors” section beginning on page [29] for a discussion of the risks you
should consider in evaluating the proposed Business Combination and how it will affect you.
If you have any questions regarding the accompanying proxy
statement/prospectus, you may contact our proxy solicitor, MacKenzie Partners, Inc.:
1407 Broadway
New York, New York 10018
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885
Email:
proxy@mackenziepartners.com
Sincerely,
Ophir Sternberg
Chairman, President and Chief Executive Officer
Neither the SEC nor any state securities
commission has approved or disapproved of the Business Combination, the issuance of the securities in connection with the Business Combination or the other transactions described in this proxy statement/prospectus, passed upon the merits or
fairness of the Business Combination or such other transactions or passed upon the adequacy or accuracy of the disclosure in this proxy statement/prospectus. Any representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated , 2022, and is first
being mailed to stockholders of the Company on or about , 2022.
The information in this preliminary proxy statement/prospectus is not complete and may be changed. We may not sell the securities
described herein until the registration statement filed with the Securities and Exchange Commission is declared effective. This preliminary proxy statement/prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROXY STATEMENT/PROSPECTUS
DATED MARCH 11, 2022 SUBJECT TO COMPLETION
LIONHEART ACQUISITION CORPORATION II
4218 NE 2nd Avenue
Miami, Florida 33137
(305) 573-3900
NOTICE OF SPECIAL MEETING IN LIEU OF THE 2022 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2022
TO THE STOCKHOLDERS OF LIONHEART ACQUISITION CORPORATION II:
NOTICE IS HEREBY GIVEN that a special meeting in lieu of the 2022
annual meeting of stockholders of Lionheart Acquisition Corporation II, a Delaware corporation (“we,” “us,” “our,” or the “Company”), will be held at a.m. Eastern Time, on , 2022, in virtual format (the “Special Meeting”). You are
cordially invited to attend the Special Meeting, which will be held for the following purposes:
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(1)
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The Business Combination Proposal—To consider and vote upon a proposal to
approve the Membership Interest Purchase Agreement, dated as of July 11, 2021 (as it may be amended, supplemented or otherwise modified from time to time in accordance with its terms, the “MIPA”), a copy of which is attached to the
accompanying proxy statement/prospectus as Annex A, by and among the Company, Lionheart II Holdings, LLC, a newly formed wholly owned subsidiary of the Company (“Opco”), the MSP
Purchased Companies (as defined in the MIPA) (collectively, “MSP”), the members of MSP (the “Members”), and John H. Ruiz, in his capacity as the representative of the Members (the “Members’ Representative”), and the transactions
contemplated thereby. Pursuant to the MIPA, the Members will sell and assign all of their membership interests in MSP to Opco in exchange for non-economic voting shares of Class V common stock, par value $0.0001, of the Company
(“Class V Common Stock”) and non-voting economic Class B Units of Opco (“Class B Units,” and each pair consisting of one share of Class V Common Stock and one Class B Unit, an
“Up-C Unit”) (such transaction, the “Business Combination”). Following the closing of the Business Combination (the “Closing”), the Company will be organized in an “Up-C” structure in which all of the business of MSP and its
subsidiaries will be held directly or indirectly by Opco, and the Company will own all of the voting economic Class A Units of Opco and the Members and their designees will own all of the non-voting economic Class B Units in
accordance with the terms of the first amended and restated limited liability company agreement of Opco (the “LLC Agreement”). Each Up-C Unit may be exchanged for either, at the Company’s option, (a) cash or (b) one share of Class A
common stock, par value $0.0001, of the Company (“Class A Common Stock”), subject to the provisions set forth in the LLC Agreement. Subject to the terms and conditions set forth in the MIPA, the aggregate consideration to be paid to
the Members (or their designees) will consist of (i) 3,250,000,000 Up-C Units and (ii) rights to receive payments under the tax receivable agreement to be entered into at the Closing. Of the Up-C Units to be issued to certain Members
at Closing, 6,000,000 (the “Escrow Units”) will be deposited into an escrow account with Continental Stock Transfer and Trust Company to satisfy any indemnification claims that may be brought pursuant to the MIPA. Additionally, in
connection with the Business Combination, the Company intends, subject to compliance with applicable law, to declare a dividend comprising approximately 1,029,000,000 newly issued warrants, each to purchase one share of Class A Common
Stock for an exercise price of $11.50 per share (the “New Warrants”), conditioned upon the consummation of any redemptions by the holders of Class A Common Stock and the Closing, to the holders of record of the Class A Common Stock as
of the close of business on the date of Closing (the “Closing Date”), after giving effect to the waiver of the right, title and interest in, to or under, participation in any such dividend by the Members, on behalf of themselves and
any of their designees. Following the Closing, the Company will have two classes of authorized common stock. The shares of Class A Common Stock and Class V Common Stock each will be entitled to one vote per share on matters submitted
to a vote of stockholders. Holders of the Class V Common Stock will not have any of the economic rights (including rights to dividends and distributions upon liquidation) provided to holders of the Class A Common Stock. Following the
Closing, assuming no additional redemptions by Public Stockholders (after giving effect to the redemption of 10,946,369 shares of Class A Common Stock in connection with the Company stockholder vote to approve the Extension Amendment
(as defined below)) (the “no redemption scenario”) and excluding the impact on any outstanding warrants and New Warrants, John H. Ruiz, the CEO and founder of MSP, and Frank C. Quesada, the CLO of MSP, will together control
approximately 92.58% of the combined voting power of the capital stock of the Company (assuming no attributed ownership based on Messrs. Ruiz and Quesada’s investment in VRM) (the “Business Combination Proposal”). Such ownership
percentages will be affected by the level of redemptions by Public Stockholders and the exercise of outstanding warrants or New Warrants. See “Summary—Ownership of the Post- Combination Company”;
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(2)
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The Nasdaq Proposal—To consider and vote upon a proposal to approve, for purposes of
complying with applicable listing rules of The Nasdaq Capital Market (“Nasdaq”) the issuance of more than 20% of the issued and outstanding common stock, par value $0.0001 per share, of the Company and voting power in connection with
the Business Combination (the “Nasdaq Proposal”);
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(3)
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The Charter Approval Proposal—To consider and vote upon a proposal to adopt the
Second Amended and Restated Certificate of Incorporation (the “Proposed Charter”) in the form attached to the accompanying proxy statement/prospectus as Annex B (the “Charter Approval
Proposal”);
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(4)
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The Non-Binding Governance Proposals—To consider and vote upon, on a non-binding
advisory basis, the separate proposals with respect to certain governance provisions in the Proposed Charter in accordance with the requirements of the Securities and Exchange Commission (the “Non-Binding Governance Proposals”):
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a.
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Proposal No. 4A: Change in Authorized Shares—To (i) increase the Company’s
total number of authorized shares of capital stock from 111,000,000 shares to 8,760,000,000 shares of capital stock, (ii) increase the Company’s authorized Class A Common Stock from 100,000,000 shares to 5,500,000,000 shares of
Class A Common Stock, (iii) create the Class V Common Stock, consisting of 3,250,000,000 authorized shares of Class V Common Stock and (iv) increase the Company’s authorized shares of Preferred Stock from 1,000,000 to 10,000,000
shares of Preferred Stock.
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b.
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Proposal No. 4B: Dual-Class Stock—To provide for a capital structure
pursuant to which there are two classes of common stock and in which, subject to applicable law and the rights, if any, of the holders of any outstanding series of Preferred Stock, the holders of outstanding shares of common stock of
the Company will vote together as a single class on all matters with respect to which stockholders of the Company are entitled to vote under applicable law, the Proposed Charter or the Amended and Restated Bylaws, or upon which a vote
of the stockholders generally entitled to vote is otherwise duly called for by the Company; provided, however, that except as may otherwise be required by applicable law, each holder of outstanding shares of common stock of the
Company will not be entitled to vote on any amendment to the Proposed Charter that relates solely to the terms of one or more outstanding series of Preferred Stock (including, without limitation, the powers (including voting powers),
if any, preferences and relative, participating, optional, special or other rights, if any, and the qualifications, limitations and restrictions, if any, of such series of Preferred Stock), if the holders of such affected series are
entitled, either voting separately as a single class or together as a class with the holders of any other outstanding series of Preferred Stock, to vote thereon pursuant to the Proposed Charter or the Delaware General Corporation Law.
In each such vote, the holders of Class A Common Stock and holders of Class V Common Stock will be entitled to one vote per share of Class A Common Stock or Class V Common Stock, respectively, including the election of directors and
significant corporate transactions (such as a merger or other sale of the Company or its assets).
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c.
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Proposal No. 4C: Removal of Directors—To provide that any director or the entire
board of directors of the Post-Combination Company (the “Board”) may be removed (i) at any time prior to the Voting Rights Threshold Date by a simple majority voting together as a single class, with or without cause, notwithstanding the
classification of the Board, and (ii) at any time from and after the Voting Rights Threshold Date, solely for cause and only by the affirmative vote of the holders of at least 662∕3% of
the voting power of all of the then outstanding shares of the Company generally entitled to vote thereon, voting together as a single class.
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d.
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Proposal No. 4D: Required Stockholder Vote to Amend Certain Sections of the Proposed
Charter—To provide that, in addition to any affirmative vote required by applicable law or the Proposed Charter, from and after the Voting Rights Threshold Date, the approval by affirmative vote of the holders of at
least 662∕3% in voting power of the then outstanding shares of the Company generally entitled to vote is required to make any amendment to Article Seventh
(Board of Directors) or Article Eighth (Written Consent of Stockholders) of the Proposed Charter.
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e.
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Proposal No. 4E: Required Stockholder Vote to Amend the Amended and Restated Bylaws—To
provide that, in addition to any affirmative vote required by the Proposed Charter, any bylaw that is to be made, altered, amended or repealed by the stockholders of the Company shall receive, at any time (i) prior to the Voting
Rights Threshold Date, the affirmative vote of the holders of at least a majority in voting power of the then outstanding shares of the Company generally entitled to vote, voting together as a single class, and (ii) from and after the
Voting Rights Threshold Date, the affirmative vote of the holders of at least 662∕3% in voting power of the then outstanding shares of stock of the Company
generally entitled to vote, voting together as a single class.
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(5)
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The Director Election Proposal—To consider and vote upon a proposal to elect seven
directors to serve on the Board of Directors of the Post-Combination Company until the first annual meeting of stockholders following the Business Combination, in the case of Class I directors, the second annual meeting of stockholders
following the Business Combination, in the case of Class II directors, and the third annual meeting of stockholders following the Business Combination, in the case of Class III directors, and, in each case, until their respective
successors are duly elected and qualified (the “Director Election Proposal”);
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(6)
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The Incentive Plan Proposal—To consider and vote upon a proposal to approve and adopt
the MSP Recovery, Inc. 2022 Omnibus Incentive Plan (the “Incentive Plan”) and the material terms thereunder (the “Equity Incentive Plan Proposal”). A copy of the Incentive Plan is attached to the accompanying proxy statement/prospectus
as Annex J; and
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(7)
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The Adjournment Proposal—To consider and vote upon a proposal to approve the
adjournment of the Special Meeting to a later date or dates, if necessary, (A) to ensure that any supplement or amendment to the accompanying proxy statement/prospectus that the Board of Directors of the Company (the “LCAP Board”) has
determined in good faith is required by applicable law to be disclosed to Company stockholders and for such supplement or amendment to be promptly disseminated to Company stockholders prior to the Special Meeting, (B) if, as of the time
for which the Special Meeting is originally scheduled, there are insufficient shares of common stock represented (either in person or by proxy) to constitute a quorum necessary to conduct business at the Special Meeting or (C) to permit
further solicitation and vote of proxies if there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Nasdaq Proposal, the Charter Approval Proposal, the Director Election
Proposal or the Incentive Plan Proposal (the “Adjournment Proposal” and, together with the Business Combination Proposal, the Nasdaq Proposal, the Charter Approval Proposal, the Non-Binding Governance Proposals, the Director Election
Proposal and the Equity Incentive Plan Proposal, each, a “Proposal” and collectively, the “Proposals”).
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These items of business are described in the accompanying proxy
statement/prospectus, which we encourage you to read in its entirety before voting. Only holders of record of our common stock at the close of business on , 2022 (the “Record Date”) are entitled to notice of the Special Meeting and to vote
and have their votes counted at the Special Meeting and any adjournments or postponements of the Special Meeting.
Pursuant to our Existing Charter, we will provide holders of our
Class A Common Stock with the opportunity to redeem their Public Shares for cash equal to their pro rata share of the aggregate amount on deposit in the Trust Account, which holds the proceeds of our initial public offering, as of two
business days prior to the consummation of the transactions contemplated by the Business Combination Proposal (including interest not previously released to us to pay its taxes). For illustrative purposes, based on funds in the Trust Account
of approximately $230.0 million on December 31, 2021, the estimated per share redemption price would have been approximately $10.00, excluding interest not previously released to us to pay our taxes. The Company originally had until February
18, 2022 to complete a business combination. On January 27, 2022, after approval by the Company’s stockholders of the Extension Amendment at a special meeting of the Company’s stockholders, we filed the Extension Amendment to our Existing
Charter with the Secretary of State of the State of Delaware, to extend the date by which we must consummate an initial business combination from February 18, 2022 to August 18, 2022. In connection with the stockholder vote to approve the
Extension Amendment, an aggregate of 10,946,369 shares of the Company’s Class A Common Stock were redeemed, and approximately $109,469,789 was withdrawn out of the Trust Account to pay for such redemption leaving approximately $120.5 million
remaining in our Trust Account to consummate a business combination. In connection with the Extension (as defined in the proxy statement/prospectus accompanying this notice), the Company will deposit into the Trust Account of $0.0333 (each
deposit being referred to herein as a “Deposit”) for each Public Share that was not converted in connection with the stockholder vote to approve the Extension, for each monthly period, or portion thereof, that is needed by the Company to
complete the Business Combination from and after February 18, 2022 and through and including the earlier to occur of (i) consummation of the Business Combination and (ii) August 18, 2022. Alternatively, if the Company does not have the funds
necessary to make the Deposit, the Sponsor has agreed that it and/or any of its affiliates or designees will contribute to the Company as a loan (each loan being referred to herein as a “Contribution”) $0.0333 for each Public Share that was
not converted in connection with the stockholder vote to approve the Extension, for each monthly period, or portion thereof, that is needed by the Company to complete the Business Combination from and after February 18, 2022 and through and
including the earlier to occur of (i) consummation of the Business Combination and (ii) August 18, 2022. Accordingly, if the Company takes until August 18, 2022 to complete the Business Combination, which would represent six monthly periods,
the Company or the Sponsor would make Deposits or Contributions of $401,386 per month, or an aggregate of $2,408,315. Each Deposit or Contribution will be placed in the trust account within two business days prior to the beginning of the
applicable monthly period (or portion thereof), other than the first Deposit or Contribution which will be made on or about the day of the effectiveness of the Extension Amendment. Accordingly, if the Company takes the full time through
August 18, 2022 to complete the Business Combination, the conversion amount per share at the special meeting for such business combination or the Company’s subsequent liquidation will be approximately $10.20 per share (without taking into
account any interest), in comparison to the current conversion amount of approximately $10.00 per share. Public stockholders may elect to redeem their shares even if they vote “FOR” the Business Combination Proposal. A holder of Public
Shares, together with any affiliate of such holder or any other person with whom such holder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from seeking redemption rights with
respect to more than 15% of the Public Shares without our prior consent. Accordingly, all Public Shares in excess of 15% held by a Public Stockholder, together with any affiliate of such holder or any other person with whom such holder is
acting in concert or as a “group,” will not be redeemed for cash without our prior consent. Each redemption of shares by Public Stockholders will decrease the amount in the Trust Account. We will not consummate the Business Combination if the
redemption of shares would result in the Company’s failure to have at least $5,000,001 of net tangible assets. Lionheart Equities, LLC, a Delaware limited liability company (the “Sponsor”) and our directors and officers have entered into a
letter agreement with us pursuant to which they agreed to waive their redemption rights in connection with the consummation of the Business Combination with respect to any shares of common stock they may hold. Nomura Securities International,
Inc. (“Nomura”), the underwriter of our IPO (as defined herein), has also agreed to waive its redemption rights with respect to the Public Shares held by it, other than Public Shares held directly or indirectly by it on behalf of a
third-party client. Currently, the Initial Stockholders (as defined herein) own 34.7% of our common stock, consisting of the Founder Shares and the Private Shares (each, as defined herein). Founder Shares and Private Shares will be excluded
from the pro rata calculation used to determine the per-share redemption price. We have entered into a letter agreement with the Sponsor and our directors and officers, pursuant to which each such person has agreed to vote all shares of our
common stock owned by them in favor of the Business Combination Proposal presented at the Special
Meeting. Nomura has agreed to vote any Founder Shares and Private Shares held by it
in favor of the Business Combination. In addition, Nomura has contingent fees owing to it upon the successful completion of the Business Combination consisting of (a) an M&A fee of $20 million and (b) deferred underwriting fees of
approximately $4.4 million.
After careful consideration, the LCAP Board has determined that the
Business Combination Proposal, the Nasdaq Proposal, the Charter Approval Proposal, the Non-Binding Governance Proposals, the Director Election Proposal, the Incentive Plan Proposal and the Adjournment Proposal are fair to and in the best
interests of the Company and its stockholders and unanimously recommends that you vote or give instruction to vote “FOR” the Business Combination Proposal, “FOR”
the Nasdaq Proposal, “FOR” the Charter Approval Proposal, “FOR” the Non-Binding Governance Proposals, “FOR” the Director
Election Proposal, “FOR” the Incentive Plan Proposal and “FOR” the Adjournment Proposal, if presented.
The approval of each of the Business Combination Proposal, the
Nasdaq Proposal, the Non-Binding Governance Proposals, the Incentive Plan Proposal and the Adjournment Proposal, if presented, requires the affirmative vote (in person or by proxy) of the holders of a majority of the shares of Class A Common
Stock and Class B Common Stock entitled to vote and actually cast thereon at the Special Meeting, voting as a single class. The approval of the Charter Approval Proposal requires the affirmative vote (in person or by proxy) of (i) the holders
of a majority of the Class A Common Stock then outstanding, voting separately as a single class, (ii) the holders of a majority of the Class B Common Stock then outstanding, voting separately as a single class, and (iii) the holders of a
majority of the shares of Class A Common Stock and Class B Common Stock entitled to vote, voting as a single class.
The approval of the Director Election Proposal requires the
affirmative vote (in person or by proxy) of the holders of a plurality of the outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote and actually cast thereon at the Special Meeting, voting as a single class.
Consummation of the Business Combination is conditioned on the
approval of the Business Combination Proposal, the Nasdaq Proposal, the Charter Approval Proposal, the Director Election Proposal and the Incentive Plan Proposal at the Special Meeting, subject to the terms of the MIPA. The Business Combination
is not conditioned on the Non-Binding Governance Proposals or the Adjournment Proposal. If the Business Combination Proposal is not approved, the other proposals (except the Adjournment Proposal) will not be presented to the stockholders for a
vote. The proxy statement/prospectus accompanying this notice explains the MIPA and the transactions contemplated thereby, as well as the Proposals to be considered at the Special Meeting. Please review the proxy statement/prospectus carefully
and in its entirety.
All our stockholders are cordially invited to attend the Special
Meeting in virtual format. There will be no physical meeting location and the Special Meeting will only be conducted via live webcast at the following address: [•]. Our stockholders may attend, vote and examine the list of our stockholders
entitled to vote at the Special Meeting by visiting and entering the control number found on their proxy card, voting instruction form or notice included in their proxy materials. In light of ongoing public health concerns regarding the
coronavirus (“COVID-19”) pandemic, the Special Meeting will be held in virtual format only. You will not be able to attend the Special Meeting physically. To ensure your representation at the Special Meeting, you are urged to complete, sign,
date and return the enclosed proxy card as soon as possible. If your shares are held in an account at a brokerage firm or bank, you must instruct your broker, bank, or other nominee on how to vote your shares.
Your vote is important regardless of the number of shares you own.
Whether you plan to attend the Special Meeting or not, please sign, date and return the enclosed proxy card as soon as possible in the envelope provided. If your shares are held in “street name” or are in a margin or similar account, you should
contact your broker to ensure that votes related to the shares you beneficially own are properly counted.
If you have any questions or need assistance voting your shares,
please call our proxy solicitor, MacKenzie Partners, Inc.:
1407 Broadway
New York, New York 10018
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885
Email:
proxy@mackenziepartners.com
Thank you for your participation. We look forward to your continued
support.
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By Order of the Board of Directors
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Ophir Sternberg
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Chairman, President and Chief Executive Officer
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, 2022
IF YOU RETURN YOUR PROXY CARD WITHOUT AN
INDICATION OF HOW YOU WISH TO VOTE, YOUR SHARES WILL BE VOTED IN FAVOR OF EACH OF THE PROPOSALS. TO EXERCISE YOUR REDEMPTION RIGHTS, YOU MUST ELECT TO HAVE THE COMPANY REDEEM YOUR SHARES FOR A PRO RATA PORTION OF THE FUNDS HELD IN THE TRUST
ACCOUNT AND TENDER YOUR SHARES TO THE COMPANY’S TRANSFER AGENT AT LEAST TWO BUSINESS DAYS PRIOR TO THE SPECIAL MEETING. YOU MAY TENDER YOUR SHARES BY EITHER DELIVERING YOUR SHARE CERTIFICATE TO THE TRANSFER AGENT OR BY DELIVERING YOUR SHARES
ELECTRONICALLY USING THE DEPOSITORY TRUST COMPANY’S DWAC (DEPOSIT AND WITHDRAWAL AT CUSTODIAN) SYSTEM. IF THE BUSINESS COMBINATION IS NOT COMPLETED, THEN THESE SHARES WILL NOT BE REDEEMED FOR CASH. IF YOU HOLD THE SHARES IN STREET NAME, YOU
WILL NEED TO INSTRUCT THE ACCOUNT EXECUTIVE AT YOUR BANKS OR BROKERS TO WITHDRAW THE SHARES FROM YOUR ACCOUNT IN ORDER TO EXERCISE YOUR REDEMPTION RIGHTS. SEE “THE COMPANY’S SPECIAL MEETING OF
STOCKHOLDERS—REDEMPTION RIGHTS” FOR MORE SPECIFIC INSTRUCTIONS.
i
Unless otherwise stated or unless the context otherwise requires,
the terms “we,” “us,” “our,” the “Company” and “LCAP” refer to Lionheart Acquisition Corporation II, Inc., and the term “Post-Combination Company” refers to the Company following the consummation of the Business Combination. As used in this
proxy statement/prospectus, unless otherwise noted or the context otherwise requires, the following terms will have the ensuing definitions:
“Amended and Restated Bylaws” means the proposed Amended and Restated Bylaws of
the Company;
“Board” means the board of directors of the Post-Combination Company;
“Business Combination” means the transactions contemplated by the MIPA;
“claim” means the right, title to, and/or interest in, any and all claims or
potential claims, which MSP has, may have had, or may have in the future (whether or not asserted), including all rights to causes of action and remedies against any third-party, whether a Primary Payer or responsible party, at law or in
equity. The term “claim” includes but is not limited to: (i) claims arising under consumer protection statutes and laws; (ii) claims arising under the Medicare and Medicare Advantage secondary payer statutes, whether based in contract, tort,
statutory right, or otherwise, in connection with the payment to provide healthcare services or supplies; (iii) claims arising under any state statutes and common laws irrespective of the rights that are conferred to MSP through assignment or
otherwise; and (iv) all right, title, and interest to any recovery rights that may exist for any potential cause of action where a responsible party or Primary Payer is liable, even where it has not been established because liability is not
yet proven as of the date that the claim is identified or discovered, together with all receivables, general intangibles, payment intangibles, and other rights to payment now existing or hereafter arising and all products and proceeds of the
foregoing;
“Class A Common Stock” means the shares of the Company’s Class A common stock, par
value $0.0001 per share;
“Class B Common Stock” means the shares of the Company’s Class B common stock, par
value $0.0001 per share;
“Class V Common Stock” means the shares of the Company’s Class V common stock,
par value $0.0001 per share, following the effectiveness of the Proposed Charter;
“Class B Unit” means the non-voting economic Class B Units of Opco;
“Closing” means the closing of the Business Combination;
“Code” means the U.S. Internal Revenue Code of 1986, as amended;
“common stock” means the Class A Common Stock and Class B Common Stock prior to
the effectiveness of the Proposed Charter, and to shares of the Company’s Class A Common Stock and Class V Common Stock, following the effectiveness of the Proposed Charter;
“Company” means Lionheart Acquisition Corporation II;
“DGCL” means the Delaware General Corporation Law, as may be amended from time to
time;
“Effective Time” means effective time of the Business Combination;
“Escrow Units” means 6,000,000 Up-C Units to be issued to certain Members at
Closing that will be deposited into an escrow account with Continental Stock Transfer and Trust Company to satisfy any indemnification claims that may be brought pursuant to the MIPA;
“Exchange Act” means the Securities Exchange Act of 1934, as amended;
“Existing Charter” means the Amended and Restated Certificate of Incorporation of
the Company, dated August 13, 2020;
“Existing Warrant Agreement” means the Warrant Agreement dated as of August 13,
2020, by and between the Company and Continental Stock Transfer & Trust Company;
iii
“Extension Amendment” means the amendment to our Existing Charter to extend the
date by which the Company must consummate a Business Combination (the “Extension”) from February 18, 2022 to August 18, 2022, which was approved at a special meeting of the Company’s stockholders on January 27, 2022.
“Founder Shares” means the shares of the Class B Common Stock and the shares of
Class A Common Stock issued upon the automatic conversion of the Class B Common Stock at the time of the Business Combination as provided in the Existing Charter. 5,750,000 Founder Shares are held of record by the Initial Stockholders as of the
Record Date;
“GAAP” means generally accepted accounting principles in the United States, as
applied on a consistent basis;
“IPO” means the initial public offering by the Company, which closed on August 18,
2020;
“Incentive Plan” means the MSP Recovery, Inc. 2022 Omnibus Incentive Plan;
“Initial Stockholders” means holders of the Founder Shares prior to the Business
Combination;
“Investment Company Act” means the Investment Company Act of 1940, as amended;
“Investment Management Trust Agreement” means that certain investment management
trust agreement, dated August 13, 2020, by and between the Company and Continental Stock Transfer & Trust Company, as trustee;
“LCAP Board” means the board of directors of the Company prior to the Closing;
“LLC Agreement” means the first amended and restated limited liability company
agreement of Opco to be entered into in connection with the Closing, a copy of which is attached to this proxy statement/prospectus as Annex D;
“Members” means members of the MSP Purchased Companies;
“Members’ Representative” means John H. Ruiz, solely in his capacity as the
representative of the Members;
“MIPA” means the Membership Interest Purchase Agreement, dated as of July 11, 2021,
by and among the Company, Opco, MSP, the Members and the Members’ Representative, a copy of which is attached to this proxy statement/prospectus as Annex A (as it may be amended, supplemented or
otherwise modified from time to time in accordance with its terms);
“MSP” means the MSP Purchased Companies and their subsidiaries, collectively;
“MSP Model” means the various financial information, including projections,
about the current and anticipated business of MSP, provided by MSP management and its advisors to the Company during negotiation of the Business Combination;
“MSP Principals” has the meaning ascribed to such term in the LLC Agreement;
“MSP Purchased Companies” has the meaning ascribed to such term in the MIPA;
“MSP Recovery” means MSP Recovery, LLC;
“New Warrants” means approximately 1,029,000,000 warrants, each to purchase one
share of Class A Common Stock, expected to be issued as a dividend to the holders of record of Class A Common Stock as of the close of business on the date of Closing, after giving effect to the waiver of the right, title and interest in, to or
under, participation in any such dividend by the Members, on behalf of themselves and any of their designees;
“Nomura” means Nomura Securities International, Inc.;
“Opco” means Lionheart II Holdings, LLC, a newly formed wholly owned subsidiary of
the Company;
“Post-Combination Company” means the Company following the consummation of the
Business Combination and the other transactions contemplated by the MIPA, which will be renamed MSP Recovery, Inc.;
“Private Shares” means the 650,000 shares of Class A Common Stock included in the
Private Units;
“Private Units” means units comprising one share of Class A Common Stock and
one-half of one Private Warrant issued to Sponsor and Nomura in a private placement simultaneously with the closing of the IPO;
iv
“Private Warrants” means warrants included in the Private Units, each of which
is exercisable for one share of Class A Common Stock, in accordance with its terms;
“Public Shares” means shares of Class A Common Stock included in the Public Units
issued in the IPO (whether they were purchased in the IPO or thereafter in the open market);
“Public Units” means units comprised of one share of Class A Common Stock and
one-half of one Public Warrant issued in the IPO;
“Public Warrants” means warrants included in the Public Units issued in the IPO,
each of which is exercisable for one share of Class A Common Stock, in accordance with its terms;
“Public Stockholders” means the holders of the Public Shares, including the Sponsor
and the Company’s management team to the extent the Sponsor and/or members of the Company’s management team purchase Public Shares; provided, that the Sponsor’s and each member of the management team’s status as a “Public Stockholder” will only
exist with respect to such Public Shares;
“Restricted Stockholders” means Nomura, the Members, the Sponsor and directors and
officers of the Company;
“SEC” means the U.S. Securities and Exchange Commission;
“Securities Act” means the Securities Act of 1933, as amended;
“Series MRCS” means Series MRCS, a series of MDA, Series LLC, a Delaware series
limited liability company;
“Sponsor” means Lionheart Equities, LLC, a Delaware limited liability company;
“Trust Account” means the trust account established by the Company for the benefit
of its stockholders with Continental Stock Transfer & Trust Company;
“Up-C Unit” means each pair consisting of one share of Class V Common Stock and one
Class B Unit;
“Virage” means Virage Capital Management LP, a Delaware limited partnership;
“Voting Rights Threshold Date” means the date on which the voting power of John H.
Ruiz and his affiliates represent less than 50% of the voting power of all of the then outstanding shares of the Company generally entitled to vote;
“VRM” means Virage Recovery Master LP, a Delaware limited partnership and affiliate
of Virage; and
“VRM MSP” means VRM MSP Recovery Partners LLC, a Delaware limited liability company
and joint investment vehicle of VRM and Series MRCS.
Unless specified otherwise, amounts in this proxy statement/prospectus are presented
in U.S. dollars.
Defined terms in the financial statements contained in this proxy
statement/prospectus have the meanings ascribed to them in the financial statements.
Unless otherwise specified, the voting and economic interests of the Company’s
stockholders set forth in this proxy statement/prospectus assume (a) that no Public Stockholders elect to have their Public Shares redeemed and (b) that there are no other issuances of equity interests of the Company.
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ABOUT THIS PROXY STATEMENT/PROSPECTUS
This document, which forms part of a registration statement on
Form S-4 filed with SEC by the Company (File No. 333-) (the “Registration Statement”), constitutes a prospectus of the Company under Section 5 of the Securities Act, with respect to the New Warrants to be issued if the Business Combination
described therein is consummated and the shares of Class A Common Stock underlying such New Warrants. This document also constitutes a notice of meeting and a proxy statement under Section 14(a) of the Exchange Act, with respect to the Special
Meeting at which the Company’s stockholders will be asked to consider and vote upon the Proposals.
This proxy statement/prospectus incorporates important business
and financial information about the Company that is not included in or delivered with the document.
This information is available without charge to you upon written
or oral request. To make this request, you should contact our proxy solicitor at:
MacKenzie Partners, Inc.
1407 Broadway
New York, New York 10018
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885
Email:
proxy@mackenziepartners.com
To obtain timely delivery of requested
materials, you must request the information no later than five business days prior to the date of the Special Meeting.
You may also obtain additional information about us from documents
filed with the SEC by following the instruction in the section entitled “Where You Can Find Additional Information.”
vi
The Company, MSP and MSP’s subsidiaries own or have rights to
trademarks, trade names and service marks that they use in connection with the operation of their business. In addition, their names, logos and website names and addresses are their trademarks or service marks. Other trademarks, trade names and
service marks appearing in this proxy statement/prospectus are the property of their respective owners. Solely for convenience, in some cases, the trademarks, trade names and service marks referred to in this proxy statement/prospectus are
listed without the applicable ®, M and SM symbols, but they will assert, to the fullest extent under applicable law, their rights to these trademarks, trade names and service marks.
vii
The questions and answers below highlight only
selected information from this proxy statement/prospectus and only briefly address some commonly asked questions about the Business Combination, the Special Meeting, and the proposals to be presented at the Special Meeting. The following
questions and answers do not include all the information that is important to Company stockholders. You are urged to read this entire proxy statement/prospectus carefully, including the Annexes and the other documents referred to herein, to
fully understand the Business Combination and the voting procedures for the Special Meeting.
QUESTIONS AND ANSWERS ABOUT THE BUSINESS COMBINATION
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Q:
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WHAT IS THE BUSINESS COMBINATION?
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A:
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Pursuant to the MIPA, the Members will sell and assign all of their membership interests in MSP to Opco in exchange for
Up-C Units (or shares of Class A Common Stock). Following the Closing, the Company will be organized in an “Up-C” structure in which all of the business of MSP and its subsidiaries will be held directly or indirectly by Opco, and the
Company will own all of the voting economic Class A Units of Opco and the Members or their designees will own all of the non-voting economic Class B Units of Opco in accordance with the terms of the LLC Agreement. Each Up-C Unit may
be exchanged for either, at the Company’s option, (a) cash or (b) one share of Class A Common Stock, subject to the provisions set forth in the LLC Agreement. Subject to the terms and conditions set forth in the MIPA, the aggregate
consideration to be paid to the Members (or their designees) will consist of (i) 3,250,000,000 Up-C Units and (ii) rights to receive payments under the tax receivable agreement to be entered into at the Closing. Of the Up-C Units to
be issued to certain Members at Closing, 6,000,000 will be deposited into an escrow account with Continental Stock Transfer and Trust Company, to satisfy any indemnification claims that may be brought pursuant to the MIPA.
Additionally, in connection with the Business Combination and to provide additional consideration to holders of Class A Common Stock that do not redeem their shares of Class A Common Stock, the Company intends, subject to compliance
with applicable law, to declare a dividend comprising an aggregate of approximately 1,029,000,000 New Warrants, conditioned upon the consummation of any redemptions by the holders of Class A Common Stock and the Closing, to the
holders of record of the Class A Common Stock as of the Closing Date, after giving effect to the waiver of the right, title and interest in, to or under, participation in any such dividend by the Members, on behalf of themselves and
any of their designees. Following the Closing, the Company will have two classes of authorized common stock. The shares of Class A Common Stock and Class V Common Stock each will be entitled to one vote per share on matters submitted
to a vote of stockholders. The holders of the Class V Common Stock will not have any of the economic rights (including rights to dividends and distributions upon liquidation) provided to holders of the Class A Common Stock. Following
the Closing, assuming the no redemption scenario and excluding the impact on any outstanding warrants and New Warrants, John H. Ruiz, the CEO and founder of MSP, and Frank C. Quesada, the CLO of MSP, will together control
approximately 92.58% of the combined voting power of the capital stock of the Company (assuming no attributed ownership based on Messrs. Ruiz and Quesada’s investment in VRM) (See “Certain
Relationships and Related Party Transactions” beginning on page [243]). Such ownership percentage will be affected by the level of redemptions by Public Stockholders and the
exercise of outstanding warrants or New Warrants. See “Summary—Ownership of the Post-Combination Company.”
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WHY AM I RECEIVING THIS DOCUMENT?
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The Company is sending this proxy statement/prospectus to its stockholders to help them decide how to vote their shares of
the Company’s common stock with respect to the matters to be considered at the Special Meeting. The Business Combination cannot be completed unless Company stockholders approve the Business Combination Proposal, the Nasdaq Proposal, the
Charter Approval Proposal, the Incentive Plan Proposal and the Director Election Proposal set forth in this proxy statement/prospectus for their approval. Information about the Special Meeting, the Business Combination and the other
business to be considered by stockholders at the Special Meeting is contained in this proxy statement/prospectus. This document constitutes a proxy statement of the Company and a prospectus of the Company. It is a proxy statement
because the LCAP Board is soliciting proxies from its stockholders using this proxy statement/prospectus. It is a prospectus because the Company is offering the New Warrants in connection with the Business Combination. See “Membership Interest Purchase Agreement.”
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viii
This proxy statement/prospectus and its Annexes contain important information
about the proposed Business Combination and the other matters to be acted upon at the Special Meeting. Your vote is important. You are encouraged to submit your proxy as soon as possible after carefully reviewing this proxy statement/prospectus
and its Annexes.
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WHAT WILL MSP’S MEMBERS RECEIVE IN THE BUSINESS COMBINATION?
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A:
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Subject to the terms and conditions set forth in the MIPA, the aggregate consideration to be paid to the Members (or their
designees) will consist of (i) 3,250,000,000 Up-C Units or, pursuant to notice delivered to the Company, with respect to all or a portion of the Up-C Units to be received by each such Member, one share of Class A Common Stock in lieu of
each Up-C Unit and (ii) rights to receive payments under the tax receivable agreement to be entered into at the Closing. Of the Up-C Units to be issued to certain Members at Closing, 6,000,000 will be deposited into an escrow account
with Continental Stock Transfer and Trust Company to satisfy any indemnification claims that may be brought pursuant to the MIPA.
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WHEN DO YOU EXPECT THE BUSINESS COMBINATION TO BE COMPLETED?
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It is currently anticipated that the Business Combination will be consummated promptly following the Special Meeting, which
is set for [ ], 2022; however, such meeting could be adjourned, as described herein. Neither the Company nor MSP can assure you of when or if the Business Combination will be completed and it is possible that factors outside of the
control of both companies could result in the Business Combination being completed at a different time or not at all. Prior to the Closing, the Company must obtain the approval of its stockholders for certain of the proposals set forth
in this proxy statement/prospectus for their approval and the Company and MSP must obtain certain necessary regulatory approvals and satisfy other closing conditions. See “The Membership Interest
Purchase Agreement — Conditions to the Business Combination” beginning on page [219].
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WHAT HAPPENS IF THE BUSINESS COMBINATION IS NOT COMPLETED?
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A:
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If the Business Combination Proposal is not approved and we do not consummate a business combination by August 18, 2022, we
will be required to dissolve and liquidate our Trust Account, unless we amend our current certificate of incorporation (which requires the affirmative vote of the holders of 65% of all then outstanding shares of common stock) and amend
certain other agreements into which we have entered to extend the life of the Company.
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HOW WILL THE COMPANY BE MANAGED AND GOVERNED FOLLOWING THE BUSINESS COMBINATION?
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The Company does not currently have any management-level employees other than Ophir Sternberg, our Chairman, President and
Chief Executive Officer, Paul Rapisarda, our Chief Financial Officer, and Faquiry Diaz Cala, our Chief Operating Officer. Following the Closing, the Company’s executive officers are expected to be the current management team of MSP. See
“Management of the Post-Combination Company Following the Business Combination” for more information.
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Following the Closing, the Board will consist of the following seven members:
John H. Ruiz, Frank C. Quesada, Ophir Sternberg, Beatriz Assapimonwait, Michael Arrigo, Thomas W. Hawkins and Roger Meltzer. In addition, following the Closing, we expect that a majority of the directors will be “independent” under applicable
Nasdaq listing rules. See the section entitled “Management of the Post-Combination Company Following the Business Combination” beginning on page [177]
for more information.
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WHAT EQUITY STAKE WILL CURRENT STOCKHOLDERS, THE INITIAL STOCKHOLDERS, AND THE MEMBERS HOLD IN THE
POST-COMBINATION COMPANY?
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It is anticipated that, upon completion of the Business Combination, and assuming (1) the no redemption scenario and (2)
that the holders of the Company’s existing Public Warrants and Private Warrants exercise those warrants, and no New Warrants are exercised: (i) the Public Stockholders will retain approximately 0.4% of the common stock of the
Post-Combination Company; (ii) the Initial Stockholders will retain approximately 0.2% of the common stock of the Post-Combination Company; and (iii) the Members (or their designees) will acquire
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approximately 99.1% of the common stock of the Post-Combination Company. Such
ownership percentages will be affected by the level of redemptions by Public Stockholders and the exercise of outstanding warrants or New Warrants. See “Summary—Ownership of the Post-Combination
Company.”
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Q:
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FOLLOWING THE BUSINESS COMBINATION, WILL THE COMPANY’S COMMON STOCK CONTINUE TO TRADE ON A STOCK EXCHANGE?
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A:
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Yes. We intend to apply to continue the listing of our publicly traded Class A Common Stock and Public Warrants on Nasdaq
under the symbols “MSPR” and “LCAPW,” respectively, and apply to list the New Warrants under the symbol “MSPRW,” upon the closing of the Business Combination. If issued, the New Warrants are expected to trade promptly following their
issuance. At the Closing, each Unit will separate into its components, comprising one share of Class A Common Stock and one-half of one Public Warrant. Following the Closing, we intend to change our name from “Lionheart Acquisition
Corporation II” to “MSP Recovery, Inc.”
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Q:
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WHAT ARE THE PRINCIPAL DIFFERENCES BETWEEN THE COMPANY’S CLASS A COMMON STOCK AND CLASS V COMMON STOCK?
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A:
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Each holder of record of Class A Common Stock and Class V Common Stock on the relevant record date will be entitled to cast
one vote for each share of Class A Common Stock or Class V Common Stock, respectively. Holders of the Class V Common Stock will not have any of the economic rights (including rights to dividends and distributions upon liquidation)
provided to holders of the Class A Common Stock. For more information, please see the section entitled “Description of Securities.”
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|
Q:
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WHAT CONDITIONS MUST BE SATISFIED TO COMPLETE THE BUSINESS COMBINATION?
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A:
|
There are a number of closing conditions in the MIPA, including the approval by the stockholders of the Company of the
Business Combination Proposal, the Nasdaq Proposal, the Charter Approval Proposal, the Director Election Proposal and the Incentive Plan Proposal. For a summary of the conditions that must be satisfied or waived prior to completion of
the Business Combination, please see the section entitled “Membership Interest Purchase Agreement.”
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
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Q:
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WHEN AND WHERE IS THE SPECIAL MEETING?
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A:
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The Special Meeting will be held at a.m. Eastern Time, on , 2022 in virtual format. The Special Meeting can be accessed
by visiting [•], where Company stockholders will be able to listen to the meeting live and vote during the meeting. Additionally, Company stockholders have the option to listen to the Special Meeting by dialing [•] (toll-free within the
U.S. and Canada) or [•] (outside of the U.S. and Canada, standard rates apply). The passcode for telephone access is [•], but please note that Company stockholders who choose to participate telephonically cannot vote or ask questions.
Company stockholders who wish to join the Special Meeting telephonically may be counted as present, vote at and examine the list of Company stockholders entitled to vote at the Special Meeting by visiting and entering the control number
included in the proxy card, voting instruction form or notice included in their proxy materials.
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Company stockholders of record will need their respective control number to join
the Special Meeting. Company stockholders may obtain their control number from the proxy card, voting instruction form or notice received from Broadridge Financial Solutions (“Broadridge”). Any Company stockholder who holds his, her or its
position through a bank or broker and would like to join the Special Meeting must contact Broadridge at [•], or www.[•].com to obtain a control number. In light of ongoing public health concerns regarding the COVID-19 pandemic, the Special
Meeting will be held in virtual meeting format only. Company stockholders will not be able to attend the Special Meeting physically.
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Q:
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WHAT AM I BEING ASKED TO VOTE ON AND WHY IS THIS APPROVAL NECESSARY?
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A:
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Company stockholders are being asked to vote on the following:
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•
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A proposal to adopt the MIPA and the transactions contemplated thereby. See the section entitled “Proposal No. 1 — The Business Combination Proposal.”
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x
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•
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A proposal to approve, for purposes of complying with applicable listing rules of Nasdaq the issuance of more than 20% of the
issued and outstanding common stock of the Company and voting power in connection with the Business Combination. See the section entitled “Proposal No. 2 — The Nasdaq Proposal.”
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•
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A proposal to adopt the Proposed Charter in the form attached hereto as Annex B.
See the section entitled “Proposal No. 3 — The Charter Approval Proposal.”
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•
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Five separate proposals with respect to certain governance provisions in the Proposed Charter, which are being separately
presented in accordance with SEC requirements and which will be voted upon on a non-binding advisory basis.
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○
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Proposal No. 4A: Change in Authorized Shares—To (i) increase the Company’s total number of authorized shares of capital stock from 111,000,000 shares to 8,760,000,000 shares of capital stock, (ii) increase the Company’s
authorized Class A Common Stock from 100,000,000 shares to 5,500,000,000 shares of Class A Common Stock, (iii) create the Class V Common Stock, consisting of 3,250,000,000 authorized shares of Class V Common Stock
and (iv) increase the Company’s authorized shares of Preferred Stock from 1,000,000 to 10,000,000 shares of Preferred Stock.
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○
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Proposal No. 4B: Dual-Class Stock—To provide for a capital structure pursuant to which, subject to applicable law and the rights, if any, of the holders of any outstanding series of Preferred Stock, the holders of outstanding shares of
common stock of the Company will vote together as a single class on all matters with respect to which stockholders of the Company are entitled to vote under applicable law, the Proposed Charter or the
Amended and Restated Bylaws, or upon which a vote of the stockholders generally entitled to vote is otherwise duly called for by the Company; provided, however, that except as may otherwise be required by
applicable law, each holder of outstanding shares of common stock of the Company will not be entitled to vote on any amendment to the Proposed Charter that relates solely to the terms of one or more
outstanding series of Preferred Stock (including, without limitation, the powers (including voting powers), if any, preferences and relative, participating, optional, special or other rights, if any, and the
qualifications, limitations and restrictions, if any, of such series of Preferred Stock), if the holders of such affected series are entitled, either voting separately as a single class or together as a class with
the holders of any other outstanding series of Preferred Stock, to vote thereon pursuant to the Proposed Charter or the DGCL. In each such vote, the holders of Class A Common Stock and holders of Class V Common Stock
will be entitled to one vote per share of Class A Common Stock or Class V Common Stock, respectively, including the election of directors and significant corporate transactions (such as a merger or other sale of the
Company or its assets).
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○
|
Proposal No. 4C: Removal of Directors—To
provide that any director or the entire Board may be removed (i) at any time prior to the Voting Rights Threshold Date by a simple majority voting together as a single class, with or without cause, notwithstanding the classification
of the Board, and (ii) at any time from and after the Voting Rights Threshold Date, solely for cause and only by the affirmative vote of the holders of at least 662∕3% of the voting power of all of the then outstanding shares of the Corporation generally entitled to vote thereon, voting together as a single class.
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○
|
Proposal No. 4D: Required Stockholder Vote to Amend Certain Sections of
the Proposed Charter—To provide that, from and after the Voting Rights Threshold Date, in addition to any affirmative vote required by applicable law, the approval by
affirmative vote of the holders of at least 662∕3% in voting power of
the then outstanding shares of the Company generally entitled to vote is required to make any amendment to Article Seventh (Board of Directors) or Article Eighth (Written Consent of Stockholders) of the
Proposed Charter.
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○
|
Proposal No 4E: Required Stockholder Vote to Amend the Amended and
Restated Bylaws—To provide that, in addition to any affirmative vote required by the Proposed Charter, any bylaw that is to be made, altered, amended or repealed by the
stockholders of the Company shall receive, at any time (i) prior to the Voting Rights Threshold Date, the affirmative vote of the holders of at least a majority in voting power of the then outstanding shares
of the Company generally entitled to vote, voting
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xi
together as a single class, and (ii) from and after the Voting Rights Threshold
Date, the affirmative vote of the holders of at least 662∕3% in voting power of the then outstanding shares of stock of the Company generally entitled to vote, voting
together as a single class.
See the section entitled “Proposal No. 4 — The
Non-Binding Governance Proposals.”
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•
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A proposal to elect seven directors to serve on the Board until the first annual meeting of stockholders following the
Business Combination, in the case of Class I directors, the second annual meeting of stockholders following the Business Combination, in the case of Class II directors, and the third annual meeting of stockholders following the
Business Combination, in the case of Class III directors, and, in each case, until their respective successors are duly elected and qualified. See the section entitled “Proposal No. 5 —
The Director Election Proposal.”
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|
•
|
A proposal to approve and adopt the MSP Recovery, Inc. 2022 Omnibus Incentive Plan, a copy of which is attached hereto as Annex J. See the section entitled “Proposal No. 6 — The Incentive Plan Proposal.”
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•
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A proposal to approve the adjournment of the Special Meeting to a later date or dates, if necessary, (A) to ensure that any
supplement or amendment to the accompanying proxy statement/prospectus that the LCAP Board has determined in good faith is required by applicable law to be disclosed to Company stockholders and for such supplement or amendment to be
promptly disseminated to Company stockholders prior to the Special Meeting, (B) if, as of the time for which the Special Meeting is originally scheduled, there are insufficient shares of common stock represented (either in person or by
proxy) to constitute a quorum necessary to conduct business at the Special Meeting or (C) to permit further solicitation and vote of proxies if there are insufficient votes for, or otherwise in connection with, the approval of the
Business Combination Proposal, the Nasdaq Proposal, the Charter Approval Proposal, the Director Election Proposal or the Incentive Plan Proposal. See the section entitled “Proposal No. 7 — The
Adjournment Proposal.”
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The vote of stockholders is important. Stockholders are encouraged to
vote as soon as possible after carefully reviewing this proxy statement/prospectus.
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Q:
|
ARE THE PROPOSALS CONDITIONED ON ONE ANOTHER?
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|
A:
|
Yes. The Closing is conditioned on the approval of each of the Business Combination Proposal, the Nasdaq Proposal, the
Charter Approval Proposal, the Director Election Proposal and the Incentive Plan Proposal at the Special Meeting, subject to the terms of the MIPA. If any of these proposals are not approved, we will not consummate the Business
Combination. If the Business Combination Proposal is not approved, the other Proposals (except the Adjournment Proposal, as described below) will not be presented to the stockholders for a vote. The Adjournment Proposal is not
conditioned on the approval of any other proposal set forth in this proxy statement/prospectus. If we do not consummate the Business Combination and fail to complete an initial business combination by August 18, 2022, we will be
required to dissolve and liquidate our Trust Account by returning the then remaining funds in such account to the Public Stockholders.
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|
Q:
|
WHAT IS MSP’S BUSINESS?
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A:
|
MSP is a healthcare recovery and data analytics company. MSP has also developed software that solves many of the issues
currently being experienced by doctors, hospitals as well as other healthcare practitioners as well as payers within the healthcare system. The MSP systems provide a platform for providers to identify proper payers at the time of
patient encounter and to collect payment more quickly, at higher amounts. MSP’s agreements allow for MSP to monetize the claims that are processed and properly identified. MSP has also identified systemic issues relating to police
reporting at the time of auto accidents and is developing software to solve these issues. This software system, using blockchain technology, will involve proper capture of data to help first responders to identify health conditions at
the scene of accidents and transmit that data for improved patient care. MSP’s system will also enable individuals to access their health care data, which will be encrypted and stored and accessed through a cloud. Individuals can then
choose to grant immediate data access to their healthcare practitioners, for healthcare services based on up-to-date patient medical information. MSP’s business model includes two principal lines of business: (a) claims recovery and
(b) “chase to pay” services. First, through the claims recovery services, MSP acquires claims from its Assignors and utilizes its data analytics services to identify improper payments for healthcare services. After identifying
improper payments, MSP then seeks to recover the amounts owed to its Assignors from those parties who, under applicable law or contract,
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xii
were primarily responsible for payment. Second, MSP has been developing the
process of a real-time data analytics platform (“Chase to Pay”) to assist healthcare providers to identify the proper primary insurer at the point of care, thereby helping MSP’s clients avoid making a wrongful payment for services rendered by a
provider, as well as providing more efficient healthcare services. See the section entitled “Information About MSP” beginning on page [147] for more information.
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Q:
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WHY IS THE COMPANY PROPOSING THE BUSINESS COMBINATION?
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|
A:
|
The Company was organized to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or
other similar business combination with one or more businesses or entities.
|
On August 18, 2020, the Company completed its initial public offering of the Public
Units raising total gross proceeds of $230.0 million. Simultaneously with the consummation of the IPO, the Company completed a private placement of the Private Units to the Sponsor and Nomura, raising total gross proceeds of $6.5 million. Since
the IPO, the Company’s activity has been limited to the evaluation of business combination candidates.
Based on its due diligence investigations of MSP and the industry in which it
operates, including the financial and other information provided by MSP in the course of their negotiations in connection with the MIPA, the LCAP Board has unanimously determined that the Business Combination with MSP is fair and advisable to,
and in the best interests of, the Company and its stockholders. See the section entitled “The Business Combination — Recommendation of the LCAP Board and Reasons for the Business Combination.”
|
Q:
|
DID THE LCAP BOARD OBTAIN A FAIRNESS OPINION IN DETERMINING WHETHER OR NOT TO PROCEED WITH THE BUSINESS
COMBINATION?
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|
A:
|
No. Neither the LCAP Board nor any committee thereof is required to obtain an opinion from an independent investment banking
or accounting firm that the Business Combination is fair to us from a financial point of view. Neither the LCAP Board nor any committee thereof obtained a third-party valuation in connection with the Business Combination. In analyzing
the Business Combination, the Company and its representatives and professional advisors conducted extensive due diligence on MSP and the financial terms set forth in the MIPA. Based on the foregoing, the LCAP Board unanimously
determined that the Business Combination was fair and advisable to, and in the best interest of, the Company and its stockholders.
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|
Q:
|
WHY IS THE COMPANY PROVIDING STOCKHOLDERS WITH THE OPPORTUNITY TO VOTE ON THE BUSINESS COMBINATION?
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|
A:
|
We are seeking approval of the Business Combination for purposes of complying with our Existing Charter and applicable Nasdaq
listing rules requiring stockholder approval of issuances of more than 20% of a listed company’s issued and outstanding common stock and voting power. In addition, pursuant to the Existing Charter, we must provide all Public
Stockholders with the opportunity to redeem all or a portion of their Public Shares upon the consummation of an initial business combination (as defined in our Existing Charter), either in conjunction with a tender offer or in
conjunction with a stockholder vote to approve such initial business combination. If we submit an initial business combination to the stockholders for their approval, our Existing Charter requires us to conduct a redemption offer in
conjunction with the proxy solicitation (and not in conjunction with a tender offer) pursuant to the applicable SEC proxy solicitation rules.
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|
Q:
|
DO MSP’S MEMBERS NEED TO APPROVE THE BUSINESS COMBINATION?
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|
A:
|
Although the Closing is subject to various actions by the Members, the Members are each party to the MIPA and, as such, have
already provided their approval for the Business Combination in their capacity as equityholders of the MSP Purchased Companies.
|
|
Q:
|
DO I HAVE REDEMPTION RIGHTS?
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|
A:
|
If you are a holder of Public Shares, you have the right to demand that the Company redeem such shares for a pro rata portion
of the cash held in the Trust Account, which holds the proceeds of the IPO, as of two business days prior to the consummation of the transactions contemplated by the Business Combination Proposal (including interest earned on the funds
held in the Trust Account and not previously released to the Company to pay taxes) upon the Closing (“Redemption Rights”).
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xiii
Notwithstanding the foregoing, a holder of Public Shares, together with any
affiliate of such holder or any other person with whom such holder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act) will be restricted from seeking redemption with respect to more than 15% of the Public
Shares without our consent. Accordingly, all Public Shares in excess of 15% held by a Public Stockholder, together with any affiliate of such stockholder or any other person with whom such holder is acting in concert or as a “group,” will not
be redeemed without our consent.
Under the Existing Charter, the Business Combination may be consummated only if the
Company has at least $5,000,001 of net tangible assets after giving effect to all redemption requests from holders of Public Shares that properly demand redemption of their shares for cash.
|
Q:
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WILL MY VOTE AFFECT MY ABILITY TO EXERCISE REDEMPTION RIGHTS?
|
|
A:
|
No. You may exercise your redemption rights whether you vote your Public Shares for or against, or whether you abstain from
voting on, the Business Combination Proposal or any other Proposal described in this proxy statement/prospectus. As a result, the Business Combination Proposal can be approved by stockholders who will redeem their Public Shares and no
longer remain stockholders, and the Business Combination may be consummated even though the funds available from the Trust Account and the number of Public Stockholders are substantially reduced as a result of redemptions by Public
Stockholders.
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|
Q:
|
HOW DO I EXERCISE MY REDEMPTION RIGHTS?
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|
A:
|
In order to exercise your redemption rights, you must (i) if you hold Public Units, separate the underlying Public Shares and
Public Warrants, and (ii) prior to 5:00 p.m. Eastern Time on, [•], 2022 (two business days before the Special Meeting), tender your shares physically or electronically and submit a request in writing that we redeem your Public Shares
for cash to Continental Stock Transfer & Trust Company, our transfer agent (“Transfer Agent”), at the following address:
|
Continental Stock Transfer & Trust Company
1 State Street 30th Floor
New York, New York 10004
Attention: Mark Zimkind
Email: Mzimkind@continentalstock.com
Please check the box on the enclosed proxy card marked “Stockholder Certification”
if you are not acting in concert or as a “group” (as defined in Section 13d-3 of the Exchange Act) with any other stockholder with respect to shares of common stock. Notwithstanding the foregoing, a holder of the Public Shares, together with
any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13d-3 of the Exchange Act) will be restricted from exercising redemption rights with respect to more than an aggregate of 15% of
the shares of Class A Common Stock included in the Public Units sold in our IPO. Accordingly, all Public Shares in excess of the 15% threshold beneficially owned by a Public Stockholder or group will not be redeemed for cash without our prior
consent.
Stockholders seeking to exercise their redemption rights and opting to deliver
physical certificates should allot sufficient time to obtain physical certificates from the Transfer Agent and time to effect delivery. It is our understanding that stockholders should generally allot at least two weeks to obtain physical
certificates from the Transfer Agent. However, we do not have any control over this process and it may take longer than two weeks. Stockholders who hold their shares in street name will have to coordinate with their bank, broker or other
nominee to have the shares certificated or delivered electronically.
Stockholders seeking to exercise their redemption rights, whether they are record
holders or hold their shares in “street name” are required to either tender their certificates to our Transfer Agent prior to the date set forth in these proxy materials, or up to two business days prior to the vote on the Business Combination
Proposal at the Special Meeting, or to deliver their shares to the Transfer Agent electronically using Depository Trust Company’s (“DTC”) Deposit/Withdrawal At Custodian (“DWAC”) system, at such stockholder’s option. The requirement for physical or electronic delivery prior to the Special Meeting ensures that a redeeming stockholder’s election to redeem is irrevocable once the Business Combination is approved.
There is a nominal cost associated with the above-referenced tendering process and
the act of certificating the shares or delivering them through the DWAC system. The Transfer Agent will typically charge a tendering
xiv
broker a fee and it is in the broker’s discretion whether or not to pass this
cost on to the redeeming stockholder. However, this fee would be incurred regardless of whether or not we require stockholders seeking to exercise redemption rights to tender their shares, as the need to deliver shares is a requirement to
exercising redemption rights, regardless of the timing of when such delivery must be effectuated.
For a discussion of the material U.S. federal income tax considerations for holders
of Public Shares with respect to the exercise of these redemption rights, see “Material U.S. Federal Income Tax Considerations” beginning on page [225].
|
Q:
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DO I HAVE APPRAISAL RIGHTS IF I OBJECT TO THE PROPOSED BUSINESS COMBINATION?
|
|
A:
|
No. The Company’s stockholders do not have appraisal rights in connection with the Business Combination under the DGCL. See
the section entitled “Appraisal Rights.”
|
|
Q:
|
WHAT HAPPENS TO THE FUNDS DEPOSITED IN THE TRUST ACCOUNT AFTER CONSUMMATION OF THE BUSINESS COMBINATION?
|
|
A:
|
A total of $230.0 million in net proceeds of the IPO was placed in the Trust Account following the IPO. After consummation of
the Business Combination, the funds in the Trust Account will be used to pay holders of the Public Shares who exercise redemption rights, to pay fees and expenses incurred in connection with the Business Combination (including aggregate
fees of up to $8,050,000 as deferred underwriting commissions) and for the Post-Combination Company’s working capital and general corporate purposes.
|
|
Q:
|
WHAT HAPPENS IF THE BUSINESS COMBINATION IS NOT CONSUMMATED?
|
|
A:
|
There are certain circumstances under which the MIPA may be terminated. Please see the section entitled “Proposal No. 1 — Business Combination Proposal — MIPA” for information regarding the parties’ specific termination rights.
|
If we do not consummate the Business Combination, we may continue to try to
complete a business combination with a different target business until August 18, 2022. Unless we amend the Existing Charter (which requires the affirmative vote of the holders of 65% of all then outstanding shares of Common Stock) and amend
certain other agreements into which we have entered to extend the life of the Company, if we fail to complete an initial business combination by August 18, 2022, then 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 our Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest not
previously released to the Company to pay its taxes (less up to $100,000 of such net interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish our Public
Stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law; and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our
remaining stockholders and the LCAP Board, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. In the event of such distribution, it
is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per unit in the IPO. See the section entitled “Risk Factors — Risks Related to the Company and the Business Combination.”
Holders of our Founder Shares have waived any right to any liquidation distribution
with respect to such shares. In addition, if we fail to complete a business combination by August 18, 2022, there will be no redemption rights or liquidating distributions with respect to our outstanding warrants, which will expire worthless.
|
Q:
|
HOW DO THE SPONSOR, AND OUR DIRECTORS AND OFFICERS INTEND TO VOTE ON THE PROPOSALS?
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|
A:
|
The Sponsor and the Company’s directors and officers are entitled to vote an aggregate of 34.7% of the outstanding shares
of common stock (which includes the Founder Shares and the Private Shares). The Company has entered into a letter agreement with the Sponsor and our directors and officers pursuant to which each such person has agreed to vote all
shares of our common stock owned by them in favor of the Proposals. Nomura, the underwriter of our IPO, has agreed to vote any Founder Shares and Private Shares held by it in favor of the
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xv
Business Combination. As a result, in addition to the shares of common stock
held by Nomura, the Sponsor and our officers and directors, we may need only [•], or [•]% (assuming all outstanding shares are voted), or [•], or approximately [•]% (assuming only the minimum number of shares representing a quorum are voted),
of the Public Shares to be voted in favor of the Business Combination Proposal (assuming only a quorum is present at the Special Meeting) in order to have the Business Combination Proposal approved.
|
Q:
|
WHAT CONSTITUTES A QUORUM AT THE SPECIAL MEETING?
|
|
A:
|
A majority of the voting power of the common stock entitled to vote at the Special Meeting must be present, in person or
represented by proxy at the Special Meeting to constitute a quorum and in order to conduct business at the Special Meeting. Abstentions and broker non-votes will be counted as present for the purpose of determining a quorum. Nomura,
the Sponsor and our directors and officers, who collectively currently own 43.0% of the issued and outstanding shares of common stock, will count towards this quorum. In the absence of a quorum, the chairman of the Special Meeting has
power to adjourn the Special Meeting. As of the Record Date for the Special Meeting, [•] shares of common stock would be required to be present in person or represented by proxy to achieve a quorum.
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|
Q:
|
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL AT THE SPECIAL MEETING?
|
|
A:
|
The Business Combination Proposal: The approval of the Business Combination Proposal
requires the affirmative vote (in person or by proxy) of the holders of a majority of the shares of Class A Common Stock and Class B Common Stock entitled to vote and actually cast thereon at the Special Meeting, voting as a single
class. Accordingly, a stockholder’s failure to submit a proxy or to vote in person at the Special Meeting, as well as an abstention from voting and a broker non-vote with regard to the Business Combination Proposal, will have no effect
on the Business Combination Proposal. Company stockholders must approve the Business Combination Proposal in order for the Business Combination to occur.
|
The Nasdaq Proposal: The
approval of the Nasdaq Proposal requires the affirmative vote (in person or by proxy) of the holders of a majority of the shares of Class A Common Stock and Class B Common Stock entitled to vote and actually cast thereon at the Special
Meeting, voting as a single class. Accordingly, a stockholder’s failure to submit a proxy or to vote in person at the Special Meeting, as well as an abstention from voting and a broker non-vote with regard to the Nasdaq Proposal, will have no
effect on the Nasdaq Proposal. The Business Combination is conditioned on the approval of the Nasdaq Proposal, subject to the terms of the MIPA. If the Business Combination Proposal is not approved, the Nasdaq Proposal will not be presented
to the stockholders for a vote.
The Charter Approval Proposal:
The approval of the Charter Approval Proposal requires the affirmative vote (in person or by proxy) of (i) the holders of a majority of the Class A Common Stock then outstanding, voting separately as a single class, (ii) the holders of a
majority of the Class B Common Stock then outstanding, voting separately as a single class, and (iii) the holders of a majority of the shares of Class A Common Stock and Class B Common Stock entitled to vote, voting as a single class.
Accordingly, a stockholder’s failure to submit a proxy or to vote in person at the Special Meeting, as well as an abstention from voting and a broker non-vote with regard to the Charter Approval Proposal, will have the same effect as a vote “AGAINST” such proposal. The Business Combination is conditioned on the approval of the Charter Approval Proposal, subject to the terms of the MIPA. If the
Business Combination Proposal is not approved, the Charter Approval Proposal will not be presented to the stockholders for a vote.
The Non-Binding Governance Proposals: The approval of the Non-Binding Governance Proposals requires the affirmative vote (in person or by proxy) of the holders of a majority of the shares of Class A Common Stock and Class B Common Stock entitled to vote and actually
cast thereon at the Special Meeting, voting as a single class. Accordingly, a stockholder’s failure to submit a proxy or to vote in person at the Special Meeting, as well as an abstention from voting and a broker non-vote with regard to the
Non-Binding Governance Proposals, will have no effect on the Non-Binding Governance Proposals. The Business Combination is not conditioned on the approval of the Non-Binding Governance Proposal. If the Business Combination Proposal is not
approved, the Non-Binding Governance Proposals will not be presented to the stockholders for a vote.
The Director Election Proposal:
The approval of the Director Election proposal the affirmative vote (in person or by proxy) of the holders of a plurality of the outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote and actually cast thereon at
the Special Meeting, voting as a single class.
xvi
Stockholders may not cumulate their votes with respect to the election of
directors. Accordingly, a stockholder’s failure to submit a proxy or to vote in person at the Special Meeting, as well as an abstention from voting and a broker non-vote with regard to the Director Election Proposal, will have no effect on the
election of directors. The Business Combination is conditioned on the approval of the Director Election Proposal, subject to the terms of the MIPA. If the Business Combination Proposal is not approved, the Director Election Proposal will not be
presented to the stockholders for a vote.
The Incentive Plan Proposal:
The approval of the Incentive Plan Proposal requires the affirmative vote (in person or by proxy) of the holders of a majority of the shares of Class A Common Stock and Class B Common Stock entitled to vote and actually cast thereon at the
Special Meeting, voting as a single class. Accordingly, a stockholder’s failure to submit a proxy or to vote in person at the Special Meeting, as well as an abstention from voting and a broker non-vote with regard to the Incentive Plan
Proposal, will have no effect on the Incentive Plan Proposal. The Business Combination is conditioned on the approval of the Incentive Plan Proposal, subject to the terms of the MIPA. If the Business Combination Proposal is not approved, the
Incentive Plan Proposal will not be presented to the stockholders for a vote.
The Adjournment Proposal: The
approval of the Adjournment Proposal, if presented, requires the affirmative vote (in person or by proxy) of the holders of a majority of the shares of Class A Common Stock and Class B Common Stock entitled to vote and actually cast thereon
at the Special Meeting, voting as a single class. Accordingly, a stockholder’s failure to submit a proxy or to vote in person at the Special Meeting, as well as an abstention from voting and a broker non-vote with regard to the Adjournment
Proposal, will have no effect on the Adjournment Proposal. The Business Combination is not conditioned on the approval of the Adjournment Proposal.
The Company has entered into a letter agreement with the Sponsor and our directors
and officers pursuant to which each such person has agreed to vote all shares of our common stock owned by it, him or her in favor of the Business Combination Proposal presented at the Special Meeting. Nomura, the underwriter of our IPO, has
agreed to vote any Founder Shares and Private Shares held by it in favor of the Business Combination.
|
Q:
|
DO ANY OF THE COMPANY’S OFFICERS OR DIRECTORS HAVE INTERESTS IN THE BUSINESS COMBINATION THAT MAY DIFFER FROM
OR BE IN ADDITION TO THE INTERESTS OF STOCKHOLDERS?
|
|
A:
|
The Sponsor and our directors and officers have interests in the Business Combination that are different from or in addition
to (and which may conflict with) your interests. You should take these interests into account in deciding whether to approve the Proposals. These interests include:
|
|
•
|
the fact that our Initial Stockholders have agreed not to redeem any of the Founder Shares in connection with a stockholder
vote to approve the proposed Business Combination;
|
|
•
|
the fact that Ophir Sternberg, Thomas W. Hawkins and Roger Meltzer will serve as directors of the Post-Combination
Company;
|
|
•
|
the fact that the Sponsor paid an aggregate of $25,000 for 5,000,000 Founder Shares in January 2020 and, in February 2020,
the Company declared a stock dividend of 0.15 share for each Founder Share outstanding, resulting in the Sponsor holding an aggregate of 5,750,000 Founder Shares. After giving effect to the sales or transfer of Founder Shares to Nomura
and in connection with the IPO to certain insiders, the remaining 5,667,500 Founder Shares will have a significantly higher value at the time of the Business Combination, which if unrestricted and freely tradable would be valued at
approximately $56,675,000 but, given the restrictions on such shares, we believe such shares have less value;
|
|
•
|
the fact that our Initial Stockholders have agreed to waive their rights to liquidating distributions from the Trust Account
with respect to their Founder Shares if we fail to complete an initial business combination by August 18, 2022 (or such later date as may be approved by the Company’s stockholders);
|
|
•
|
the fact that our Initial Stockholders, being holders of Class A Common Stock, are eligible to receive the dividend comprised
of the New Warrants to be issued upon the automatic conversion of the Founder Shares at Closing, and the fact that, because our Initial Stockholders have agreed not to redeem their shares in connection with the Business Combination,
they may receive a significant number of such New Warrants, if other holders of Class A Common Stock elect to exercise their redemption rights;
|
xvii
|
•
|
the fact that the Sponsor paid an aggregate of $5,950,000 for Private Units comprised of 297,500 Private Warrants to purchase
shares of Class A Common Stock and that such Private Warrants will expire worthless if a business combination is not consummated by August 18, 2022;
|
|
•
|
the continued right of the Sponsor to hold Class A Common Stock and the shares of Class A Common Stock to be issued to the
Sponsor upon exercise of its Private Warrants following the Business Combination, subject to certain lock-up periods;
|
|
•
|
if the Trust Account is liquidated, including in the event we are unable to complete an initial business combination within
the required time period, the Sponsor has agreed to indemnify us to ensure that the proceeds in the Trust Account are not reduced below $10.00 per Public Share, or such lesser per Public Share amount as is in the Trust Account on the
liquidation date, by the claims of prospective target businesses with which we have entered into an acquisition agreement or claims of any third party (other than our independent public accountants) for services rendered or products
sold to us, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;
|
|
•
|
the Sponsor (including its representatives and affiliates) and the Company directors and officers, are, or may in the future
become, affiliated with entities that are engaged in a similar business to the Company. For example, each of the Company’s officers may be considered an affiliate of the Sponsor, the Sponsor and our directors and officers of the Company
are also affiliated with Lionheart III and Lionheart IV, all of which are blank check companies incorporated for the purpose of effecting their respective initial business combinations. In addition, Mr. Meltzer serves on the board of
directors of Haymaker Acquisition Corp. III, a blank check company incorporated for the purpose of effecting a business combination. The Sponsor and the Company’s directors and officers are not prohibited from sponsoring, or otherwise
becoming involved with, any other blank check companies prior to the Company completing its initial business combination. Moreover, certain of the Company’s directors and officers have time and attention requirements for certain other
companies. The Company’s directors and officers also may become aware of business opportunities which may be appropriate for presentation to the Company, and the other entities to which they owe certain fiduciary or contractual duties,
including Lionheart III and Lionheart IV. Accordingly, they may have had conflicts of interest in determining to which entity a particular business opportunity should be presented. These conflicts may not be resolved in the Company’s
favor and such potential business opportunities may be presented to other entities prior to their presentation to the Company, subject to applicable fiduciary duties. The Existing Charter provides that the Company renounces its 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 the Company is
legally and contractually permitted to undertake and would otherwise be reasonable for the Company to pursue, and to the extent the director or officer is permitted to refer that opportunity to the Company without violating another
legal obligation. For more information, see “Management of the Company — Conflicts of Interests.”
|
|
•
|
the fact that Ophir Sternberg and John Ruiz have certain business dealings tied to shares of the Post-Combination Company.
For more information, see “Certain Relationships and Related Party Transactions”;
|
|
•
|
the continued indemnification of our existing directors and officers and the continuation of our directors’ and officers’
liability insurance after the Business Combination;
|
|
•
|
the fact that the Sponsor and our directors and officers will lose their entire investment in us and will not be reimbursed
for any out-of-pocket expenses if an initial business combination is not consummated by August 18, 2022; and
|
|
•
|
that, at the closing of the Business Combination we will enter into the amended and restated registration rights agreement
(“Registration Rights Agreement”), substantially in the form attached as Annex E to this proxy statement/prospectus, with the Sponsor and our directors and officers, which provides for
registration rights to such persons and their permitted transferees.
|
These interests may influence our directors and officers in making their
recommendation that you vote in favor of the approval of the Business Combination.
xviii
|
Q:
|
WHAT DO I NEED TO DO NOW?
|
|
A:
|
The Company urges you to read carefully and consider the information contained in this proxy statement/prospectus, including
the Annexes and the other documents referred to herein, and to consider how the Business Combination will affect you as a stockholder of the Company. Stockholders should then vote as soon as possible in accordance with the instructions
provided in this proxy statement/prospectus and on the enclosed proxy card.
|
|
Q:
|
WHAT HAPPENS IF I SELL MY SHARES OF CLASS A COMMON STOCK BEFORE THE SPECIAL MEETING?
|
|
A:
|
The Record Date for the Special Meeting is earlier than the date that the Business Combination is expected to be completed.
If you transfer your shares of Class A Common Stock after the Record Date, but before the Special Meeting, unless the transferee obtains from you a proxy to vote those shares, you will retain your right to vote at the Special Meeting.
However, you will not be able to seek redemption of your shares of Class A Common Stock because you will no longer be able to tender them prior to the Special Meeting in accordance with the provisions described herein. If you
transferred your shares of Class A Common Stock prior to the Record Date, you have no right to vote those shares at the Special Meeting or redeem those shares for a pro rata portion of the proceeds held in the Trust Account.
|
|
Q:
|
HOW DO I VOTE?
|
|
A:
|
If you are a holder of record of common stock on the Record Date, you may vote in person at the Special Meeting by attending
the meeting virtually or by submitting a proxy for the Special Meeting. You may submit your proxy by completing, signing, dating and returning the enclosed proxy card in the accompanying pre-addressed postage paid envelope. You may also
vote by telephone or Internet by following the instructions printed on the proxy card.
|
If you hold your shares in “street name,” which means your shares are held of
record by a broker, bank, or nominee, you should contact your broker, bank, or other nominee to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the broker, bank, or nominee
with instructions on how to vote your shares or, if you wish to attend the meeting and vote in person, obtain a proxy from your broker, bank, or nominee.
|
Q:
|
IF MY SHARES ARE HELD IN “STREET NAME” BY A BROKER, BANK, OR OTHER NOMINEE, WILL MY BROKER, BANK, OR OTHER
NOMINEE VOTE MY SHARES FOR ME?
|
|
A:
|
If your shares are held in “street name” in a stock brokerage account or by a broker, bank, or other nominee, you must
provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your broker, bank, or other nominee. Please note that you may not vote shares held in “street name”
by returning a proxy card directly to the Company or by voting in person at the Special Meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank, or other nominee.
|
Under the rules of Nasdaq, brokers who hold shares in “street name” for a
beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are not permitted to exercise their voting
discretion with respect to the approval of matters that Nasdaq determines to be “non-routine” without specific instructions from the beneficial owner. It is expected that all proposals to be voted on at the Special Meeting are “non-routine”
matters. Broker non-votes occur when a broker or nominee is not instructed by the beneficial owner of shares to vote on a particular proposal for which the broker does not have discretionary voting power.
If you are a Company stockholder holding your shares in “street name” and you do
not instruct your broker, bank, or other nominee on how to vote your shares, your broker, bank, or other nominee will not vote your shares on the Business Combination Proposal, the Nasdaq Proposal, the Charter Approval Proposal, the Non-Binding
Governance Proposals, the Director Election Proposal, the Incentive Plan Proposal or the Adjournment Proposal. Such broker non-votes will be the equivalent of a vote “AGAINST” the Charter Approval
Proposal but will have no effect on the vote count for such other proposals.
xix
|
Q:
|
WHAT IF I ATTEND THE SPECIAL MEETING AND ABSTAIN OR DO NOT VOTE?
|
|
A:
|
For purposes of the Special Meeting, an abstention occurs when a stockholder attends the meeting in person and does not vote
or returns a proxy with an “abstain” vote.
|
If you are a Company stockholder that attends the Special Meeting virtually and
fails to vote on the Charter Approval Proposal, your failure to vote will have the same effect as a vote “AGAINST” such proposal.
If you are a Company stockholder that attends the Special Meeting virtually and
fails to vote on the Business Combination Proposal, the Nasdaq Proposal, the Non-Binding Governance Proposals, the Director Election Proposal, the Incentive Plan Proposal and the Adjournment Proposal, your failure to vote will have no effect on
the Business Combination Proposal, the Nasdaq Proposal, the Non-Binding Governance Proposals, the Director Election Proposal, the Incentive Plan Proposal or the Adjournment Proposal; however, your attendance will be counted for the purpose of
establishing a quorum at the Special Meeting.
|
Q:
|
WHAT WILL HAPPEN IF I RETURN MY PROXY CARD WITHOUT INDICATING HOW TO VOTE?
|
|
A:
|
If you are a holder of record of common stock on the Record Date and you sign and return your proxy card without indicating
how to vote on any particular Proposal, the common stock represented by your proxy will be voted “FOR” each of the Proposals presented at the Special Meeting.
|
|
Q:
|
MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
|
|
A:
|
Yes. If you are a holder of record of common stock on the Record Date, you may change your vote at any time before your proxy
is exercised by doing any one of the following:
|
|
•
|
send another proxy card with a later date;
|
|
•
|
notify the Company’s Secretary in writing before the Special Meeting that you have revoked your proxy; or
|
|
•
|
attend the Special Meeting and vote electronically by visiting and entering the control number found on your proxy card,
voting instruction form or notice you previously received.
|
If you are a stockholder of record and you choose to send a written notice or to
mail a new proxy, you must submit your notice of revocation or mail your new proxy to MacKenzie Partners, Inc., 1407 Broadway, New York, New York, 10018, and it must be received at any time before the vote is taken at the Special Meeting. Any
proxy that you submitted may also be revoked by submitting a new proxy by mail, or online or by telephone, not later than 11:59 p.m. Eastern Time on the day prior to the Special Meeting date, or by voting online at the Special Meeting. Simply
attending the Special Meeting will not revoke your proxy. If you have instructed a broker, bank, or other nominee to vote your shares of common stock, you must follow the directions you receive from your broker, bank, or other nominee in order
to change or revoke your vote.
|
Q:
|
WHAT HAPPENS IF I FAIL TO TAKE ANY ACTION WITH RESPECT TO THE SPECIAL MEETING?
|
|
A:
|
If you fail to take any action with respect to the Special Meeting and the Business Combination is approved by stockholders
and consummated, you will become a stockholder of the Post-Combination Company. Failure to take any action with respect to the Special Meeting will not affect your ability to exercise your redemption rights. If you fail to take any
action with respect to the Special Meeting and the Business Combination is not approved, you will continue to be a stockholder of the Company while the Company searches for another target business with which to complete a business
combination. If you fail to vote on the Charter Approval Proposal, your failure to vote will have the same effect as a vote “AGAINST” such proposal.
|
|
Q:
|
WHAT SHOULD I DO IF I RECEIVE MORE THAN ONE SET OF VOTING MATERIALS?
|
|
A:
|
Stockholders may receive more than one set of voting materials, including multiple copies of this proxy statement/prospectus
and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage
|
xx
account in which you hold shares. If you are a holder of record and your shares
are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast a vote with respect to all of your shares.
|
Q:
|
WHO CAN HELP ANSWER MY QUESTIONS?
|
|
A:
|
If you have questions about the Business Combination or if you need additional copies of the proxy statement/prospectus or
the enclosed proxy card you should contact our proxy solicitor, MacKenzie Partners, Inc.:
|
1407 Broadway
New York, New York 10018
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885
Email:
proxy@mackenziepartners.com
You may also obtain additional information about the Company from documents filed
with the SEC by following the instructions in the section entitled “Where You Can Find More Information.” If you are a holder of Public Shares and you intend to seek redemption of your Public Shares, you
will need to deliver your stock (either physically or electronically) to our transfer agent at the address below prior to the vote at the Special Meeting. If you have questions regarding the certification of your position or delivery of your
stock, please contact:
Continental Stock Transfer & Trust Company
1 State Street 30th Floor
New York, New York 10004
xxi
This summary highlights selected information
included in this proxy statement/prospectus and does not contain all of the information that may be important to you. You should read this entire document and its Annexes and the other documents to which we refer before you decide how to
vote. Item in this summary include a page reference directing you to a more complete description of that item.
Parties to the Business Combination
The Company
The Company is a blank check company incorporated on
December 20, 2019 as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
The Company’s securities are traded on Nasdaq under the ticker
symbols “LCAP,” “LCAPU” and “LCAPW.” The mailing address of the Company’s principal executive office is 4218 NE 2nd Avenue, Miami, Florida 33137 and the telephone number of the Company’s principal executive office is (305) 573-3900.
Lionheart II Holdings, LLC
Lionheart II Holdings, LLC is a Delaware limited liability
company which was organized on July 9, 2021 to serve as the holding company for MSP following the consummation of the Business Combination.
MSP
References to MSP throughout this proxy statement/prospectus
encompasses (i) the limited liability companies being directly acquired by Opco in the Business Combination, which we also refer to as the MSP Purchased Companies, and (ii) the subsidiaries of the MSP Purchased Companies, which we refer to
together with the MSP Purchased Companies as the MSP Companies. The MSP Companies together comprise the group of entities that operate the business of MSP as described in this proxy statement/prospectus.
The mailing address of MSP’s principal executive office is 2701
Le Jeune Road, Floor 10, Coral Gables, Florida 33134.
The Members
The Members are the equity holders of MSP.
The terms and conditions of the Business Combination are
contained in the MIPA, which is attached as Annex A to this proxy statement/prospectus. We encourage you to read the MIPA carefully, as it is the legal document that governs the Business Combination.
Pursuant to the MIPA, the Members will sell and assign all of
their membership interests in MSP to Opco in exchange for Up-C Units (or shares of Class A Common Stock). Following the Closing, the Company will be organized in an “Up-C” structure in which all of the business of the MSP Companies will be
held directly or indirectly by Opco, and the Company will own all of the voting economic Class A Units of Opco and the Members or their designees will own all of the non-voting economic Class B Units in accordance with the LLC Agreement.
Consideration (page [211])
Subject to the terms and conditions set forth in the MIPA, the
aggregate consideration to be paid to the Members (or their designees) will consist of (i) 3,250,000,000 Up-C Units (or shares of Class A Common Stock) and (ii) rights to receive payments under the tax receivable agreement to be entered into
at the Closing. Of the Up-C Units to be issued to certain Members at Closing, 6,000,000 (the “Escrow Units”) will be deposited into an escrow account with Continental Stock Transfer and Trust Company to satisfy any indemnification claims that
may be brought pursuant to the MIPA.
New Warrants
In connection with the Business Combination and to provide
additional consideration to holders of Class A Common Stock that do not redeem their shares of Class A Common Stock, the Company intends, subject to compliance with applicable law, to declare a dividend comprising an aggregate of
approximately 1,029,000,000 New
1
Warrants conditioned upon the consummation of any redemptions by the holders of
Class A Common Stock and the Closing, to the holders of record of the Class A Common Stock as of the Closing Date, after giving effect to the waiver of the right, title and interest in, to or under, participation in any such dividend by the
Members, on behalf of themselves and any of their designees.
The Company intends to establish the close of business of the
anticipated Closing Date as the record date for stockholders entitled to receive their pro rata portion of the approximately 1,029,000,000 New Warrants (the “Warrant Record Date”). The Warrant Record Date is expected to be determined at least
10 days prior to the Closing Date. The Company expects that a dividend of the New Warrants will be distributed following the Closing Date to stockholders of record as of the close of business on the Warrant Record Date, and after giving
effect to the waiver of the right, title and interest in, to or under, participation in any such dividend by the Members, on behalf of themselves and any of their designees.
The number of New Warrants to be distributed in respect of
each share of unredeemed Class A Common Stock is contingent upon, and will vary with, the aggregate number of shares of Class A Common Stock that are redeemed in connection with the Business Combination, but will not exceed 1,029,000,000
New Warrants. Holders who choose to redeem their shares of Class A Common Stock will not receive any New Warrants. Public Stockholders who choose not to redeem their shares of Class A Common Stock will share in this fixed pool of New
Warrants with other non-redeeming holders (on a pro-rata basis, based on the number of shares of Class A Common Stock held at the end of business on the Closing Date, which is expected to include the 5,750,000 shares of Class A Common Stock
into which Founder Shares will convert in connection with the Business Combination). As a result, assuming the no redemption scenario and that the distribution is made, Public Stockholders who do not redeem their shares would receive at
least 56 New Warrants per share of Class A Common Stock they hold, which would proportionally increase if other holders elect to redeem their shares of Class A Common Stock. We believe this structure will likely lead to a lower level of
redemptions, and therefore, we will likely have more funds available for our Business Combination. Pursuant to the terms of the Existing Warrant Agreement, the exercise price of the Public Warrants and Private Warrants could decrease to
$0.0001 after giving effect to the issuance of the New Warrants. Pursuant to the terms of the LLC Agreement, at least twice a month, to the extent any New Warrants have been exercised in accordance with their terms, the Post-Combination
Company is required to purchase from the MSP Principals, proportionately, the number of Up-C Units or shares of Class A Common Stock owned by such MSP Principal equal to the aggregate amount of the exercise price received in connection with
exercise of the New Warrants during an applicable period (the “Aggregate Exercise Price”) divided by the Warrant Exercise Price (as defined in the LLC Agreement) in exchange for the Aggregate Exercise Price. For more information, see the
LLC Agreement attached hereto as Annex D.
Ownership of the Post-Combination Company
As of the date of this proxy statement/prospectus, there are
12,703,631 shares of Class A Common Stock issued and outstanding, and 5,750,000 shares of Class B Common Stock outstanding, each of which will be converted into one share of Class A Common Stock at the Closing.
It is anticipated that, upon completion of the Business
Combination, and assuming (1) the no redemption scenario and (2) that the holders of the Company’s existing Public Warrants and Private Warrants exercise those warrants, and no New Warrants are exercised (except as described in Note (8) to
the table below): (i) the Public Stockholders will retain approximately 0.4% of the common stock of the Post-Combination Company; (ii) the Initial Stockholders will retain approximately 0.2% of the common stock of the Post-Combination
Company; and (iii) the Members (or their designees) will acquire approximately 99.1% of the common stock of the Post-Combination Company. However, as described below, such percentages will be affected by the level of redemptions by Public
Stockholders and the exercise of outstanding warrants or New Warrants.
Upon completion of the Business Combination, the
Post-Combination Company will own all of the voting economic Class A Units of Opco, and the Members or their designees will own all of the non-voting economic Class B Units of Opco in accordance with the terms of the LLC Agreement.
In addition, subject to the approval of the Incentive Plan
Proposal and the authorization of the initial share reserve, the Company will have the ability to issue up to 98,736,750 shares of Class A Common Stock pursuant to awards under the Incentive Plan.
2
The following table illustrates varying levels of holdings
of the common stock of the Post-Combination Company, assuming the no redemption scenario, illustrative redemption scenario, expense adjusted maximum redemption scenario and the maximum redemption scenarios:
|
|
| |
Redemption Threshold(1)(2)
|
|||||||||||||||||||||
|
|
| |
No Redemption(3)
|
| |
Illustrative Redemption(4)
|
| |
Expense Adjusted
Maximum Redemption(5)
|
| |
Maximum Redemption(6)
|
||||||||||||
|
|
| |
Shares
|
| |
%
|
| |
Shares
|
| |
%
|
| |
Shares
|
| |
%
|
| |
Shares
|
| |
%
|
|
Class A - LCAP Public Stockholders and holders of Private
Shares(7)(8)
|
| |
12,703,631
|
| |
0.4%
|
| |
10,002,838
|
| |
0.3%
|
| |
7,302,044
|
| |
0.2%
|
| |
650,000
|
| |
0.0%
|
|
Class A - LCAP Initial Stockholders(7)(8)
|
| |
5,750,000
|
| |
0.2%
|
| |
5,750,000
|
| |
0.2%
|
| |
5,750,000
|
| |
0.2%
|
| |
5,750,000
|
| |
0.2%
|
|
Class A - LCAP Private and Public Warrantholders
|
| |
11,825,000
|
| |
0.4%
|
| |
11,825,000
|
| |
0.4%
|
| |
11,825,000
|
| |
0.4%
|
| |
11,825,000
|
| |
0.4%
|
|
Total LCAP(7)(8)
|
| |
30,278,631
|
| |
0.9%
|
| |
27,577,838
|
| |
0.8%
|
| |
24,877,044
|
| |
0.8%
|
| |
18,225,500
|
| |
0.6%
|
|
Class V - MSP Recovery Members (or their designees)(9)
|
| |
2,628,037,909
|
| |
80.1%
|
| |
2,628,037,909
|
| |
80.2%
|
| |
2,628,037,909
|
| |
80.2%
|
| |
2,628,037,909
|
| |
80.4%
|
|
Class V - Virage; VRM(10)
|
| |
140,000,000
|
| |
4.3%
|
| |
140,000,000
|
| |
4.3%
|
| |
140,000,000
|
| |
4.3%
|
| |
140,000,000
|
| |
4.3%
|
|
Class V – Other(9)
|
| |
65,662,091
|
| |
2.0%
|
| |
65,662,091
|
| |
2.0%
|
| |
65,662,091
|
| |
2.0%
|
| |
65,662,091
|
| |
2.0%
|
|
Class V - Series MRCS
|
| |
416,300,000
|
| |
12.8%
|
| |
416,300,000
|
| |
12.8%
|
| |
416,300,000
|
| |
12.7%
|
| |
416,300,000
|
| |
12.8%
|
|
Total MSP and Other Unrelated Parties(8)
|
| |
3,250,000,000
|
| |
99.1%
|
| |
3,250,000,000
|
| |
99.2%
|
| |
3,250,000,000
|
| |
99.2%
|
| |
3,250,000,000
|
| |
99.4%
|
|
Total Shares at Closing(8)
|
| |
3,280,278,631
|
| |
100.0%
|
| |
3,277,577,838
|
| |
100.0%
|
| |
3,274,877,044
|
| |
100.0%
|
| |
3,268,225,000
|
| |
100.0%
|
|
Additional Dilution
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
New Warrants(9)
|
| |
—
|
| |
—%
|
| |
—
|
| |
—%
|
| |
—
|
| |
—%
|
| |
—
|
| |
—%
|
|
Incentive Plan(11)
|
| |
98,736,750
|
| |
3.0%
|
| |
98,736,750
|
| |
3.0%
|
| |
98,736,750
|
| |
3.0%
|
| |
98,736,750
|
| |
3.0%
|
|
Total Additional Dilution Sources
|
| |
98,736,750
|
| |
3.0%
|
| |
98,736,750
|
| |
3.0%
|
| |
98,736,750
|
| |
3.0%
|
| |
98,736,750
|
| |
3.0%
|
|
(1)
|
Only 12,053,631 shares of Class A Common Stock are subject to redemption (after giving effect to the redemption of
10,946,369 shares of Class A Common Stock in connection with the Company stockholder vote to approve the Extension Amendment). The remaining 650,000 shares of Class A Common Stock are held by holders of Private Shares who have
waived their redemption rights pursuant to applicable subscription agreements.
|
|
(2)
|
Class A Common Stock are economic shares and entitled to one vote per share. Class V Common Stock are non-economic and
entitled to one vote per share.
|
|
(3)
|
Assumes that no additional shares of Class A Common Stock are redeemed (after giving effect to the redemption of
10,946,369 shares of Class A Common Stock in connection with the Company stockholder vote to approve the Extension Amendment). Refer to the section titled “Unaudited Pro Forma Condensed
Combined Financial Information” in this proxy statement/prospectus.
|
|
(4)
|
Assumes 2,700,793 additional shares of Class A Common Stock are redeemed at a redemption price of $10.00 (after giving
effect to the redemption of 10,946,369 shares of Class A Common Stock in connection with the Company stockholder vote to approve the Extension Amendment), and represents a midpoint redemption scenario between the no redemption and
expense adjusted maximum redemption scenarios.
|
|
(5)
|
As noted in (1) above, only 12,053,631 shares of Class A Common Stock are subject to redemption. This assumes that the
cash available for maximum redemptions is calculated as the cash in trust less remaining transaction costs to be paid in cash of $66.5 million. This amount is divided by the estimated per share redemption price of approximately
$10.00 per share to obtain the number of shares to be redeemed. Refer to section titled “Unaudited Pro Forma Condensed Combined Financial Information” in this proxy
statement/prospectus.
|
|
(6)
|
Assumes all of the 12,053,631 shares of Class A Common Stock subject to redemption (after giving effect to the redemption
of 10,946,369 shares of Class A Common Stock in connection with the Company stockholder vote to approve the Extension Amendment) are redeemed a redemption price of $10.00.
|
|
(7)
|
Shares exclude the approximately 1,029,000,000 shares of Class A Common Stock underlying the approximately 1,029,000,000
New Warrants to be issued, conditioned upon the consummation of any redemptions by the holders of Class A Common Stock and the Closing, to the holders of record of the Class A Common Stock on the Closing Date (which is expected to
include the 5,750,000 shares of Class A Common Stock into which Founder Shares will convert in connection with the Business Combination), after giving effect to the waiver of the right, title and interest in, to or under,
participation in any such dividend by the Members, on behalf of themselves and any of their designees. See (9) below.
|
|
(8)
|
Pursuant to the terms of the LLC Agreement, at least twice a month, to the extent any New Warrants have been exercised in
accordance with their terms, the Company following the Business Combination is required to purchase from the MSP Principals, proportionately, the number of Up-C Units or shares of Class A Common Stock owned by such MSP Principal
equal to the Aggregate Exercise Price divided by the Warrant Exercise Price (as defined in the LLC Agreement) in exchange for the Aggregate Exercise Price. As a result, no additional dilution is expected from the exercise of the New
Warrants. The number of New Warrants to be distributed in respect of each share of unredeemed Class A Common Stock is
|
3
contingent upon, and will vary with, the aggregate number of shares of
Class A Common Stock that are redeemed in connection with the Business Combination, with approximately 1,029,000,000 New Warrants to be issued under all redemption scenarios. If the New Warrants were to be exercised and after giving effect
to the obligation of the Post-Combination Company to repurchase Up-C Units or shares of Class of Common Stock from the MSP Principals pursuant to the LLC Agreement, the ownership held by holders of record of the Class A Common Stock on the
Closing Date (including holders of Private Warrants and Public Warrants), after giving effect to any redemptions and the waiver of the right, title and interest in, to or under, participation in any such dividend by the Members, would be
32.3%, 32.2%, 32.2% and 32.0% assuming the no redemption, illustrative redemption, expense, adjusted maximum redemption and maximum scenarios, respectively. In addition: (i) the Public Stockholders and holders of Private Shares are expected
to hold 22.0%, 20.2%, 17.8% and 3.2%, (ii) Initial Stockholders are expected to hold 9.9%, 11.6%, 14.0% and 28.5% and (iii) total MSP and unrelated parties are expected to hold 67.7%, 67.8%, 67.8% and 68.0%, in each case assuming the no
redemption, illustrative redemption, expense adjusted maximum redemption and maximum scenarios, respectively.
|
(9)
|
Assuming the value of the VRM Full Return as of December 31, 2021, of $656.6 million and a per unit value of $10.00 per
Up-C unit, Messrs. Ruiz and Quesada are expected may exchange their Up-C Units for shares of Class A Common Stock to be sold in satisfaction of the VRM Full Return, pursuant to the VRM Full Return Guaranty, their Up-C Units received
as consideration pursuant to the MIPA. Such amount includes 65,000,000 Up-C Units to be delivered as Reserved Shares and an additional 662,091 Up-C Units to be delivered and exchanged for shares of Class A Common Stock to be sold
pursuant to the VRM Full Return Guaranty. See “The Business Combination — Other Agreements — VRM Full Return Guaranty.”
|
|
(10)
|
Assumes 120,000,000 Up-C Units are issued to VRM as Upfront Consideration and includes an additional 20,000,000 Up-C
Units to be paid in connection with the Virage Exclusivity Termination from the aggregate consideration being paid to the Members (or their designees) pursuant to the MIPA at Closing.
|
|
(11)
|
Assumes issuance of all shares of Class A Common Stock reserved for initial issuance under the Incentive Plan equal to
98,736,750. In addition, under the terms of the Incentive Plan, the aggregate number of shares that may be issued pursuant to awards will be subject to an annual increase on January 1 of each calendar year (commencing with
January 1, 2023 and ending on and including January 1, 2031) equal to the lesser of (i) a number of shares equal to 3% of the total number of shares actually issued and outstanding on the last day of the preceding fiscal year or
(ii) a number of shares as determined by the Board. Such increase in reserve may present an additional source of dilution. See “Proposal No. 6—Incentive Plan Proposal.”
|
The following table illustrates effective underwriting fee
per share (assuming a $10.00 per share price) incurred and payable upon the completion of the Business Combination and as a percentage of shares of Class A Common Stock (including shares issuable in respect of Founder Shares, Public
Warrants and Private Warrants), assuming the no redemption, illustrative redemption, expense adjusted maximum redemption and maximum scenarios, respectively:
|
|
| |
Redemption Threshold
|
|||||||||||||||||||||
|
|
| |
No Redemption
|
| |
Illustrative Redemption
|
| |
Expense Adjusted
Maximum Redemption
|
| |
Maximum Redemption
|
||||||||||||
|
|
| |
$/share
|
| |
%
|
| |
Amount
|
| |
%
|
| |
Amount
|
| |
%
|
| |
Amount
|
| |
%
|
|
Underwriting fee (inclusive of financial advisor
fees)(1)
|
| |
$1.74
|
| |
17.39%
|
| |
$1.91
|
| |
19.09%
|
| |
$2.12
|
| |
21.16%
|
| |
$2.89
|
| |
28.89%
|
|
(1)
|
LCAP incurred $4.6 million of underwriting fees and $8.05 million in deferred underwriting fees in connection with its IPO,
which are payable to the underwriters in connection with the Business Combination and will not be adjusted for any shares that are redeemed. LCAP will also pay Nomura, in its role as financial advisor in connection with the Business
Combination, total fees of $20 million. In addition, MSP will pay KBW in its role as financial advisor in connection with the Business Combination total fees of $20 million. In total the underwriting fees (inclusive of fees to be paid
to financial advisors in connection with the Business Combination) will be $52.65 million.
|
4
Organizational Structure
The following diagram depicts the current ownership structure of
MSP:
|
(1)
|
The Members have a 50% ownership interest in each of MAO-MSO Recovery, LLC, MAO-MSO Recovery II, LLC, MAO-MSO Recovery LLC,
Series FHCP and MAO-MSO Recovery II LLC, Series PMPI.
|
5
The following diagram, which assumes (1) the no redemption
scenario and (2) that the holders of the Company’s existing Public Warrants and Private Warrants exercise those warrants, and no New Warrants are exercised, in connection with the Business Combination, illustrates the ownership structure of
the Post-Combination Company immediately following the Business Combination:
|
(1)
|
The Members (or their designees) will hold all of the Class B Units of Opco.
|
|
(2)
|
The Members (or their designees) will hold all of the shares of the Class V Common Stock of the Post-Combination Company,
which are voting, non-economic shares. The shares of Class V Common Stock, together with their accompanying Class B Units of Opco, are convertible on a one-for-one basis into shares of the Company’s Class A Common Stock (or cash, at
the Post-Combination Company’s option), in accordance with the terms of the LLC Agreement.
|
|
(3)
|
The Initial Stockholders will hold 5,750,000 of the shares of Class A Common Stock of the Post-Combination Company. This
amount will be affected by the exercise of outstanding warrants or New Warrants. See “Summary—Ownership of the Post-Combination Company.”
|
|
(4)
|
The Public Stockholders and holders of Private Shares will hold 12,703,631 of the shares of Class A Common Stock of the
Post-Combination Company. This amount will be affected by the level of redemptions by Public Stockholders and the exercise of outstanding warrants or New Warrants. See “Summary—Ownership of
the Post-Combination Company.
|
|
(5)
|
The Post-Combination Company will hold all of the Class A Units of Opco.
|
|
(6)
|
The MSP Purchased Companies will own 50% of the membership interest in each of MAO-MSO Recovery, LLC, MAO MSO Recovery II,
LLC, MAO-MSO Recovery LLC, Series FHCP and MAO-MSO Recovery II LLC, Series PMPI.
|
Recommendation of the LCAP Board (page [96])
The LCAP Board has unanimously determined that the Business
Combination, on the terms and conditions set forth in the MIPA, is fair and advisable to, and in the best interests of, the Company and its stockholders and has directed that the Proposals set forth in this proxy statement/prospectus be
submitted to its stockholders for approval
6
at the Special Meeting on the date and at the time and place set forth in this
proxy statement/prospectus. The LCAP Board unanimously recommends that Company stockholders vote “FOR” the Business Combination Proposal, “FOR” the Nasdaq
Proposal, “FOR” the Charter Approval Proposal, “FOR” the Non-Binding Governance Proposals, “FOR” the Director Election
Proposal, “FOR” the Incentive Plan Proposal and “FOR” the Adjournment Proposal, if presented. See “The Business
Combination—Recommendation of the LCAP Board and Reasons for the Business Combination” beginning on page [198].
In considering the Business Combination, the LCAP Board
considered a number of factors pertaining to the Business Combination as generally supporting its decision to enter into the MIPA and the transactions contemplated thereby, including, but not limited to, the following factors (not necessarily
in order of relative importance):
|
•
|
Following a review of the financial data provided to the Company, including certain unaudited prospective financial
information of MSP (including, where applicable, the assumptions underlying such unaudited prospective financial information) and the Company’s due diligence review of MSP’s business, the LCAP Board determined that the consideration
to be paid to the Members was reasonable in light of such data and financial information.
|
|
•
|
The Company’s management and advisors conducted due diligence examinations of MSP, including: commercial, financial, legal
and regulatory due diligence, and extensive discussions with MSP’s management and the Company’s management and legal advisors concerning such due diligence examinations of MSP.
|
|
•
|
MSP’s business is based in a serviceable market that has a long-standing history of improper claim reimbursement concerns,
and that the LCAP Board considers attractive, and which, following a review of industry trends and other industry factors (including, among other things, historic and projected market growth), the LCAP Board believes has continued
growth potential in future periods.
|
|
•
|
Defensive, niche business model, coupled with a first mover advantage has led to MSP identifying more than $15 billion of
Paid Value of Potentially Recoverable Claims, as of the date of the MIPA, that could be recoverable in the near future.
|
|
•
|
The Members (or their designees) will control approximately 99.1% of the Post-Combination Company, assuming (1) the no
redemption scenario, (2) that the holders of the Company’s existing Public Warrants and Private Warrants exercise those warrants, and no New Warrants are exercised and (3) no attributed ownership based on Messrs. Ruiz and Quesada’s
investment in VRM (See “Certain Relationships and Related Party Transactions” beginning on page [243]). Such ownership percentage will
be affected by the level of redemptions by Public Stockholders and the exercise of outstanding warrants or New Warrants. See “Summary—Ownership of the Post-Combination Company.”
The LCAP Board believes that the Members continuing to own a substantial percentage of the Post-Combination Company on a pro forma basis reflects such equityholders’ belief in and commitment to the continued growth prospects of MSP
going forward.
|
|
•
|
The agreement by Messrs. Ruiz and Quesada to be subject to a post-Closing lockup in respect of their Up-C Units and shares
of Class A Common Stock, subject to certain exceptions, and to enter into employment agreements with the Post-Combination Company, which is expected to provide important stability to the leadership and governance of MSP.
|
|
•
|
Opportunity to introduce an attractive asset class to public investors that has historically been transacted in private
market settings.
|
|
•
|
Driven MSP management with diverse experience and an entrepreneurial mindset to bring this asset class to the public
markets.
|
|
•
|
The terms and conditions of the MIPA and the related agreements and the transactions contemplated thereby, each party’s
representations, warranties and covenants, the conditions to each party’s obligation to consummate the Business Combination and the termination provisions, as well as the strong commitment by both the Company and MSP to complete the
Business Combination.
|
|
•
|
After a review of other business combination opportunities reasonably available to the Company, the LCAP Board believes
that the proposed Business Combination represents the best potential business combination reasonably available to the Company taking into consideration, among other things, the timing and likelihood of accomplishing the goals of any
alternatives.
|
7
|
•
|
MSP’s unique social focus on supporting the long-term sustainability of Medicare and Medicaid programs relied upon by over
100 million Americans.
|
|
•
|
Proprietary data system that has proven experience aggregating, normalizing and analyzing large volumes of data to identify
recoverable healthcare claims.
|
The LCAP Board also considered various uncertainties and risks
and other potentially negative factors concerning the Business Combination, including, but not limited to, the following:
|
•
|
John H. Ruiz and Frank C. Quesada are key business drivers of MSP and the success of MSP remains highly dependent on their
continued involvement.
|
|
•
|
The potential benefits of the Business Combination may not be fully achieved or may not be achieved within the expected
timeframe.
|
|
•
|
Validity of the claim assignments, legal standing of the MSP claims, penalties and double damages provisions, and several
other key legal issues remain subject to continued affirmation in the U.S. court system.
|
|
•
|
Medicare Secondary Payer Act of 1980 still remains subject to legal interpretation and potential revision.
|
|
•
|
While the MSP management has modeled the expected operating expenses, they have not previously operated at a scale
indicated in the MSP management projections nor executed on the scale of growth contemplated.
|
|
•
|
The Company’s stockholders may fail to approve the proposals necessary to effect the Business Combination.
|
|
•
|
The completion of the Business Combination is conditioned on the satisfaction of certain closing conditions that are not
within the Company’s control, including the receipt of certain required regulatory approvals.
|
|
•
|
The Public Stockholders will hold a minority position in the Post-Combination Company (approximately 0.4%, assuming (1)
the no redemption scenario and (2) that the holders of the Company’s existing Public Warrants and Private Warrants exercise those warrants, and no New Warrants are exercised), as such, the Company’s current stockholders are unlikely
to have an influence on the management of the Post-Combination Company. Such ownership percentage will be affected by the level of redemptions by Public Stockholders and the exercise of outstanding warrants or New Warrants. See “Summary—Ownership of the Post-Combination Company.
|
|
•
|
Legal due diligence review from the Company’s advisor raised concerns over internal controls and documentation related to
HIPAA compliance and data protection.
|
|
•
|
Public investors often rely on a PIPE investor for third party validation of valuation. The Business Combination lacks a
validating PIPE investor.
|
|
•
|
The challenges associated with preparing MSP, which is a private company, for the applicable disclosure and listing
requirements to which MSP will be subject as a publicly traded company.
|
|
•
|
As of the date the LCAP Board approved the Business Combination, MSP did not have any combined or consolidated historical
financial statements, and therefore the LCAP Board could not consider MSP’s historical financial results or historical and current balance sheet information in conjunction with its consideration of other financial information of MSP
in making its determination. Once MSP’s audited financial statements became available, the LCAP Board reviewed the audited financial statements in conjunction with the other unaudited financial data available to it and continued to
recommend the Business Combination. See “Risk Factors—The Sponsor, certain members of the LCAP Board and our officers have interests in the Business Combination that are different from or are in
addition to other stockholders in recommending that stockholders vote in favor of approval of the Business Combination Proposal and approval of the other proposals described in this proxy statement.
|
|
•
|
The possibility that the SPAC market experiences volatility and disruptions, causing deal disruption.
|
8
|
•
|
The risks and costs to the Company if the Business Combination is not completed, including the risk of diverting management
focus and resources from other business combination opportunities, which could result in the Company being unable to effect an initial business combination by August 18, 2022.
|
|
•
|
The LCAP Board did not obtain a third-party valuation or fairness opinion in connection with the Business Combination.
|
|
•
|
The fees and expenses associated with completing the Business Combination. In addition, the LCAP Board considered the fact
that Nomura has contingent fees owing to it upon the successful completion of the Business Combination, consisting of (a) an M&A fee of $20 million and (b) deferred underwriting fees of approximately $4.4 million. The LCAP Board
did not believe such fees would be such a conflict of interest that it should prevent Nomura from serving as financial advisor to the Company in evaluating and advising on the Business Combination.
|
|
•
|
MSP has entered into certain arrangements with VRM and its affiliates, which include preferred returns on cash
distributions and potential anti-dilution protections, which may impact existing and new investors. (See “Certain Relationships and Related Party Transactions” beginning on page [243]).
|
In addition to considering the factors described above, the LCAP
Board also considered other factors, including, without limitation the fact that some officers and directors of the Company may have interests in the Business Combination (see “— Interests of the Company’s
Directors and Executive Officers in the Business Combination” beginning on page [206]) and various other risk factors associated with the business of MSP, as described in the section entitled “Risk Factors” appearing elsewhere in this proxy statement/prospectus.
The Company’s Special Meeting of Stockholders (page [93])
The Special Meeting will be held at a.m. Eastern Time, on
, 2022 in virtual format. The Special Meeting can be accessed by visiting [•], where Company stockholders will be able to listen to the meeting live and vote during the meeting. Additionally, Company stockholders have the option to listen
to the Special Meeting by dialing [•] (toll-free within the U.S. and Canada) or [•] (outside of the U.S. and Canada, standard rates apply). The passcode for telephone access is [•], but please note that Company stockholders who choose to
participate telephonically cannot vote or ask questions. Please note that you will only be able to access the Special Meeting by means of remote communication. At the Special Meeting, Company stockholders will be asked to vote on the Business
Combination Proposal, the Nasdaq Proposal, the Charter Approval Proposal, the Non-Binding Governance Proposals, the Director Election Proposal, the Incentive Plan Proposal and, if necessary, the Adjournment Proposal.
Stockholders will be entitled to vote or direct votes to be
cast at the Special Meeting if they owned shares of common stock at the close of business on , 2022, the Record Date for the Special Meeting. Stockholders are entitled to one vote for each share of common stock owned at the close of
business on the Record Date. If stockholders’ shares are held in “street name” or are in a margin or similar account, stockholders should contact their broker, bank, or other nominee to ensure that votes related to the shares they
beneficially own are properly counted. On the Record Date, there were 18,453,631 shares of common stock outstanding, of which 12,053,631 were Public Shares, 5,750,000 were Founder Shares and 650,000 were Private Shares.
A quorum of Company stockholders is necessary to hold a valid
Special Meeting. A majority of the voting power of the common stock entitled to vote at the Special Meeting must be present, in person or represented by proxy at the Special Meeting to constitute a quorum and in order to conduct business at
the Special Meeting. Abstentions and broker non-votes will be counted as present for the purpose of determining a quorum. Nomura, the Sponsor and our directors and officers, who collectively currently own 43.0% of the issued and outstanding
shares of common stock, will count towards this quorum. As of the Record Date for the Special Meeting, [•] shares of common stock would be required to be present in person or represented by proxy to achieve a quorum.
The Company has entered into a letter agreement with the Sponsor
and our directors and officers pursuant to which each such person has agreed to vote all shares of our common stock owned by it, him or her in favor of the Business Combination Proposal presented at the Special Meeting. Nomura, the
underwriter of our IPO, has agreed to vote any Founder Shares and Private Shares held by it in favor of the Business Combination. As a result, in addition to the shares of common stock held by Nomura, the Sponsor and our officers and
directors, we may need only [•], or [•]% (assuming all outstanding shares are voted), or [•], or approximately [•]% (assuming only the minimum
9
number of shares representing a quorum are voted), of the Public Shares to be
voted in favor of the Business Combination (assuming only a quorum is present at the Special Meeting) in order to have the Business Combination approved. The Proposals presented at the Special Meeting will require the following votes:
|
•
|
The Business Combination Proposal: The approval of the Business Combination
Proposal requires the affirmative vote (in person or by proxy) of the holders of a majority of the shares of Class A Common Stock and Class B Common Stock entitled to vote and actually cast thereon at the Special Meeting, voting as a
single class. Accordingly, a stockholder’s failure to submit a proxy or to vote in person at the Special Meeting, as well as an abstention from voting and a broker non-vote with regard to the Business Combination Proposal, will have
no effect on the Business Combination Proposal. Company stockholders must approve the Business Combination Proposal in order for the Business Combination to occur.
|
|
•
|
The Nasdaq Proposal: The approval of the Nasdaq Proposal requires the affirmative
vote (in person or by proxy) of the holders of a majority of the shares of Class A Common Stock and Class B Common Stock entitled to vote and actually cast thereon at the Special Meeting, voting as a single class. Accordingly, a
stockholder’s failure to submit a proxy or to vote in person at the Special Meeting, as well as an abstention from voting and a broker non-vote with regard to the Nasdaq Proposal, will have no effect on the Nasdaq Proposal. The
Business Combination is conditioned on the approval of the Nasdaq Proposal, subject to the terms of the MIPA. If the Business Combination Proposal is not approved, the Nasdaq Proposal will not be presented to the stockholders for a
vote.
|
|
•
|
The Charter Approval Proposal: The approval of the Charter Approval Proposal
requires the affirmative vote (in person or by proxy) of (i) the holders of a majority of the Class A Common Stock then outstanding, voting separately as a single class, (ii) the holders of a majority of the Class B Common Stock then
outstanding, voting separately as a single class, and (iii) the holders of a majority of the shares of Class A Common Stock and Class B Common Stock entitled to vote, voting as a single class. Accordingly, a stockholder’s failure to
submit a proxy or to vote in person at the Special Meeting, as well as an abstention from voting and a broker non-vote with regard to the Charter Approval Proposal, will have the same effect as a vote “AGAINST”
such proposal. The Business Combination is conditioned on the approval of the Charter Approval Proposal, subject to the terms of the MIPA. If the Business Combination Proposal is not approved, the Charter Approval Proposal will not be
presented to the stockholders for a vote.
|
|
•
|
The Non-Binding Governance Proposals: The approval of the Non-Binding Governance
Proposals requires the affirmative vote (in person or by proxy) of the holders of a majority of the shares of Class A Common Stock and Class B Common Stock entitled to vote and actually cast
thereon at the Special Meeting, voting as a single class. Accordingly, a stockholder’s failure to submit a proxy or to vote in person at the Special Meeting, as well as an abstention from voting and a broker non-vote with regard to
the Non-Binding Governance Proposals, will have no effect on the Non-Binding Governance Proposals. The Business Combination is not conditioned on the
approval of the Non-Binding Governance Proposals. If the Business Combination Proposal is not approved, the Non-Binding Governance Proposals will not be
presented to the stockholders for a vote.
|
|
•
|
The Director Election Proposal: The approval of the Director Election Proposal
requires the affirmative vote (in person or by proxy) of the holders of a plurality of the outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote and actually cast thereon at the Special Meeting, voting
as a single class. Stockholders may not cumulate their votes with respect to the election of directors. Accordingly, a stockholder’s failure to submit a proxy or to vote in person at the Special Meeting, as well as an abstention from
voting and a broker non-vote with regard to the Director Election Proposal, will have no effect on the election of directors. The Business Combination is conditioned on the approval of the Director Election Proposal, subject to the
terms of the MIPA. If the Business Combination Proposal is not approved, the Director Election Proposal will not be presented to the stockholders for a vote.
|
|
•
|
The Incentive Plan Proposal: The approval of the Incentive Plan Proposal requires
the affirmative vote (in person or by proxy) of the holders of a majority of the shares of Class A Common Stock and Class B Common Stock entitled to vote and actually cast thereon at the Special Meeting, voting as a single class.
Accordingly, a stockholder’s failure to submit a proxy or to vote in person at the Special Meeting, as well as an abstention from voting and a broker non-vote with regard to the Incentive Plan Proposal, will have
|
10
no effect on the Incentive Plan Proposal. The Business Combination is conditioned
on the approval of the Incentive Plan Proposal, subject to the terms of the MIPA. If the Business Combination Proposal is not approved, the Incentive Plan Proposal will not be presented to the stockholders for a vote.
|
•
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The Adjournment Proposal: The approval of the Adjournment Proposal, if presented,
requires the affirmative vote (in person or by proxy) of the holders of a majority of the shares of Class A Common Stock and Class B Common Stock entitled to vote and actually cast thereon at the Special Meeting, voting as a single
class. Accordingly, a stockholder’s failure to submit a proxy or to vote in person at the Special Meeting, as well as an abstention from voting and a broker non-vote with regard to the Adjournment Proposal, will have no effect on the
Adjournment Proposal. The Business Combination is not conditioned on the approval of the Adjournment Proposal.
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The Company’s Officers and Directors Have Financial Interests in the
Business Combination (page [•])
The Sponsor and our directors and officers have interests in the
Business Combination that are different from or in addition to (and which may conflict with) your interests. You should take these interests into account in deciding whether to approve the Proposals. As a result of such interests, the Sponsor
and our directors and officers may be incentivized to complete a business combination with a less favorable combination partner or on terms less favorable to public shareholders rather than fail to complete a business combination by
August 18, 2022 (or such later date as may be approved by the Company’s stockholders) and be forced to liquidate and dissolve the Company. These interests include:
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the fact that our Initial Stockholders have agreed not to redeem any of the Founder Shares in connection with a stockholder
vote to approve the proposed Business Combination;
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the fact that Ophir Sternberg, Thomas W. Hawkins and Roger Meltzer will serve as directors of the Post-Combination
Company;
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the fact that the Sponsor paid an aggregate of $25,000 for 5,000,000 Founder Shares in January 2020 and, in February 2020,
the Company declared a stock dividend of 0.15 share for each Founder Share outstanding, resulting in the Sponsor holding an aggregate of 5,750,000 Founder Shares. After giving effect to the sales or transfer of Founder Shares to
Nomura and in connection with the IPO to certain insiders, the remaining 5,667,500 Founder Shares will have a significantly higher value at the time of the Business Combination, which if unrestricted and freely tradable would be
valued at approximately $56,675,000 but, given the restrictions on such shares, we believe such shares have less value;
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the fact that our Initial Stockholders have agreed to waive their rights to liquidating distributions from the Trust
Account with respect to their Founder Shares if we fail to complete an initial business combination by August 18, 2022 (or such later date as may be approved by the Company’s stockholders);
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the fact that our Initial Stockholders, being holders of Class A Common Stock, are eligible to receive the dividend
comprised of the New Warrants to be issued upon the automatic conversion of the Founder Shares at Closing, and the fact that, because our Initial Stockholders have agreed not to redeem their shares in connection with the Business
Combination, they may receive a significant number of such New Warrants, if other holders of Class A Common Stock elect to exercise their redemption rights;
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the fact that the Sponsor paid an aggregate of $5,950,000 for Private Units comprised of 297,500 Private Warrants to
purchase shares of Class A Common Stock and that such Private Warrants will expire worthless if a business combination is not consummated by August 18, 2022;
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the continued right of the Sponsor to hold Class A Common Stock and the shares of Class A Common Stock to be issued to the
Sponsor upon exercise of its Private Warrants following the Business Combination, subject to certain lock-up periods;
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if the Trust Account is liquidated, including in the event we are unable to complete an initial business combination within
the required time period, the Sponsor has agreed to indemnify us to ensure that the proceeds in the Trust Account are not reduced below $10.00 per public share, or such lesser per public share amount as is in the Trust Account on the
liquidation date, by the claims of prospective target businesses with which we have entered into an acquisition agreement or claims of any third party (other than our independent public accountants) for services rendered or products
sold to us, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;
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the Sponsor (including its representatives and affiliates) and the Company directors and officers, are, or may in the
future become, affiliated with entities that are engaged in a similar business to the Company. For example, each of the Company’s officers may be considered an affiliate of the Sponsor, and the directors and officers of the Company
are also affiliated with Lionheart III and Lionheart IV, all of which are blank check companies incorporated for the purpose of effecting their respective initial business combinations. In addition, Mr. Meltzer serves on the board of
directors of Haymaker Acquisition Corp. III, a blank check company incorporated for the purpose of effecting a business combination. The Sponsor and the Company’s directors and officers are not prohibited from sponsoring, or otherwise
becoming involved with, any other blank check companies prior to the Company completing its initial business combination. Moreover, certain of the Company’s directors and officers have time and attention requirements for certain other
companies. The Company’s directors and officers also may become aware of business opportunities which may be appropriate for presentation to the Company, and the other entities to which they owe certain fiduciary or contractual
duties, including Lionheart III and Lionheart IV. Accordingly, they may have had conflicts of interest in determining to which entity a particular business opportunity should be presented. These conflicts may not be resolved in the
Company’s favor and such potential business opportunities may be presented to other entities prior to their presentation to the Company, subject to applicable fiduciary duties. The Existing Charter provides that the Company renounces
its 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
the Company is legally and contractually permitted to undertake and would otherwise be reasonable for the Company to pursue, and to the extent the director or officer is permitted to refer that opportunity to the Company without
violating another legal obligation. For more information, see “Management of the Company— Conflicts of Interests” ;
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the continued indemnification of our existing directors and officers and the continuation of our directors’ and officers’
liability insurance after the Business Combination;
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the fact that the Sponsor and our directors and officers will lose their entire investment in us and will not be reimbursed
for any out-of-pocket expenses if an initial business combination is not consummated by August 18, 2022; and
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that, at the closing of the Business Combination, we will enter into the Registration Rights Agreement with the Sponsor and
our directors and officers which provides for registration rights to such persons and their permitted transferees.
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These interests may influence our directors and officers in
making their recommendation that you vote in favor of the approval of the Business Combination.
Regulatory Approvals Required for the Business Combination (page [210])
Completion of the Business Combination is subject to approval
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). Each of MSP and the Company has agreed to use their respective reasonable best efforts to take all actions to consummate and make effective the
transactions contemplated by the MIPA and use their reasonable best efforts to obtain each material third-party consent and approval required to be obtained in order to consummate the transactions set forth under the MIPA as promptly as
practicable. On November 30, 2021, the Company and MSP filed the required forms under the HSR Act with respect to the Business Combination with the Antitrust Division and the FTC and requested early termination. The related HSR Act waiting
period expired on December 30, 2021. The regulatory approvals to which completion of the Business Combination are subject are described in more detail in the section of this proxy statement/prospectus entitled “Regulatory Approvals Required for the Business Combination” beginning on page [210].
Appraisal Rights (page [99])
Holders of our common stock are not entitled to appraisal rights
in connection with the Business Combination under the DGCL.
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Conditions to the Business Combination (page [219])
Conditions to Each Party’s Obligations. The respective obligations of each of the parties to the MIPA to complete the Business Combination are subject to the satisfaction or waiver at or prior to the Closing of the following conditions:
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there not being in force any law, judgment, injunction, decree or order of any court, arbitrator or other governmental
authority enjoining, restraining or prohibiting the consummation of the Closing;
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the approval by the Company’s stockholders of the Business Combination Proposal, the Nasdaq Proposal, the Charter Approval
Proposal, the Director Election Proposal, and the Incentive Plan Proposal (collectively, the “Condition Precedent Proposals”);
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the shares of Class A Common Stock to be issued (i) pursuant to the Business Combination, (ii) upon conversion of the
Class B Units of Opco that are included in the Up-C Units, or (iii) upon exercise of the New Warrants, in each case, being approved for listing on Nasdaq;
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the Company having net tangible assets of at least $5,000,001 upon the consummation of the Business Combination, after
giving effect to any Company stockholder redemptions;
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the expiration or termination of any applicable waiting period (including any extension thereof) under the HSR Act
(which waiting period expired on December 30, 2021);
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the registration statement of which this proxy statement/prospectus forms a part having become effective in accordance with
the provisions of the Securities Act, no stop order having been issued by the SEC which remains in effect with respect to the registration statement, and no proceeding seeking such a stop order having been threatened or initiated by
the SEC which remains pending; and
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the cash and cash equivalents of MSP and Opco (after giving effect to any redemptions and the payment of transaction costs,
including deferred underwriting fees), as of the Effective Time, plus all amounts in the Trust Account, not being less than $30.0 million (such condition, the “Minimum Cash Condition”), provided, however, that Messrs. Ruiz and Quesada
have agreed to loan (or cause to be loaned) to MSP up to the aggregate amount then-remaining in the Service Fee Account, and the Minimum Cash Condition will be deemed to be satisfied if that amount is so loaned, irrespective of the
amount of cash actually held by MSP and Opco.
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Conditions to Obligations of the Company and
Opco. The obligation of the Company and Opco to complete the Business Combination are also subject to the satisfaction or waiver by the Company and Opco of the following conditions:
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each of MSP and the Members having performed in all material respects their respective obligations required to be performed
under the MIPA at or prior to the Closing Date;
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the representations and warranties of MSP and the Members contained in the MIPA, disregarding all qualifications and
exceptions contained therein relating to materiality, being true, correct and complete at and as of the Closing Date, as if made at and as of such date (except to the extent expressly made as of an earlier date, in which case only as
of such date), except where the failure of such representations and warranties to be so true and correct, has not had, and would not have, a Material Adverse Effect (as defined in the MIPA);
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MSP, the Members and the Members’ Representative, as applicable, having executed and delivered to the Company a copy of
certain ancillary agreements to which it is a party;
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the Company having received a certificate signed by the Chief Executive Officer, Chief Financial Officer or other
authorized person of MSP stating that the conditions specified in Section 10.2(a) and Section 10.2(b) of the MIPA have been satisfied;
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no Material Adverse Effect having occurred since the date of the MIPA; and
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the Company having received the Tax Receivable Agreement duly executed by the Company, Opco and certain Members.
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Conditions to Obligations of MSP. The obligation of MSP and the Members to complete the Business Combination are also subject to the satisfaction or waiver by MSP and the Members of the following conditions:
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the Company and Opco having performed in all material respects their respective obligations under the MIPA required to be
performed at or prior to the Closing Date;
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the representations and warranties of the Company and Opco contained in the MIPA, disregarding all qualifications and
exceptions contained therein relating to materiality, being true and correct at and as of the Closing Date, as if made at and as of such date (except to the extent expressly made as of an earlier date, in which case only as of such
date), except where the failure of such representations and warranties to be so true and correct, has not had, and would not have, a Parent Material Adverse Effect (as defined in the MIPA);
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the Members’ Representative having received a certificate signed by an authorized officer of the Company stating that the
conditions specified in Section 10.3(a) and Section 10.3(b) of the MIPA have been satisfied;
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the Company having delivered to the Members’ Representative (i) certified copies of the resolutions duly adopted by each of
the Company’s and Opco’s Boards of Directors authorizing the execution, delivery and performance of the MIPA; and (ii) written resignations, in forms satisfactory to the Members’ Representative, dated as of the Closing Date and
effective as of the Closing, executed by (A) all officers of the Company and Opco; and (B) all persons serving as directors of the Company and Opco immediately prior to the Closing who are not selected as directors in accordance with
Section 9.8 of the MIPA;
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the Company and Opco having executed and delivered to the Members’ Representative a copy of certain ancillary agreements to
which each is a party;
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no Parent Material Adverse Effect having occurred since the date of the MIPA;
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the Board having been appointed as the board of directors of the Post-Combination Company;
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each of the covenants of the Sponsor required under the Sponsor Agreement to be performed as of or prior to the Closing
having been performed in all material respects, and none of the Sponsors having threatened (orally or in writing) (i) that the Sponsor Agreement is not valid, binding and in full force and effect, (ii) that the Company is in breach of
or default under the Sponsor Agreement or (iii) to terminate the Sponsor Agreement; and
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Opco having delivered the Tax Receivable Agreement, duly executed by the Company, Opco and certain Members.
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No Solicitation (page [•])
MSP and the Members. From the date of the MIPA until the earlier of the Closing or the termination of the MIPA, neither MSP nor any of the Members will, and such persons will not permit their respective affiliates or representatives to, directly or
indirectly, (i) encourage, solicit, initiate, engage, participate, enter into discussions or negotiations with any person concerning any merger, acquisition consolidation, recapitalization, share exchange, business combination or other
similar transaction, possible public investment or public offering with respect to MSP or any sale, lease, exchange, transfer or other disposition of a material portion of the assets of MSP or any class or series of the capital stock, or
membership interests of MSP in a single transaction or series of transactions, other than the transactions contemplated by the MIPA (each an “Alternative Transaction”), (ii) take any other action intended or designed to facilitate the
efforts of any person relating to a possible Alternative Transaction; or (iii) approve, accept, recommend or enter into any Alternative Transaction or any contract related to any Alternative Transaction.
The Company.
From the date of the MIPA until the earlier of the Closing, or the termination of the MIPA, the Company will not take, nor shall it permit any of its affiliates or representatives to take, whether directly or indirectly, any action to
solicit, initiate, continue or engage in discussions or negotiations with, or enter into any agreement with, or encourage, respond, provide information to or commence due diligence with respect to, any person (other than MSP, the Members
and/or any of their affiliates or representatives), concerning, relating to or which is intended or is reasonably likely to give rise to or result in, any offer, inquiry, proposal or indication of interest, written or oral relating to any
business combination other than with MSP, the Members, and their respective affiliates and representatives.
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Termination (page [220])
The MIPA may be terminated, and the transactions contemplated
thereby abandoned at any time prior to Closing by mutual written consent or by either the Company or the Members’ Representative, on behalf of MSP and the Members, in the event that the Closing does not occur by June 30, 2022 (the “Outside
Closing Date”) and no material breach of the MIPA by the party seeking to terminate the MIPA has occurred. The Company or the Members’ Representative, on behalf of MSP and the Members, may also terminate the MIPA if the other party
materially breaches any representation, warranty, agreement or covenant contained in the MIPA or in any Additional Agreement (as defined in the MIPA) to be performed on or prior to the Closing Date and such breach is not cured by the
earlier of (x) the Outside Closing Date and (y) the expiration of 20 days following receipt by the breaching party of a notice describing in reasonable detail the nature of such breach.
The MIPA may also be terminated by the Members’ Representative
on behalf of MSP and the Members by written notice to the Company if (i) the LCAP Board withdraws (or modifies in any manner adverse to MSP or the Members), or proposes to withdraw (or modify in any manner adverse to MSP or the Members), the
LCAP Board’s recommendation in favor of the Proposals, or fails to reaffirm such recommendation as promptly as practicable (and in any event within five business days) after receipt of any written request to do so by the Members’
Representative; (ii) the Condition Precedent Proposals shall not have been approved at the Special Meeting (or at any adjournment or postponement thereof); or (iii) following February 18, 2022 if, prior to such date, the Company is unable to
obtain the requisite approval from its stockholders to extend the deadline for the Company to consummate its initial business combination beyond February 18, 2022 to a date no earlier than 60 days following the Outside Closing Date.
Effect of Termination
In the event of the termination of the MIPA pursuant to Article
XIII thereof, all obligations of the parties thereunder (other than certain provisions relating to confidentiality, indemnification, the effects of termination or other specified provisions, which will survive the termination of the MIPA)
will terminate without any liability of any party; provided, that no termination will relieve a party from any liability arising from or relating to any knowing and intentional breach of a representation, a warranty or a covenant by such
party prior to termination.
Other Agreements (page [222])
LLC Agreement
Concurrently with the Closing, Opco will adopt the LLC Agreement
whereby the Company will be named the sole manager of Opco. The LLC Agreement will authorize two classes of common units; voting economic Class A Units held solely by the Company and non-voting economic Class B Units to be issued as part of
the Up-C Units in connection with the Business Combination. Holders of Class B Units will be able to exchange all or any portion of their Class B Units, together with the cancellation of an equal number of the paired shares of Class V Common
Stock, for a number of shares of Class A Common Stock equal to the number of exchanged Class B Units by delivering a written notice to the Company. Notwithstanding the foregoing, the Company will be permitted, at its sole discretion, in lieu
of delivering shares of Class A Common Stock for any Class B Units surrendered for exchange, to pay an amount in cash per Class B Unit equal to the arithmetic average of the volume weighted average prices for a share of Class A Common Stock
as reported by Bloomberg, L.P., or its successor, for the five consecutive full trading days ending on and including the last full trading day immediately prior to the date of exchange. Additionally, pursuant to the LLC Agreement, certain of
the Members are required on a bimonthly basis, to sell to Opco a number of Class B Units, and surrender a number of paired Class V Common Stock, equal to (x) the aggregate Exercise Price (as defined in the New Warrant Agreement) paid
(including, as applicable, the aggregate Exercise Price paid in cash and the value of any shares of Class A Common Stock utilized in connection with any Exercise Price paid on a “cashless basis”) by all warrantholders in respect of New
Warrants that have been exercised, divided by (y) the Exercise Price. The form of LLC Agreement is attached to this proxy statement/prospectus as Annex D.
Lock-up Agreement
In connection with the execution of the MIPA, John H. Ruiz and
Frank C. Quesada (the “MSP Holders”) entered into lock-up agreements (each, a “Lock-up Agreement”) with the Company. Pursuant to the Lock-up Agreements, the MSP Holders agreed, among other things, that their Up-C Units and any shares of
Class A Common Stock received in lieu of Up-C Units, subject to certain exclusions and exceptions (including, among other things, that 10% of the Up-C Units or shares of Class A Common Stock received by the MSP Holders are excluded from
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the lock-up restrictions), may not be transferred until the earlier to occur of
(i) six months following Closing and (ii) the date after the Closing on which the Company completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the Company’s stockholders
having the right to exchange their equity holdings in the Company for cash, securities or other property. The form of Lock-up Agreement is attached to this proxy statement/prospectus as Annex K.
Sponsor Agreement
Concurrently with the execution of the MIPA, the Company entered
into an Amended and Restated Sponsor Agreement (the “Sponsor Agreement”) with Opco and certain directors and officers of the Company (the “Insiders”) pursuant to which the Sponsor and Insiders have agreed: (a) to vote any shares of common
stock of the Company owned by it, him or her (all such shares of common stock, the “Covered Shares”) in favor of the Proposals at the Special Meeting or any other duly called special meeting of the Company’s stockholders (or any adjournment
or postponement thereof) called or requested for the purpose of soliciting the approval of the Company’s stockholders in connection with the consummation of the Business Combination; (b) not redeem, elect to redeem or tender or submit any
Covered Shares owned by it, him or her for redemption in connection with the transactions contemplated by the MIPA or any vote to amend the Existing Charter; and (c) subject to certain exceptions set forth in the Sponsor Agreement, not to
transfer any shares of Class A Common Stock or any Private Warrants until the earlier of (i) six months after the consummation of the Business Combination or (ii) subsequent to the Business Combination, (x) if the closing price of the Class A
Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the
Business Combination or (y) the date on which the Company completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the Company’s stockholders having the right to exchange
their shares of Class A Common Stock for cash, securities or other property. The Sponsor Agreement is attached to this proxy statement/prospectus as Annex G.
Registration Rights Agreement
The MIPA contemplates that, at the Closing, the Company, the
Sponsor, certain Company stockholders, and certain Members will enter into the Registration Rights Agreement pursuant to which, among other things, the Company will agree to register for resale, pursuant to Rule 415 under the Securities Act,
the Registrable Securities (as defined in the Registration Rights Agreement) that are held by and as appropriately requested by the parties thereto from time to time. Pursuant to the Registration Rights Agreement, the Company will agree to
use commercially reasonable efforts to file a registration statement registering the resale of the Registrable Securities within 45 days of receipt of a demand for registration by certain holders of Registrable Securities that are party
thereto. Certain holders of Registerable Securities may request to sell all or any portion of their Registrable Securities in an underwritten offering so long as a majority-in-interest of such holders participate in and their Registrable
Securities are included in the underwritten offering. The Company also will agree to provide customary “piggyback” registration rights, subject to certain requirements and customary conditions. The Registration Rights Agreement also provides
that the Company will pay certain expenses relating to such registrations and indemnify the stockholders and underwriters against certain liabilities. The form of Registration Rights Agreement is attached to this proxy statement/prospectus as
Annex E.
Tax Receivable Agreement
In connection with the MIPA and the reorganization of the
Post-Combination Company into an Up-C structure, the Company, Opco, and certain of the Members will enter into a tax receivable agreement (the “Tax Receivable Agreement”) pursuant to which, among other things, the Company will pay to
certain Members, 85% of the benefits, if any, that the Company realizes from an increase in tax basis and certain other tax benefits. The form of Tax Receivable Agreement is attached to this proxy statement/prospectus as Annex F. A corporation that owns a partnership is required to record the deferred tax related to its outside basis difference, which reflects the book basis compared to tax basis in the
investment in the partnership. Under the no redemption scenario, there would be a deferred tax liability of approximately $1.5 million. Under the expense adjusted maximum redemption scenario, the Post-Combination Company would record a
deferred tax liability of $4.1 million. Due to the uncertainty in the amount and timing of future exchanges of Up-C Units, the unaudited pro forma condensed combined financial information assumes that no exchanges of Up-C Units have
occurred at the Closing of the Business Combination and therefore no tax liability from future exchanges is reflected. However, if all of the stockholders holding Up-C Units
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were to exchange all of their Up-C Units, the Post-Combination Company would
recognize a deferred tax asset of approximately $10.7 billion and a liability of approximately $9.1 billion, assuming (i) all exchanges occurred on the Closing Date; (ii) a price of $10.00 per share; (iii) a constant corporate tax rate of
26%; (iv) the Post-Combination Company will have sufficient taxable income to fully utilize the tax benefits; and (v) no material changes in tax law. See also “Unaudited Pro Forma Condensed Combined
Financial Information.”
Escrow Agreement
In connection with the MIPA, the Company, Opco, the Members’
Representative and Continental Stock Transfer & Trust Company will enter into an Escrow Agreement, pursuant to which Continental Stock Transfer & Trust Company, as the escrow agent, will hold in escrow the 6,000,000 Up-C Units set
aside from the consideration and delivered by the Company to the escrow agent at the Closing and any earnings on such shares (other than ordinary income dividends) to satisfy each of MSP and the Members’ potential indemnification obligations
under the MIPA. All property in the escrow account, less any amounts reserved for pending indemnification claims, will be released for distribution to the Members on the first anniversary of the Closing. The form of Escrow Agreement is
attached to this proxy statement/prospectus as Annex I.
Legal Services Agreement
The MIPA contemplates that, at the Closing, Opco and La Ley con
John H. Ruiz P.A., d/b/a MSP Recovery Law Firm, an affiliate of certain Members (the “Law Firm”), will enter into a Legal Services Agreement (“Legal Services Agreement”) whereby Opco will engage the Law Firm to act as exclusive lead counsel
to represent Opco and each of its subsidiaries as it pertains to certain assigned claims, causes of actions, proceeds, products and distributions (“CCRAs”). Pursuant to the terms of the Legal Services Agreement, among other things, Opco will
pay the Law Firm for its costs (including but not limited to rent, utilities, filing fees, expert witness fees, deposition fees, witness fees, court reporter fees, long distance telephone charges, photocopy charges and mailing fees,
collectively, “Costs”) in connection with the representation with respect to the CCRAs as well as 40% of the amount due to Opco, or its subsidiaries, for the recoveries ultimately obtained before deduction of costs and any attorneys’ fees
that are awarded to the Law Firm pursuant to a fee shifting statute by agreement or court award. The form of Legal Services Agreement is attached to this proxy statement/prospectus as Annex L.
New Warrant Agreement
In connection with the Business Combination and to provide
additional consideration to holders of Class A Common Stock that do not redeem their shares of Class A Common Stock the Company intends, subject to compliance with applicable law, to declare a dividend comprising an aggregate of
approximately 1,029,000,000 New Warrants, as further set forth herein. The New Warrants will be issued in registered form under a warrant agreement between the Company and Continental Stock Transfer & Trust Company (the “New Warrant
Agreement”). The form of New Warrant Agreement is attached to this proxy statement/prospectus as Annex M.
Second Amended and Restated Charter
Pursuant to the terms of the MIPA, in connection with the
consummation of the Business Combination, prior to the Closing, the Company will amend the Existing Charter to (a) increase the number of authorized shares of the Company’s capital stock, par value $0.0001 per share, from 111,000,000
shares, consisting of (i) 100,000,000 shares of the Class A Common Stock and 10,000,000 shares of the Class B Common Stock, and (ii) 1,000,000 shares of preferred stock, to 8,760,000,000 shares, consisting of (i) 5,500,000,000 shares of
Class A Common Stock and 3,250,000,000 shares of Class V Common Stock and (ii) 10,000,000 shares of preferred stock, (b) eliminate certain provisions in the Existing Charter relating to the Class B Common Stock, the initial business
combination and other matters relating to the Company’s status as a blank-check company that will no longer be applicable to us following the Closing, and (c) approve and adopt any other changes contained in the Proposed Charter, a copy of
which is attached as Annex B to this proxy statement/prospectus. In addition, we will amend the Existing Charter to change the name of the corporation to “MSP Recovery, Inc.”
Amended and Restated Bylaws
Pursuant to the terms of the MIPA, in connection with the
consummation of the Business Combination, the Company will amend and restate its bylaws. The form of the Amended and Restated Bylaws is attached to this proxy statement/prospectus as Annex C.
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VRM Full Return Guaranty
In connection with the agreements relating to VRM, described
more fully in this proxy statement/prospectus under the heading “Certain Relationships and Related Party Transactions—MSP and the Post-Combination Company – VRM” beginning on
page [244], in connection with the Closing, the Company, Opco, Messrs. Ruiz and Quesada, MSP Recovery and VRM entered into a guaranty agreement (the “VRM Full Return Guaranty Agreement”), dated March 9,
2022, pursuant to which, among other things, if the VRM Full Return (defined below) has not been paid by distribution of recovery proceeds from VRM MSP to VRM prior to such time, then Messrs. Ruiz and Quesada, along with Opco and the
Post-Combination Company, will guarantee the payment to VRM of any amount of the VRM Full Return, that remains unpaid at such time, on or prior to the one-year anniversary of the Closing by any of the following means (or any combination
thereof): (a) sale of the 65,000,000 Up-C Units that are to be delivered by Messrs. Ruiz and Quesada at Closing and held in escrow (the “Reserved Shares”), and delivery of the resulting net cash proceeds thereof to VRM, or (b) sale of
additional shares of Company Class A Common Stock and delivery of the net cash proceeds thereof to VRM. The “VRM Full Return” means an amount of recovery proceeds distributed (i) first, until VRM received, in the aggregate, a 20% annual
compounded return on its contributions to VRM MSP, (ii) second, until VRM received an aggregate amount equal to its contributions to VRM MSP (the aggregate amount of clauses (i) and (ii), collectively, the “VRM Full Return”). Pursuant to
the VRM Full Return Guaranty Agreement, Mr. Ruiz’s obligations will be limited to a value equal to 70% of the VRM Full Return, Mr. Quesada’s obligations will be limited to a value equal to 30% of the VRM Full Return, and the
Post-Combination Company and Opco’s obligations will be limited to a value equal to 100% of the VRM Full Return.
The foregoing summary of the VRM Full Return Guaranty
Agreement is not complete and is qualified in its entirety by reference to the complete text of the form of VRM Full Return Guaranty Agreement, which is filed as Annex P this proxy
statement/prospectus.
Virage Side Letter Agreement
In addition to the VRM Full Return Guaranty, also in connection
with the agreements relating to VRM, described more fully in this proxy statement/prospectus under the heading “Certain Relationships and Related Party Transactions—MSP and the Post- Combination Company – VRM”
beginning on page [244], Messrs. Ruiz and Quesada (the “MRCS Principals”) executed and delivered to the Company and Opco a side letter agreement, on July 11, 2021 (the “Virage Side Letter Agreement”). Pursuant to the terms
of the Virage Side Letter Agreement, among other things, the MRCS Principals guaranteed to the Company and Opco that, in the event that the VRM Full Return has not been paid in full on or prior to the one year anniversary of the Closing by
way of one of the enumerated methods of payment set forth in the VRM Full Return Guaranty, then the MRCS Principals will promptly pay the amount by which (x) the remaining amount of the VRM Full Return exceeds (y) the realized cash proceeds
from (i) payment of recovery proceeds to VRM and/or (ii) the sale of the Reserved Shares, and delivery of the resulting net cash proceeds thereof to VRM (such amount, the “Reserved Share Shortfall Amount”); provided that in no case shall the
Reserved Share Shortfall Amount exceed the then-current value of the Up-C Units (based upon the then-current market value of the equivalent number of shares of Company Class A Common Stock) received by the MRCS Principals and their controlled
affiliates pursuant to the terms of the MIPA.
The foregoing summary of the Virage Side Letter Agreement is not
complete and is qualified in its entirety by reference to the complete text of the Virage Side Letter Agreement, which is filed as Annex O to this proxy statement/prospectus.
Nasdaq Listing (page [•])
The Class A Common Stock, the Public Warrants and the Public
Units are currently listed on Nasdaq under the symbols “LCAP,” “LCAPW” and “LCAPU,” respectively. We intend to apply to continue the listing of our Class A Common Stock and Public Warrants on Nasdaq under the symbols “MSPR” and “LCAPW,”
respectively, and apply to list the New Warrants under the symbol “MSPRW,” upon the closing of the Business Combination. If issued, the New Warrants are expected to trade promptly following their issuance. At the Closing, each Unit will
separate into its components, comprising one share of Class A Common Stock and one-half of one Public Warrant.
Risk Factors
You should consider all the information contained in this proxy
statement/prospectus in deciding how to vote for the proposals presented in this proxy statement/prospectus. In particular, you should consider the risk factors described under “Risk Factors” beginning
on page [29]. The occurrence of one or more of the events or
18
circumstances described in that section, alone or in combination with other
events or circumstances, may have a material adverse effect on (i) the ability of the Company and MSP to complete the Business Combination, and (ii) the business, cash flows, financial condition and results of operations of MSP prior to the
consummation of the Business Combination and the Post-Combination Company following consummation of the Business Combination.
Tax Considerations (page [•])
For a discussion of the material U.S. federal income tax
considerations for holders of Public Shares with respect to the exercise of their redemption rights, see “Material U.S. Federal Income Tax Considerations” beginning on page [225].
Information about the Company (page [124])
The Company is a blank check company formed under the laws of
the State of Delaware on December 23, 2019 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. The Class A Common Stock,
the Public Warrants and the Public Units are currently listed on Nasdaq under the symbols “LCAP,” “LCAPW” and “LCAPU,” respectively. The mailing address of the Company’s executive offices is 4218 NE 2nd Avenue, Miami, Florida 33137 and the
telephone number of the Company’s executive offices is (305) 573-3900.
Information about MSP (page [147])
MSP is a healthcare recovery and data analytics company. MSP has
also developed software that solves many of the proper payment issues currently being experienced by doctors, hospitals as well as other healthcare practitioners as well as payers within the healthcare system. The MSP systems provide a
platform for providers to identify proper payers at the time of patient encounter and to collect payment more quickly, at proper amounts. MSP identified systemic issues relating to police reporting at the time of auto accidents and is in the
process of developing software to solve these issues. This software system, utilizing blockchain technology, will involve the proper capture of data to assist first responders in identifying health conditions at the scene of accidents in
order to properly treat individuals taking into account their health conditions for improved patient care. MSP’s system will also enable individuals to access their health care data, which will be encrypted stored and accessed through a
cloud. Individuals can then choose to grant immediate data access to their healthcare practitioners, for healthcare services based on up-to-date patient medical information. MSP’s agreements allow for MSP to monetize the claims that are
processed and properly identified. MSP’s business model includes two principal lines of business: (a) claims recovery and (b) “chase to pay” services. First, through the claims recovery services, MSP acquires claims via assignment from its
Assignors and utilizes its proprietary data analytics system to identify improper payments for healthcare services. Upon identification of improper payments, MSP then seeks to recover the amounts owed to its Assignors against those parties
who, under applicable law or contract, were primarily responsible for payment. Second, MSP has been developing the process of a real-time data analytics platform (“Chase to Pay”) to assist healthcare providers in identifying the proper
primary insurer at the point of care, thereby helping MSP’s clients avoid making a wrongful payment for services rendered by a provider, as well as providing more efficient healthcare services. See the section entitled “Information About MSP” beginning on page [147] for more information.
19
The following table contains summary historical financial data
of the Company for the periods and as of the dates indicated.
The Company’s statement of operations and cash flows data for
the years ended December 31, 2021 and 2020 and balance sheet data as of December 31, 2021 and 2020 is derived from the Company’s audited financial statements included elsewhere in this proxy statement/prospectus.
This information is only a summary and should be read in
conjunction with the Company’s financial statements and related notes, and “The Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contained elsewhere in this proxy statement/prospectus. The
historical results included below and elsewhere in this proxy statement/prospectus are not indicative of the future performance of the Company.
|
|
| |
Year Ended December 31,
|
|||
|
(in thousands, except share and per share data)
|
| |
2021
|
| |
2020
|
|
Statement of Operations Data
|
| |
|
| |
(as restated)
|
|
|
| |
|
| |
|
|
Loss from operations
|
| |
$(3,785)
|
| |
$(1,472)
|
|
Other income (expense), net
|
| |
$6,992
|
| |
$(590)
|
|
Income (loss) before (provision for) benefit from income taxes
|
| |
$3,207
|
| |
$(2,062)
|
|
Net Income (loss)
|
| |
$3,207
|
| |
$(2,062)
|
|
|
| |
|
| |
|
|
Basic and diluted weighted average shares
outstanding, Class A Common Stock
|
| |
23,650,000
|
| |
8,674,180
|
|
Basic and diluted net income (loss) per share, Class A Common Stock
|
| |
$0.11
|
| |
$(0.15)
|
|
|
| |
|
| |
|
|
Basic and diluted weighted average shares
outstanding, Class B Common Stock
|
| |
5,750,000
|
| |
5,127,732
|
|
Basic and diluted net income (loss) per share, Class B Common Stock
|
| |
$0.11
|
| |
$(0.15)
|
|
|
| |
|
| |
|
|
Statement of Cash Flows Data
|
| |
|
| |
|
|
Net cash used in operating activities
|
| |
$(848)
|
| |
$(434)
|
|
Net cash provided by (used in) investing activities
|
| |
$13
|
| |
$(230,000)
|
|
Net cash (used in) provided by financing activities
|
| |
$(5)
|
| |
$231,452
|
|
Balance Sheet Data
|
| |
As of December 31,
|
|||
|
(in thousands, except share and per share data)
|
| |
2021
|
| |
2020
|
|
|
| |
|
| |
(as restated)
|
|
Total assets
|
| |
$230,199
|
| |
$231,153
|
|
Total liabilities
|
| |
$18,424
|
| |
$22,584
|
|
Class A common stock subject to possible redemption
|
| |
$230,000
|
| |
$230,000
|
|
Total deficit
|
| |
$(18,225)
|
| |
$(21,431)
|
20
The following table contains summary historical financial data
of MSP for the periods and as of the dates indicated.
MSP’s statement of operations data and statement of cash
flows data for the years ended December 31, 2021 and 2020, and balance sheet data as of December 31, 2021 and 2020 are derived from MSP’s audited combined and consolidated financial statements included elsewhere in this proxy
statement/prospectus.
The information is only a summary and should be read in
conjunction with MSP’s combined and consolidated financial statements and related notes, and “MSP Recovery’s Management’s Discussion and Analysis of Financial Condition and Results of
Operations”, contained elsewhere in this proxy statement/prospectus. MSP’s historical results are not necessarily indicative of future results.
|
|
| |
Year Ended December 31,
|
|||
|
(in thousands, except share and per share data)
|
| |
2021
|
| |
2020
|
|
Statement of Operations Data
|
| |
|
| |
|
|
|
| |
|
| |
|
|
Total Claims Recovery
|
| |
$14,626
|
| |
$13,887
|
|
Total operating expenses
|
| |
$21,796
|
| |
$17,216
|
|
Operating loss
|
| |
$(7,170)
|
| |
$(3,329)
|
|
Net loss
|
| |
$(33,077)
|
| |
$(24,266)
|
|
Less: Net income (loss) attributable to non-controlling members
|
| |
$(16)
|
| |
$18
|
|
Net loss attributable to Stockholders
|
| |
$(33,093)
|
| |
$(24,248)
|
|
|
| |
|
| |
|
|
Statement of Cash Flows Data
|
| |
|
| |
|
|
Net cash provided by (used in) operating activities
|
| |
$2,249
|
| |
$(14)
|
|
Net cash (used in) provided by investing activities
|
| |
$(2,007)
|
| |
$986
|
|
Net cash (used in) provided by financing activities
|
| |
$(10,457)
|
| |
$9,610
|
|
Balance Sheet Data
|
| |
As of December 31,
|
|||
|
(in thousands, except share and per share data)
|
| |
2021
|
| |
2020
|
|
|
| |
|
| |
|
|
Total assets
|
| |
$104,006
|
| |
$17,843
|
|
Total liabilities
|
| |
$255,414
|
| |
$133,690
|
|
Total Stockholders' Equity Attributable to Stockholders
|
| |
$(155,756)
|
| |
$(120,179)
|
|
Noncontrolling interest
|
| |
$4,348
|
| |
$4,332
|
|
Total deficit
|
| |
$(151,408)
|
| |
$(115,847)
|
21
The following summary unaudited pro forma condensed combined
financial data (the “summary pro forma data”) gives effect to the Business Combination and related transactions described in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information”. The Business Combination is a
common control transaction that will be accounted for similar to a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP. Under this method of accounting, LCAP will be treated as the
“acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent of MSP issuing stock for the net assets of LCAP, accompanied by a recapitalization. The
net assets of LCAP will be stated at historical cost, with no goodwill or other intangible assets recorded. The summary unaudited pro forma condensed combined balance sheet data as of December 31, 2021 gives pro forma effect to the Business
Combination and related transactions as if they had occurred on December 31, 2021. The summary unaudited pro forma condensed combined statement of operations data for the year ended December 31, 2021 give pro forma effect to the Business
Combination and related transactions as if they had been consummated on January 1, 2021. For further details, see the section titled “Anticipated Accounting Treatment” beginning on page [210] of this proxy
statement/prospectus.
The summary pro forma data have been derived from, and should be
read in conjunction with, the unaudited pro forma condensed combined financial information of the combined company appearing elsewhere in this proxy statement/ prospectus and the accompanying notes. The unaudited pro forma condensed combined
financial information is based upon, and should be read in conjunction with, the historical financial statements of LCAP and related notes and the historical financial statements of MSP Recovery and related notes included in this proxy
statement/prospectus. The summary pro forma data have been presented for informational purposes only and are not necessarily indicative of what the combined company’s financial position or results of operations actually would have been had
the Business Combination and related transactions been completed as of the dates indicated. In addition, the summary pro forma data do not purport to project the future financial position or operating results of the combined company.
The following table presents summary pro forma data after giving
effect to the Business Combination and related transactions, assuming two redemption scenarios as follows:
|
•
|
No Redemption Scenario: this scenario assumes that no
additional shares of Class A Common Stock are redeemed, after giving effect to the redemption of 10,946,369 shares of Class A Common Stock in connection with the Company stockholder vote to approve the Extension Amendment.
|
|
•
|
Expense Adjusted Maximum Redemption Scenario: this
scenario assumes that 5,401,587 shares of Class A Common Stock are redeemed for an aggregate payment of approximately $54.0 million (based on the estimated per share redemption price of approximately $10.00 per share) from the Trust
Account. The remaining shares not redeemed include 650,000 shares of Class A Common Stock that are not subject to redemption as the shareholders have waived redemption rights. Cash available for the expense adjusted maximum
redemption scenario is calculated as the cash in trust less remaining transaction costs to be paid in cash reflected in the unaudited pro forma condensed combined balance sheet.
|
|
Unaudited Pro Forma Condensed Combined
Statement of Operations Data
|
| |
Year Ended
December 31, 2021
|
|||
|
(in thousands, except share and per share data)
|
| |
No
Redemption
|
| |
Expense Adjusted
Maximum Redemption
|
|
Total Claims Recovery
|
| |
$14,626
|
| |
$14,626
|
|
Total operating expenses
|
| |
$25,886
|
| |
$25,886
|
|
Operating Income loss
|
| |
$(11,260)
|
| |
$(11,260)
|
|
Loss before provision for income taxes
|
| |
$(30,190)
|
| |
$(31,314)
|
|
Net loss
|
| |
$(30,123)
|
| |
$(31,011)
|
|
Less: Net loss attributable to non-controlling members
|
| |
$(26,324)
|
| |
$(27,483)
|
|
Net loss attributable to Stockholders
|
| |
$(3,799)
|
| |
$(3,528)
|
|
Basic and diluted pro forma weighted average shares
outstanding, Class A Common stock
|
| |
30,278,631
|
| |
24,877,044
|
|
Basic and diluted pro forma net loss per share, Class A Common stock
|
| |
$(0.13)
|
| |
$(0.14)
|
22
|
Unaudited Pro Forma Condensed Combined Balance Sheet Data
|
| |
As of
December 31, 2021
|
|||
|
(in thousands, except share and per share data)
|
| |
No Redemption
|
| |
Expense Adjusted
Maximum Redemptions
|
|
Total assets
|
| |
$6,169,403
|
| |
$6,143,484
|
|
Total liabilities
|
| |
$251,020
|
| |
$281,692
|
|
Total Stockholders' Equity Attributable to Stockholders
|
| |
$61,202
|
| |
$52,914
|
|
Noncontrolling interest
|
| |
$5,857,181
|
| |
$5,809,598
|
|
Total equity
|
| |
$5,918,383
|
| |
$5,861,792
|
23
MARKET PRICE AND DIVIDEND INFORMATION
The Company
The Class A Common Stock, the Public Warrants and the Public
Units are currently listed on Nasdaq under the symbols “LCAP,” “LCAPW” and “LCAPU,” respectively.
The closing price of the Class A Common Stock on July 9, 2021,
the last trading day before announcement of the execution of the MIPA, was $9.89 per share. As of , 2022, the Record Date, the closing price of the Class A Common Stock was $ per share.
Holders of the Class A Common Stock should obtain current market
quotations for their securities. The market price of the Class A Common Stock could vary at any time before the Business Combination.
Holders
As of , 202[•], there were holders of record of the
Class A Common Stock and holders of record of the Class B Common Stock.
Dividend Policy
The Company has not paid any cash dividends on its common stock
to date and does not intend to pay cash dividends prior to the completion of the Business Combination. The payment of cash dividends in the future will be dependent upon the Post-Combination Company’s revenues and earnings, if any, capital
requirements and its general financial condition subsequent to completion of the Business Combination. The payment of any cash dividends subsequent to the Business Combination will be within the discretion of the Board at such time. The
Post-Combination Company’s ability to declare dividends may also be limited by restrictive covenants pursuant to any debt financing agreements.
In connection with the Business Combination and to provide
additional consideration to holders of Class A Common Stock that do not redeem their shares of Class A Common Stock, the Company intends, subject to compliance with applicable law, to declare a dividend comprising an aggregate of
approximately 1,029,000,000 New Warrants, conditioned upon the consummation of any redemptions by the holders of Class A Common Stock and the Closing, to the holders of record of the Class A Common Stock as of the Closing Date, after giving
effect to the waiver of the right, title and interest in, to or under, participation in any such dividend by the Members, on behalf of themselves and any of their designees.
The Company intends to establish the close of business of the
anticipated Closing Date as the Warrant Record Date for stockholders entitled to receive their pro rata portion of the approximately 1,029,000,000 New Warrants. The Warrant Record Date is expected to be determined at least 10 days prior to
the Closing Date. The Company expects that a dividend of the New Warrants will be distributed following the Closing Date to stockholders of record as of the close of business on the Warrant Record Date, and after giving effect to the waiver
of the right, title and interest in, to or under, participation in any such dividend by the Members, on behalf of themselves and any of their designees.
The number of New Warrants to be distributed in respect of
each share of unredeemed Class A Common Stock is contingent upon, and will vary with, the aggregate number of shares of Class A Common Stock that are redeemed in connection with the Business Combination. Holders who choose to redeem their
shares of Class A Common Stock will not receive any New Warrants. Public Stockholders who choose not to redeem their shares of Class A Common Stock will share in this fixed pool of New Warrants with other non-redeeming holders (on a
pro-rata basis, based on the number of shares of Class A Common Stock held at the end of business on the Closing Date, which is expected to include the 5,750,000 shares of Class A Common Stock into which Founder Shares will convert in
connection with the Business Combination). As a result, assuming the no redemption scenario and that the distribution is made, Public Stockholders who do not redeem their shares would receive at least 56 New Warrants per share of Class A
Common Stock they hold, which would proportionally increase if other holders elect to redeem their shares of Class A Common Stock. We believe this structure will likely lead to a lower level of redemptions, and therefore, we will likely
have more funds available for our Business Combination. Pursuant to the terms of the Existing Warrant Agreement, the exercise price of the Public Warrants and Private Warrants could decrease to $0.0001 after giving effect to the issuance of
the New Warrants. Pursuant to the terms of the LLC Agreement, at least twice a month, to the extent any New Warrants have been exercised in accordance with their terms, the Post-Combination Company
24
is required to purchase from the MSP Principals, proportionately, the number of
Up-C Units or shares of Class A Common Stock owned by such MSP Principal equal to the Aggregate Exercise Price divided by the Warrant Exercise Price in exchange for the Aggregate Exercise Price. For more information, see the LLC Agreement
attached hereto as Annex D.
MSP
Historical market price for MSP’s capital stock is not provided
because there is no public market for MSP’s capital stock. See “MSP’s Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
25
This proxy statement/prospectus includes forward-looking
statements regarding, among other things, the plans, strategies and prospects, both business and financial, of the Company and MSP. These statements are based on the beliefs and assumptions of the management of the Company and MSP. Although the
Company and MSP believe that their respective plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, neither the Company nor MSP can assure you that either will achieve or realize these
plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future
actions, business strategies, events or results of operations, and any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking
statements. These statements may be preceded by, followed by or include the words “anticipate,” “believe,” “could,” “continue,” “estimate,” “expect,” “forecast,” “intend” “may,” “might,” “plan,” “possible,” “potential,” “project,” “scheduled,”
“seek,” “should,” “will,” the negative form of such expressions or similar expressions, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements contained in this proxy
statement/prospectus include, but are not limited to, statements about the Company and MSP prior to the Business Combination, and the Post-Combination Company following the Business Combination, relating to:
|
•
|
the benefits of the Business Combination;
|
|
•
|
the inability of the parties to successfully or timely consummate the Business Combination;
|
|
•
|
the risk that any required regulatory approvals are not obtained, are delayed or are subject to unanticipated conditions that
could adversely affect the Post-Combination Company or the expected benefits of the Business Combination;
|
|
•
|
the future financial performance of the Post-Combination Company following the Business Combination;
|
|
•
|
the risk that any of the conditions to Closing are not satisfied in the anticipated manner or on the anticipated timeline;
|
|
•
|
changes in the market for MSP’s services;
|
|
•
|
MSP’s and/or the Company’s ability to successfully defend litigation;
|
|
•
|
expansion plans and opportunities;
|
|
•
|
MSP’s ability to implement its corporate strategy and the impact of such strategy on its future operations and financial and
operational results;
|
|
•
|
MSP’s strategic advantages and the impact that those advantages will have on future financial and operational results;
|
|
•
|
changes in business, market, financial, political and legal conditions;
|
|
•
|
the impact of various interest rate environments on MSP’s future financial results of operations;
|
|
•
|
MSP’s evaluation of competition in its markets and its relative position;
|
|
•
|
MSP’s ability to successfully recover proceeds related to the Claims it owns or services;
|
|
•
|
MSP’s accounting policies;
|
|
•
|
upgrading and maintain information technology systems;
|
|
•
|
macroeconomic conditions that may affect MSP’s business and the healthcare data and health claims recovery industry in
general;
|
|
•
|
political and geopolitical conditions that may affect MSP’s business and the healthcare data and health claims recovery
industry in general;
|
|
•
|
the impact of the COVID-19 pandemic, or any other similar pandemic or public health situation, on MSP’s business and the
healthcare data and health claims recovery industry in general; and
|
|
•
|
risks relating to the uncertainty of the projected financial information with respect to MSP and the Company.
|
26
Forward-looking statements are not guarantees of performance.
You should not put undue reliance on these statements which speak only as of the date hereof. You should understand that the following important factors, in addition to those discussed under the heading “Risk
Factors” and elsewhere in this proxy statement/prospectus, could affect the future results of the Company and MSP prior to the Business Combination, and the Post-Combination Company following the Business Combination, and could cause
those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements in this proxy statement/prospectus:
|
•
|
the occurrence of any event, change or other circumstances that could delay the Business Combination or give rise to the
termination of the MIPA;
|
|
•
|
risks related to disruption of management’s time from ongoing business operations due to the proposed transactions;
|
|
•
|
litigation, complaints and/or adverse publicity;
|
|
•
|
changes in applicable laws or regulations;
|
|
•
|
the ability to recognize the anticipated benefits of the Business Combination, which may be affected by, among other things,
competition, rulings in the legal proceedings to which MSP is a party and retaining its management and key employees;
|
|
•
|
the inability to meet applicable Nasdaq listing standards;
|
|
•
|
privacy and data protection laws, privacy or data breaches, or the loss of data;
|
|
•
|
costs related to the Business Combination;
|
|
•
|
the outcome of any legal proceedings that may be instituted against MSP or the Company following announcement of the proposed
Business Combination;
|
|
•
|
the possibility that the business of MSP may be adversely affected by other economic, business, and/or competitive factors;
and
|
|
•
|
other risks and uncertainties indicated in this proxy statement/prospectus, including those set forth under the section
entitled “Risk Factors”.
|
These and other factors that could cause actual results to differ
from those implied by the forward-looking statements in this proxy statement/prospectus are more fully described under the heading “Risk Factors” and elsewhere in this proxy statement/prospectus. The
risks described under the heading “Risk Factors” are not exhaustive. Other sections of this proxy statement/prospectus describe additional factors that could adversely affect the business, financial
condition, or results of operations of the Company and MSP prior to the Business Combination, and the Post-Combination Company following the Business Combination. New risk factors emerge from time to time and it is not possible to predict all
such risk factors, nor can the Company or MSP assess the impact of all such risk factors on the business of the Company and MSP prior to the Business Combination, and the Post-Combination Company following the Business Combination, or the
extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to the Company or MSP or persons acting on
their behalf are expressly qualified in their entirety by the foregoing cautionary statements. The Company and MSP prior to the Business Combination, and the Post-Combination Company following the Business Combination, undertake no obligations
to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
In addition, statements of belief and similar statements reflect
the beliefs and opinions of the Company or MSP, as applicable, on the relevant subject. These statements are based upon information available to the Company or MSP, as applicable, as of the date of this proxy statement/prospectus, and while
such party believes such information forms a reasonable basis for such statements, such information may be limited or incomplete, and statements should not be read to indicate that the Company or MSP, as applicable, has conducted an exhaustive
inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.
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SUMMARY RISK FACTORS
You should consider all the information contained in this proxy
statement/prospectus in deciding how to vote for the proposals presented in this proxy statement/prospectus. In particular, you should consider the risk factors described under “Risk Factors” beginning
on page [29].
Such risks include, but are not limited to:
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MSP has a history of net losses and no substantial revenue to date, and it may not generate recoveries, create significant
revenue or achieve profitability. Its relatively limited operating history makes it difficult to evaluate current business and future prospects and increases the risk of your investment.
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MSP has a limited history of actual recoveries to date as a result of cases that are still in litigation, and there are risks
associated with estimating the amount of revenue that MSP will recognize from potential recoveries. If MSP’s projections are not realized, it would impact the timing and the amount of MSP’s revenue recognition and have a material
adverse effect on its business, results of operations, financial condition and cash flows.
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Under some agreements with Assignors, MSP assumes the risk of failure to recover on the assigned claims, and if it fails to
make recoveries with respect to the assigned claims and therefore is unable to generate recovery proceeds greater than or equal to the expenses it incurred in the limited times where it paid to purchase the assigned claims, such losses
can adversely affect MSP’s business.
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A significant portion of MSP’s recovery collections relies upon its success in individual, class action or mass aggregated
claims in lawsuits brought against third parties, which are inherently unpredictable, as is MSP’s ability to collect on judgments in its favor.
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MSP’s recoveries are dependent upon the court system, and unfavorable court rulings or delays can adversely affect its
recovery efforts and business.
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MSP’s recoveries are materially reduced by its fee sharing arrangement with the Law Firm.
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Litigation outcomes are inherently risky and difficult to predict, and an adverse outcome may result in complete loss of
MSP’s claims associated with that matter (or a complete loss in value associated with those claims).
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Despite MSP’s success as it relates to its assignments in published appellate decisions, MSP’s assignments can be deemed
invalid in court, which could adversely affect its recoveries and its business.
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Courts may find some of MSP’s damages calculations to include claim lines that are unreasonable, unrelated, or unnecessary.
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The Post-Combination Company’s only significant asset will be its ownership interest in Opco. Such ownership may not be
sufficient to pay dividends or make distributions or loans to enable it to pay any dividends on common stock or satisfy other financial obligations.
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The Initial Stockholders have agreed to vote in favor of the Business Combination described in this proxy
statement/prospectus, regardless of how Public Stockholders vote.
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A market for the Company’s securities may not continue, which would adversely affect the liquidity and price of our
securities.
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If the Business Combination’s benefits do not meet the expectations of investors, stockholders or financial analysts, the
market price of the Company’s securities may decline.
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If third parties bring claims against the Company, the proceeds held in the Trust Account could be reduced and the per share
redemption amount received by stockholders may be less than $10.00 per share.
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The Company’s independent directors may decide not to enforce the indemnification obligations of the Sponsor, resulting in a
reduction in the amount of funds in the Trust Account available for distribution to Public Stockholders.
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In addition to the other information contained
in this proxy statement/prospectus, including the matters addressed under the heading “Forward-Looking Statements,” you should carefully consider the following risk factors in deciding how to vote on the proposals presented in this proxy
statement/prospectus.
Risks Related to MSP’s Business and Industry
In this section “we,”“us,” “our” and other
similar terms refer to MSP and its subsidiaries prior to the Business Combination and to the Post-Combination Company following the Business Combination.
We have a history of net losses and no
substantial revenue to date, and we may not achieve recoveries, generate significant revenue or achieve profitability. Our relatively limited operating history makes it difficult to evaluate our current business and future prospects and
increases the risk of your investment.
Our relatively limited operating history makes it difficult to
evaluate our current business and plan for our future growth. MSP Recovery started in 2014 with its very first assignment from a health plan in Miami, Florida. To date we have achieved no substantial revenue and limited actual recoveries from
our assigned claims, and there is no guarantee that we will achieve recoveries, revenue and profitability as we have projected. We have encountered and will continue to encounter significant risks and uncertainties frequently experienced by new
and growing companies in rapidly changing industries, such as determining appropriate investments for our limited resources, competition from other data analytics companies, acquiring and retaining Assignors, hiring, integrating, training and
retaining skilled personnel, unforeseen expenses, challenges in forecasting accuracy and successfully integrating new strategies. If we are unable to achieve actual recoveries, increase our Assignor base, successfully manage our recovery
efforts from third-party payers or successfully expand, our revenue and our ability to achieve and sustain profitability would be impaired. If our assumptions regarding these and other similar risks and uncertainties, which we use to plan our
business, are incorrect or change as we gain more experience operating our business or due to changes in our industry, or if we do not address these challenges successfully, our operating and financial results could differ materially from our
expectations and our business could suffer.
We have a limited history of actual
recoveries to date, and there are risks associated with estimating the amount of revenue that we recognize from the recovery. If our estimates of revenue are materially inaccurate, it would impact the timing and the amount of our revenue
recognition and have a material adverse effect on our business, results of operations, financial condition and cash flows.
We have a limited track record of generating actual recoveries and
related revenue from the claims we have purchased or otherwise been assigned. There are risks associated with estimating the amount of future recoveries and revenues that we may achieve under our assigned claims. Our estimates and projections
depend on significant assumptions and involve significant risks which could cause our actual results to vary materially.
Examples of material assumptions we make include, but are not limited
to:
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Our assessment that the assigned claims are potentially recoverable claims;
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The achievement of multiples above the paid amount of potentially recoverable claims; and
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The length (and cost) of litigation required to achieve recoveries.
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Any of these assumptions may prove over time to be materially
inaccurate. If our estimates of revenues are materially inaccurate, it could impact the timing and the amount of our revenue recognition and have a material adverse impact on our business, results of operations, financial condition and cash
flows.
Under most of our agreements with Assignors,
we assume the risk of failure to recover on the assigned claims, and if we fail to make recoveries with respect to the assigned claims receivables and therefore, are unable to generate recovery proceeds greater than or equal to the amounts paid
by us to purchase the assigned claims, it can adversely affect our business.
In many instances, we pay our Assignors an upfront purchase price
for assignment of their healthcare claims recoveries. Accordingly, there is a risk that we may not successfully recapture the upfront purchase price if we fail to make recoveries with respect to the assigned claims. If we fail to generate
significant recovery proceeds with respect to the assigned claims, it would have an adverse effect on our profitability and business.
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A significant portion of our recovery
collections relies upon our success in individual lawsuits brought against third parties, which are inherently unpredictable, and our ability to collect on judgments in our favor.
We generate, and expect to generate, a significant portion of our
revenue by collecting on judgments that are granted by courts in lawsuits filed against insurers, tortfeasors, and other liable parties. A decrease in the willingness of courts to grant these judgments, a change in the requirements for filing
these cases or obtaining these judgments, or a decrease in our ability to collect on these judgments could have an adverse effect on our business, financial condition and operating results. As we increase our use of the legal channels for
collections, our short-term margins may decrease as a result of an increase in upfront court costs and costs related to counter claims. We may not be able to collect on certain aged claims because of applicable statutes of limitations and we
may be subject to adverse effects of regulatory changes.
Our recoveries are dependent upon the court
system, and unfavorable court rulings, delays, damages calculations or other limitations can adversely affect our recovery efforts and our business.
Typically, we must file actions in court to recover monies related
to those paid by our Assignors and a substantial amount of our recoveries are dependent on the courts. Because we rely on the courts to adjudicate recoveries, we can be subject to adverse court rulings, significant delays, damages calculations
or other limitations, each of which can negatively impact our business and recovery efforts.
For example, from time to time, the courts dismiss our cases with
or without prejudice. When one of our cases is dismissed without prejudice, we can refile the action. Accordingly, we retain the ability to bring those claims in a recovery action. When our case is dismissed with prejudice, we cannot refile the
action. Accordingly, we lose the ability to pursue such claims. We cannot guarantee that we will not receive adverse rulings in court. Historically, we have received adverse rulings such as:
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Dismissal for failure to file within the applicable statute of limitations.
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Dismissal because an assignment did not include the claim that was brought in court (or such assignment was found to be
invalid).
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Dismissal for lack of standing to assert claims.
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Dismissal for lack of personal jurisdiction.
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Dismissal for lack of subject matter jurisdiction.
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Dismissal for pleading deficiencies.
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Additionally, in certain of our cases, our recoveries may be
limited as a function of courts’ damages calculations. For example, in certain antitrust matters, recoveries may be limited to the difference between the price that a drug manufacturer charged for the drug and the price of the drug absent the
relevant anticompetitive action. The list above is not exhaustive of unfavorable rulings, damages calculations or other limitations which we may or have encountered. We can be subject to many other unfavorable rulings, damages calculations or
limitations which are not listed above. Such unfavorable rulings, damages calculations or other limitations can negatively affect our business and our recovery efforts.
Litigation outcomes are inherently risky and
difficult to predict, and an adverse outcome may result in complete loss of our claims associated with that matter (or a complete loss in value associated with those claims).
It is difficult to predict litigation outcomes, particularly
complex litigation of the type that forms the basis of our business. If we do not succeed in the litigation, if the damages awarded in our favor are less than what we expected or if it is not possible to successfully enforce a favorable
judgment, we could suffer a variety of adverse consequences, including complete loss of our claims associated with that matter and, in some jurisdictions, liability for the adverse costs of the successful party to the litigation. Unfavorable
litigation outcomes could, individually or in the aggregate, have a material adverse effect on our business, results of operations and financial condition.
Our assignments can be deemed invalid in court
which could adversely affect our recoveries and our business.
We typically receive assignments of healthcare claims recoveries
from our Assignors via irrevocable assignments. Accordingly, we are able to pursue those claims that our Assignors originally owned. Enforceability of our assignment agreements are often challenged by defendants in court. If a court determines
that an assignment agreement is invalid (whether due to a technical deficiency or regulatory prohibition or otherwise), we will lose the ability to pursue those claims. This can adversely affect our recovery efforts and our business.
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Courts may find some of our damages
calculations to include expenses that are unreasonable, unrelated, or unnecessary.
Our damage calculations at times include medical expenses paid by
our Assignors that the courts may deem unreasonable, unrelated or unnecessary. Accordingly, a court may find our damages calculations to be incorrect which could lead to lower than anticipated recoveries. Such a result can adversely affect our
business and our recoveries.
Some of our recoveries may be subject to
different interpretations of the applicable statutes of limitations.
Our recoveries can be subject to different interpretations of the
applicable statutes of limitations. Therefore, recovery claims made in some forums may be brought later in another forum. Failure to bring our claims within the applicable limitations period in the selected forum can result in having our claim
dismissed as untimely and can adversely affect our business and our recoveries.
Our fee sharing arrangement with the Law Firm
materially reduces our recoveries.
We enter into legal services agreements with the Law Firm and the
various entities that hold claims. The Law Firm is engaged to act as exclusive lead counsel to represent MSP Recovery and each of its subsidiaries and affiliates (or other applicable entity) as it pertains to the Assigned Claims, on a
contingency basis. The Law Firm engages outside litigation counsel from around the nation as co-counsel and these arrangements are made directly between the Law Firm and other counsel. For the services provided, the Law Firm typically collects
a 40% fee of the 50% recoveries due to MSP. This contingency fee can change in the future. The Law Firm is also entitled to attorney’s fees that are awarded to the Law Firm pursuant to any fee shifting statute, by agreement, or court award. An
increase in these fees would further adversely affect our net recoveries. For more information about our fee sharing arrangement, see “Information about MSP—Scale of Current Portfolio” and “—Fee Sharing Arrangement.”
We may experience delays due to inconsistent
court rulings.
Inconsistent court rulings on different cases can create delays in
our recovery efforts. This uncertainty may have an adverse impact on our recoveries and our business.
We may experience delays and other
uncertainties surrounding the effects of COVID-19 on the judicial system calendar and capacity.
We continue to closely monitor the impact of the global COVID-19
pandemic on all aspects of our business. We face potential delays in resolving pending legal matters as a result of court, administrative and other closures and delays as a result of COVID-19 in many of the jurisdictions in which we operate.
The ultimate content, timing or effect of any potential future legislation or litigation and the outcome of other lawsuits cannot be predicted and may be delayed as a result of court closures and reduced court dockets as a result of the
COVID-19 pandemic.
Assignors may pursue recovery on claims
directly or may use recovery agents other than us in connection with the Assignor’s efforts to recover on claims.
With respect to the Assignors of the assigned claims, some of our
agreements exclude from the assignment of claims those claims that are assigned to or being pursued by other recovery vendors of the Assignor at the time of the assignment. We have identified instances where the Assignor did not filter its data
provided to us to account for such exclusions. This resulted in some claims being identified by us for purposes of our recovery estimates. This also has resulted in other recovery agents of the Assignor making collections on claims that we
previously believed were assigned to us. Although we endeavor to seek appropriate clarification from Assignors to properly identify claims that are being pursued by other recovery vendors, due to the nature and volume of data, it may not be
possible to identify with precision all such claims. While we do not believe any overlap with other recovery vendors with respect to assigned claims to be material, there can be no assurance as to the ultimate impact on our recoveries or our
business.
If lawyers we rely on to litigate claims and
defenses do not exercise due skill and care, or the interests of their clients do not align with ours, there may be a material adverse effect on the value of our assets.
We are particularly reliant on lawyers to litigate claims and
defenses with due skill and care. If they are unable or unwilling to do this for any reason, it is likely to have a material adverse effect on the value of our assets. We may have limited experience or no prior dealings with such lawyers and
there can be no guarantee that the outcome of a case will be in line with our or the lawyers’ assessment of the case or that such lawyers will perform with the expected skill and care.
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Our business and future growth depend on
our ability to successfully expand the volume of our healthcare claims and obtain data from new Assignors and healthcare claims from our existing Assignor base.
We expect a significant portion of our future revenue growth to
come from expanding the volume of claims we are assigned; this includes obtaining claims and data from new Assignors as well as our existing Assignors. Our efforts to do so may not be successful. If we are unable to successfully expand the
scope of healthcare claims assigned from potential and existing Assignors, it could have a material adverse effect on our growth and on our business, financial condition and results of operations.
The positions we will typically acquire in
connection with our acquisition of claims are unsecured and may be effectively subordinated to other obligations.
The types of claims we invest in are typically unsecured, and
therefore will be subordinated to existing or future secured obligations and may be subordinated to other unsecured obligations of the parties against which we seek recoveries. The repayment of these claims and rights is subject to significant
uncertainties. The holders of other obligations may have priority over us to collect amounts due to them and therefore would be entitled to be paid in full before assets would be available for distribution to us.
Our investments in claims may entail special
risks including, but not limited to, fraud on the part of the Assignor of the claim.
One concern in investing in claims is the possibility of material
misrepresentations or omissions on the part of an Assignor, underlying beneficiary or other counterparty (e.g., some Assignors may set out to defraud investors like us). For example, an Assignor may misrepresent the quality, validity or
existence of a claim or other information provided to us. There is no assurance we will detect such fraud and any inaccuracy or incompleteness, if undetected, may adversely affect the valuation of one or more claims and adversely affect our
business and performance. Under certain circumstances, recoveries may be reclaimed if any such payment or distribution is later determined to have been a fraudulent conveyance.
Internal improvements to healthcare claims
and retail billing processes by our Assignors could reduce the need for, and revenue generated by, our solutions, which could have a material adverse effect on our business, financial condition and results of operations.
We offer solutions that help our Assignors enhance payment
accuracy in an increasingly complex environment, including through our Chase to Pay platform. Over time, our work may increase compliance amongst third-party payers. If such processes continue to improve, demand for our solutions could be
reduced. With enough time and investment, many of our Assignors may be able to reduce or resolve recurring payment process complexities and resulting payment inaccuracies. As the skills, experience and resources of such technology, systems and
personnel improve, they may be able to identify payment inaccuracies before using our services, which would reduce the payment inaccuracies identified by our solutions and our ability to generate revenue, which could have a material adverse
effect on our business, financial condition and results of operations.
Healthcare spending fluctuations,
simplification of the healthcare delivery and reimbursement system, programmatic changes to the scope of benefits and limitations to payment integrity initiatives could reduce the need for our data-driven solutions, which could have a material
adverse effect on our business, financial condition and results of operations.
Our solutions improve our Assignors’ ability to accurately pay
healthcare claims and prevent or recover inaccurate payments, which often are a result of complexities in the healthcare claims payment system. Although the healthcare benefit and payment systems continue to grow in complexity due to factors
such as increased regulation and increased healthcare enrollment, the need for and user adoption of our solutions and/or the scope and profitability of the solutions that we provide to our Assignors could be negatively affected by, among other
things:
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simplification of the U.S. healthcare delivery and reimbursement systems, either through shifts in the commercial healthcare
marketplace or through legislative or regulatory changes at the federal or state level;
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reductions in the scope of private sector or government healthcare benefits (for example, decisions to eliminate coverage of
certain services);
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the transition of healthcare beneficiaries from fee-for-service plans to value-based plans;
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the adoption of healthcare plans with significantly higher deductibles;
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limits placed on payment integrity initiatives, including the Medicare RAC program; and
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lower than projected growth in private health insurance or the various Medicare and Medicaid programs, including Medicare
Advantage.
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Any of these developments could have a material adverse effect on
our business, financial condition and results of operations.
If our existing Assignors prematurely
terminate their agreement with us or if either party materially breaches an agreement, and we can no longer receive future assignments of healthcare claims recoveries, it could have a material adverse effect on our business, financial condition
and results of operations.
We expect in the future to derive, a significant portion of our
revenue from our existing Assignors and, accordingly, we are reliant on ongoing data transfers and the associated assignments of claims from existing Assignors. As a result, maintaining these relationships is critical to our future growth and
our business, financial condition and results of operations. We may experience significantly more difficulty than we anticipate in maintaining our existing Assignor agreements. Factors that may affect our ability to continue providing our
services under such agreements for our services and our ability to sell additional solutions include:
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the price, performance and functionality of our solutions;
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the availability, price, performance and functionality of competing solutions;
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our Assignors’ perceived ability to review claims accurately using their internal resources;
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our ability to develop complementary solutions;
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our continued ability to access the data necessary to enable us to effectively develop and deliver new solutions to
Assignors;
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the stability and security of our platform;
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changes in healthcare laws, regulations or trends; and
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the business environment of our Assignors.
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Pursuant to the claims recovery and assignment agreements with our
Assignors, the Assignors may choose to discontinue one or more services under an existing contract, may exercise flexibilities within their contracts to adjust service volumes, may breach or terminate the contract prior to its agreed upon
completion date. A material breach by either party to the agreement may also result in the termination of receiving future claims. Any such occurrences could reduce our revenue from these Assignors. Although a cancellation or termination of a
contract does not revoke the original assignment from our Assignors in many instances because such assignment was irrevocable, termination still affects future transfers of data and future assignment of claims. Accordingly, such cancellations
or terminations can constrain our growth and result in a decrease in revenue which could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to develop new Assignor
relationships, it could have a material adverse effect on our business, financial condition and results of operations.
As part of our strategy, we seek to develop new Assignor
relationships, principally among healthcare payers and providers. Our ability to develop new relationships depends on a variety of factors, including the quality and performance of our solutions, as well as the ability to market and sell our
solutions effectively and differentiate ourselves from our competitors. We may not be successful in developing new Assignor relationships. If we are unable to develop new Assignor relationships, it could have a material adverse effect on our
business, financial condition and results of operations.
In some events, we may act as a servicing
agent for another party. If one of these parties terminates their agreement with us or if either party materially breaches an agreement it could have a material adverse effect on our business, financial condition and results of operations.
Sometimes, we may provide our services as a servicing agent to
third parties. These services include, but are not limited to, identifying, processing, prosecuting and recovering monies related to recoverable claims. As a servicing agent, we will act as an independent contractor on behalf of a contracting
party who owns the rights to
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certain recoverable claims. If a party terminates such servicing agreement with
us, or if either party is in default of any servicing agreement, it could have a material adverse effect on our business, financial condition and results of operations.
We have long sales and implementation cycles
for many of our data-driven solutions and if we fail to close sales after expending time and resources, or if we experience delays in implementing the solutions, it could have a material adverse effect on our business, financial condition and
results of operations.
Potential customers generally perform a thorough evaluation of
available payment accuracy solutions and require us to expend time, effort and money educating them as to the value of our solutions prior to entering into a contract with them. We may expend significant funds and management resources during
the sales cycle and ultimately fail to close the sale. Our sales cycle may be extended due to our potential customer’s budgetary constraints or for other reasons. In addition, following a successful sale, the implementation of our systems
frequently involves a lengthy process, as we onboard the new customer’s healthcare data into our proprietary systems. If we are unsuccessful in closing sales after expending funds and management resources or if we experience delays in such
sales or in implementing our solutions, it could have a material adverse effect on our business, financial condition and results of operations.
If our Assignors’ risk agreements change, it
can have a material adverse effect on our business, financial condition and results of operations.
Many of our Assignors are first-tier entities, as defined in 42
CFR § 422.2. A first-tier entity is a party that enters into a written arrangement, acceptable to CMS, with an MAO or applicant to provide administrative services or healthcare services for a Medicare eligible individual under the Medicare
Advantage program. These entities enter into risk agreements with downstream entities, as defined under 42 CFR § 422.2. If these agreements change or include any restrictions on the assignability of claims, it can have a material adverse effect
on our recoveries, business, financial condition, and results of operations.
We obtain and process a large amount of
sensitive data. Our systems and networks may be subject to cyber-security breaches and other disruptions that could compromise our information. Any real or perceived improper use of, disclosure of, or access to such data could harm our
reputation as a trusted brand, as well as have a material adverse effect on our business, financial condition and results of operations.
We use, obtain and process large amounts of confidential,
sensitive and proprietary data, including protected health information (“PHI”) subject to regulation under the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and
Clinical Health Act of 2009, and personally identifiable information (“PII”) subject to state and federal privacy, security and breach notification laws. The secure processing and maintenance of this information is critical to our operations
and business strategy. We face risks associated with new and untested personnel, processes and technologies which have recently been implemented to augment our security and privacy management programs. If our security measures or those of the
third-party vendors we use who have access to this information are inadequate or are breached as a result of third-party action, employee error, malfeasance, malware, phishing, hacking attacks, system error, trickery or otherwise, and, as a
result, someone obtains unauthorized access to sensitive information, including PHI and PII, on our systems or our providers’ systems, our reputation and business could be damaged. We cannot guarantee that our security efforts will prevent
breaches or breakdowns to our or our third-party vendors’ databases or systems.
In addition, our operations are spread across the United States
and Puerto Rico and we rely heavily on technology to communicate internally and efficiently perform our services. We have implemented measures that are designed to mitigate the potential adverse effects of a disruption, relocation or change in
operating environment; however, we cannot provide assurance that the situations we plan for and the amount of insurance coverage that we maintain will be adequate in any particular case. In addition, despite system redundancy and security
measures, our systems and operations are vulnerable to damage or interruption from, among other sources:
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power loss, transmission cable cuts and telecommunications failures;
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damage or interruption caused by fire, earthquake and other natural disasters;
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attacks by hackers or nefarious actors;
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human error;
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computer viruses and other malware, or software defects; and
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physical break-ins, sabotage, intentional acts of vandalism, terrorist attacks and other events beyond our control.
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If we encounter a business interruption, if we fail to effectively
maintain our information systems, if it takes longer than we anticipate to complete required upgrades, enhancements or integrations or if our business continuity plans and business interruption insurance do not effectively compensate on a
timely basis, we could suffer operational disruptions, disputes with Assignors, civil or criminal penalties, regulatory problems, increases in administrative expenses, loss of our ability to produce timely and accurate financial and other
reports or other adverse consequences, any of which could have a material adverse effect on our business, financial condition and results of operations.
Because of the large amount of data that we collect and manage, it
is possible that hardware failures or errors in our systems could result in data loss or corruption or cause the information that we collect to be incomplete or contain inaccuracies that our partners regard as significant. If our data were
found to be inaccurate or unreliable due to fraud or other error, or if we, or any of the third-party service providers we engage, were to fail to maintain information systems and data integrity effectively, we could experience operational
disruptions that may hinder our ability to provide services, establish appropriate pricing for services, retain and attract Assignors, establish reserves, report financial results timely and accurately and maintain regulatory compliance, among
other things. Additionally, as Assignors maintain their own supporting documentation, data and records, it is possible that they may provide us with erroneous or inaccurate data. The occurrence of any of these events could cause our solutions
to be perceived as vulnerable, cause our Assignors to lose confidence in our solutions, negatively affect our ability to attract new Assignors and cause existing Assignors to terminate or not renew our solutions. If the information is lost,
improperly disclosed or threatened to be disclosed, we could incur significant liability and be subject to regulatory scrutiny and penalties. Furthermore, we could be forced to expend significant resources in response to a security breach,
including investigating the cause of the breach, repairing system damage, increasing cyber-security protection costs by deploying additional personnel and protection technologies, notifying and providing credit monitoring to affected
individuals, paying regulatory fines and litigating and resolving legal claims and regulatory actions, all of which could increase our expenses and divert the attention of our management and key personnel away from our business operations.
In addition, if our own confidential business information were
improperly disclosed, our business could be materially adversely affected. A core aspect of our business is the reliability and security of our technology platform. Any perceived or actual breach of security could have a significant impact on
our reputation as a trusted brand, cause us to lose existing Assignors, prevent us from obtaining new Assignors, require us to expend significant funds to remedy problems caused by breaches and to implement measures to prevent further breaches,
and expose us to legal risk and potential liability. Any security breach at a third-party vendor providing services to us could have similar effects. Any breach or disruption of any systems or networks on which we rely could have a material
adverse effect on our business, financial condition, and results of operations.
Our information technology strategy and execution are critical to
our continued success. We expect to continue to invest in long-term solutions that will enable us to continue being a differentiator in the market and to protect against cybersecurity risks and threats. Our success is dependent, in large part,
on maintaining the effectiveness of existing technology systems and continuing to deliver and enhance technology systems that support our business processes in a cost-efficient and resource-efficient manner. Increasing regulatory and
legislative changes will place additional demands on our information technology infrastructure that could have a direct impact on resources available for other projects tied to our strategic initiatives. In addition, recent trends toward
greater patient engagement in health care require new and enhanced technologies, including more sophisticated applications for mobile devices. Connectivity among technologies is becoming increasingly important. We must also develop new systems
to meet current market standards and keep pace with continuing changes in information processing technology, evolving industry and regulatory standards and patient needs. Failure to do so may present compliance challenges and impede our ability
to deliver services in a competitive manner. Further, because system development projects are long-term in nature, they may be more costly than expected to complete and may not deliver the expected benefits upon completion. Our failure to
effectively invest in, implement improvements to and properly maintain the uninterrupted operation and data integrity of our information technology and other business systems could adversely affect our results of operations, financial position
and cash flow.
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If we fail to innovate and develop new
solutions, or if these new solutions are not adopted by existing and potential Assignors or other users, it could have a material adverse effect on our business, financial condition and results of operations.
Our results of operations and continued growth will depend on our
ability to successfully develop and market new solutions that our existing and potential Assignors or other users are willing to adopt. For example, as part of our “Chase to Pay” model, we launched LifeWallet in January 2022, a platform
designed to organize and facilitate access to users’ medical records. We cannot provide assurance that our new or modified solutions will be responsive to Assignor or users preferences or industry changes, or that the product and service
development initiatives we prioritize will yield the gains that we anticipate, if any.
If we are unable to predict market preferences or if our industry
changes, or if we are unable to modify our solutions on a timely basis, we may lose Assignors or fail to attract new ones. If existing Assignors are not willing to adopt new solutions, or if potential Assignors or other users do not value such
new solutions, it could have a material adverse effect on our business, financial condition and results of operations.
Certain of our activities present the
potential for identity theft or similar illegal behavior by our employees or contractors with respect to third parties, which could have a material adverse effect on our business, financial condition and results of operations.
Our solutions involve the use and disclosure of personal
information that in some cases could be used to impersonate third parties or otherwise improperly gain access to their data or funds. If any of our employees or contractors take, convert, or misuse such information, or we experience a data
breach creating a risk of identity theft, we could be liable for damages and our business reputation could be damaged. In addition, we could be perceived to have facilitated or participated in illegal misappropriation of documents or data and,
therefore, be subject to civil or criminal liability. In addition, federal and state regulators may take the position that a data breach or misdirection of data constitutes an unfair or deceptive act or trade practice. We also may be required
to notify individuals affected by any data breaches. Further, a data breach or similar incident could impact the ability of our Assignors that are creditors to comply with the federal “red flags” rules, which require the implementation of
identity theft prevention programs to detect, prevent and mitigate identity theft in connection with Assignor accounts, which could be costly. If data utilized in our solutions are misappropriated for the purposes of identity theft or similar
illegal behavior, it could have a material adverse effect on our reputation, business, financial condition and results of operations.
If we fail to comply with applicable
privacy, security and data laws, regulations and standards, including with respect to third-party service providers that utilize sensitive personal information on our behalf, it could have a material adverse effect on our reputation, business,
financial condition and results of operations.
In order to provide our services and solutions, we often receive,
process, transmit and store PHI and PII of individuals, as well as other financial, confidential and proprietary information belonging to our Assignors and third parties from which we obtain information (e.g., private insurance companies,
financial institutions, etc.). The receipt, maintenance, protection, use, transmission, disclosure, and disposal of this information is regulated at the federal, state, international and industry levels and we are also obligated by our
contractual requirements with customers. These laws, rules and requirements are subject to frequent change. Compliance with new privacy and security laws, regulations and requirements may result in increased operating costs and may constrain or
require us to alter our business model or operations. For example, we are subject to federal regulation as a result of the Final Omnibus Privacy, Security, Breach Notification and Enforcement Rules (the “Omnibus Final Rule”) amendments to the
Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009. We collectively refer to these acts and their implementing federal regulations, including
the Omnibus Final Rule, as “HIPAA.”
HIPAA establishes privacy and security standards that limit our
use and disclosure of PHI and requires us to implement administrative, physical and technical safeguards to ensure the confidentiality, integrity and availability of PHI, as well as notify our covered entity customers of breaches of unsecured
PHI and security incidents. HIPAA also imposes direct penalties on us for violations of its requirements. In addition to HIPAA, we are also subject to varying state laws governing the use and disclosure of PII, including medical record
information, as well as state laws requiring notification in case of a breach of such information. The Omnibus Final Rule significantly increased the risk of liability to us, our business associates and subcontractors by making us directly
subject to many of HIPAA’s requirements and made more incidents of inadvertent disclosure reportable and subject to penalties.
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We act as a business associate to our covered entity customers
because we collect, use, disclose and maintain PHI in order to provide services to these customers. HIPAA requires us to enter into satisfactory written business associate agreements with our covered entity customers, which contain specified
written assurances that we will safeguard PHI that we create or access and will fulfill other material obligations. Under the Omnibus Final Rule, we may be held directly liable under our business associate agreements and HIPAA for any
violations of HIPAA. Therefore, we could face contractual liability with our Assignors as well as liability to the government under HIPAA if we do not comply with our business associate obligations and those provisions of HIPAA that are
applicable to us. While we take measures to comply with applicable laws and regulations as well as our internal privacy policies, such laws, regulations and related legal standards for privacy and security continue to evolve and any failure or
perceived failure to comply with applicable laws, regulations and standards may result in threatened or actual proceedings, actions and public statements against us by government entities, private parties, consumer advocacy groups or others, or
could cause us to lose Assignors, which could have a material adverse effect on our business, financial condition and results of operations. The penalties for a violation of HIPAA are significant and, if imposed, could have a material adverse
effect on our business, financial condition and results of operations. While we have included protections in our contracts with our third-party service providers, as required by the Omnibus Final Rule, we have limited oversight or control over
their actions and practices. In addition, we could also be exposed to data breach risk if there is unauthorized access to one of our or our subcontractors’ secured facilities or from lost or stolen laptops, other portable media from current or
former employee theft of data containing PHI, from misdirected mailings containing PHI, or other forms of administrative or operational error. HHS conducts audits to assess HIPAA compliance efforts by covered entities and business associates.
An audit resulting in findings or allegations of noncompliance could have a material adverse effect on our results of operations, financial position and cash flows.
Additional risks include our ability to effectively manage growth,
process, store, protect and use personal data in compliance with governmental regulation, contractual obligations and other legal obligations related to privacy and security and manage our obligations as a provider of healthcare services under
Medicare and Medicaid.
Noncompliance or findings of noncompliance with applicable laws,
regulations or requirements, or the occurrence of any privacy or security breach involving the misappropriation, loss or other unauthorized disclosure of sensitive personal information, whether by us or by one of our third-party service
providers, could have a material adverse effect on our reputation and business, including, among other consequences, mandatory disclosure to the media, loss of existing or new Assignors, significant increases in the cost of managing and
remediating privacy or security incidents and material fines, penalties and litigation awards, any of which could have a material adverse effect on our results of operations, financial position and cash flows. Further, if such laws and
regulations are not enforced equally against other competitors in a particular market, our compliance with such laws may put us a competitive disadvantage vis-à-vis competitors who do not comply with such requirements.
We have Assignors throughout the United States and our solutions
may contain healthcare information of patients located across all 50 states and Puerto Rico. Therefore, we may be subject to the privacy laws of each such jurisdiction, which may vary and, in some cases, can impose more restrictive requirements
than federal law. Where state laws are more protective, we have to comply with the stricter provisions. In addition to fines and penalties imposed upon violators, some of these state laws also afford private rights of action to individuals who
believe their personal information has been misused. California’s patient privacy laws, for example, provide for penalties of up to $250,000 and permit injured parties to sue for damages. The interplay of federal and state laws may be subject
to varying interpretations by courts and government agencies, creating complex compliance issues for us and our Assignors and potentially exposing us to additional expense, adverse publicity and liability. Further, as regulatory focus on
privacy issues continues to increase and laws and regulations concerning the protection of personal information expand and become more complex, these potential risks to our business could intensify. Changes in laws or regulations associated
with the enhanced protection of certain types of sensitive data, such as PHI or PII, along with increased customer demands for enhanced data security infrastructure, could greatly increase our cost of providing our services, decrease demand for
our services, reduce our revenue and/or subject us to additional liabilities.
The following legal and regulatory developments also could have a
material adverse effect on our business, financial condition and results of operations:
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amendment, enactment, or interpretation of laws and regulations that restrict the access and use of personal information and
reduce the supply of data available to Assignors;
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changes in cultural and consumer attitudes to favor further restrictions on information collection and sharing, which may
lead to regulations that prevent full utilization of our solutions;
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failure of our solutions to comply with current laws and regulations; and
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failure of our solutions to adapt to changes in the regulatory environment in an efficient, cost-effective manner.
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Changes in legislation, both federal and
state, or in laws relating to healthcare programs and policies, and steps we take in anticipation of such changes, particularly as they relate to the Medicare Secondary Payer Act and Medicare and Medicaid programs, could have a material adverse
effect on our business, financial condition and results of operations.
Approximately 88% of our expected recoveries arise from claims
being brought under the Medicare Secondary Payer Act. This law allows us to pursue recoveries against Primary Payers for reimbursement of medical expenses that our Assignors paid for when Primary Payers (i.e. liability insurers) were
responsible for payment. While we believe we have been successful at both the federal and state level in establishing a legal basis for our recoveries, changes to the laws on which we base our recoveries, particularly the Medicare Secondary
Payer Act, can adversely affect our business. Also, any changes to the Federal Medicare and Medicaid programs can affect our ability to attract new Assignors and acquire new data, thus substantially affecting our business, growth and
recoveries. If the Medicare Secondary Payer Act is substantially changed or repealed, it could significantly reduce our potential recoveries and have a material adverse effect on our business, financial condition and results of operations.
Changes in the United States healthcare
environment, or in laws relating to healthcare programs and policies, and steps we take in anticipation of such changes, particularly as they relate to the Affordable Care Act and Medicare and Medicaid programs, could have a material adverse
effect on our business, financial condition and results of operations.
The healthcare industry in the United States is subject to a
multitude of changing political, economic and regulatory influences that affect every aspect of our healthcare system. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act
(the “Affordable Care Act”), made major changes in how healthcare is delivered and reimbursed, and generally increased access to health insurance benefits to the uninsured and underinsured population of the United States. Among other things,
the Affordable Care Act increased the number of individuals with Medicaid and private insurance coverage, implemented reimbursement policies that tie payment to quality, facilitated the creation of accountable care organizations that may use
capitation and other alternative payment methodologies, strengthened enforcement of fraud and abuse laws and encouraged the use of information technology. However, many of these changes require implementing regulations which have not yet been
drafted or have been released only as proposed rules. In addition, there have been and continue to be a number of legislative and regulatory initiatives to contain healthcare costs, reduce federal and state government spending on healthcare
products and services and limit or restrict the scope of the Medicare RAC program and other program integrity initiatives.
Future changes to the Affordable Care Act and to the Medicare and
Medicaid programs and other federal or state healthcare reform measures may lower reimbursement rates, establish new payment models, increase or decrease government involvement in healthcare, decrease the Medicare RAC program and otherwise
change the operating environment for us and our Assignors. If efforts to waive, modify or otherwise change the Affordable Care Act, in whole or in part, are successful, if we are unable to adapt our solutions to meet changing requirements or
expand service delivery into new areas, or the demand for our solutions is reduced as a result of healthcare organizations’ reactions to changed circumstances and financial pressures, it could have a material adverse effect on our business,
financial condition and results of operations.
Healthcare organizations may react to such changed circumstances
and financial pressures, including those surrounding the implementation of the Affordable Care Act, by taking actions such as curtailing or deferring their retention of service providers, which could reduce the demand for our data driven
solutions and, in turn, have a material adverse effect on our business, financial condition and results of operations.
A significant portion of our claims comes
from a limited number of Assignors, and the loss of one or more of these Assignors could have a material adverse effect on our business, financial condition and results of operations.
We have acquired a significant portion of our claims from and
entered into agreements for new services with a limited number of large Assignors. These Assignors assign these claims with an irrevocable assignment from the Assignor to us (“assignment agreement”) each with different and/or staggered terms.
In addition, we also rely on our
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reputation and recommendations from key Assignors to promote our solutions to
potential new Assignors. Further, our ability to pursue a significant portion of our claims depends on our arrangements pursuant to which we are granted access to health care data, which may be terminated upon the occurrence of certain
events. See “—We use various data sources in our business and if we lose access to those data sources it could have a material adverse effect on our business, financial condition,
and results of operations.” Accordingly, if any of these Assignors fail to renew or terminate their existing agreements with us, it could have a material adverse effect on our business, financial condition and results of
operations.
Our revenues and operations are dependent
upon a limited number of key existing payers and our Assignors’ continued relationship with those payers, and disruptions in those relationships (including renegotiation, non-renewal or termination of capitation agreements) or the inability of
such payers to maintain their contracts with the Centers for Medicare and Medicaid Services, or CMS, could adversely affect our business.
Our operations are dependent on a concentrated number of payers
with whom our Assignors contract to provide services. The loss of these contracts for our Assignors could have a material adverse effect on our business, results of operations, financial condition and cash flows. The sudden loss of any of our
Assignors’ payer partners or the renegotiation of any of our Assignors’ payer contracts could adversely affect our operating results.
Moreover, our inability to maintain agreements with our Assignors
with respect to their health care claims recovery rights and data or to negotiate favorable terms for those agreements in the future could result in the loss of revenue and could have a material adverse effect on our profitability and business.
The data healthcare analytics and healthcare
payment market is relatively new and unpenetrated, and if it does not develop or if it develops more slowly than we expect, it could have a material adverse effect on our business, financial condition and results of operations.
The data healthcare analytics and healthcare payment accuracy
market is relatively new and the overall market opportunity remains relatively unpenetrated. It is uncertain whether this market will achieve and sustain high levels of demand, client acceptance and market adoption. Our success will depend to a
substantial extent on the willingness of our Assignors to use, and to increase the frequency and extent of their utilization of our solutions as well as on our ability to demonstrate the value of data-driven solutions and payment accuracy
solutions to healthcare payers and government agencies. If our Assignors or other potential customers do not perceive the benefits of our data-driven solutions, then our market may not continue to develop, or it may develop more slowly than we
expect. If any of these events occurs, it could have a material adverse effect on our business, financial condition and results of operations.
Negative publicity concerning the data
healthcare analytics and healthcare payment accuracy industry or patient confidentiality and privacy could limit the future growth of the healthcare payment accuracy market.
Our data driven solutions help prevent and recover improper
payments made to healthcare providers. As a result, healthcare providers, insurers, third-party payers and others have criticized the healthcare payment accuracy industry and have hired lobbyists to discredit the reported success that payment
accuracy solutions have had in improving the accuracy of payments. Further, negative publicity regarding patient confidentiality and privacy could limit market acceptance of our healthcare solutions. Many consumer advocates, privacy advocates
and government regulators believe that the existing laws and regulations do not adequately protect privacy. They have become increasingly concerned with the use of personal information. As a result, they are lobbying for further restrictions on
the dissemination or commercial use of personal information to the public and private sectors. If healthcare providers, privacy advocates and others are successful in creating negative publicity for the healthcare payment accuracy industry,
government and private healthcare payers could hesitate to contract with payment accuracy providers, such as us, which could have a material adverse effect on our reputation, business, financial condition and results of operations.
We face significant competition and we expect
competition to increase.
Competition among providers of healthcare payment accuracy
solutions to U.S. healthcare insurance companies is strong and we may encounter additional competition as new competitors enter this area.
Our current healthcare solutions competitors include:
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other payment accuracy vendors, including vendors focused on discrete aspects of the healthcare payment accuracy process;
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fraud, waste and abuse claim edit and predictive analysis companies;
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primary claims processors;
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numerous regional utilization management companies;
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in-house payment accuracy capabilities;
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Medicare RACs; and
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healthcare consulting firms and other third-party liability service providers.
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We may not be able to compete successfully against existing or new
competitors. In addition, we may be forced to increase the consideration we provide for assigned claims or lower our pricing, or the demand for our data-driven solutions may decrease as a result of increased competition. Further, a failure to
be responsive to our existing and potential Assignors’ needs could hinder our ability to maintain or expand our Assignor base, hire and retain new employees, pursue new business opportunities, complete future acquisitions and operate our
business effectively. Any inability to compete effectively could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to protect our proprietary
technology, information, processes and know-how, the value of our solutions may be diminished, which could have a material adverse effect on our business, financial condition and results of operations.
We rely significantly on proprietary technology, information,
processes and know-how that are not subject to patent or copyright protection. We seek to protect this information through trade secret or confidentiality agreements with our employees, consultants, subcontractors or other parties, as well as
through other security measures. These agreements and security measures may be inadequate to deter misappropriation of intellectual property and may be insufficient to protect our proprietary information. Misappropriation of our intellectual
property by third parties, or any disclosure or dissemination of our business intelligence, queries, algorithms and other similar information by any means, could undermine competitive advantages we currently derive or may derive therefrom. Any
of these situations could result in our expending significant time and incurring expense to enforce our intellectual property rights. Although we have taken measures to protect our proprietary rights, others may compete with our business by
offering solutions or services that are substantially similar to ours. If the protection of our proprietary rights is inadequate to prevent unauthorized use or appropriation by third parties or our employees, the value of our solutions, brand
and other intangible assets may be diminished and competitors may be able to more effectively offer solutions that have the same or similar functionality as our solutions, which could have a material adverse effect on our business, financial
condition and results of operations.
Our success depends on our ability to protect
our intellectual property rights.
Our success depends in part on our ability to protect our
proprietary software, confidential information and know-how, technology and other intellectual property and intellectual property rights. To do so, we rely generally on copyright, trademark and trade secret laws, confidentiality and invention
assignment agreements with employees and third parties, and license and other agreements with consultants, vendors and Assignors. There can be no assurance that employees, consultants, vendors and Assignors have executed such agreements or have
not breached or will not breach their agreements with us, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known or independently developed by competitors. Additionally, we monitor our use
of open source software to avoid uses that would require us to disclose our proprietary source code or violate applicable open source licenses, but if we engaged in such uses inadvertently, we could be required to take remedial action or
release certain of our proprietary source code. These scenarios could have a material adverse effect on our business, financial condition and results of operations. In addition, despite the protections we place on our intellectual property, a
third party could, without authorization, copy or otherwise obtain and use our products or technology, or develop similar technology. In addition, agreement terms that address non-competition are difficult to enforce in many jurisdictions and
might not be enforceable in certain cases.
As we begin to pursue patents, we might not be able to obtain
meaningful patent protection for our technology. In addition, if any patents are issued in the future, they might not provide us with any competitive advantages or might be successfully challenged by third parties.
We rely on unpatented proprietary technology. It is possible that
others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To protect our trade secrets and other
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proprietary information, we require employees, consultants, advisors and
collaborators to enter into confidentiality agreements. We cannot assure you that these agreements will provide meaningful protection for our trade secrets, know-how, or other proprietary information in the event of any unauthorized use,
misappropriation, or disclosure of such trade secrets, know-how, or other proprietary information. Further, the theft or unauthorized use or publication of our trade secrets and other confidential business information could reduce the
differentiation of our services and harm our business, the value of our investment in development or business acquisitions could be reduced and third parties might make claims against us related to losses of their confidential or proprietary
information.
We rely on our trademarks, service marks, trade names and brand
names to distinguish our services from the services of our competitors and have registered or applied to register many of these trademarks. We cannot assure you that our trademark applications will be approved. Third parties may also oppose our
trademark applications, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our services, which could result in loss of brand recognition and could
require us to devote resources advertising and marketing new brands. Further, we cannot assure you that competitors will not infringe our trademarks or that we will have adequate resources to enforce our trademarks. Additionally, if we expand
our focus to the international payment accuracy market, there is no guarantee that our trademarks, service marks, trade names and brand names will be adequately protected.
Our ability to obtain, protect and enforce
our intellectual property rights is subject to uncertainty as to the scope of protection, registrability, patentability, validity and enforceability of our intellectual property rights in each applicable jurisdiction, as well as the risk of
general litigation or third-party oppositions.
Existing U.S. federal and state intellectual property laws offer
only limited protection. Moreover, if we expand our business into markets outside of the United States, our intellectual property rights may not receive the same degree of protection as they would in the United States because of the differences
in foreign trademark and other laws concerning proprietary rights. Governments may adopt regulations, and government agencies or courts may render decisions, requiring compulsory licensing of intellectual property rights. When we seek to
enforce our intellectual property rights, we may be subject to claims that the intellectual property rights are invalid or unenforceable. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our
trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property rights.
Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our
proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our solutions, impair the functionality of
our solutions, delay introductions of new solutions, result in our substituting inferior or more costly technologies into our solutions, or have a material adverse effect on our business, financial condition and results of operations.
Our qui tam litigation may be subject to
Government Intervention and Dismissal pursuant to 31 U.S.C. § 3730(c)(2)(A).
We file qui tam
(“whistle blower”) actions on behalf of the United Stated federal government (“Federal Government”) under the False Claims Act, 31 U.S.C. § 3729 et seq. These actions give the Federal Government the opportunity to intervene and participate in
the action. The False Claims Act authorizes the Attorney General to dismiss a qui tam action over the relator’s objection. The action can be dismissed if the Federal Government determines their best
interests are not served with the litigation. This can be the case if the litigation does not advance their interests, preserve their limited resources, or avoid adverse precedent.
The Federal Government may dismiss an action notwithstanding the
objections of the relator if the relator has received notice from the Federal Government and the person is afforded an opportunity to be heard on the Federal Government’s motion to dismiss. Courts have stated that the Federal Government has an
“unfettered” right to dismiss a qui tam action. Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003). Federal Government intervention as well as dismissal
pursuant to 31 U.S.C. § 3730(c)(2)(A) can negatively affect our business and our recovery efforts.
We are subject to extensive government
regulation. Any violation of the laws and regulations applicable to us or a negative audit or investigation finding could have a material adverse effect on our business, financial condition and results of operations.
Much of our business is regulated by the Federal Government and
the states in which we operate. The laws and regulations governing our operations generally are intended to benefit and protect individual citizens, including
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government program beneficiaries, health plan members and providers, rather than
stockholders. The government agencies administering these laws and regulations have broad latitude to enforce them. These laws and regulations regulate how we do business, what services we offer and how we interact with our Assignors,
providers, other healthcare payers and the public. Increased involvement by us in analytic or audit work that can have an impact on the eligibility of individuals for medical coverage or specific benefits could increase the likelihood and
incidence of us being subjected to scrutiny or legal actions by parties other than our Assignors, based on alleged mistakes or deficiencies in our work, with significant resulting costs and strain on our resources.
In addition, because we may receive payments from federal and
state governmental agencies, we may become subject to various laws, including the Federal False Claims Act and similar state statutes, which permit government law enforcement agencies to institute suits against us for violations and, in some
cases, to seek double or treble damages, penalties and assessments. In addition, private citizens, acting as whistleblowers, can sue on behalf of the Federal Government under the “qui tam” provisions of
the Federal False Claims Act and similar statutory provisions in many states.
The expansion of our operations into new products and services may
further expose us to requirements and potential liabilities under additional statutes and legislative schemes that previously have not been relevant to our business, such as banking statutes, that may both increase demands on our resources for
compliance activities and subject us to potential penalties for noncompliance with statutory and regulatory standards.
If the government discovers improper or illegal activities in the
course of audits or investigations, we may be subject to various civil and criminal penalties and administrative sanctions, which may include termination of contracts, forfeiture of profits, suspension of payments, fines and suspensions and
debarment from doing business with the government. Such risks, particularly under the Federal False Claims Act and similar state fraud statutes, have increased in recent years due to legislative changes that have (among other amendments)
expanded the definition of a false claim to include, potentially, any unreimbursed overpayment received from, or other monetary debt owed to, a government agency. If we are found to be in violation of any applicable law or regulation, or if we
receive an adverse review, audit or investigation, any resulting negative publicity, penalties or sanctions could have an adverse effect on our reputation in the industry, impair our ability to compete for new contracts and have a material
adverse effect on our business, financial condition and results of operations.
Our business depends on effective
information processing systems that are compliant with current HIPAA transaction and code set standards and the integrity of the data in, and operations of, our information systems, as well as those of other entities that provide us with data
or receive data from us.
Our ability to conduct our operations and accurately report our
financial results depends on the integrity of the data in our information systems and the integrity of the processes performed by those systems. These information systems and applications require continual maintenance, upgrading and enhancement
to meet our operational needs, satisfy Assignor requests and handle and enable our expansion and growth. Despite our testing and quality control measures, we cannot be certain that errors or system deficiencies will not be found and that
remediation can be done in a timeframe that is acceptable to our Assignors or that Assignor relationships will not be impaired by the occurrence of errors or the need for remediation. In addition, implementation of upgrades and enhancements may
cost more, take longer or require more testing than originally expected. Given the large amount of data we collect and manage, it is possible that hardware failures, errors or technical deficiencies in our systems could result in data loss or
corruption or cause the information that we collect, utilize or disseminate to be incomplete or contain inaccuracies that our Assignors regard as significant.
Moreover, we submit high volumes of monetary claims to third
parties, the efficiency and effectiveness of our own operations are to some degree dependent on the claims processing systems of these third parties and their compliance with any new transaction and code set standards. Since October 1, 2015,
health plans, commercial payers and healthcare providers have been required to transition to the new ICD-10 coding system, which greatly expands the number and detail of diagnosis codes used for inpatient, outpatient and physician claims. The
transition to the new transaction and code set standard is expensive, time-consuming and may initially result in disruptions or delays as we and other stakeholders make necessary system adjustments to be fully compliant and capable of
exchanging data.
In addition, we may experience delays in processing claims and
therefore earning our fees if the third parties with whom we work are not in full compliance with these new standards in the required timeframe. Claims processing
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systems failures, incapacities or deficiencies internal to these third parties
could significantly delay or obstruct our ability to recover money, and thereby interfere with our performance and our ability to generate revenue in the timeframe we anticipate, which in turn could have a material adverse effect on our
business, financial condition and results of operations.
In the event we fail to maintain our
Security Organization Control 2, HITRUST or other certifications, we could be in breach of our obligations under our contracts, fines and other penalties could result, and we may suffer reputational harm and damage to our business.
In addition to government regulation and the securities laws, we
are subject to self-regulatory standards and industry certifications that may legally or contractually apply to us. These include Security Organization Control 2 (“SOC 2”), with which we are currently compliant. In the event we fail to maintain
our SOC 2 compliance or fail to receive recertification from HITRUST, we could be in breach of our obligations under Assignor and other contracts, fines and other penalties could result, and we may suffer reputational harm and damage to our
business. Further, our Assignors may expect us to comply with more stringent privacy and data security requirements than those imposed by laws, regulations or self-regulatory requirements, and we may be obligated contractually to comply with
additional or different standards relating to our handling or protection of data.
Any failure or perceived failure by us to comply with federal or
state laws or regulations, industry standards or other legal obligations, or any actual or suspected privacy or security incident, whether or not resulting in unauthorized access to, or acquisition, release or transfer of PII or other data, may
result in governmental enforcement actions and prosecutions, private litigation, fines and penalties or adverse publicity and could cause our Assignors to lose trust in us, which could have an adverse effect on our reputation and business. We
may be unable to make such changes and modifications in a commercially reasonable manner or at all, and our ability to pursue recoveries could be limited. Any of these developments could harm our business, financial condition and results of
operations. Privacy and data security concerns, whether valid or not valid, may inhibit retention of our systems by existing Assignors or onboarding onto or, in the case of our Chase to Pay services, adoption of our systems by new Assignors.
For more information on Chase to Pay services, please see the section entitled “Information About MSP—MSP Business Overview.”
Costs associated with, and our ability to
obtain and maintain adequate insurance, could adversely affect our profitability and financial condition.
We hold a number of insurance policies, including directors’ and
officers’ liability insurance, business interruption insurance, property insurance and workers’ compensation insurance. The cost of maintaining directors’ and officers’ liability insurance has increased substantially over the past few years and
could continue to increase, due to general market trends, as part of an evaluation of our specific loss history and other factors. If the costs of maintaining adequate insurance coverage should increase significantly in the future, our
operating results could be materially adversely affected. Likewise, if any of our current insurance coverage should become unavailable to us or become economically impractical, we would be required to operate our business without indemnity from
commercial insurance providers. Similarly, if we exhaust our current insurance coverage for any given policy period, we would be required to operate our business without indemnity from commercial insurance providers for any claims made that are
attributable to that policy period.
Our services could become subject to new,
revised, or enhanced regulatory requirements in the future, which could result in increased costs, could delay or prevent our introduction of new solutions, or could impair the function or value of our existing solutions, which could have a
material adverse effect on our business, financial condition and results of operations.
The healthcare industry is highly regulated on the federal, state
and local levels, and is subject to changing legislative, regulatory, political and other influences. As has been the trend in recent years, it is reasonable to assume that there will continue to be increased government oversight and regulation
of the healthcare industry in the future. Changes to existing laws and regulations, or the enactment of new federal and state laws and regulations affecting the healthcare industry, could create unexpected liabilities for us, could cause us or
our Assignors to incur additional costs and could restrict our or our Assignors’ operations. Many healthcare laws are complex, subject to frequent change and dependent on interpretation and enforcement decisions from government agencies with
broad discretion. We cannot assure our stockholders as to the ultimate content, timing or effect of any new healthcare legislation or regulations, nor is it possible at this time to estimate the impact of potential new legislation or
regulations on our
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business. In addition, federal and state legislatures periodically have considered
programs to reform or amend the U.S. healthcare system at both the federal and state level, such as the enactment of the Affordable Care Act. It is possible that the changes to the Medicare, Medicaid or other governmental healthcare program
reimbursements may serve as precedent to possible changes in other payers’ reimbursement policies in a manner adverse to us. Similarly, changes in private payer reimbursements could lead to adverse changes in Medicare, Medicaid and other
governmental healthcare programs, which could have a material adverse effect on our business, financial condition and results of operations. Our failure to anticipate accurately the application of these laws and similar or future laws and
regulations, or our failure to comply with them, could create liability for us, result in adverse publicity and have a material adverse effect on our business, financial condition and results of operations.
While we believe that we have structured our agreements and
operations in material compliance with applicable healthcare laws and regulations, there can be no assurance that we will be able to successfully address changes in the current regulatory environment. We believe that our business operations
materially comply with applicable healthcare laws and regulations. However, some of the healthcare laws and regulations applicable to us are subject to limited or evolving interpretations, and a review of our business or operations by a court,
law enforcement or a regulatory authority might result in a determination that could have a material adverse effect on us. Furthermore, the healthcare laws and regulations applicable to us may be amended or interpreted in a manner that could
have a material adverse effect on our business, prospects, results of operations and financial condition.
Our services may become subject to new or enhanced regulatory
requirements and we may be required to change or adapt our services in order to comply with these regulations. If we fail to successfully implement new regulatory framework, it could adversely affect our ability to offer services deemed
critical by our Assignors, which could have a material adverse effect on our business, financial condition and results of operations. New or enhanced regulatory requirements may render our solutions obsolete or prevent us from performing
certain services. Further, new or enhanced regulatory requirements could impose additional costs on us, thereby making existing solutions unprofitable, and could make the introduction of new solutions more costly or time consuming than we
anticipate, which could have a material adverse effect on our business, financial condition and results of operations.
If we fail to accurately estimate the
factors upon which we base our contract pricing, we may generate less profit than expected or incur losses on those contracts, which could have a material adverse effect on our business, financial condition and results of operations.
Our Assignor contracts are generally recovery-based. We receive a
fee for such contracts based on the monies identified and ultimately recovered. Our ability to earn a profit on a performance-based agreement requires that we accurately estimate the costs involved and outcomes likely to be achieved and assess
the probability of completing multiple tasks and transactions within the contracted time period.
We derive a relatively small portion of our revenue on a
“fee-for-service” basis whereby billing is based upon a flat fee or a fee per hour. To earn a profit on these contracts, we must accurately estimate costs involved and assess the probability of achieving certain milestones within the contracted
time period. If we do not accurately estimate the costs and timing for completing projects, or if we encounter increased or unexpected costs, delays, failures, liabilities or risks, including those outside of our control, our contracts could
prove unprofitable for us or yield lower profit margins than anticipated. Although we believe that we have recorded adequate provisions in our financial statements for losses on our fee-for-service contracts where applicable, as required under
GAAP, we cannot provide assurance that our contract provisions will be adequate to cover all actual future losses. The inability to accurately estimate the factors upon which we base our contract pricing could have a material adverse effect on
business, financial condition and results of operations.
If we fail to cost-effectively develop
widespread brand awareness and maintain our reputation, or if we fail to achieve and maintain market acceptance, our business could suffer.
We believe that maintaining and enhancing our reputation and brand
recognition is critical to our relationships with our Assignors and ability to attract new Assignors. The promotion of our brand may require us to make substantial investments and we anticipate that, as our market becomes increasingly
competitive, these marketing initiatives may become increasingly difficult and expensive. Our marketing activities may not be successful or yield increased revenue, and to the extent that these activities yield increased revenue, the increased
revenue may not offset the expenses we incur, and our results of operations could be harmed. In addition, any factor that diminishes our reputation or that of our management, including failing to meet expectations, or any adverse publicity or
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involving or surrounding us, could make it substantially more difficult for us to
attract new Assignors. In addition, negative publicity resulting from any adverse government audit could injure our reputation. If we do not successfully maintain and enhance our reputation and brand recognition, our business may not grow and
we could lose our relationships with Assignors, which would harm our business, results of operations and financial condition.
The registered or unregistered trademarks or trade names that we
own or license may be challenged, infringed, circumvented, declared generic, lapsed or determined to be infringing on or dilutive of other marks. We may not be able to protect our rights in these trademarks and trade names, which we need in
order to build name recognition with Assignors, payers and other partners. In addition, third parties may in the future file for registration of trademarks similar or identical to our trademarks. If they succeed in registering or developing
common law rights in such trademarks, and if we are not successful in challenging such third-party rights, we may not be able to use these trademarks to promote our business in certain relevant jurisdictions. If we are unable to establish name
recognition based on our trademarks and trade names, we may not be able to compete effectively and our brand recognition, reputation and results of operations may be adversely affected.
Our ability to execute on business plans,
maintain high levels of service or adequately address competitive challenges will be negatively impacted if we fail to properly manage our growth, which could have a material adverse effect on our business, financial condition and results of
operations.
In recent years, our size and the scope of our business operations
have expanded rapidly, and we expect that we will continue to grow and expand into new areas within the healthcare industry; however, such growth and expansion has resulted in nominal revenue to date and carries costs and risks that, if not
properly managed, could have a material adverse effect on our business, financial condition and results of operations. To effectively manage our business plans, we must continue to improve our operations, while remaining competitive. We must
also be flexible and responsive to our Assignors’ needs and to changes in the political, economic and regulatory environment in which we operate. The greater size and complexity of our expanding business puts additional strain on our
administrative, operational and financial resources and makes the determination of optimal resource allocation more difficult. A failure to anticipate or properly address the demands that our growth and diversification may have on our resources
and existing infrastructure may result in unanticipated costs and inefficiencies and could adversely impact our ability to execute on our business plans and growth goals, which could have a material adverse effect on our business, financial
condition and results of operations.
We may require significant capital expenditures and the allocation
of valuable management resources to grow and change in these areas. We must effectively increase our headcount and continue to effectively train and manage our employees. We will need to continue to hire, train and manage additional qualified
information technology, operations and marketing staff, and improve and maintain our technology and information systems to properly manage our growth. If our new hires perform poorly, or if we are unsuccessful in hiring, training, managing and
integrating these new employees, or if we are not successful in retaining our existing employees, our business may be adversely affected. We will be unable to manage our business effectively if we are unable to alleviate the strain on resources
caused by growth in a timely and successful manner. If we fail to effectively manage our anticipated growth and change, the quality of our services may suffer, which could negatively affect our brand and reputation and harm our ability to
attract and retain Assignors and employees.
We have encountered and will continue to encounter risks and
difficulties frequently experienced by growing companies in rapidly changing industries, including increasing expenses as we continue to grow our business. We expect our operating expenses to increase significantly over the next several years
as we continue to hire additional personnel, expand our operations and infrastructure, and continue to expand to reach more Assignors. In addition to the expected costs to grow our business, we also expect to incur additional legal, accounting,
investor relations and other expenses as a newly public company. These investments may be more costly than we expect, and if we do not achieve the benefits anticipated from these investments, or if the realization of these benefits is delayed,
they may not result in increased revenue or growth in our business. If our growth rate were to decline significantly or become negative, it could adversely affect our financial condition and results of operations. If we are not able to achieve
or maintain positive cash flow in the long term, we may require additional financing, which may not be available on favorable terms or at all and/or which could be dilutive to our stockholders. Our failure to achieve or maintain profitability
could negatively impact the value of our common stock.
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We may not be able to obtain additional
capital to continue the development of our business.
There can be no assurance that our future proposed operations
and claims recovery will be implemented successfully or that we will ever have profits. If we are unable to successfully recover on claims and continue pursuing recoveries, holders of our common stock may lose their entire investment. We face
all of the risks inherent in a new business and a new public company, including the expenses, difficulties, complications and delays frequently encountered in connection with conducting operations, including the need for significant
additional capital requirements and management’s potential underestimation of initial and ongoing costs. In evaluating our business and future prospects, these difficulties should be considered. If we are not effective in addressing these
risks, we would not be able to implement our business strategy and our results of operations would be adversely affected. To date, MSP’s sources of liquidity to fund working capital have been through funds from servicing agreements, member
contributions and investments from other third parties. As of December 31, 2021, MSP had access to approximately $30.7 million reserved for services fees to be paid by VRM MSP, commensurate with the operational expenses and costs of MSP
Recovery. See “MSP Recovery’s Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Business Model—Claims Recovery Services” and Note 1 to the unaudited financial statements of MSP Recovery included in this
proxy statement/prospectus.
If we do not successfully integrate future
acquisitions or strategic partnerships that we may enter into, we may not realize the anticipated benefits of any such acquisitions or partnerships, which could have a material adverse effect on our business, financial condition and results of
operations.
We expect to pursue future acquisitions in order to expand and
diversify our business. We may also form strategic partnerships with third parties that we believe will complement or augment our existing business. We cannot, however, provide assurance that we will be able to identify any potential
acquisition or strategic partnership candidates, consummate any additional acquisitions or enter into any strategic partnerships or that any future acquisitions or strategic partnerships will be successfully integrated or will be advantageous
to us. Entities we acquire may not achieve the revenue and earnings we anticipate or their liabilities may exceed our expectations. We could face integration issues pertaining to the internal controls and operational functions of the acquired
companies and we also could fail to realize cost efficiencies or synergies that we anticipated when selecting our acquisition candidates. Assignor dissatisfaction or performance problems with a particular acquired entity or resulting from a
strategic partnership could have a material adverse effect on our reputation as a whole. We may be unable to profitably manage any acquired entities, or we may fail to integrate them successfully without incurring substantial expenses, delays
or other problems. We may not achieve the anticipated benefits from any strategic partnerships we form. In addition, business acquisitions and strategic partnerships involve a number of risks that could affect our business, financial condition
and results of operations, including but not limited to:
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our ability to integrate operational, accounting and technology policies, processes and systems and the implementation of
those policies and procedures;
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our ability to integrate personnel and human resources systems as well as the cultures of each of the acquired businesses;
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our ability to implement our business plan for the acquired business;
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transition of operations, users and Assignors to our existing platforms or the integration of data, systems and technology
platforms with ours;
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compliance with regulatory requirements and avoiding potential conflicts of interest in markets that we serve;
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diversion of management’s attention and other resources;
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our ability to retain or replace key personnel;
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our ability to maintain relationships with the clients of the acquired business or a strategic partner and further develop
the acquired business or the business of our strategic partner;
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our ability to cross-sell our solutions of the acquired businesses or strategic partners to our respective Assignors;
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entry into unfamiliar markets;
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assumption of unanticipated legal or financial liabilities and/or negative publicity related to prior acts by the acquired
entity;
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litigation or other claims in connection with the acquired company, including claims from terminated employees, Assignors,
former stockholders or third parties;
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misuse of intellectual property by our strategic partners;
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disagreements with strategic partners or a misalignment of incentives within any strategic partnership;
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becoming significantly leveraged as a result of incurring debt to finance an acquisition;
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unanticipated operating, accounting or management difficulties in connection with the acquired entities; and
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impairment of acquired intangible assets, including goodwill, and dilution to our earnings per share.
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If we fail to successfully integrate the businesses that we
acquire or strategic partnerships that we enter into, we may not realize any of the benefits we anticipate in connection with the acquisitions or partnerships, which could have a material adverse effect on our business, financial condition and
results of operations.
We may incur substantial additional
indebtedness, including in connection with future claims acquisitions.
We may incur substantial additional indebtedness in order to
finance acquisitions, which are an important part of our long-term growth strategy, or otherwise in connection with financing our operations, and such increased leverage could adversely affect our business. In particular, the increased
leverage could increase our vulnerability to sustained, adverse macroeconomic weakness, limit our ability to obtain further financing and limit our ability to pursue other operational and strategic opportunities. The increased leverage,
potential lack of access to financing and increased expenses could have a material adverse effect on our financial condition, results of operations and cash flows.
If we fail to maintain or upgrade our
operational platforms, it could have a material adverse effect on our business, financial condition and results of operations.
We expect to make substantial investments in and changes to our
operational platforms, systems and applications to compete effectively and keep up with technological advances. We may also face difficulties in integrating any upgraded platforms into our current technology infrastructure. In addition,
significant technological changes could render our existing solutions obsolete. Although we have invested, and will continue to invest, significant resources in developing and enhancing our solutions and platforms, any failure to keep up with
technological advances or to integrate upgraded operational platforms and solutions into our existing technology infrastructure could have a material adverse effect on our business, financial condition and results of operations.
We are currently party to and may in the
future become party to additional litigation, regulatory, or other dispute resolution proceedings. Adverse judgments or settlements in any of these proceedings could have a material adverse effect on our business, financial condition and
results of operations.
We are currently party to may in the future become party to
lawsuits and other claims against us that arise from time to time in the ordinary course of our business. These may include lawsuits and claims related to, for example, contracts, subcontracts, protection of confidential information or trade
secrets, wage and benefits, employment of our workforce or compliance with any of a wide array of state and federal statutes, rules and regulations that pertain to different aspects of our business. We also may be required to initiate expensive
litigation or other proceedings to protect our business interests. In addition, because of the payments we may receive from potential future government Assignors, we may become subject to unexpected inquiries, investigations, legal actions or
enforcement proceedings pursuant to the False Claims Act, healthcare fraud, waste and abuse laws or similar legislation. Any investigations, settlements or adverse judgments stemming from such legal disputes or other claims may result in
significant monetary damages or injunctive relief against us, as well as reputational injury that could adversely affect us. In addition, litigation and other legal claims are subject to inherent uncertainties and management’s view of currently
pending legal matters may change in the future. Those uncertainties include, but are not limited to, costs of litigation, unpredictable judicial or jury decisions and the differing laws and judicial proclivities regarding damage awards among
the states in which we operate. Unexpected outcomes in such legal proceedings, or changes in management’s evaluation or predictions of the likely outcomes of such proceedings (possibly resulting in changes in established reserves), could have a
material adverse effect on our business, financial condition and results of operations.
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If we are unable to successfully identify
and recover on future claims, our results of operations could be adversely affected.
As a part of our business plan, we have acquired the right to
pursue recoveries and we intend to continue to pursue acquiring additional claims to support our business strategy. These recoveries can involve a number of risks and challenges, any of which could cause significant operating inefficiencies and
adversely affect our growth and profitability. Such risks and challenges include:
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underperformance relative to our expectations and the price paid for the claims;
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unanticipated demands on our management and operational resources;
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failure to successfully recover on legal claims;
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difficulty in integrating personnel, operations, and systems;
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maintaining current customers and securing future customers of the combined businesses;
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assumption of liabilities; and
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litigation-related charges.
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The profits of claims may take considerable time to recover,
and certain recoveries may fall short of expected returns. If our recoveries are not successful, we may record impairment charges. Our ability to grow our capital will depend upon our success at identifying and recovering legal claims, which
requires substantial judgment in assessing their values, strengths, weaknesses, liabilities, and potential profitability, as well as the availability of capital.
If we fail to accurately calculate the
Paid Amount and Paid Value of Potential Recoverable Claims, it can have a material adverse effect on our business, results of operations, financial condition, and cash flows.
Typically, we identify recoverable claims using our proprietary
algorithms which comb through historical paid claims data and search for possible recoveries based on the various Funnels and Layers we have identified. Our potential ability to achieve recovery revenues are based largely on the Paid Value of
Potentially Recoverable Claims of our portfolio and our ability to discover, quantify and settle the gap between Billed Amount and Paid Amount on a large scale. If we fail to accurately calculate the Paid Amount or the Paid Value of Potential
Recoverable Claims, the Recovery Multiple or the recovery rights we are entitled to may not be appropriately captured, which may have a material adverse effect on our business, results of operations, financial condition and cash flows.
We use software vendors, utility providers
and network providers in our business and if they cannot deliver or perform as expected or if our relationships with them are terminated or otherwise change it could have a material adverse effect on our business, financial condition and
results of operations.
Our ability to service our Assignors and deliver and implement
solutions requires that we work with certain third-party providers, including software vendors, utility providers and network providers, and depends on such third parties meeting our expectations in both timeliness and quality. We might incur
significant additional liabilities if the services provided by these third parties do not meet our expectations, if they terminate or refuse to renew their relationships with us or if they were to offer their services to us on less advantageous
terms, which could have a material adverse effect on our business, financial condition and results of operations. In addition, while there are backup systems in many of our operating facilities, an extended outage of utility or network services
supplied by these vendors or providers could impair our ability to deliver our solutions, which could have a material adverse effect on our business, financial condition and results of operations.
We use various data sources in our
business and if we lose access to those data sources it could have a material adverse effect on our business, financial condition, and results of operations.
Our ability to service our Assignors and deliver and implement
solutions requires that we use several data sources when identifying recoveries. If we were to lose access to those data sources, including as a result of any termination of our data access arrangements, it could have a material adverse
effect on our business, financial condition and results of operations.
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Third parties may claim that we are
infringing their intellectual property, and we could suffer significant litigation or licensing expenses or be prevented from selling certain solutions, which could have a material adverse effect on our business, financial condition and results
of operations.
We could be subject to claims that we are misappropriating or
infringing intellectual property or other proprietary rights of others. These claims, even if not meritorious, could be expensive to defend and divert management’s attention from our operations. If we become liable to third parties for
infringing these rights, we could be required to pay a substantial damage award and develop non-infringing technology, cease using the solutions or providing the services that use or contain the infringing intellectual property or obtain a
license. We may be unable to develop non-infringing solutions or obtain a license on commercially reasonable terms, or at all. We may also be required to indemnify our Assignors if they become subject to third-party claims relating to
intellectual property that we license or otherwise provide to them, which could be costly. If we are subject to claims of misappropriating or infringing the intellectual property or other proprietary rights of others, it could have a material
adverse effect on our business, financial condition and results of operations.
Changes in, or interpretations of, tax rules
and regulations may adversely affect our effective tax rates.
We have operations throughout the United States as well as in
Puerto Rico. Accordingly, we are subject to taxation in many jurisdictions with increasingly complex tax laws, the application of which can be uncertain.
Unanticipated changes in our tax rates could affect our future
financial condition and results of operations. Our future effective tax rates could be unfavorably affected by changes in the tax rates in jurisdictions where our income is earned and taxed, by changes in, or our interpretation of, tax rules
and regulations in the jurisdictions in which we do business, by increases in expenses not deductible for tax purposes including impairments of goodwill, by changes in U.S. GAAP or other applicable accounting standards or by changes in the
valuation of our deferred tax assets and liabilities.
In addition, we are subject to the continual examination of our
income tax returns by the U.S. Internal Revenue Service (“IRS”) and other domestic and international tax authorities. Tax authorities in various jurisdictions may disagree with and subsequently challenge the amount of profits taxed in their
state or country, which may result in increased tax liability, including accrued interest and penalties, which would cause our tax expense to increase. There can be no assurance that the final determination of any of these examinations will not
have a material adverse effect on our financial condition and results of operations.
We will be required to pay the TRA
Parties (as defined in the TRA) for most of the benefits relating to an increase in tax attributes as a result of the Post-Combination Company’s direct and indirect allocable share of existing tax basis acquired in the Business Combination,
and the Post-Combination Company’s increase in its allocable share of existing tax basis and anticipated tax basis adjustments we receive in connection with sales or exchanges of Up-C Units after the Business Combination.
In connection with the Business Combination, we will enter into
a Tax Receivable Agreement with the TRA Parties (as defined in the TRA) that provides for the payment by the Post-Combination Company to such TRA Parties of 85% of the benefits, if any, that the Post-Combination Company is deemed to realize
(calculated using certain assumptions) as a result of (i) the Company’s direct and indirect allocable share of existing tax basis acquired in the Business Combination, (ii) increases in the Post-Combination Company’s allocable share of
existing tax basis and tax basis adjustments that will increase the tax basis of the tangible and intangible assets of Opco as a result of the Business Combination and as a result of sales or exchanges of Up-C Units for cash or shares of the
Post-Combination Company’s Class A common stock, and (iii) certain other tax benefits related to entering into the Tax Receivable Agreement, including tax benefits attributable to payments under the Tax Receivable Agreement. These increases
in existing tax basis and tax basis adjustments generated over time may reduce the amount of tax that the Post-Combination Company would otherwise be required to pay in the future, although the IRS may challenge all or part of the validity of
that tax basis, and a court could sustain such a challenge. Actual tax benefits realized by the Post-Combination Company may differ from tax benefits calculated under the Tax Receivable Agreement as a result of the use of certain assumptions
in the Tax Receivable Agreement, including the use of an assumed weighted-average state and local income tax rate to calculate tax benefits. The payment obligation under the Tax Receivable Agreement is an obligation of the Post-Combination
Company and not of Opco. While the amount of existing tax basis, the anticipated tax basis adjustments and the actual amount and utilization of tax attributes, as well as the amount and timing of any payments under the Tax Receivable
Agreement, will vary depending upon a number of factors, including the timing of exchanges of Up-C Units for shares of the Post-Combination Company common
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stock, the applicable tax rate, the price of shares of the Post-Combination
Company’s Class A common stock at the time of exchanges, the extent to which such exchanges are taxable and the amount and timing of our income, we expect that as a result of the size of the transfers and increases in the tax basis of the
tangible and intangible assets of Opco and our possible utilization of tax attributes, including existing tax basis acquired at the time of the Business Combination, the payments that the Post-Combination Company may make under the Tax
Receivable Agreement will be substantial. The payments under the Tax Receivable Agreement are not conditioned on the exchanging holders of Opco Units or other TRA Parties continuing to hold ownership interests in us. To the extent payments are
due to the TRA Parties under the Tax Receivable Agreement, the payments are generally required to be made within five business days after the tax benefit schedule (which sets forth the Post-Combination Company’s realized tax benefits covered by
the Tax Receivable Agreement for the relevant taxable year) is finalized. The Post-Combination Company is required to deliver such a tax benefit schedule to the TRA Parties’ Representative (as defined in the TRA), for its review, within ninety
calendar days after the due date (including extensions) of the Post-Combination Company’s federal corporate income tax return for the relevant taxable year.
In certain cases, payments under the Tax
Receivable Agreement may be accelerated and/or significantly exceed the actual benefits the Post-Combination Company realizes in respect of the tax attributes subject to the Tax Receivable Agreement.
The Post-Combination Company’s payment obligations under the Tax
Receivable Agreement will be accelerated in the event of certain changes of control or its election to terminate the Tax Receivable Agreement early. The accelerated payments will relate to all relevant tax attributes then allocable to the
Post-Combination Company in the case of an acceleration upon a change of control and to all relevant tax attributes allocable or that would be allocable to the Post-Combination Company (in the case of an election by the Post-Combination Company
to terminate the Tax Receivable Agreement early, assuming all Up-C Units were then exchanged). The accelerated payments required in such circumstances will be calculated by reference to the present value (at a specified discount rate determined
by reference to LIBOR) of all future payments that holders of Up-C Units or other recipients would have been entitled to receive under the Tax Receivable Agreement, and such accelerated payments and any other future payments under the Tax
Receivable Agreement will utilize certain valuation assumptions, including that the Post-Combination Company will have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions and tax basis and other
benefits related to entering into the Tax Receivable Agreement. In addition, recipients of payments under the Tax Receivable Agreement will not reimburse us for any payments previously made under the Tax Receivable Agreement if such tax basis
and the Post-Combination Company’s utilization of certain tax attributes is successfully challenged by the IRS (although any such detriment would be taken into account in future payments under the Tax Receivable Agreement). The Post-Combination
Company’s ability to achieve benefits from any existing tax basis, tax basis adjustments or other tax attributes, and the payments to be made under the Tax Receivable Agreement, will depend upon a number of factors, including the timing and
amount of our future income. As a result, even in the absence of a change of control or an election to terminate the Tax Receivable Agreement, payments under the Tax Receivable Agreement could be in excess of 85% of the Post-Combination
Company’s actual cash tax benefits.
Accordingly, it is possible that the actual cash tax benefits
realized by the Post-Combination Company may be significantly less than the corresponding Tax Receivable Agreement payments or that payments under the Tax Receivable Agreement may be made years in advance of the actual realization, if any, of
the anticipated future tax benefits. There may be a material negative effect on our liquidity if the payments under the Tax Receivable Agreement exceed the actual cash tax benefits that the Post-Combination Company realizes in respect of the
tax attributes subject to the Tax Receivable Agreement and/or distributions to the Post-Combination Company by Opco are not sufficient to permit the Post-Combination Company to make payments under the Tax Receivable Agreement after it has paid
taxes and other expenses. We may need to incur additional indebtedness to finance payments under the Tax Receivable Agreement to the extent our cash resources are insufficient to meet our obligations under the Tax Receivable Agreement as a
result of timing discrepancies or otherwise, and these obligations could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control.
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The acceleration of payments under the Tax
Receivable Agreement in the case of certain changes of control may impair our ability to consummate change of control transactions or negatively impact the value of our Post-Combination Company common stock.
In the case of a “Change of Control” under the Tax Receivable
Agreement (which is defined to include, among other things, a 50% change in control of the Post-Combination Company, the approval of a complete plan of liquidation or dissolution of the Post-Combination Company, or the disposition of all or
substantially all of the Post-Combination Company’s direct or indirect assets), payments under the Tax Receivable Agreement will be accelerated and may significantly exceed the actual benefits the Post-Combination Company realizes in respect of
the tax attributes subject to the Tax Receivable Agreement. We expect that the payments that we may make under the Tax Receivable Agreement (the calculation of which is described in the immediately preceding risk factor) in the event of a
change of control will be substantial. As a result, our accelerated payment obligations and/or the assumptions adopted under the Tax Receivable Agreement in the case of a change of control may impair our ability to consummate change of control
transactions or negatively impact the value received by owners of our Post-Combination Company common stock in a change of control transaction.
Our success may depend on the continued
service and availability of key personnel.
Our success and future growth is dependent upon the ability of our
executive officers, senior managers and other key personnel to operate and manage our business and execute on our growth strategies successfully. We cannot provide assurance that we will be able to continue to retain our executive officers,
senior managers or other key personnel or attract additional key personnel. We may incur increased expenses in connection with the hiring, promotion, retention or replacement of any of these individuals. The loss of the services of any of our
key personnel could have a material adverse effect on our business, financial condition and results of operations.
Our business is dependent on our ability to
attract and retain qualified employees.
Our ability to operate our business and provide our solutions is
dependent on our ability to recruit, employ, train and retain the skilled personnel who have relevant experience in the healthcare and data analytics industries as well as information technology professionals who can design, implement, operate
and maintain complex information technology systems. For example, certain of our employees in our company must either have or rapidly develop a significant amount of technical knowledge with regard to medical insurance coding and procedures. In
addition, certain of our retrospective data driven solutions rely on a team of trained registered nurses or medical coding professionals to review medical information and provide feedback with respect to the medical appropriateness of care
provided. Innovative, experienced and technologically proficient professionals, qualified nurses and experienced medical coding professionals are in great demand and are likely to remain a limited resource. Our ability to recruit and retain
such individuals depends on a number of factors, including the competitive demands for employees having, or able to rapidly develop, the specialized skills we need and the level and structure of compensation required to hire and retain such
employees. We may not be able to recruit or retain the personnel necessary to efficiently operate and support our business. Even if our recruitment and retention strategies are successful, our labor costs may increase significantly. In
addition, our internal training programs may not be successful in providing inexperienced personnel with the specialized skills required to perform their duties. If we are unable to hire, train and retain sufficient personnel with the requisite
skills without significantly increasing our labor costs, it could have a material adverse effect on our business, financial condition and results of operations.
General economic, political and market
forces and dislocations beyond our control could reduce demand for our solutions, which could have a material adverse effect on our business, financial condition and results of operations.
The demand for our data driven solutions may be impacted by
factors that are beyond our control, including macroeconomic, political and market conditions, the availability of short-term and long-term funding and capital, the level and volatility of interest rates, currency exchange rates and inflation.
The United States economy recently experienced periods of contraction and both the future domestic and global economic environments may continue to be less favorable than those of prior years. Any one or more of these factors may contribute to
reduced activity and prices in the securities markets generally and could result in a reduction in demand for our solutions, which could have a material adverse effect on our business, results of operations and financial condition.
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COVID-19 or other pandemic, epidemic, or
outbreak of an infectious disease may have an adverse effect on our business, results of operations, financial condition and cash flows, the nature and extent of which are highly uncertain and unpredictable.
The severity, magnitude and duration of the ongoing COVID-19
pandemic is uncertain and rapidly changing. As of the date of this proxy statement/prospectus, the extent to which the COVID-19 pandemic may impact our business, results of operations and financial condition remains uncertain. Furthermore,
because of our business model, the full impact of the COVID-19 pandemic may not be fully reflected in our results of operations and overall financial condition until future periods.
Numerous state and local jurisdictions, including certain of the
markets where we operate, had or have imposed, and others in the future may impose, “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19.
Such orders or restrictions have resulted in periods of remote operations at our headquarters and medical centers, work stoppages among some vendors and suppliers, slowdowns and delays, travel restrictions and cancellation of events, among
other effects, thereby negatively impacting our operations. Other disruptions or potential disruptions include restrictions on the ability of our personnel to travel; delays in actions of regulatory bodies; diversion of or limitations on
employee resources that would otherwise be focused on the operations of our business, including because of sickness of employees or their families or the desire of employees to avoid contact with groups of people; business adjustments or
disruptions of certain third parties; and additional government requirements or other incremental mitigation efforts. The extent to which the COVID-19 pandemic impacts our business will depend on future developments, which are highly uncertain
and cannot be predicted, including new information which may emerge concerning the severity and spread of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.
It is not currently possible to reliably project the direct impact
of COVID-19 on our operating revenues and expenses. Key factors include the duration and extent of the outbreak in areas in which we operate as well as societal and governmental responses.
In response to the COVID-19 pandemic, we made operational changes
to the staffing and operations of our offices to minimize potential exposure to COVID-19. If the COVID-19 pandemic worsens, especially in regions where we have offices, our business activities originating from affected areas could be adversely
affected. Disruptive activities could include business closures in impacted areas, further restrictions on our employees’ ability to travel, impacts to productivity if our employees or their family members experience health issues, and
potential delays in hiring and onboarding of new employees. We may take further actions that alter our business operations as may be required by local, state, or federal authorities or that we determine are in the best interests of our
employees. Such measures could negatively affect our sales and marketing efforts, and employee productivity, any of which could harm our financial condition and business operations.
We are concentrated in certain geographic
regions, which makes us sensitive to regulatory, economic, environmental and competitive conditions in those regions.
Due to the concentration of our operations in Florida, our
business may be adversely affected by economic conditions that disproportionately affect Florida as compared to other states. In addition, our exposure to many of the risks described herein are not mitigated by a diversification of geographic
focus.
Moreover, regions in and around the southeastern United States
commonly experience hurricanes and other extreme weather conditions. As a result, our offices, especially those in Florida and Puerto Rico, are susceptible to physical damage and business interruption from an active hurricane season or a single
severe storm. Moreover, global climate change could increase the intensity of individual hurricanes or the number of hurricanes that occur each year. Even if our facilities are not directly damaged, we may experience considerable disruptions in
our operations due to property damage or electrical outages experienced in storm-affected areas by our employees. Additionally, long-term adverse weather conditions, whether caused by global climate change or otherwise, could cause an
outmigration of people from the communities where our offices are located. If any of the circumstances described above occurred, there could be a harmful effect on our business and our results of operations could be adversely affected.
We depend on our senior management team and
other key employees, and the loss of one or more of these employees or an inability to attract and retain other highly skilled employees could harm our business.
Our success depends largely upon the continued services of our
senior management team and other key employees. We rely on our leadership team in the areas of operations, information technology and security, marketing, compliance and general and administrative functions. From time to time, there may be
changes in our
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executive management team resulting from the hiring or departure of executives,
which could disrupt our business. The loss (including as a result of a COVID-19 infection) of one or more of the members of our senior management team, or other key employees, could harm our business. In particular, the loss of the services of
our founder and Chief Executive Officer, John H. Ruiz, could significantly delay or prevent the achievement of our strategic objectives. Changes in our executive management team may also cause disruptions in, and harm to, our business.
Our overall business results may suffer from
an economic downturn.
During periods of high unemployment, governmental entities often
experience budget deficits as a result of increased costs and lower than expected tax collections. These budget deficits at federal, state and local government entities and may decrease, spending for health and human service programs, including
Medicare, Medicaid and similar programs, which represent significant payer sources for our Assignors.
The unaudited projected financial
information contained in this proxy statement/prospectus may not be an indication of the Post-Combination Company’s results of operations or financial condition following the Business Combination.
The unaudited projected financial information is presented in this
proxy statement/prospectus because they were provided by MSP to the LCAP Board for its evaluation of the Business Combination. The Company did not perform a formal sensitivity analysis on the projections, did not prepare its own projections,
and did not secure a third-party valuation or fairness opinion. MSP has not warranted the accuracy, reliability, appropriateness or completeness of the financial projections to anyone, including the Company. These projections are based on
certain adjustments, assumptions, and preliminary estimates, address a hypothetical situation and reflects very limited historical financial data. The inclusion of financial projections in this proxy statement/prospectus should not be regarded
as an indication that MSP or the Company, their respective boards of directors or managers, or their respective affiliates, advisors or other representatives considered, or now considers, such financial projections necessarily to be predictive
of actual future results or a basis to support or fail to support your decision regarding whether to vote for or against the Business Combination Proposal. Additionally, the unaudited projected financial information is not necessarily
indicative of the future consolidated results of operations or financial position of the Post-Combination Company. In addition, the assumptions used in preparing the projected financial information are based on very limited actual experience to
date and are therefore highly speculative and may not prove to be accurate, and other factors may affect the financial condition or results of operations of the Post-Combination Company following the Business Combination. Accordingly, the
Post-Combination Company’s business, assets, cash flows, results of operations and financial condition may differ materially from those indicated by the unaudited projections included in this document. The financial projections are not fact and
should not be relied upon as being necessarily indicative of future results, and readers of this proxy statement/prospectus, including investors or holders of shares of Class A Common Stock, are cautioned against unduly relying on this
information. For more information, please see the section entitled “The Business Combination—Certain Projected Financial Information of MSP.”
Risks Related to the Company and the Business Combination
In this section, unless otherwise noted or the
context otherwise requires, “we”, “us”, and “our” refer to the Company prior to the Business Combination and to the Post-Combination Company following the Business Combination.
Following the consummation of the Business
Combination, our only significant asset will be our ownership interest in Opco. Such ownership may not be sufficient to pay dividends or make distributions or loans to enable us to pay any dividends on our common stock or satisfy our other
financial obligations.
Following the consummation of the Business Combination, we will
have no direct operations and no significant assets other than our limited liability company interest in Opco. We will depend on Opco for distributions, loans and other payments to generate the funds necessary to meet our financial obligations,
including our expenses as a publicly traded company and to pay any dividends with respect to our common stock and to satisfy our obligations under the Tax Receivable Agreement. The financial condition and operating requirements of Opco and its
subsidiaries may limit our ability to obtain cash from Opco and to satisfy our obligations under the Tax Receivable Agreement. The earnings from, or other available assets of, Opco may not be sufficient to pay dividends or make distributions or
loans to enable us to pay any dividends on our common stock should we decide to do so or satisfy our other financial obligations and to satisfy our obligations under the Tax Receivable Agreement. In addition, the covenants and
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restrictions in future indebtedness that we or Opco and its subsidiaries may
incur, as well as the laws of the applicable jurisdictions of organization and agreements of Opco and its subsidiaries, may result in restrictions on Opco’s ability to make distributions to us or the ability of Opco’s subsidiaries to make
distributions to it. For more information on the Tax Receivable Agreement, see “Other Agreements—Tax Receivable Agreement.”
Our Initial Stockholders have agreed to vote
in favor of the Business Combination described in this proxy statement/prospectus, regardless of how our Public Stockholders vote.
Unlike many other blank check companies in which the founders
agree to vote their founder shares in accordance with the majority of the votes cast by the holders of public stock in connection with an initial business combination, our Initial Stockholders (including Nomura) have agreed to vote any shares
of common stock owned by them in favor of the Business Combination Proposal. As of the date hereof, our Initial Stockholders own shares equal to 34.7% of our issued and outstanding shares of common stock. As a result, in addition to the
shares of common stock held by Nomura, the Sponsor and our officers and directors, we may need only [•], or [•]% (assuming all outstanding shares are voted), or [•], or approximately [•]% (assuming only the minimum number of shares
representing a quorum are voted), of the Public Shares to be voted in favor of the Business Combination (assuming only a quorum is present at the Special Meeting) in order to have the Business Combination approved. Accordingly, it is more
likely that the necessary stockholder approval will be received for the Business Combination than would be the case if our Initial Stockholders agreed to vote any shares of common stock owned by them in accordance with the majority of the
votes cast by our Public Stockholders.
The Sponsor, certain members of the LCAP
Board and our officers have interests in the Business Combination that are different from or are in addition to other stockholders in recommending that stockholders vote in favor of approval of the Business Combination Proposal and approval of
the other proposals described in this proxy statement.
In considering the recommendation of the LCAP Board to vote for
the proposals presented at the Special Meeting, including the Business Combination Proposal, you should be aware that aside from their interests as stockholders, the Sponsor and certain members of the LCAP Board and officers have interests in
the Business Combination that are different from, or in addition to, the interests of our stockholders generally. As a result of such interests, the Sponsor and our directors and officers may be incentivized to complete a business combination
with a less favorable combination partner or on terms less favorable to public shareholders rather than fail to complete a business combination by August 18, 2022 (or such later date as may be approved by the Company’s stockholders) and be
forced to liquidate and dissolve the Company. The LCAP Board was aware of and considered these interests, among other matters, in evaluating and negotiating the Business Combination and the related agreements and in recommending to our
stockholders that they vote in favor of the Proposals, including the Business Combination Proposal. Stockholders should take these interests into account in deciding whether to approve the proposals presented at the Special Meeting, including
the Business Combination Proposal. These interests include, among other things:
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the fact that our Initial Stockholders have agreed not to redeem any of the Founder Shares in connection with a stockholder
vote to approve the proposed Business Combination;
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the fact that Ophir Sternberg, Thomas W. Hawkins and Roger Meltzer will serve as directors of the Post-Combination
Company;
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the fact that the Sponsor paid an aggregate of $25,000 for 5,000,000 Founder Shares in January 2020 and, in February 2020,
the Company declared a stock dividend of 0.15 share for each Founder Share outstanding, resulting in the Sponsor holding an aggregate of 5,750,000 Founder Shares. After giving effect to the sales or transfer of Founder Shares to Nomura
and in connection with the IPO to certain insiders, the remaining 5,667,500 Founder Shares will have a significantly higher value at the time of the Business Combination, which if unrestricted and freely tradable would be valued at
approximately $56,675,000 but, given the restrictions on such shares, we believe such shares have less value. In addition, given the differential in the purchase price that our Sponsor paid for the Founder Shares as compared to the
price of the units sold in the IPO and the substantial number of shares of Class A Common Stock that our Sponsor will receive upon conversion of the Founder Shares in connection with the Business Combination, our Sponsor and its
affiliates may earn a positive rate of return on their investment even if the common stock of the combined company trades below the price initially paid for the units in the IPO and the Public Stockholders experience a negative rate of
return following the completion of the Business Combination;
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the fact that Nomura has contingent fees owing to it upon the successful completion of the Business Combination, consisting
of (a) an M&A fee of $20 million and (b) deferred underwriting fees of approximately $4.4 million;
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the fact that our Initial Stockholders have agreed to waive their rights to liquidating distributions from the Trust Account
with respect to their Founder Shares if we fail to complete an initial business combination by August 18, 2022 (or such later date as may be approved by the Company’s stockholders);
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the fact that our Initial Stockholders, being holders of Class A Common Stock, are eligible to receive the dividend comprised
of the New Warrants to be issued upon the automatic conversion of the Founder Shares at Closing, and the fact that, because our Initial Stockholders have agreed not to redeem their shares in connection with the Business Combination,
they may receive a significant number of such New Warrants, if other holders of Class A Common Stock elect to exercise their redemption rights;
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the fact that the Sponsor paid an aggregate of $5,950,000 for Private Units comprised of 297,500 Private Warrants to purchase
shares of Class A Common Stock and that such Private Warrants will expire worthless if a business combination is not consummated by August 18, 2022;
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the continued right of the Sponsor to hold Class A Common Stock and the shares of Class A Common Stock to be issued to the
Sponsor upon exercise of its Private Warrants following the Business Combination, subject to certain lock-up periods;
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if the Trust Account is liquidated, including in the event we are unable to complete an initial business combination within
the required time period, the Sponsor has agreed to indemnify us to ensure that the proceeds in the Trust Account are not reduced below $10.00 per public share, or such lesser per public share amount as is in the Trust Account on the
liquidation date, by the claims of prospective target businesses with which we have entered into an acquisition agreement or claims of any third party (other than our independent public accountants) for services rendered or products
sold to us, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;
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the Sponsor (including its representatives and affiliates) and the Company directors and officers, are, or may in the future
become, affiliated with entities that are engaged in a similar business to the Company. For example, each of the Company’s officers may be considered an affiliate of the Sponsor, and the directors and officers of the Company are also
affiliated with Lionheart III and Lionheart IV, all of which are blank check companies incorporated for the purpose of effecting their respective initial business combinations. In addition, Mr. Meltzer serves on the board of directors
of Haymaker Acquisition Corp. III, a blank check company incorporated for the purpose of effecting a business combination. The Sponsor and the Company’s directors and officers are not prohibited from sponsoring, or otherwise becoming
involved with, any other blank check companies prior to the Company completing its initial business combination. Moreover, certain of the Company’s directors and officers have time and attention requirements for certain other companies.
The Company’s directors and officers also may become aware of business opportunities which may be appropriate for presentation to the Company, and the other entities to which they owe certain fiduciary or contractual duties, including
Lionheart III and Lionheart IV. Accordingly, they may have had conflicts of interest in determining to which entity a particular business opportunity should be presented. These conflicts may not be resolved in the Company’s favor and
such potential business opportunities may be presented to other entities prior to their presentation to the Company, subject to applicable fiduciary duties. The Existing Charter provides that the Company renounces its 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 the Company is
legally and contractually permitted to undertake and would otherwise be reasonable for the Company to pursue, and to the extent the director or officer is permitted to refer that opportunity to the Company without violating another
legal obligation. For more information, see “Management of the Company— Conflicts of Interests.”
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the continued indemnification of our existing directors and officers and the continuation of our directors’ and officers’
liability insurance after the Business Combination;
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the fact that the Sponsor and our directors and officers will lose their entire investment in us and will not be reimbursed
for any out-of-pocket expenses if an initial business combination is not consummated by August 18, 2022; and
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that, at the closing of the Business Combination we will enter into the Registration Rights Agreement with the Sponsor and
our directors and officers which provides for registration rights to such persons and their permitted transferees.
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The personal and financial interests of the Sponsor and our
officers and directors may have influenced their motivation in identifying and selecting MSP and completing a business combination with MSP. This risk may become more acute as the deadline of August 18, 2022 for completing an initial business
combination nears, unless we amend our Existing Charter (which requires the affirmative vote of the holders of 65% of all then outstanding shares of common Stock) and amend certain other agreements into which we have entered to extend the life
of the Company.
Nomura, the Sponsor and our directors or
officers or their affiliates or officers of MSP may elect to purchase shares from Public Stockholders, which may influence a vote on a proposed Business Combination and the other proposals described in this proxy statement and reduce the public
“float” of our Class A Common Stock.
Nomura, the Sponsor and our directors or officers or their
affiliates or officers of MSP may purchase shares in privately negotiated transactions or in the open market either prior to or following the completion of the Business Combination, although they are under no obligation to do so. Such a
purchase may include a contractual acknowledgement that such stockholder, 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 the
Sponsor or our directors or officers or their respective affiliates or officers of MSP purchase shares in privately negotiated transactions from Public Stockholders who have already elected to exercise their redemption rights, such selling
stockholders would be required to revoke their prior elections to redeem their shares. The purpose of such purchases could be to vote such shares in favor of the Business Combination and thereby increase the likelihood of obtaining stockholder
approval of the Business Combination. This may result in the completion of the Business Combination that may not otherwise have been possible.
In addition, if such purchases are made, the public “float” of our
Class A Common Stock 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 Nasdaq or another national securities exchange
or reducing the liquidity of the trading market for our Class A Common Stock.
The Company May Not Hold an Annual Meeting
of Stockholders Until After the Consummation of the Business Combination, Which Could Delay the Opportunity for its Stockholders to Elect Directors.
In accordance with Nasdaq corporate governance requirements, the
Company is not required to hold an annual meeting until one year after its first fiscal year end following its listing on Nasdaq. Under Section 211(b) of the DGCL, the Company is, however, required to hold an annual meeting of stockholders for
the purposes of electing directors in accordance with the Company’s bylaws unless such election is made by written consent in lieu of such a meeting. The Company may not hold an annual meeting of stockholders to elect new directors prior to the
consummation of the Business Combination, and thus it may not be in compliance with Section 211(b) of the DGCL, which requires an annual meeting. Therefore, if the Company’s stockholders want it to hold an annual meeting prior to the
consummation of the Business Combination, they may attempt to force the Company to hold one by submitting an application to the Delaware Court of Chancery in accordance with Section 211(c) of the DGCL.
After completion of the Business
Combination, we will be controlled by the Members, including John H. Ruiz and Frank C. Quesada, whose interests may conflict with our interests and the interests of other stockholders.
Upon completion of the Business Combination, assuming (1) the
no redemption scenario and (2) that the holders of the Company’s existing Public Warrants and Private Warrants exercise those warrants, and no New Warrants are exercised, the Members (or their designees) will hold all of our issued and
outstanding Class V Common Stock, which will control approximately 99.1% of the combined voting power of our common stock, and John H. Ruiz and Frank C. Quesada, as a group, will control approximately 92.58% of the combined voting power of
our common stock. Such ownership percentage will be affected by the level of redemptions by Public Stockholders and the exercise of outstanding warrants or New Warrants. See “Summary— Ownership of the
Post-Combination Company.” The Members will effectively have the ability to determine all corporate actions requiring stockholder approval,
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including the election and removal of directors, any amendment to our certificate
of incorporation or bylaws, or the approval of any merger or other significant corporate transaction, including a sale of substantially all of our assets. This could have the effect of delaying or preventing a change in control or otherwise
discouraging a potential acquirer from attempting to obtain control of the Post-Combination Company, which could cause the market price of our Class A Common Stock to decline or prevent stockholders from realizing a premium over the market
price for Class A Common Stock. The Members interests may conflict with our interests as a company or the interests of our other stockholders.
Our Public Stockholders will experience
substantial dilution as a consequence of, among other transactions, the issuance of common stock in the Business Combination.
It is anticipated that, upon completion of the Business
Combination, and assuming (1) the no redemption scenario and (2) that the holders of the Company’s existing Public Warrants and Private Warrants exercise those warrants, and no New Warrants are exercised: (i) the Company’s Public Stockholders
will retain an economic interest of approximately 0.4% of the capital stock of the Post-Combination Company; and (ii) our Initial Stockholders (including the Sponsor) will retain an economic interest of approximately 0.2% of the capital stock
of the Post-Combination Company. The Members (or their designees) will not have any economic interest in the capital stock of the Post-Combination Company, but will hold 99.1% of the combined voting power of the capital stock of the
Post-Combination Company, through its ownership of Class V Common Stock. Such ownership percentage will be affected by the level of redemptions by Public Stockholders and the exercise of outstanding warrants or New Warrants. See “Summary—Ownership of the Post-Combination Company.”
The Company currently has an aggregate of 11,825,000 Warrants
outstanding, including 325,000 Private Warrants, which will become exercisable on the later of (x) 30 days after closing of the Business Combination and (y) August 18, 2021, provided that there is an effective registration statement under the
Securities Act covering the shares of Class A Common Stock issuable upon exercise of the Warrants and a current prospectus relating to them is available. The Company has agreed to use reasonable best efforts to file such registration statement
within 30 days following and such registration statement declared effective within 60 business days following the consummation of the Business Combination. The issuance of Class A Common Stock upon the exercise of Warrants could result in
dilution to Public Stockholders. The 52 week trading range of the Public Warrants has been $0.6800-$0.7289, resulting in an average of $0.704 and an approximate value of $8.325 million. Since the Public Warrants are freely tradable, the number
of Warrants outstanding is not dependent on the level of redemptions of Class A Common Stock. For more information on the Warrants, please see the Existing Warrant Agreement.
In addition, subject to the approval of the Incentive Plan
Proposal and the authorization of the initial share reserve, the Company will have the ability to issue up to 98,736,750 shares of Class A Common Stock pursuant to awards under the Incentive Plan. The shares of Class A Common Stock reserved for
future issuance under the Incentive Plan will become eligible for sale in the public market once those shares are issued, subject to provisions relating to various vesting agreements, lock-up agreements and, in some cases, limitations on volume
and manner of sale applicable to affiliates under Rule 144, as applicable. The aggregate number of shares that may be issued pursuant to awards under the Incentive Plan will be subject to an annual increase on January 1 of each calendar year
(commencing with January 1, 2023 and ending on and including January 1, 2031) equal to the lesser of (i) a number of shares equal to 3% of the total number of shares actually issued and outstanding on the last day of the preceding fiscal year
or (ii) a number of shares as determined by the Board. The Post-Combination Company is expected to file one or more registration statements on Form S-8 under the Securities Act to register shares of Class A Common Stock or securities
convertible into or exchangeable for shares of Class A Common Stock issued pursuant to the Incentive Plan. Any such Form S-8 registration statements will automatically become effective upon filing. Accordingly, shares registered under such
registration statements will be available for sale in the open market.
The ownership percentage with respect to the Post-Combination
Company following the Business Combination (i) does not take into account (a) warrants to purchase Class A Common Stock that will remain outstanding immediately following the Business Combination, (b) the issuance of any shares upon completion
of the Business Combination under the Incentive Plan, or (c) the New Warrants issued as dividends in connection with the Business Combination. If the actual facts are different than these assumptions (which they are likely to be), the
percentage ownership retained by the Company’s existing stockholders in the Post-Combination Company will be different. For more information, please see the sections entitled “Summary of the Proxy Statement—Ownership of the
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Post-Combination Company,” “Summary of the Proxy
Statement—Impact of the Business Combination on the Company’s Public Float,” “Unaudited Pro Forma Condensed Combined
Financial Information” and “Proposal No. 6—Approval of the Incentive Plan, Including the Authorization of the Initial Share Reserve Under the Incentive Plan.”
A 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 our Class A Common Stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of Class A Common Stock in
the public 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 our Class A Common Stock. After the Business
Combination, our Initial Stockholders, including the Sponsor, will hold approximately 0.2% of our Class A Common Stock. 5,750,000 shares of Class A Common Stock in the aggregate may be issued to the Members upon conversion of any Class V Common
Stock that the Members may receive if it elects to exchange its Up-C Units. In addition, at the closing of the Business Combination, the Company will enter into the Registration Rights Agreement with certain Restricted Stockholders. Pursuant to
the terms of the Registration Rights Agreement, (i) any outstanding share of Class A Common Stock or any other equity security (including the Private Warrants and including shares of Class A Common Stock issued or issuable upon the exercise of
any other equity security) of the Company held by a Restricted Stockholder as of the date of the Registration Rights Agreement or thereafter acquired by a Restricted Stockholder upon conversion of the Class B Common Stock and upon exercise of
any Private Warrants and shares of Class A Common Stock issued or issuable upon exchange of the Up-C Units and (ii) any other equity security of the Company issued or issuable with respect to any such share of Class A Common Stock by way of a
stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or reorganization will be entitled to registration rights. In addition, the Sponsor and our officers and directors entered into
a letter agreement pursuant to which they agreed that, with certain limited exceptions, the Founder Shares (which will be converted into shares of Class A Common Stock at the closing of the Business Combination), the Class A Common Stock and
the Private Warrants owned by each such holder may not be transferred until the earlier of (i) six months after the Closing Date or (ii) subsequent to the Business Combination, (x) if the closing price of the Class A Common Stock equals or
exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Closing Date or (y) the
date on which the Company completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of Company stockholders having the right to exchange their shares of Class A Common Stock for
cash, securities or other property. In addition, given that the lock-up period is potentially shorter than most other blank check companies, these shares may become registered and available for sale sooner than shares in such other companies.
Resales of the shares of Class A Common
Stock issued in connection with future Up-C Unit exchanges could depress the market price of our Class A Common Stock.
Assuming (1) the no redemption scenario, (2) that the holders
of the Company’s existing Public Warrants and Private Warrants exercise those warrants, and no New Warrants are exercised and (3) only Up-C Units (and no shares of Class A Common Stock) are issued to the Members and their designees at
Closing, the Company will have approximately 30,278,631 shares of Class A Common Stock outstanding immediately following the Business Combination, and there may be a large number of shares of Class A Common Stock sold in the market following
the completion of the Business Combination or shortly thereafter. In addition, 3,250,000,000 shares of Class A Common Stock may be issued to the Members, their designees or their respective permitted transferees or assigns in connection with
future Up-C Unit exchanges. The shares held by the Company’s Public Stockholders are freely tradable. At any time following the closing of the Business Combination, the Restricted Stockholders will be able to make a demand request, subject to
certain conditions, that a registration statement be filed covering the resales of shares of Class A Common Stock held by such Restricted Stockholders. We also expect that the Restricted Stockholders will also be able to resell shares of
Class A Common Stock held by them under Rule 144 once one year has elapsed from the date that we file the Current Report on Form 8-K following the closing of the Business Combination that includes the required Form 10 information that
reflects we are no longer a shell company.
Such sales of shares of Class A Common Stock or the perception of
such sales may depress the market price of our Class A Common Stock.
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We will qualify as a “controlled company”
within the meaning of the Nasdaq listing standards and, as a result, our stockholders may not have certain corporate governance protections that are available to stockholders of companies that are not controlled companies.
So long as more than 50% of the voting power for the election of
directors is held by an individual, a group or another company, we will qualify as a “controlled company” under the Nasdaq listing requirements. Following the completion of the Business Combination, the Members, including John H. Ruiz and Frank
C. Quesada, will control a majority of the voting power of our outstanding capital stock. As a result, we will qualify as a “controlled company” under the Nasdaq listing standards and will not be subject to the requirements that would otherwise
require us to have: (i) a majority of “independent directors,” as defined under the listing standards of Nasdaq; (ii) a nominating and corporate governance committee comprised solely of independent directors; and (iii) a compensation committee
comprised solely of independent directors. In addition, after completion of the Business Combination, the Members, including John H. Ruiz and Frank C. Quesada will have the ability to control matters requiring stockholder approval, including
the election and removal of directors, any amendment to our certificate of incorporation or bylaws, or the approval of any merger or other significant corporate transaction, including a sale of substantially all of our assets. See “—After completion of the Business Combination, we will be controlled by the Members, including John H. Ruiz and Frank C. Quesada, whose interests may conflict with our interests and the interests of other
stockholders.”
The Members, including John H. Ruiz and Frank C. Quesada, may have
their interest in us diluted due to future equity issuances, repurchases under the LLC Agreement from the MSP Principals in connection with the exercise of New Warrants or Members or their designees selling shares of Class A Common Stock, in
each case, which could result in a loss of the “controlled company” exemption under the Nasdaq listing rules. We would then be required to comply with those provisions of the Nasdaq listing requirements.
There can be no assurance that we will be able
to comply with the continued listing standards of Nasdaq.
Our Class A Common Stock, Public Units and Public Warrants are
currently listed on Nasdaq. If, after the Business Combination, Nasdaq delists our Class A Common Stock from trading on its exchange for failure to meet the listing standards, we and our stockholders could face significant material adverse
consequences including:
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a limited availability of market quotations for our securities;
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reduced liquidity for our securities;
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a determination that the Class A Common Stock is a “penny stock” which will require brokers trading in the Class Common A
Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
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a limited amount of news and analyst coverage; and
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a decreased ability to issue additional securities or obtain additional financing in the future.
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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.” To the extent our Class A Common Stock, Public Units and Public Warrants are listed on Nasdaq,
they are covered securities. 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, other than the State of Idaho, having used these powers to prohibit or restrict the sale of
securities issued by blank check companies, 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 be covered securities and we would be subject to regulation in each state in which we offer our securities.
We have no operating history and are subject
to a mandatory liquidation and subsequent dissolution requirement. As such, there is a risk that we will be unable to continue as a going concern if we do not consummate an initial business combination by August 18, 2022. If we are unable to
effect an initial business combination by August 18, 2022, we will be forced to liquidate and our warrants will expire worthless.
We are a blank check company, and as we have no operating history
and are subject to a mandatory liquidation and subsequent dissolution requirement, there is a risk that we will be unable to continue as a going concern if we
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do not consummate an initial business combination by August 18, 2022. Unless we
amend our Existing Charter (which requires the affirmative vote of the holders of 65% of all then outstanding shares of common stock) and certain other agreements into which we have entered to extend the life of the Company, if we do not
complete an initial business combination by August 18, 2022, 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 not previously released to the Company to fund its working capital requirements and taxes (less 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 Stockholders’ rights as stockholders (including the right to receive further liquidating
distributions, if any), subject to applicable law; and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and the LCAP Board, dissolve and liquidate, subject in each case to
our obligations under the DGCL to provide for claims of creditors and the requirements of other applicable law. In the event of such distribution, it is possible that the per share value of the residual assets remaining available for
distribution (including Trust Account assets) will be less than the initial public offering price per Public Unit in the IPO. In addition, if we fail to complete an initial business combination by August 18, 2022, there will be no redemption
rights or liquidating distributions with respect to our Public Warrants or the Private Warrants, which will expire worthless. We expect to consummate the Business Combination and do not intend to take any action to extend the life of the
Company beyond August 18, 2022 if we are unable to effect an initial business combination by that date.
Our ability to successfully effect the
Business Combination and to be successful thereafter will be dependent upon the efforts of our key personnel, including the key personnel of MSP whom we expect to stay with the Post-Combination Company. The loss of key personnel could
negatively impact the operations and profitability of the Post-Combination Company and its financial condition could suffer as a result.
Our ability to successfully effect the Business Combination is
dependent upon the efforts of our key personnel and the key personnel of MSP. It is possible that we will lose some key personnel, the loss of which could negatively impact the operations and profitability of the Post-Combination Company. We
anticipate that some or all of the management of MSP will remain in place.
MSP’s success depends to a significant degree upon the continued
contributions of senior management, certain of whom would be difficult to replace. Departure by certain of MSP’s officers could have a material adverse effect on MSP’s business, financial condition, or operating results. MSP does not maintain
key-man life insurance on any of its officers. The services of such personnel may not continue to be available to the Post-Combination Company.
The Company and MSP will be subject to
business uncertainties and contractual restrictions while the Business Combination is pending.
Uncertainty about the effect of the Business Combination on MSP’s
team members and third parties may have an adverse effect on the Company and MSP. These uncertainties may impair our or MSP’s ability to retain and motivate key personnel and could cause third parties that deal with any of us or them to defer
entering into contracts or making other decisions or seek to change existing business relationships. If key team members depart because of uncertainty about their future roles and the potential complexities of the Business Combination, our or
MSP’s business could be harmed.
We may waive one or more of the conditions to
the Business Combination.
We may agree to waive, in whole or in part, one or more of the
conditions to our obligations to complete the Business Combination, to the extent permitted by our Existing Charter and bylaws and applicable laws. However, if the LCAP Board determines that a failure to satisfy the condition is not material,
then the LCAP Board may elect to waive that condition and close the Business Combination. We may not waive the condition that our stockholders approve the Business Combination. Please see the section entitled “The
Membership Interest Purchase Agreement—Conditions to Closing of the Business Combination” for additional information.
The exercise of discretion by our directors
and officers in agreeing to changes to the terms of or waivers of closing conditions in the MIPA may result in a conflict of interest when determining whether such changes to the terms of the MIPA or waivers of conditions are appropriate and in
the best interests of our stockholders.
In the period leading up to the closing of the Business
Combination, other events may occur that, pursuant to the MIPA, would require the Company to agree to amend the MIPA, to consent to certain actions or to waive rights that we are entitled to under those agreements. Such events could arise
because of changes in the course of MSP’s
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business, a request by MSP to undertake actions that would otherwise be prohibited
by the terms of the MIPA or the occurrence of other events that would have a material adverse effect on MSP’s business and would entitle the Company to terminate the MIPA. In any of such circumstances, it would be in the discretion of the
Company, acting through the LCAP Board, to grant its consent or waive its rights. The existence of the financial and personal interests of the directors described elsewhere in this proxy statement/prospectus may result in a conflict of interest
on the part of one or more of the directors between what he may believe is best for the Company and our stockholders and what he may believe is best for himself or his affiliates in determining whether or not to take the requested action. As of
the date of this proxy statement/prospectus, we do not believe there will be any changes or waivers that our directors and officers would be likely to make after stockholder approval of the Business Combination has been obtained. While certain
changes could be made without further stockholder approval, if there is a change to the terms of the Business Combination that would have a material impact on the stockholders, we will be required to circulate a new or amended proxy statement
or supplement thereto and resolicit the vote of our stockholders with respect to the Business Combination Proposal.
Termination of the MIPA could negatively
impact MSP and the Company.
If the Business Combination is not completed for any reason,
including as a result of the Company’s stockholders declining to approve the Proposals required to effect the Business Combination, the ongoing businesses of MSP and the Company may be adversely impacted and, without realizing any of the
anticipated benefits of completing the Business Combination, MSP and the Company would be subject to a number of risks, including the following:
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the Company may experience negative reactions from the financial markets, including negative impacts on its stock price
(including to the extent that the current market price reflects a market assumption that the Business Combination will be completed);
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MSP may experience negative reactions from its Assignors (clients) and employees;
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MSP and the Company will have incurred substantial expenses and will be required to pay certain costs relating to the
Business Combination, whether or not the Business Combination is completed; and
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since the MIPA restricts the conduct of MSP’s and the Company’s businesses prior to completion of the Business Combination,
each of MSP and the Company may not have been able to take certain actions during the pendency of the Business Combination that would have benefitted it as an independent company, and the opportunity to take such actions may no longer
be available (see the section entitled “The Membership Interest Purchase Agreement — Covenants and Agreements” beginning on page [211] of this proxy statement/prospectus for a
description of the restrictive covenants applicable to MSP and the Company).
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If the MIPA is terminated and the LCAP Board seeks another
business combination, Company stockholders cannot be certain that the Company will be able to find another acquisition target that would constitute a business combination or that such other business combination will be completed. See “The Membership Interest Purchase Agreement — Termination” on page [220].
We and MSP will incur significant
transaction and transition costs in connection with the Business Combination.
We and MSP have both incurred and expect to incur significant,
non-recurring costs in connection with consummating the Business Combination as well as ongoing costs related to operating as a public company following the consummation of the Business Combination. We and MSP may also incur additional costs to
retain key team members. All expenses incurred in connection with the MIPA and the Business Combination, including all legal, accounting, consulting, investment banking and other fees, expenses and costs, will be for the account of the party
incurring such fees, expenses and costs or paid by the Company following the closing of the Business Combination.
The Company’s transaction expenses as a result of the Business
Combination are currently estimated at approximately $78.3 million, including $8,050,000 in deferred underwriting commissions to the underwriter of our IPO. The amount of the deferred underwriting commissions 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 stockholders who properly exercise their redemption rights will not be reduced by the deferred underwriting commissions
and after such redemptions, the per-share value of shares held by non-redeeming stockholders will reflect our obligation to pay the deferred underwriting commissions.
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If we are unable to complete an initial
business combination, our Public Stockholders may receive only approximately $10.00 per share on the liquidation of the Trust Account (or less than $10.00 per share in certain circumstances where a third party brings a claim against us that the
Sponsor is unable to indemnify), and our warrants will expire worthless.
If we are unable to complete an initial business combination by
August 18, 2022, our Public Stockholders may receive only approximately $10.00 per share on the liquidation of the Trust Account (or less than $10.00 per share in certain circumstances where a third party brings a claim against us that the
Sponsor is unable to indemnify (as described herein)) and our warrants will expire worthless, unless we amend our Existing Charter (which requires the affirmative vote of the holders of 65% of all then outstanding shares of common stock) and
amend certain other agreements into which we have entered to extend the life of the Company.
Subsequent to our completion of the 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 our stock price, which could
cause you to lose some or all of your investment.
Although we have conducted due diligence on MSP, we cannot assure
you that this diligence will surface all material issues that may be present in MSP’s business, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of MSP’s business and
outside of our and MSP’s control will not later arise. As a result of these factors, we may be forced to later write down or write off assets, restructure operations, or incur impairment or other charges that could result in 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 the Post-Combination Company or its securities. Accordingly, any of our stockholders who choose to
remain stockholders following the Business Combination could suffer a reduction in the value of their shares. Such stockholders are unlikely to have a remedy for such reduction in value.
We have no operating or financial history
and our results of operations and those of the Post-Combination Company may differ significantly from the unaudited pro forma financial data included in this proxy statement/prospectus.
We are a blank check company and we have no operating history
and no revenues. This proxy statement/prospectus includes unaudited pro forma condensed combined financial statements for the Post-Combination Company. The unaudited pro forma condensed combined statement of operations of the Post-Combination
Company combines the historical audited results of operations of the Company for the year ended December 31, 2021 with the historical audited results of operations of MSP for the year ended December 31, 2021, and gives pro forma effect to the
Business Combination as if it had been consummated on January 1, 2021. The unaudited pro forma condensed combined balance sheet of the Post-Combination Company combines the historical balance sheets of the Company as of December 31, 2021 and
of MSP as of December 31, 2021 and gives pro forma effect to the Business Combination as if it had been consummated on December 31, 2021.
The unaudited pro forma condensed combined financial statements
are presented for illustrative purposes only, are based on certain assumptions, address a hypothetical situation and reflect limited historical financial data. Therefore, the unaudited pro forma condensed combined financial statements are not
necessarily indicative of the results of operations and financial position that would have been achieved had the Business Combination been consummated on the dates indicated above, or the future consolidated results of operations or financial
position of the Post-Combination Company. Accordingly, the Post-Combination Company’s business, assets, cash flows, results of operations and financial condition may differ significantly from those indicated by the unaudited pro forma condensed
combined financial statements included in this document. For more information, please see the section entitled “Unaudited Pro Forma Condensed Combined Financial Information.”
Unanticipated changes in effective tax rates
or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations.
We will be subject to federal and state income taxes in the United
States and potentially in other jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:
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changes in the valuation of our deferred tax assets and liabilities;
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expected timing and amount of the release of any tax valuation allowances;
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tax effects of stock-based compensation;
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changes in tax laws, regulations or interpretations thereof; or
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lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated
future earnings in jurisdictions where we have higher statutory tax rates.
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In addition, we may be subject to audits of our income, sales and
other transaction taxes by taxing authorities. Outcomes from these audits could have an adverse effect on our financial condition and results of operations.
Past performance by members of our
management team, may not be indicative of future performance of an investment in the Company or the Post-Combination Company.
Past performance by members of our management team is not a
guarantee of success with respect to the Business Combination. You should not rely on the historical record of members of our management team’s performance as indicative of the future performance of an investment in the Company or
Post-Combination Company or the returns the Company or Post-Combination Company will, or is likely to, generate going forward.
We may be unable to obtain additional
financing to fund the operations and growth of the Post-Combination Company.
We may require additional financing to fund the operations or
growth of the Post-Combination Company. The failure to secure additional financing could have a material adverse effect on the continued development or growth of the Post-Combination Company. None of our officers, directors or stockholders is
required to provide any financing to us in connection with or after our Business Combination.
Changes in laws, regulations or rules, or a
failure to comply with any laws, regulations or rules, may adversely affect our business, investments and results of operations.
We are subject to laws, regulations and rules enacted by national,
regional and local governments and Nasdaq. In particular, we are required to comply with certain SEC, Nasdaq and other legal or regulatory requirements. Compliance with, and monitoring of, applicable laws, regulations and rules may be
difficult, time consuming and costly. Those laws, regulations or rules 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, regulations or rules, as interpreted and applied, could have a material adverse effect on our business and results of operations.
In some jurisdictions our recoveries may be
limited due to legal restrictions, which may have negative consequences for the value or enforcement of our contractual agreements with our counterparties, for our ability to do business in certain jurisdictions or for our cost of doing
business.
There exist in various jurisdictions prohibitions or restrictions
in connection with purchasing claims from plaintiffs (known as maintenance, and a form of maintenance, called champerty), assignment of certain kinds of claims, and/or participating in a lawyer’s contingent fee interests. Such prohibitions and
restrictions to the extent they exist are governed by the rules and regulations of each state and jurisdiction in the United States and vary in degrees of strength and enforcement in different states and federal jurisdictions. Some
jurisdictions in the US and other jurisdictions may not, for legal and professional ethics reasons, permit us to pursue certain recoveries, or the law and regulations in those jurisdictions may be uncertain, and accordingly we may not have the
ability or the desire to pursue recoveries in these jurisdictions, thereby limiting the size of the potential market. If we, our counterparties or the lawyers handling the underlying matters were to be found to have violated the relevant
prohibitions or restrictions in connection with certain matters, there could be a materially adverse effect on the value of the affected assets, our ability to enforce the relevant contractual agreements with our counterparties and the amounts
we would be able to recover with respect to such matters, or our costs for such matters
Anti-takeover provisions contained in our
Proposed Charter and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Assuming the passage of Proposal Nos. 1 through 3 of this proxy
statement/prospectus, the Proposed Charter will contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in
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their best interests. We are also subject to anti-takeover provisions under
Delaware law, which could delay or prevent a change of control. Together, these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing
market prices for our securities. These provisions will include:
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no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect candidates to
serve as a director of the Board;
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a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the
membership of a majority of the Board;
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the requirement that, at any time from and after the date on which the voting power of John H. Ruiz and his affiliates
represent less than 50% of the voting power of all of the then outstanding shares entitled to vote (“Voting Rights Threshold Date”), directors elected by the stockholders generally entitled to vote may be removed from the Board solely
for cause and only by affirmative vote of the holders of at least 662∕3% of the voting power of the then outstanding shares entitled to vote, voting together as a single class;
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the exclusive right of the Board to fill newly created directorships and vacancies with respect to directors elected by the
stockholders generally entitled to vote, which prevents stockholders from being able to fill vacancies on the Board;
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the prohibition on stockholder action by written consent from and after the Voting Rights Threshold Date, which forces
stockholder action from and after the Voting Rights Threshold Date to be taken at an annual or special meeting of stockholders;
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the requirement that special meetings of stockholders may only be called by the Chairperson of the Board, the Chief Executive
Officer of the Post-Combination Company or the Board, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;
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the requirement that, from and after the Voting Rights Threshold Date, amendments to certain provisions of the Proposed
Charter and amendments to the Amended and Restated Bylaws must be approved by the affirmative vote of the holders of at least 662∕3% in voting power of the then outstanding shares of the
Post-Combination Company generally entitled to vote;
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our authorized but unissued shares of common stock and preferred stock are available for future issuances without stockholder
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 shares of
common stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise;
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advance notice procedures set forth in the Amended and Restated Bylaws that stockholders must comply with in order to
nominate candidates to the Board or to propose other matters to be acted upon at a meeting of stockholders, which 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 the Post-Combination Company; and
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an exclusive forum provision which provides that, unless the Post-Combination Company consents in writing to the selection of
an alternative forum, (i) any derivative action brought on behalf of the Post-Combination Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or employee of the Post-Combination
Company to the Post-Combination Company or the Post-Combination Company’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, the Proposed Charter or the Amended and Restated Bylaws, or
(iv) any action asserting a claim governed by the internal affairs doctrine of the State of Delaware, in each case, will be required to be filed in the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the
State of Delaware lacks jurisdiction over any such action or proceeding, then a state court located within the State of Delaware or the federal district court for the District of Delaware).
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The Proposed Charter will contain a
provision renouncing our interest and expectancy in certain corporate opportunities.
The Proposed Charter will provide that the Post-Combination
Company will have no interests or expectancy in, or being offered an opportunity to participate in any corporate opportunity, to the fullest extent permitted by
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applicable law, with respect to any lines of business or business activity or
business venture conducted by any holder of common stock, any affiliate of such holder or any director, officer or stockholder of such holder or any affiliate thereof (“Relevant Persons”) as of the date of the filing of the Proposed Charter
with the Secretary of State of the State of Delaware or received by, presented to or originated by the Relevant Persons after the date of the filing of the Proposed Charter with the Secretary of State of the State of Delaware in such person’s
capacity as a Relevant Person (and not in his, her or its capacity as a director, officer or employee of the Post-Combination Company). These provisions of the Proposed Charter create the possibility that a corporate opportunity of ours may be
used for the benefit of the Relevant Persons.
The Company’s and MSP’s ability to
consummate the Business Combination, and the operations of the Post-Combination Company following the Business Combination, may be materially adversely affected by the COVID-19 pandemic.
The COVID-19 pandemic has resulted, and other infectious diseases
could result, in a widespread health crisis that has and could continue to adversely affect the economies and financial markets worldwide, which may delay or prevent the consummation of the Business Combination, and the business of MSP or the
Post-Combination Company following the Business Combination could be materially and adversely affected. The extent of such impact will depend on future developments, which are highly uncertain and cannot be predicted.
The parties will be required to consummate the Business
Combination even if MSP, its business, financial condition and results of operations are materially affected by COVID-19. The disruptions posed by COVID-19 have continued, and other matters of global concern may continue, for an extensive
period of time, and if MSP is unable to recover from business disruptions due to COVID-19 or other matters of global concern on a timely basis, MSP’s ability to consummate the Business Combination and the Post-Combination Company’s financial
condition and results of operations following the Business Combination may be materially adversely affected. Each of MSP and the Post-Combination Company may also incur additional costs due to delays caused by COVID-19, which could adversely
affect the Post-Combination Company’s financial condition and results of operations.
The LCAP Board did not obtain a third-party
valuation or fairness opinion in determining whether or not to proceed with the Business Combination.
The LCAP Board did not obtain a third-party valuation or fairness
opinion in connection with its determination to approve the Business Combination. The officers and directors of the Company have substantial experience in evaluating the operating and financial merits of companies from a wide range of
industries and concluded that their experience and backgrounds, together with the experience and sector expertise of the Company’s financial and other advisors enabled them to perform the necessary analyses and make determinations regarding the
Business Combination. In analyzing the Business Combination, the LCAP Board conducted due diligence on the Company and researched the industry in which it operates and concluded that the Business Combination was in the best interest of
stockholders. Accordingly, investors will be relying solely on the judgment of the LCAP Board in valuing MSP’s business, and assuming the risk that the LCAP Board may not have properly valued such business. The lack of a third-party valuation
or fairness opinion may also lead an increased number of stockholders to vote against the Business Combination or demand redemption of their Public Shares for cash, which could potentially impact the Company’s ability to consummate the Business
Combination.
Because MSP will become a public reporting
company by means other than a traditional underwritten initial public offering, MSP’s stockholders may face additional risks and uncertainties.
Because MSP will become a public reporting company by means of
consummating the Business Combination rather than by means of a traditional underwritten initial public offering, there is no independent third-party underwriter selling the shares of MSP’s common stock, and, accordingly, MSP’s stockholders
will not have the benefit of an independent review and investigation of the type normally performed by an unaffiliated, independent underwriter in a public securities offering. Due diligence reviews typically include an independent
investigation of the background of the company, any advisors and their respective affiliates, review of the offering documents and independent analysis of the plan of business and any underlying financial assumptions. Because there is no
independent third-party underwriter selling the shares of MSP’s common stock, the Company’s stockholders must rely on the information included in this proxy statement/prospectus. Although the Company performed a due diligence review and
investigation of MSP in connection with the Business Combination that it believed to be reasonable, the lack of an independent due diligence review and investigation increases the risk of investment in MSP
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because this due diligence investigation may not have uncovered facts that would
be important to a potential investor. Our Sponsor may have an inherent conflict of interest because its shares of Class A Common Stock and Warrants will be worthless if a business combination is not completed with MSP or another company during
a prescribed period of time. Therefore, there could be a heightened risk of an incorrect valuation of the Post-Combination Company’s business, which could cause potential harm to investors.
A market for our securities may not continue, which would
adversely affect the liquidity and price of our securities. In addition, because MSP will not become a public reporting company by means of at traditional underwritten initial public offering, security or industry analysts may not provide, or
be less likely to provide, coverage of MSP. Investment banks may also be less likely to agree to underwrite follow-on or secondary offerings on behalf of MSP than they might if MSP became a public reporting company by means of a traditional
underwritten initial public offering, because they may be less familiar with MSP as a result of not having performed similar work during the initial public offering process or because of more limited coverage by analysts and the media. The
failure to receive research coverage or support in the market for MSP’s common stock could have an adverse effect on MSP’s ability to develop a liquid market for MSP’s common stock. See “- Risks Related to
Ownership of Our Common Stock Following the Business Combination - If, following the Business Combination, securities or industry analysts do not publish or cease publishing research or reports about
the Post-Combination Company, its business, or its market, or if they change their recommendations regarding our Class A Common Stock adversely, then the price and trading volume of our Class A Common Stock could decline.”
Risks Related to Ownership of Our Common Stock Following the Business
Combination
In this section, unless otherwise noted or the
context otherwise requires, “we”, “us”, and “our” refer to the Post-Combination Company.
A market for our securities may not
continue, which would adversely affect the liquidity and price of our securities.
Following the Business Combination, the price of our securities
may fluctuate significantly due to the market’s reaction to the Business Combination and general market and economic conditions. An active trading market for our securities following the Business Combination may never develop or, if developed,
it may not be sustained. In addition, the price of our securities after the Business Combination can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. Additionally,
if our securities are not listed on, or become delisted from, Nasdaq for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the
liquidity and price of our securities may be more limited than if we were quoted or listed on Nasdaq or another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained.
If the Business Combination’s benefits do
not meet the expectations of investors, stockholders or financial analysts, the market price of our securities may decline.
If the benefits of the Business Combination do not meet the
expectations of investors or securities analysts, the market price of the Company’s securities prior to the closing of the Business Combination may decline. The market values of our securities at the time of the Business Combination may vary
significantly from their prices on the date the MIPA was executed, the date of this proxy statement/prospectus, or the date on which our stockholders vote on the Business Combination.
In addition, following the Business Combination, fluctuations in
the price of our securities could contribute to the loss of all or part of your investment. Immediately prior to the Business Combination, there has not been a public market for MSP’s stock and trading in the shares of our Class A Common Stock
has not been active. Accordingly, the valuation ascribed to MSP and our Class A Common Stock in the Business Combination may not be indicative of the price of the Post-Combination Company that will prevail in the trading market following the
Business Combination. If an active market for our securities develops and continues, the trading price of our securities following the Business Combination could be volatile and subject 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 your investment in our securities and our securities may trade 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.
Broad market and industry factors may materially harm the market
price of our securities irrespective of our operating performance. The stock market in general and Nasdaq have experienced price and volume fluctuations that
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have often been unrelated or disproportionate to the operating performance of the
particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for the stocks of other companies that investors perceive to be similar
to the Post-Combination Company 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.
In the past, securities class action litigation has often been
initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources and could also require us to make substantial
payments to satisfy judgments or to settle litigation.
If, following the Business Combination,
securities or industry analysts do not publish or cease publishing research or reports about the Post-Combination Company, its business, or its market, or if they change their recommendations regarding our Class A Common Stock adversely, then
the price and trading volume of our Class A Common Stock could decline.
The trading market for our Class A Common Stock will be influenced
by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. Securities and industry analysts do not currently, and may never, publish research on the Company or the
Post-Combination Company. If no securities or industry analysts commence coverage of the Post-Combination Company, our stock price and trading volume would likely be negatively impacted. If any of the analysts who may cover the Post-Combination
Company change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, the price of our Class A Common Stock would likely decline. If any analyst who may cover the Company
were to cease coverage of the Post-Combination Company or fail to regularly publish reports on it, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
We cannot predict the impact our dual class
capital structure may have on the market price of the shares of Class A Common Stock.
We cannot predict whether our dual class structure, combined with
the concentrated control of the Post-Combination Company, will result in a lower or more volatile market price of the Class A Common Stock or in adverse publicity or other adverse consequences. For example, certain index providers have
announced restrictions on including companies with multiple-class share structures in certain of their indexes. Under any such announced policies or future policies, our dual class capital structure could make us ineligible for inclusion in
certain indices, and as a result, mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track those indices will not be investing in our stock. It is unclear what effect, if any, these policies will have on
the valuations of publicly traded companies excluded from such indices, but it is possible that they may depress valuations as compared to similar companies that are included. As a result, the market price of shares of Class A Common Stock
could be adversely affected.
We have not registered the shares of Class A
Common Stock issuable upon exercise of the Public Warrants under the Securities Act or any state securities laws at this time, and such registration may not be in place when an investor desires to exercise Public Warrants, thus precluding such
investor from being able to exercise its Public Warrants except on a cashless basis and potentially causing such Public Warrants to expire worthless.
We have not registered the shares of Class A Common Stock issuable
upon exercise of the Public Warrants under the Securities Act or any state securities laws at this time. However, under the terms of the Existing Warrant Agreement, we have agreed to use our best efforts to file a registration statement under
the Securities Act covering such shares and maintain a current prospectus relating to the Class A Common Stock issuable upon exercise of the Public Warrants, until the expiration of the Public Warrants in accordance with the provisions of the
Existing 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 such 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 shares issuable upon exercise of the Public Warrants are not registered under the Securities Act, we will be
required to permit holders to exercise their Public Warrants on a cashless basis. However, no Public Warrant will 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 Public Warrants, unless the issuance of the shares upon such exercise is registered or qualified under
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the securities laws of the state of the exercising holder or an exemption from
registration is available. Notwithstanding the above, if our Class A Common Stock is at the time of any exercise of a Public Warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security”
under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of Public Warrants who exercise their Public Warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event
we so elect, we will not be required to file or maintain in effect a registration statement, but we will be required to use our best efforts to register the shares under applicable blue sky laws to the extent an exemption is not available. In
no event will we be required to net cash settle any Public Warrant, or issue securities or other compensation in exchange for the Public Warrants in the event that we are unable to register or qualify the shares underlying the Public Warrants
under applicable state securities laws and there is no exemption available. If the issuance of the shares upon exercise of the Public Warrants is not so registered or qualified or exempt from registration or qualification, the holder of such
Public Warrant shall not be entitled to exercise such Public Warrant and such Public Warrant may have no value and expire worthless. In such event, holders who acquired their Public Warrants as part of a purchase of Public Units will have paid
the full unit purchase price solely for the shares of Class A Common Stock included in the Public Units. If and when the Public Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify
the underlying shares of Class A Common Stock for sale under all applicable state securities laws.
The exercise price for our Public Warrants
is higher than in many similar blank check company offerings in the past, and, accordingly, the Public Warrants are more likely to expire worthless.
The exercise price of our Public Warrants is higher than is
typical with many similar blank check companies in the past. Historically, with regard to units offered by blank check companies, the exercise price of a Public Warrant was generally a fraction of the purchase price of the units in the initial
public offering. The exercise price for our Public Warrants is $11.50 per share, subject to adjustment as provided herein. As a result, the Public Warrants are less likely to ever be in the money and more likely to expire worthless, even if we
consummate the Business Combination.
We may amend the terms of the Public
Warrants in a manner that may be adverse to holders with the approval by the holders of at least 50% of the then-outstanding Public Warrants. As a result, the exercise price of a holder’s Public Warrants could be increased, the exercise period
could be shortened and the number of shares of our Common Stock purchasable upon exercise of a Public Warrant could be decreased, all without the approval of that warrant holder.
Our Public Warrants were issued in registered form under the
Existing Warrant Agreement. The Existing 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 or provide for the delivery of
Alternative Issuance (as defined in the Existing Warrant Agreement) but requires the approval by the holders of at least 65% of the then-outstanding Public Warrants to make any other change, including any change that adversely affects the
interests of the registered holders. Accordingly, we may amend the terms of the Public Warrants in a manner adverse to a holder if holders of at least 65% 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 65% of the then-outstanding Public Warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the Public
Warrants, shorten the exercise period or decrease the number of shares of Class A Common Stock purchasable upon exercise of a Public Warrant.
We may redeem unexpired Public Warrants and
New Warrants prior to their exercise at a time that is disadvantageous to warrant holders, thereby making such warrants worthless.
We have the ability to redeem outstanding Public Warrants and New
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 our Class A Common Stock equals or exceeds $18.00 per share (or as otherwise
adjusted pursuant to the Existing Warrant Agreement or New Warrant Agreement, as applicable) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date on which we give proper notice of such
redemption to the warrant holders and provided certain other conditions are met. During the most recent 60-day trading period, the price of our Class A Common Stock has remained below the threshold that would allow us to redeem the Public
Warrants and New Warrants. If and when the Public Warrants and New 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
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state securities laws. Redemption of the outstanding Public Warrants and New
Warrants could force the warrant holders: (i) to exercise their Public Warrants or New Warrants and pay the exercise price therefor at a time when it may be disadvantageous for them to do so; (ii) to sell their Public Warrants or New Warrants
at the then-current market price when they might otherwise wish to hold their Public Warrants or New Warrants; or (iii) to accept the nominal redemption price which, at the time the outstanding New Warrants are called for redemption, is likely
to be substantially less than the market value of their New Warrants. None of the Private Warrants will be redeemable by us so long as they are held by their initial purchasers or such initial purchasers’ permitted transferees. Pursuant to the
terms of the Existing Warrant Agreement, the exercise price of the Public Warrants and Private Warrants could decrease to $0.0001 after giving effect to the issuance of the New Warrants. None of the Private Warrants will be redeemable by us so
long as they are held by the Sponsor or its permitted transferees.
The Company has no obligation to notify holders of the Public
Warrants or the New Warrants that they have become eligible for redemption. However, in the event the Company determined to redeem the Public Warrants or the New Warrants, holders of the Public Warrants and the New Warrants, as applicable,
would be notified of such redemption as described in the Existing Warrant Agreement and the New Warrant Agreement, as applicable. Specifically, in the event that the Company elects to redeem all of the redeemable warrants as described above,
the Company shall fix a date for the redemption (the “Redemption Date”). Notice of redemption shall be mailed by first class mail, postage prepaid, by the Company not less than 30 days prior to the Redemption Date to the registered holders of
the redeemable warrants to be redeemed at their last addresses as they appear on the registration books. Any notice mailed in the manner provided in the Existing Warrant Agreement and the New Warrant Agreement shall be conclusively presumed to
have been duly given whether or not the registered holder received such notice. In addition, beneficial owners of the redeemable warrants will be notified of such redemption via the Company’s posting of the redemption notice to DTC.
Because each Public Unit contains one-half
of one Public Warrant and only a whole Public Warrant may be exercised, the Public Units may be worth less than Public Units of other blank check companies.
Each Public Unit contains one-half of one Public Warrant. Because,
pursuant to the Existing Warrant Agreement, the Public Warrants may only be exercised for a whole number of shares, only a whole Public Warrant may be exercised at any given time. This is different from other offerings similar to ours whose
public units include one share of common stock and one public warrant to purchase one whole share. We have established the components of the Public Units in this way in order to reduce the dilutive effect of the Public Warrants upon completion
of an initial business combination since the Public Warrants will be exercisable in the aggregate for one-half of the number of shares compared to Public Units that each contain a Public Warrant to purchase one whole share, thus making us, we
believe, a more attractive business combination partner for target businesses. Nevertheless, this unit structure may cause our Public Units to be worth less than if they included a Public Warrant to purchase one whole share.
Warrants will become exercisable for our
Class A Common Stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.
We issued Public Warrants to purchase 11,500,000 shares of Class A
Common Stock as part of our IPO and, on the IPO closing date, we issued Private Warrants to the Sponsor and Nomura to purchase in the aggregate 325,000 shares of our Class A Common Stock, in each case with a strike price of $11.50 per share. In
addition, prior to consummating an initial business combination, nothing prevents us from issuing additional securities in a private placement so long as they do not participate in any manner in the Trust Account or vote as a class with the
common stock on an initial business combination. Further, the LCAP Board expects to issue an aggregate of approximately 1,029,000,000 New Warrants declared as a dividend to the holders of record of the Class A Common Stock as of the Closing
Date. Pursuant to the terms of the Existing Warrant Agreement, the exercise price of the Public Warrants and Private Warrants could decrease to $0.0001 after giving effect to the issuance of the New Warrants. Pursuant to the terms of the LLC
Agreement, at least twice a month, to the extent any New Warrants have been exercised in accordance with their terms, the Post-Combination Company is required to purchase from the MSP Principals, proportionately, the number of Up-C Units or
shares of Class A Common Stock owned by such MSP Principal equal to the Aggregate Exercise Price divided by the Warrant Exercise Price in exchange for the Aggregate Exercise Price. For more information, see the LLC Agreement attached hereto as
Annex D. Notwithstanding the foregoing, the shares of Class A Common Stock issuable upon exercise of our warrants will result in dilution to the then existing holders of Class A Common Stock of the
Company and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our Class A Common Stock.
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The Private Warrants are identical to the Public Warrants sold
as part of the Public Units issued in our IPO except that, so long as they are held by the Sponsor, Nomura or their permitted transferees: (i) they will not be redeemable by us; (ii) they (including the Class A Common Stock issuable upon
exercise of these warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by the Sponsor until 30 days after the completion of an initial business combination; (iii) they may be exercised by the holders on a
net share (cashless) basis; and (iv) are subject to registration rights. The New Warrants will be issued in registered form under the New Warrant Agreement between the Company and Continental Stock Transfer & Trust Company. The form of New
Warrant Agreement is attached to this proxy statement/prospectus as Annex M.
MSP’s management has limited experience in
operating a public company.
MSP’s executive officers have limited experience in the management
of a publicly traded company. MSP’s management team may not successfully or effectively manage its transition to a public company that will be subject to significant regulatory oversight and reporting obligations under federal securities laws.
Their limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities which will
result in less time being devoted to the management and growth of the Post-Combination Company. MSP may not have adequate personnel with the appropriate level of knowledge, experience, and training in the accounting policies, practices or
internal controls over financial reporting required of publicly traded companies. The development and implementation of the standards and controls necessary for the Post-Combination Company to achieve the level of accounting standards required
of a publicly traded company may require costs greater than expected. It is possible that the Post-Combination Company will be required to expand its employee base and hire additional employees to support its operations as a public company
which will increase its operating costs in future periods.
Our stockholders may be held liable for
claims by third parties against us to the extent of distributions received by them upon redemption of their shares.
Under the DGCL, stockholders may be held liable for claims by
third parties against a corporation to the extent of distributions received by them in a dissolution. The pro rata portion of the Trust Account distributed to our Public Stockholders upon the redemption of our Public Shares in the event we do
not complete an initial business combination by August 18, 2022 may be considered a liquidating distribution under Delaware law. If a corporation complies with certain procedures set forth in Section 280 of the DGCL intended to ensure that it
makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and
an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the
claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. However, it is our intention to redeem our Public Shares as soon as reasonably possible
following August 18, 2022 in the event we do not complete an initial business combination and, therefore, we do not intend to comply with the foregoing procedures.
Because we will not be complying with Section 280 of the DGCL,
Section 281(b) of the DGCL requires us to adopt a plan, based on facts known to us at such time that will provide for our payment of all existing and pending claims or claims that may be potentially brought against us within the ten years
following our dissolution. However, because we are a blank check company, rather than an operating company, and our operations are limited to searching for prospective target businesses to acquire, the only likely claims to arise would be from
our vendors (such as lawyers, investment bankers, etc.) or prospective target businesses. If our plan of distribution complies with Section 281(b) of the DGCL, any liability of stockholders with respect to a liquidating distribution is limited
to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would likely be barred after the third anniversary of the dissolution. We cannot assure you that
we will properly assess all claims that may be potentially brought against us. As such, our stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of our
stockholders may extend beyond the third anniversary of such date. Furthermore, if the pro rata portion of our Trust Account distributed to our Public Stockholders upon the redemption of our Public Shares in the event we do not complete an
initial business combination by August 18, 2022 is not considered a liquidating distribution under Delaware law and such redemption distribution is deemed to be unlawful, then pursuant to Section 174 of the DGCL, the statute of limitations for
claims of creditors could then be six years after the unlawful redemption distribution, instead of three years, as in the case of a liquidating distribution.
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The provision of our Proposed Charter
requiring exclusive forum in the courts in the State of Delaware for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers.
The Proposed Charter will require that, unless the
Post-Combination Company consents in writing to the selection of an alternative forum, (i) any derivative action brought on behalf of the Post-Combination Company; (ii) any action asserting a claim of breach of a fiduciary duty owed by any
director, officer, or employee of the Post-Combination Company to the Post-Combination Company or the Post-Combination Company’s stockholders; (iii) any action asserting a claim arising pursuant to any provision of the DGCL, the Proposed
Charter or Amended and Restated Bylaws; or (iv) any action asserting a claim governed by the internal affairs doctrine of the State of Delaware, in each case, to be filed in the Court of Chancery of the State of Delaware (or, if the Court of
Chancery of the State of Delaware lacks jurisdiction over any such action or proceeding, then a state court located within the State of Delaware or the federal district court for the District of Delaware). The exclusive forum provision
described above does not apply to actions arising under the Securities Act or the Exchange Act. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the
Exchange Act or the rules and regulations thereunder, and 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 and regulations thereunder. The Proposed Charter will provide that the federal district courts of the United States of America will, to the fullest extent permitted by law, be the sole and exclusive forum for resolving any complaint
asserting a cause of action arising under the federal securities laws, including the Securities Act and the rules and regulations thereunder. Our decision to adopt such a federal forum provision followed a decision by the Supreme Court of the
State of Delaware holding that such provisions are facially valid under Delaware law. While there can be no assurance that federal or state courts will follow the holding of the Delaware Supreme Court or determine that our federal forum
provision should be enforced in a particular case, application of our federal forum provision means that suits brought by our stockholders to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder
must be brought in federal court and cannot be brought in state court. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all claims brought to enforce any duty or liability created by the Exchange Act or the rules and
regulations thereunder. Accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal court. Our stockholders will not be deemed to have
waived our compliance with the federal securities laws and the regulations promulgated thereunder.
Although we believe these exclusive forum provisions benefit us by
providing increased consistency in the application of Delaware law, the exclusive forum provisions may limit a stockholder’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 stockholders, which may discourage lawsuits with respect to such claims. Further, in the event a court finds the exclusive forum provision contained in the Proposed Charter to be unenforceable or inapplicable in an action, we may
incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.
The JOBS Act permits “emerging growth
companies” like us to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies.
We currently qualify as an “emerging growth company” as defined in
Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). As such, we take advantage of certain exemptions from various reporting requirements applicable to other public companies that
are not emerging growth companies for as long as we continue to be an emerging growth company, including: (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of
the Sarbanes-Oxley Act of 2002 (“SOX”); (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements; and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and
proxy statements. As a result, our stockholders may not have access to certain information they deem important. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year: (a) following August 18, 2025,
the fifth anniversary of our IPO; (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 Common Stock that is held by
non-affiliates exceeds $700 million as of the last business day of our prior second fiscal quarter, and the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
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In addition, Section 107 of the JOBS Act also provides that an
emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth company
can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. 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. We have elected to avail ourselves 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 that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in
accounting standards used.
We cannot predict if investors will find our Class A Common Stock
less attractive because we rely on these exemptions. If some investors find our Class A Common Stock less attractive as a result, there may be a less active trading market for our Class A Common Stock and our stock price may be more volatile.
The Company has identified a material
weakness in its internal control over financial reporting. This material weakness could continue to adversely affect its ability to report its results of operations and financial condition accurately and in a timely manner. We may identify
additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. If we fail to remediate our material weaknesses, we may not be able to
report our financial results accurately or to prevent fraud.
Following the issuance of the “Staff Statement on Accounting and
Reporting Considerations for Warrants issued by Special Purpose Acquisition Companies” by the staff of the SEC (the “SEC Staff Statement”), after consultation with the Company’s independent registered public accounting firm, the Company’s
management and audit committee concluded that, in light of the SEC Staff Statement, it was appropriate to restate previously issued and audited financial statements as of and for the period ended December 31, 2020.
Additionally, the Company previously recorded a portion of our
Class A common stock subject to possible redemption in permanent equity. In accordance with SEC Staff guidance on redeemable equity instruments, ASC 480-10-S99, “Distinguishing Liabilities from Equity”, and EITF Topic D-98, “Classification and
Measurement of Redeemable Securities”, redemption provisions not solely within the control of the issuing company require common stock subject to redemption to be classified outside of permanent equity. The Company’s management re-evaluated the
effectiveness of our disclosure controls and procedures and concluded that the misclassification of the Class A common stock was quantitatively material to individual line items within the balance sheet. The Company concluded that the
restatement of the Class A common stock represents a material weakness.
The Company’s management is responsible for establishing and
maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
The Company’s management is likewise required, on a quarterly basis, to evaluate the effectiveness of its internal controls and to disclose any changes and material weaknesses identified through such evaluation of those internal controls. A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements
will not be prevented or detected on a timely basis.
The Company identified a material weakness in its internal control
over financial reporting related to the accounting for complex financial instruments. As a result of this material weakness, the Company’s management has concluded that its internal control over financial reporting was not effective as of
December 31, 2020. This material weakness resulted in a material misstatement of the Company’s derivative liabilities, change in fair value of derivative liabilities, Class A Common Stock subject to possible redemption, Class A Common Stock,
additional paid-in capital, accumulated deficit and related financial disclosures for the period from December 23, 2019 (inception) through December 31, 2020. For a discussion of management’s consideration of the material weakness identified
related to the Company’s accounting for a significant and unusual transaction related to the warrants the Company issued in connection with the IPO, see “Note 2—Restatement of Previously Issued Financial
Statements” to the Company’s audited financial statements included elsewhere in this proxy statement/prospectus.
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The Company has concluded that its internal control over
financial reporting was ineffective as of December 31, 2020 because material weaknesses existed in the Company’s internal control over financial reporting. The Company has taken a number of measures to remediate the material weaknesses
described herein; however, if it is unable to remediate its material weaknesses in a timely manner or the Company identifies additional material weaknesses, it may be unable to provide required financial information in a timely and reliable
manner, and the Company may incorrectly report financial information. Likewise, if the Company’s financial statements are not filed on a timely basis, the Company could be subject to sanctions or investigations by the stock exchange on which
the Company’s common stock is listed, the SEC or other regulatory authorities. In either case, there could result a material adverse effect on the Company. The existence of material weaknesses or significant deficiencies in internal control
over financial reporting could adversely affect the Company’s reputation or investor perceptions, which could have a negative effect on the trading price of the Class A Common Stock. In addition, the Company will incur additional costs to
remediate material weaknesses in its internal control over financial reporting.
Further, as a result of such material weakness, the change in
accounting for the warrants, and other matters raised or that may in the future be raised by the SEC, the Company faces potential for litigation or other disputes which may include, among others, claims invoking the federal and state securities
laws, contractual claims or other claims arising from the material weaknesses in the Company’s internal control over financial reporting and the preparation of the Company’s financial statements. As of the date of this proxy
statement/prospectus, the Company has no knowledge of any such litigation or dispute. However, the Company can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful
or not, could have a material adverse effect on the Company, results of operations and financial condition or its ability to complete an initial business combination.
The Company can give no assurance that the measures it has taken
and plans to take in the future will remediate the material weakness identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate
internal control over financial reporting or circumvention of these controls. In addition, even if the Company is successful in strengthening its controls and procedures, in the future those controls and procedures may not be adequate to
prevent or identify irregularities or errors or to facilitate the fair presentation of its financial statements.
MSP has identified material weaknesses in
MSP’s internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of
MSP’s annual or interim financial statements will not be prevented or detected on a timely basis. If MSP is unable to remediate these material weaknesses, or if MSP identifies additional material weaknesses in the future or otherwise fails to
maintain an effective system of internal controls, MSP may not be able to accurately or timely report their financial condition or results of operations, which may adversely affect investor confidence in MSP and, as a result, their stock price.
As of December 31, 2021 and 2020, MSP has identified material
weaknesses in MSP’s internal control over financial reporting. The material weaknesses MSP identified were as follows:
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MSP did not have sufficient accounting and financial reporting resources to address MSP’s financial reporting requirements.
Specifically:
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MSP did not have sufficient resources with an appropriate level of knowledge and U.S. generally
accepted accounting principles expertise to identify, evaluate and account for transactions;
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MSP did not have an adequate segregation of duties or appropriate level of review that is
needed to comply with financial reporting requirements.
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MSP did not design, implement or maintain an effective control environment over our financial reporting requirements.
Specifically:
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MSP did not have effective controls over the period end financial reporting process and
preparation of financial statements due to:
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A lack of a sufficient level of formal accounting policies and procedures that
define how transactions should be initiated, recorded, processed and reported;
A lack of an effective control environment over period end close procedures.
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MSP did not have appropriate controls or documented segregation of duties over information
technology systems used to create or maintain financial reporting records;
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MSP did not design or maintain the appropriate controls related to the separation of accounting
records for each entity included within the combined and consolidated financial statements of MSP.
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These control deficiencies did not result in errors that were
material to MSP’s annual financial statements. However, these control deficiencies could result in a misstatement in MSP’s accounts or disclosures that would result in a material misstatement to the annual financial statements that would not be
prevented or detected. Accordingly, MSP determined that these control deficiencies constitute material weaknesses.
MSP is in the process of implementing measures designed to
improve their internal control over financial reporting and remediate the control deficiencies that led to the material weaknesses. As of December 31, 2021, MSP has hired key accounting personnel with appropriate levels of U.S. generally
accepted accounting principles expertise and financial reporting knowledge and experience as well as begun developing formal accounting policies and procedures, designing a control environment over how transactions are initiated, recorded,
processed and reported, and implementing period end close procedures. MSP also plans to implement certain accounting systems to automate manual processes, to help implement segregation of duties and to assist in consolidation and period end
close. However, MSP is still in the process of addressing these deficiencies and there is no assurance that these measures will significantly improve or remediate the material weaknesses described above. MSP and their independent registered
public accounting firm, were not required to perform an evaluation of our internal control over financial reporting as of December 31, 2021 in accordance with the provisions of the Sarbanes-Oxley Act and as such, there is no assurance that
MSP has identified all material weaknesses or that there will not be additional material weaknesses or deficiencies that are identified.
While MSP’s independent registered public accounting firm is not
required to audit the effectiveness of our internal control over financial reporting until after MSP is no longer an “emerging growth company” as defined in the JOBS Act, a failure to design, implement or maintain effective internal control
over financial reporting could adversely affect the results of annual independent registered public accounting firm audit reports regarding the effectiveness of MSP’s internal control over financial reporting that the Post-Combination Company
will eventually be required to include in reports that will be filed with the SEC. If at such time, MSP’s independent registered public accounting firm issue an audit report that is adverse due to one or more material weaknesses in MSP’s
internal control over financial reporting, this could have a material and adverse effect on MSP’s business, results of operations and financial condition and could cause a decline in the trading price of the Company Class A common stock.
The Company’s warrants are accounted for as
derivative liabilities with changes in fair value each period reported in earnings, which may have an adverse effect on the market price of the Class A Common Stock or may make it more difficult for the Company to consummate an initial business
combination.
The Company accounts for its warrants as derivative liabilities.
At each reporting period (1) the accounting treatment of its warrants will be re-evaluated for proper accounting treatment as a liability or equity and (2) the fair value of the liability of the Public Warrants and Private Warrants will be
remeasured and the change in the fair value of the liability will be recorded as other income (expense) in the Company’s income statement. The impact of changes in fair value on earnings may have an adverse effect on the market price of the
Class A Common Stock. In addition, potential targets may seek a special purpose acquisition company that does not have warrants that are accounted for as derivative liabilities, which may make it more difficult for the Company to consummate an
initial business combination with a target business.
Our internal control over financial
reporting may not be effective and our independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.
As a public company, we are required to comply with the SEC’s
rules implementing Sections 302 and 404 of SOX, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of internal control over
financial reporting. To comply with the requirements of being a public company, the Company may be required to provide the management report on internal controls commencing with the annual report for fiscal year ended December 31, 2022, and
we may need to undertake various actions, such as implementing additional internal controls and procedures and hiring additional accounting or internal audit staff. The standards required for a public company under Section 404 of SOX are
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significantly more stringent than those required of MSP as a privately held
company. Further, as an emerging growth company, our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404 of SOX until
the date we are no longer an emerging growth company. Our independent registered public accounting firm may issue a report that is adverse in the event that it is not satisfied with the level at which the controls of the Post-Combination
Company are documented, designed or operating.
Testing and maintaining these controls can divert our management’s
attention from other matters that are important to the operation of our business. If we identify material weaknesses in the internal control over financial reporting of the Post-Combination Company or are unable to comply with the requirements
of Section 404 of SOX or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over
financial reporting when we no longer qualify as an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we
could become subject to investigations by the SEC or other regulatory authorities, which could require additional financial and management resources.
The Company’s stockholders may be held
liable for claims by third parties against the Company to the extent of distributions received by them.
Prior to the Extension Amendment, the Existing Charter provided
that the Company would continue in existence only until February 18, 2022. The Company held a special meeting of its stockholders to approve Extension Amendment to extend the date by which the Company has to consummate a business combination
from February 18, 2022 to August 18, 2022. On January 27, 2022, the Company’s stockholders approved the Extension Amendment at such special meeting. If the Company has not completed a business combination by August 18, 2022, 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 100% of the outstanding Public Shares, at a per-share price, payable in cash, equal to
the aggregate amount then on deposit in the Trust Account, including any interest earned on the funds held in the Trust Account net of interest that may be used by the Company to pay its 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 Stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any),
subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the LCAP Board, dissolve and liquidate, subject (in the case of (ii) and
(iii) above) to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
If the Company is forced to file a bankruptcy case or an
involuntary bankruptcy case is filed against the Company which is not dismissed, any distributions received by stockholders 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 all amounts received by the Company’s stockholders. Furthermore, because the Company intends to distribute the proceeds held in the Public Shares to the Company’s
Public Stockholders promptly after expiration of the time the Company has to complete an initial business combination, this may be viewed or interpreted as giving preference to the Company’s Public Stockholders over any potential creditors with
respect to access to or distributions from the Company’s assets. Furthermore, the LCAP Board may be viewed as having breached their fiduciary duties to the Company’s creditors and/or may have acted in bad faith, and thereby exposing itself and
the Company to claims of punitive damages, by paying Public Stockholders from the Trust Account prior to addressing the claims of creditors. The Company cannot assure you that claims will not be brought against it for these reasons.
Risks Related to Redemption
In this section, unless otherwise noted or the
context otherwise requires, “we”, “us”, and “our” refer to the Company.
If third parties bring claims against the
Company, the proceeds held in the Trust Account could be reduced and the per share redemption amount received by stockholders may be less than $10.00 per share.
The Company’s placement of funds in the Trust Account may not
protect those funds from third-party claims against the Company. Although the Company has sought and will continue to seek to have all vendors, service providers, prospective target businesses, including MSP, or other entities with which the
Company does business
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execute agreements with the Company waiving any right, title, interest or claim of
any kind in or to any monies held in the Trust Account for the benefit of the Public Stockholders, 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 the Company’s 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, management will perform an analysis
of the alternatives available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would be significantly more beneficial to the Company than any
alternative. Marcum LLP, our independent registered public accounting firm, did not execute agreements with the Company waiving such claims to the monies held in the Trust Account.
The Company’s independent directors may
decide not to enforce the indemnification obligations of the Sponsor, resulting in a reduction in the amount of funds in the Trust Account available for distribution to Public Stockholders.
In the event that the proceeds in the Trust Account are reduced
below the lesser of (i) $10.00 per Public Share or (ii) such lesser amount per share held in the Trust Account as of the date of the liquidation of the Trust Account due to reductions in the value of the trust assets, in each case net of the
interest which may be withdrawn to pay taxes, and the Sponsor asserts that it is unable to satisfy its obligations or that it has no indemnification obligations related to a particular claim, the Company’s independent directors would determine
whether to take legal action against the Sponsor to enforce its indemnification obligations.
While the Company currently expects that its independent directors
would take legal action on its behalf against the Sponsor to enforce its indemnification obligations to the Company, it is possible that the Company’s independent directors in exercising their business judgment may choose not to do so if, for
example, the cost of such legal action is deemed by the independent directors to be too high relative to the amount recoverable or if the independent directors determine that a favorable outcome is not likely. If the Company’s independent
directors choose not to enforce these indemnification obligations, the amount of funds in the Trust Account available for distribution to the Public Stockholders may be reduced below $10.00 per share.
There is no guarantee that a Public
Stockholder’s decision whether to redeem their Public Shares for a pro rata portion of the Trust Account will put such stockholder in a better future economic position.
No assurance can be given as to the price at which a Public
Stockholder may be able to sell the shares of our Class A Common Stock in the future following the completion of the Business Combination. Certain events following the consummation of any business combination, including the Business
Combination, may cause an increase in the Company’s stock price, and may result in a lower value realized now than a stockholder might realize in the future had the stockholder not elected to redeem such stockholder’s Public Shares. Similarly,
if a Public Stockholder does not redeem such person’s shares, such stockholder will bear the risk of ownership of the Class A Common Stock after the consummation of the Business Combination, and there can be no assurance that a stockholder can
sell such person’s shares of Class A Common Stock in the future for a greater amount than the redemption price set forth in this proxy statement/prospectus. A Public Stockholder should consult such person’s own tax and/or financial advisor for
assistance on how this may affect its individual situation.
If the Public Stockholders fail to comply
with the redemption requirements specified in this proxy statement/prospectus, they will not be entitled to redeem their Public Shares for a pro rata portion of the funds held in the Trust Account.
To exercise their redemption rights, stockholders are required to
deliver their stock, either physically or electronically using Depository Trust Company’s DWAC System, to the Company’s transfer agent two business days prior to the vote at the Special Meeting. If a holder properly seeks redemption as
described in this proxy statement/prospectus and the Business Combination is consummated, the Company will redeem these shares for a pro rata portion of funds deposited in the Trust Account and the holder will no longer own such shares
following the Business Combination. See the section entitled “Special Meeting of Stockholders — Redemption Rights” for additional information on how to exercise your redemption rights.
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If, before distributing the proceeds in
the Trust Account to the Public Stockholders, the Company files a bankruptcy petition or an involuntary bankruptcy petition is filed against the Company that is not dismissed, the claims of creditors in such proceeding may have priority over
the claims of the stockholders and the per share amount that would otherwise be received by the Company’s stockholders in connection with the Company’s liquidation may be reduced.
If, before distributing the proceeds in the Trust Account to the
Public Stockholders, the Company files a bankruptcy petition or an involuntary bankruptcy petition is filed against the Company that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy law and may
be included in the Company’s bankruptcy estate and subject to the claims of third parties with priority over the claims of stockholders. To the extent any bankruptcy claims deplete the Trust Account, the per share amount that would otherwise be
received by Company stockholders in connection with our liquidation may be reduced.
If, after the Company distributes the
proceeds in the Trust Account to the Public Stockholders, the Company files a bankruptcy petition or an involuntary bankruptcy petition is filed against the Company that is not dismissed, a bankruptcy court may seek to recover such proceeds,
and the Company and the LCAP Board may be exposed to claims of punitive damages.
If, after the Company distributes the proceeds in the Trust
Account to the Public Stockholders, the Company files a bankruptcy petition or an involuntary bankruptcy petition is filed against the Company that is not dismissed, any distributions received by Company stockholders 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 all amounts received by Company stockholders. In addition, the LCAP Board
may be viewed as having breached its fiduciary duty to the Company’s creditors and/or having acted in bad faith, thereby exposing itself and the Company to claims of punitive damages, by paying Public Stockholders from the Trust Account prior
to addressing the claims of creditors.
If you or a “group” of stockholders of which
you are a part are deemed to hold an aggregate of more than 15% of the Public Shares, you (or, if a member of such a group, all of the members of such group in the aggregate) will lose the ability to redeem all such shares in excess of 15% of
the Public Shares.
A Public Stockholder, together with any of such person’s
affiliates or any other person with whom it is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from redeeming in the aggregate such person’s Public Shares or, if part of such a group,
the group’s Public Shares, in excess of 15% of the Public Shares without our prior consent. Your inability to redeem any such excess Public Shares could result in you suffering a material loss on your investment in the Company if you sell such
excess Public Shares in open market transactions. The Company cannot assure you that the value of such excess Public Shares will appreciate over time following the Business Combination or that the market price of the Public Shares will exceed
the per-share redemption price.
However, the stockholders’ ability to vote all of their Public
Shares (including such excess shares) for or against the Business Combination Proposal is not restricted by this limitation on redemption.
Unlike some other blank check companies, the
Company does not have a specified maximum redemption threshold. The absence of such a redemption threshold will make it easier for us to consummate the Business Combination even if a substantial number of our stockholders redeem their shares.
Unlike some other blank check companies, the Company does not have
a specified maximum redemption threshold, except that we will not redeem Public Shares in an amount that would cause our net tangible assets to be less than $5,000,001. Some other blank check companies’ structures disallow the consummation of a
business combination if the holders of such companies’ public shares elect to redeem or convert more than a specified percentage of the shares sold in such companies’ initial public offering. Because we have no such maximum redemption
threshold, we may be able to consummate the Business Combination even though a substantial number of our Public Stockholders have redeemed their shares.
If a stockholder fails to receive notice of
our offer to redeem our Public Shares in connection with the Business Combination, or fails to comply with the procedures for tendering its shares, such shares may not be redeemed.
If, despite our compliance with the proxy rules, a stockholder
fails to receive our proxy materials, such stockholder may not become aware of the opportunity to redeem his, her or its shares. In addition, the proxy materials
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that we are furnishing to holders of our Public Shares in connection with the
Business Combination describes the various procedures that must be complied with in order to validly redeem Public Shares. In the event that a stockholder fails to comply with these procedures, his, her or its shares may not be redeemed.
If you elect to exercise your redemption
rights with respect to your shares of Class A Common Stock, you will not receive any New Warrants.
In connection with the Business Combination and to provide
additional consideration to holders of Class A Common Stock that do not redeem their shares of Class A Common Stock, the Company intends, subject to compliance with applicable law, to declare a dividend comprising an aggregate of
approximately 1,029,000,000 New Warrants, conditioned upon the consummation of any redemptions by the holders of Class A Common Stock and the Closing, to the holders of record of the Class A Common Stock as of the Closing Date, after giving
effect to the waiver of the right, title and interest in, to or under, participation in any such dividend by the Members, on behalf of themselves and any of their designees. However, the New Warrants will be distributed only to the holders of
record of those shares of our Class A Common Stock that remain outstanding after redemptions in connection with the Business Combination. Although the New Warrants are intended to provide additional consideration to holders of Class A Common
Stock that do not redeem their shares in connection with the Business Combination, such holders may ultimately decide to forego such additional consideration and redeem their shares of Class A Common Stock. Holders who choose to redeem their
shares of Class A Common Stock will not receive any New Warrants. Public Stockholders who choose not to redeem their shares of Class A Common Stock will share in this fixed pool of New Warrants with other non-redeeming holders (on a pro-rata
basis, based on the number of shares of Class A Common Stock held at the end of business on the Closing Date, which is expected to include the 5,750,000 shares of Class A Common Stock into which Founder Shares will convert in connection with
the Business Combination). Accordingly, to the extent that you elect to redeem your shares of Class A Common Stock, you will receive no New Warrants in respect of such shares.
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Defined terms included below have the same
meaning as terms defined and included elsewhere in this proxy statement/prospectus.
The following unaudited pro forma condensed combined financial
information present the combination of the financial information of LCAP and MSP Recovery adjusted to give effect to the Business Combination and related 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”.
LCAP is a blank check company incorporated on December 20, 2019 as
a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses.
MSP Recovery is a leading healthcare recoveries and data analytics
company. The business model includes two principal lines of business:
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a)
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Claims Recovery. MSP Recovery acquires payment claims from its
Assignors, and leverages its data analytics capability to identify payments that were improperly paid by secondary payers, and seek to recover the full amounts owed to its Assignors against those parties who under applicable law or
contract were primarily responsible. In addition, MSP Recovery derives revenues from contracts with customers for claims recovery services arrangements (“claims recovery services”). Claims recovery services include services to related
parties or third parties to assist those entities with pursuit of claims recovery rights; and
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Chase to Pay Services. “Chase to pay” service (“Chase to Pay”),
through which MSP Recovery uses its data analytics to assist its healthcare provider clients to identify in the first instance the proper primary insurer at the point of care and thereby avoid making a wrongful payment. MSP Recovery has
yet to generate revenue from Chase to Pay, nor have they executed any agreements with customers for Chase to Pay services. MSP Recovery is currently in the process of determining the pricing and form of these arrangements.
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The unaudited pro forma condensed combined balance sheet as of
December 31, 2021 combines the historical balance sheet of LCAP and MSP Recovery on a pro forma basis as if the Business Combination and related transactions, summarized below, had been consummated on December 31, 2021. The unaudited pro
forma condensed combined statements of operations for the year ended December 31, 2021 combines the historical statements of operations of LCAP and MSP Recovery for such periods on a pro forma basis as if the Business Combination and related
transactions had been consummated on January 1, 2021, the beginning of the earliest period presented. The unaudited pro forma condensed combined financial statements do not necessarily reflect what the Post-Combination Company’s financial
condition or results of operations would have been had the Business Combination and related transactions occurred on the dates indicated. The unaudited pro forma condensed combined financial information also may not be useful in predicting
the future financial condition and results of operations of the Post-Combination Company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of
factors.
The combined financial information presents the pro forma effects of
the following transactions:
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the reverse recapitalization between LCAP and MSP Recovery, whereby the Post-Combination Company will be organized in an
Up-C structure;
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the redemption of 10,946,369 shares of Class A Common Stock for $109.5 million in connection with the Company stockholder
vote to approve the Extension Amendment;
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MSP Recovery’s planned purchase of assets from VRM MSP discussed in Note 3 and the payment, in connection with the Virage
Exclusivity Termination, of $200 million in Up-C Units, valued at $10 per Up-C Unit, from the aggregate consideration being paid to the Members (or their designees) pursuant to the MIPA at Closing;
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MSP Recovery’s planned Series MRCS asset acquisitions discussed in Note 3;
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the issuance of New Warrants; and
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the exercise of the existing LCAP Public and Private Warrants.
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This information should be read together with LCAP’s audited
consolidated and MSP Recovery’s audited combined and consolidated financial statements and related notes, the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of
Operations of LCAP,” and “MSP Recovery’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included elsewhere in this proxy
statement/prospectus. The unaudited pro forma combined financial statements present two redemption scenarios as follows:
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No Redemption Scenario: this scenario assumes that no
additional shares of Class A Common Stock are redeemed, after giving effect to the redemption of 10,946,369 shares of Class A Common Stock in connection with the Company stockholder vote to approve the Extension Amendment.
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Expense Adjusted Maximum Redemption Scenario: this
scenario assumes that 5,401,587 shares of Class A Common Stock are redeemed for an aggregate payment of approximately $54.0 million (based on the estimated per share redemption price of approximately $10.00 per share) from the Trust
Account. The remaining shares not redeemed include 650,000 shares of Class A Common Stock that are not subject to redemption as the shareholders have waived redemption rights. Cash available for the expense adjusted maximum redemption
scenario is calculated as the cash in trust less remaining transaction costs to be paid in cash reflected in the unaudited pro forma condensed combined balance sheet.
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Under both the no redemption and expense adjusted maximum
redemption scenario, the Business Combination will be accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP. MSP Recovery’s founder, John H. Ruiz, and certain other related
parties will continue to control the Post-Combination Company. As the Business Combination represents a common control transaction from an accounting perspective, the Business Combination will be treated similar to a reverse recapitalization.
As there is no change in control, MSP Recovery has been determined to be the accounting acquirer. For further details, see the section titled “Anticipated Accounting Treatment” beginning
on page [210] of this proxy statement/prospectus.
Under this method of accounting, LCAP will be treated as the
“acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent of MSP Recovery issuing stock for the net assets of LCAP, accompanied by a recapitalization.
The net assets of LCAP will be stated at historical cost, with no goodwill or other intangible assets recorded.
Description of the Business Combination
On July 11, 2021, LCAP entered into the MIPA by and among LCAP,
Opco, the “MSP Purchased Companies”, the Members, and the “Members’ Representative”. Subject to the terms and conditions set forth in the MIPA, including the approval of LCAP’s stockholders, the Members will sell and assign all of their
membership interests in the MSP Purchased Companies to Opco in exchange for non-economic voting shares of Class V common stock, par value $0.0001, of LCAP (“Class V Common Stock”) and non-voting economic Class B Units of Opco (“Class B Units,”
and each pair consisting of one share of Class V Common Stock and one Class B Unit, an “Up-C Unit”), with Up-C Units being exchangeable on a one-for-one basis for shares of Class A common stock, par value $0.000l, of LCAP (“Class A Common
Stock”) on the terms and subject to the conditions set forth in the first amended and restated limited liability company agreement of Opco. Following the Closing, LCAP will own all of the voting Class A Units of Opco and the Members or their
designees will own all of the non-voting economic Class B Units of Opco. The Post-Combination Company will have an Up-C structure.
Subject to the terms and conditions set forth in the MIPA, the
aggregate consideration to be paid to the Members (or their designees) will consist of (i) a number of Up-C Units (or shares of Class A Common Stock) equal to (a) $32.5 billion divided by (b) $10.00 and (ii) rights to receive payments under
the tax receivable agreement (the “Tax Receivable Agreement”). Of the Up-C Units to be issued to certain Members at Closing, 6,000,000 will be deposited into an escrow account with Continental Stock Transfer and Trust, to satisfy potential
indemnification claims brought pursuant to the terms of the MIPA during the Survival Period (12 months following the Closing). Of the Up-C Units, a portion will be used for the purchase of assets from VRM MSP and MRCS as described below the
capitalization at close table below and Note 3 to these unaudited pro forma condensed combined financial information. Additionally, in connection with the Business Combination, LCAP intends, subject to compliance with applicable law, to
declare a dividend comprising approximately 1,029,000,000 newly issued warrants, each to purchase one share of Class A Common Stock at an exercise price of $11.50 per share (the “New Warrants”), conditioned upon the consummation of any
redemptions by LCAP’s stockholders and the Closing, to the holders of record of Class A Common Stock as of the Closing Date, after giving effect to the waiver of the right to participate
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in such dividend by the Members. The number of New Warrants to be distributed in
respect of each share of unredeemed Class A Common Stock is contingent upon, and will vary with, the aggregate number of shares of Class A Common Stock that are redeemed in connection with the Business Combination. Pursuant to the terms of the
Existing Warrant Agreement, the exercise price of the Public Warrants and Private Warrants is expected to decrease to $0.0001 after giving effect to the issuance of the New Warrants.
In connection with the Closing, LCAP, Opco, and certain of the
Members will enter into a Tax Receivable Agreement pursuant to which, among other things, LCAP will pay to certain Members 85% of the benefits, if any, that LCAP realizes from an increase in tax basis and certain other tax benefits, including
Contribution Basis and Transferred Basis as those terms are defined in the Tax Receivable Agreement. A corporation that owns a partnership is required to record the deferred tax related to its outside basis difference, which reflects the book
basis compared to tax basis in the investment in the partnership. Under the no redemption scenario, there would be a deferred tax liability of approximately $1.5 million. Under the expense adjusted maximum redemption scenario, the
Post-Combination Company would record a deferred tax liability of $4.1 million. These amounts are reflected in the unaudited pro forma condensed combined financial statements below. Due to the uncertainty in the amount and timing of future
exchanges of Up-C Units, the unaudited pro forma condensed combined financial information assumes that no exchanges of Up-C Units have occurred at the Closing of the Business Combination and therefore no tax liability from future exchanges is
reflected. However, if all of the stockholders holding Up-C Units were to exchange all of their Up-C Units, the Post-Combination Company would recognize a deferred tax asset of approximately $10.7 billion and a liability of approximately $9.1
billion, assuming (i) all exchanges occurred on the Closing Date; (ii) a price of $10.00 per share; (iii) a constant corporate tax rate of 26%; (iv) the Post-Combination Company will have sufficient taxable income to fully utilize the tax
benefits; and (v) no material changes in tax law. These amounts are estimates and have been prepared for informational purposes only. The actual amount of deferred tax assets and related liabilities that we will recognize will differ based
on, among other things, the timing of the exchanges, the price of the shares of Class A Common Stock at the time of the exchange, and the tax rates then in effect.
The following summarizes the number of shares of common stock of
the Post-Combination Company following the Closing under the two redemption scenarios:
|
|
| |
No Redemption
Scenario
|
| |
Expense Adjusted
Maximum Redemption
Scenario
|
||||||
|
|
| |
Shares
|
| |
%
|
| |
Shares
|
| |
%
|
|
Class A - LCAP Public Stockholders and holders of
Private Shares(1)(6)(8)
|
| |
12,703,631
|
| |
0.4%
|
| |
7,302,044
|
| |
0.2%
|
|
Class A - LCAP Initial Stockholders(1)(2)
|
| |
5,750,000
|
| |
0.2%
|
| |
5,750,000
|
| |
0.2%
|
|
Class A - LCAP Private and Public Warrantholders(1)(5)
|
| |
11,825,000
|
| |
0.4%
|
| |
11,825,000
|
| |
0.4%
|
|
Total LCAP
|
| |
30,278,631
|
| |
0.9%
|
| |
24,877,044
|
| |
0.8%
|
|
|
| |
|
| |
|
| |
|
| |
|
|
Class V - MSP Recovery Members(3)(9)
|
| |
2,628,037,909
|
| |
80.1%
|
| |
2,628,037,909
|
| |
80.2%
|
|
Class V - Virage; VRM(4)(9)
|
| |
140,000,000
|
| |
4.3%
|
| |
140,000,000
|
| |
4.3%
|
|
Class V - Other(3)(4)
|
| |
65,662,091
|
| |
2.0%
|
| |
65,662,091
|
| |
2.0%
|
|
Class V - MRCS(4)
|
| |
416,300,000
|
| |
12.8%
|
| |
416,300,000
|
| |
12.7%
|
|
Total MSP
|
| |
3,250,000,000
|
| |
99.1%
|
| |
3,250,000,000
|
| |
99.2%
|
|
|
| | | | | | | | ||||
|
Total Shares at Closing(6)(7)
|
| |
3,280,278,631
|
| |
100.0%
|
| |
3,274,877,044
|
| |
100.0%
|
|
(1)
|
Class A Common Stock are economic shares and entitled to one vote per share.
|
|
(2)
|
If the LCAP transaction costs exceed $60.0 million, the Initial Stockholders will forfeit LCAP Class B Common Stock (share
class prior to the conversion to Class A Common Stock at Close) or pay cash to settle the excess costs in accordance with the MIPA. Based on the current estimated transaction costs, no such forfeiture or cash pay down is required and no
adjustment has been reflected in the pro formas.
|
|
(3)
|
Total enterprise value including the MRCS and VRM MSP assets purchases is $32.5 billion or 3.25 billion Up-C Units. The
3.25 billion Up-C Units include 3.25 billion non-economic, Class V Common Stock and 3.25 billion non-voting economic Class B Units of the Opco. Of that amount, $26.5 billion or 2.6 billion Up-C Units which includes 2.6 billion Class V
Common Stock will be issued to MSP Recovery Members (this includes 6.0 million Class V Common Stock issued as part of the Escrow Units included in total consideration and
|
81
65.6 million Class V in the “Class V – Other” line); $1.2 billion or
120.0 million Up-C Units which includes 120.0 million Class V Common Stock will be issued to VRM for the assets acquired from VRM MSP discussed in footnote 4 to this table. Of the total $1.9 billion consideration to VRM, the $1.2 billion is
prepaid at close in Up-C Units and the remaining $0.7 billion will be settled on or prior to the one-year anniversary of the Closing by any of the following means (or any combination thereof): (a) payment of the Recovery Proceeds (as defined
in the VRM Full Return Guaranty) to VRM arising from Claims held by VRM MSP, (b) sale of the Reserved Shares, and delivery of the resulting net cash proceeds thereof to VRM, or (c) sale of additional shares of Company Class A Common Stock and
delivery of the net cash proceeds thereof to VRM. The unaudited pro formas assume that this portion of the consideration owed to VRM is paid through the exchange of Up-C units for shares Class A Common Stock and sold to a party defined as
“Class V – Other” as there is not enough cash in the unaudited pro forma balance sheet to settle this portion of the consideration. $4.2 billion or 416.3 million Up-C Units which includes 416.3 million Class V Common Stock will be issued to
Series MRCS for the assets acquired from VRM MSP and asset acquisitions discussed in footnote 4 to this table.
|
(4)
|
Assumes 120,000,000 Up-C Units are issued to VRM as Upfront Consideration and includes an additional 20,000,000 Up-C Units
to be paid in connection with the Virage Exclusivity Termination from the aggregate consideration being paid to the Members (or their designees) pursuant to the MIPA at Closing. The 120,000,000 Up-C Units to be issued as Upfront
Consideration represent part of the consideration for the $4.0 billion of assets acquired from VRM MSP and $2.0 billion of assets from the MRCS asset acquisitions, and will be paid to VRM. Refer to Note 3 of the unaudited condensed
combined pro forma section of this proxy statement/prospectus. The consideration paid to VRM MSP can be in the form of Up-C Units, LCAP Class A Common Stock, cash, or a combination thereof. The unaudited pro formas assume that the
equity portion of the consideration will be paid in the form of Up-C Units at the Closing and as such, these investors would receive Class V Common Stock and Class B Units. The total $6.0 billion is deducted from the $32.5 billion
above in footnote 3 to this table.
|
|
(5)
|
Shares include the 11,825,000 Class A Common Stock underlying LCAP’s Public and Private Warrants as they are expected to be in
the money as of Closing when the exercise price could be reduced from $11.50 per warrant to $0.0001 after giving effect to the issuance of the New Warrants. As such, it is assumed that the exercise price falls to less than $11.50 and
100% of the warrants are redeemed for LCAP Class A Common Stock.
|
|
(6)
|
Shares exclude 1,029,000,000 Class A Common Stock underlying approximately 1,029,000,000 New Warrants to be issued,
conditioned upon the consummation of any redemptions by the holders of Class A Common Stock and the Closing, to the holders of record of the Class A Common Stock on the Closing Date, after giving effect to the waiver of the right, title
and interest in, to or under, participation in any such dividend by the Members, on behalf of themselves and any of their designees. The number of New Warrants to be distributed in respect of each share of unredeemed Class A Common
Stock is contingent upon, and will vary with, the aggregate number of shares of Class A Common Stock that are redeemed in connection with the Business Combination. Pursuant to the terms of the LLC Agreement, at least twice a month, to
the extent any New Warrants have been exercised in accordance with their terms, the Company following the Business Combination is required to purchase from the MSP Principals, proportionately, the number of Up-C Units or shares of
Class A Common Stock owned by such MSP Principal equal to the aggregate amount of the exercise price received in connection with exercise of the New Warrants during an applicable period (the “Aggregate Exercise Price”) divided by the
Warrant Exercise Price (as defined in the LLC Agreement) in exchange for the Aggregate Exercise Price. The figures shown in the table will be affected by the level of redemptions by Public Stockholders and the exercise of outstanding
warrants or New Warrants. See ”Summary—Ownership of the Post-Combination Company.”
|
|
(7)
|
Shares excludes up to $100.0 million of LCAP Class A common stock that may be issued to Nomura under the Forward Purchase
Agreement. Refer to Note 1 of the unaudited condensed combined pro forma section of this proxy statement/prospectus.
|
|
(8)
|
Shares reflect the redemption of 10,946,369 shares of Class A Common Stock for $109.5 million in connection with the
Company stockholder vote to approve the Extension Amendment.
|
|
(9)
|
MSP Recovery Member Shares reflect the payment, in connection with the Virage Exclusivity Termination, of $200 million in
Up-C Units, valued at $10 per Up-C Unit, from the aggregate consideration being paid to the Members (or their designees) pursuant to the MIPA at Closing.
|
Assumptions and estimates underlying the unaudited pro forma
adjustments set forth in the unaudited pro forma condensed combined financial statements are described in the accompanying notes thereto. The unaudited pro forma condensed combined financial statements have been presented for illustrative
purposes only and are not necessarily indicative of the operating results and financial position that would have been achieved had the Business Combination and related transactions occurred on the dates indicated. Further, the unaudited pro
forma condensed combined financial statements do not purport to project the future operating results or financial position of LCAP following the completion of the Business Combination and related transactions. The unaudited pro forma
adjustments represent LCAP management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial statements and are subject to change as additional information becomes available and
analyses are performed.
82
|
|
| |
As of December 31, 2021
|
| |
|
| |
As of December 31, 2021
|
| |
|
| |
As of December 31, 2021
|
|||||||||
|
|
| |
LCAP
(Historical)
(US GAAP)
|
| |
MSP Recovery
(As Adjusted)
(Note 3)
|
| |
Transaction
Accounting
Adjustments
(No Redemption
Scenario)
|
| |
Pro Forma
Combined
(No Redemption
Scenario)
|
| |
Transaction
Accounting
Adjustments
(Expense
Adjusted
Maximum
Redemption
Scenario)
|
| |
Pro Forma
Combined
(Expense
Adjusted
Maximum
Redemption
Scenario)
|
||||||
|
ASSETS
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Current assets
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Cash
|
| |
177
|
| |
—
|
| |
(177)
|
| |
(a)
|
| |
—
|
| |
|
| |
|
| |
—
|
|
Cash and cash equivalents
|
| |
—
|
| |
1,664
|
| |
177
|
| |
(a)
|
| |
55,683
|
| |
(54,019)
|
| |
(j)
|
| |
29,764
|
|
|
| |
|
| |
|
| |
120,543
|
| |
(b)
|
| |
|
| |
28,100
|
| |
(k)
|
| |
|
|
|
| |
|
| |
|
| |
(66,701)
|
| |
(e)
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Affiliate receivable
|
| |
—
|
| |
4,070
|
| |
|
| |
|
| |
4,070
|
| |
|
| |
|
| |
4,070
|
|
Prepaid expenses and other current assets
|
| |
9
|
| |
13,304
|
| |
(8,252)
|
| |
(e)
|
| |
5,061
|
| |
|
| |
|
| |
5,061
|
|
Total Current Assets
|
| |
186
|
| |
19,038
|
| |
45,590
|
| |
|
| |
64,814
|
| |
(25,919)
|
| |
|
| |
38,895
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Property, plant and equipment, net
|
| |
—
|
| |
750
|
| |
|
| |
|
| |
750
|
| |
|
| |
|
| |
750
|
|
Intangible assets, net
|
| |
—
|
| |
84,218
|
| |
|
| |
|
| |
84,218
|
| |
|
| |
|
| |
84,218
|
|
Investments
|
| |
—
|
| |
4,006,621
|
| |
|
| |
|
| |
4,006,621
|
| |
|
| |
|
| |
4,006,621
|
|
Other assets - Excluded Series and MSP Recovery Claim
Series 01
|
| |
—
|
| |
2,013,000
|
| |
|
| |
|
| |
2,013,000
|
| |
|
| |
|
| |
2,013,000
|
|
Marketable securities held in Trust Account
|
| |
230,013
|
| |
—
|
| |
(109,470)
|
| |
(b)
|
| |
—
|
| |
|
| |
|
| |
—
|
|
|
| | | | | |
(120,543)
|
| |
(b)
|
| |
|
| |
|
| |
|
| |
|
||
|
TOTAL ASSETS
|
| |
230,199
|
| |
6,123,627
|
| |
(184,423)
|
| |
|
| |
6,169,403
|
| |
(25,919)
|
| |
|
| |
6,143,484
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Current liabilities
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Accounts payable
|
| |
—
|
| |
4,609
|
| |
(3,942)
|
| |
(e)
|
| |
667
|
| |
|
| |
|
| |
667
|
|
Accrued expenses
|
| |
3,985
|
| |
—
|
| |
(3,985)
|
| |
(e)
|
| |
—
|
| |
|
| |
|
| |
—
|
|
Affiliate payable
|
| |
—
|
| |
45,252
|
| |
|
| |
|
| |
45,252
|
| |
|
| |
|
| |
45,252
|
|
Commission payable
|
| |
—
|
| |
465
|
| |
|
| |
|
| |
465
|
| |
|
| |
|
| |
465
|
|
Deferred service fee income
|
| |
—
|
| |
249
|
| |
|
| |
|
| |
249
|
| |
|
| |
|
| |
249
|
|
Other current liabilities
|
| |
—
|
| |
3,489
|
| |
(1,940)
|
| |
(e)
|
| |
1,549
|
| |
|
| |
|
| |
1,549
|
|
Total Current Liabilities
|
| |
3,985
|
| |
54,064
|
| |
(9,867)
|
| |
|
| |
48,182
|
| |
—
|
| |
|
| |
48,182
|
|
Claims financing obligation & notes payable
|
| |
—
|
| |
106,805
|
| |
|
| |
|
| |
106,805
|
| |
28,100
|
| |
(k)
|
| |
134,905
|
|
Interest payable
|
| |
—
|
| |
94,545
|
| |
|
| |
|
| |
94,545
|
| |
|
| |
|
| |
94,545
|
|
Deferred tax liability
|
| |
—
|
| |
—
|
| |
1,488
|
| |
(g)
|
| |
1,488
|
| |
2,572
|
| |
(g)
|
| |
4,060
|
|
Warrant liability
|
| |
6,389
|
| |
—
|
| |
(6,389)
|
| |
(h)
|
| |
—
|
| |
|
| |
|
| |
—
|
|
Deferred underwriting fee payable
|
| |
8,050
|
| |
—
|
| |
(8,050)
|
| |
(e)
|
| |
—
|
| |
|
| |
|
| |
—
|
|
TOTAL LIABILITIES
|
| |
18,424
|
| |
255,414
|
| |
(22,818)
|
| |
|
| |
251,020
|
| |
30,672
|
| |
|
| |
281,692
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Class A common stock subject to possible redemption
|
| |
230,000
|
| |
—
|
| |
(109,470)
|
| |
(b)
|
| |
—
|
| |
|
| |
|
| |
—
|
|
|
| |
|
| |
|
| |
(120,530)
|
| |
(c)
|
| |
|
| |
|
| |
|
| |
|
83
|
|
| |
As of December 31, 2021
|
| |
|
| |
As of December 31, 2021
|
| |
|
| |
As of December 31, 2021
|
|||||||||
|
|
| |
LCAP
(Historical)
(US GAAP)
|
| |
MSP Recovery
(As Adjusted)
(Note 3)
|
| |
Transaction
Accounting
Adjustments
(No Redemption
Scenario)
|
| |
Pro Forma
Combined
(No Redemption
Scenario)
|
| |
Transaction
Accounting
Adjustments
(Expense
Adjusted
Maximum
Redemption
Scenario)
|
| |
Pro Forma
Combined
(Expense
Adjusted
Maximum
Redemption
Scenario)
|
||||||
|
Stockholders' Equity (Deficit)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Preferred stock, $0.0001 par value
|
| |
—
|
| |
—
|
| |
|
| |
|
| |
—
|
| |
|
| |
|
| |
—
|
|
Class A common stock, $0.0001 par value
|
| |
—
|
| |
—
|
| |
2
|
| |
(c)
|
| |
4
|
| |
(1)
|
| |
(j)
|
| |
3
|
|
|
| |
|
| |
|
| |
1
|
| |
(d)
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
1
|
| |
(h)
|
| |
|
| |
|
| |
|
| |
|
|
Class B common stock, $0.0001 par value
|
| |
1
|
| |
—
|
| |
(1)
|
| |
(d)
|
| |
—
|
| |
|
| |
|
| |
—
|
|
Class V common stock, $0.0001 par value
|
| |
—
|
| |
—
|
| |
325
|
| |
(i)
|
| |
325
|
| |
|
| |
|
| |
325
|
|
Members’ deficit/capital
|
| |
—
|
| |
5,863,865
|
| |
(5,863,865)
|
| |
(i)
|
| |
—
|
| |
|
| |
|
| |
—
|
|
Additional paid-in capital
|
| |
—
|
| |
—
|
| |
120,528
|
| |
(c)
|
| |
217,114
|
| |
(2,572)
|
| |
(g)
|
| |
208,107
|
|
|
| |
|
| |
|
| |
(35,036)
|
| |
(e)
|
| |
|
| |
47,583
|
| |
(l)
|
| |
|
|
|
| |
|
| |
|
| |
(39,741)
|
| |
(f)
|
| |
|
| |
(54,018)
|
| |
(j)
|
| |
|
|
|
| |
|
| |
|
| |
(1,488)
|
| |
(g)
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
6,019,296
|
| |
(i)
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
(5,852,833)
|
| |
(l)
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
6,388
|
| |
(h)
|
| |
|
| |
|
| |
|
| |
|
|
Accumulated deficit
|
| |
(18,226)
|
| |
—
|
| |
(21,515)
|
| |
(e)
|
| |
(156,241)
|
| |
|
| |
|
| |
(156,241)
|
|
|
| |
|
| |
|
| |
(485)
|
| |
(e)
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
39,741
|
| |
(f)
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
(155,756)
|
| |
(i)
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Stockholders' Equity Attributable to
Stockholders
|
| |
(18,225)
|
| |
5,863,865
|
| |
(5,784,438)
|
| |
|
| |
61,202
|
| |
(9,008)
|
| |
|
| |
52,194
|
|
Noncontrolling interest
|
| |
—
|
| |
4,348
|
| |
5,852,833
|
| |
(l)
|
| |
5,857,181
|
| |
(47,583)
|
| |
(l)
|
| |
5,809,598
|
|
TOTAL EQUITY
|
| |
(18,225)
|
| |
5,868,213
|
| |
68,395
|
| |
|
| |
5,918,383
|
| |
(56,591)
|
| |
|
| |
5,861,792
|
|
TOTAL LIABILITIES AND EQUITY
|
| |
230,199
|
| |
6,123,627
|
| |
(184,423)
|
| |
|
| |
6,169,403
|
| |
(25,919)
|
| |
|
| |
6,143,484
|
84
FOR THE YEAR ENDED DECEMBER 31, 2021
(in thousands, except share and per share data)
|
|
| |
Year Ended
December 31, 2021
|
| |
|
| |
Year Ended
December 31, 2021
|
| |
|
| |
|
| |
Year Ended
Deember 31, 2021
|
||||||
|
|
| |
LCAP
(Historical)
(US GAAP)
|
| |
MSP Recovery
(Historical)
(US GAAP)
|
| |
Transaction
Accounting
Adjustments
(No Redemption
Scenario)
|
| |
Pro Forma
Combined
(No Redemption
Scenario)
|
| |
Transaction
Accounting
Adjustments
(Expense
Adjusted
Maximum
Redemption
Scenario)
|
| |
Pro Forma
Combined
(Expense
Adjusted
Maximum
Redemption
Scenario)
|
||||||
|
Claims recovery income
|
| |
—
|
| |
126
|
| |
|
| |
|
| |
126
|
| |
|
| |
|
| |
126
|
|
Claims recovery service income
|
| |
—
|
| |
14,500
|
| |
|
| |
|
| |
14,500
|
| |
|
| |
|
| |
14,500
|
|
Total Claims Recovery
|
| |
—
|
| |
14,626
|
| |
—
|
| |
|
| |
14,626
|
| |
—
|
| |
|
| |
14,626
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Operating expenses
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Cost of claims recoveries
|
| |
—
|
| |
190
|
| |
|
| |
|
| |
190
|
| |
|
| |
|
| |
190
|
|
General and administrative
|
| |
—
|
| |
12,761
|
| |
485
|
| |
(cc)
|
| |
13,246
|
| |
|
| |
|
| |
13,246
|
|
Professional fees
|
| |
—
|
| |
8,502
|
| |
|
| |
|
| |
8,502
|
| |
|
| |
|
| |
8,502
|
|
Depreciation and amortization
|
| |
—
|
| |
343
|
| |
|
| |
|
| |
343
|
| |
|
| |
|
| |
343
|
|
Operating and formation costs
|
| |
3,785
|
| |
—
|
| |
(180)
|
| |
(bb)
|
| |
3,605
|
| | | |
|
| |
3,605
|
|
|
Total operating expenses
|
| |
3,785
|
| |
21,796
|
| |
305
|
| |
|
| |
25,886
|
| |
—
|
| |
|
| |
25,886
|
|
Operating loss
|
| |
(3,785)
|
| |
(7,170)
|
| |
(305)
|
| |
|
| |
(11,260)
|
| |
—
|
| |
|
| |
(11,260)
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest expense
|
| |
—
|
| |
(27,046)
|
| |
|
| |
|
| |
(27,046)
|
| |
(1,124)
|
| |
(ff)
|
| |
(28,170)
|
|
Other (expense) income, net
|
| |
—
|
| |
1,139
|
| |
|
| |
|
| |
1,139
|
| |
|
| |
|
| |
1,139
|
|
Interest earned on marketable securities held in Trust
Account
|
| |
15
|
| |
—
|
| |
(15)
|
| |
(aa)
|
| |
—
|
| |
|
| |
|
| |
—
|
|
Transaction costs associated with Initial Public Offering
|
| |
—
|
| |
—
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Change in fair value of warrant liabilities
|
| |
6,977
|
| |
—
|
| |
|
| | | |
6,977
|
| |
|
| |
|
| |
6,977
|
|
|
Income (loss) before provision for
income taxes
|
| |
3,207
|
| |
(33,077)
|
| |
(320)
|
| | | |
(30,190)
|
| |
(1,124)
|
| |
|
| |
(31,314)
|
|
|
(Provision for) Benefit from income taxes
|
| |
—
|
| |
—
|
| |
67
|
| |
(dd)
|
| |
67
|
| |
236
|
| |
(dd)
|
| |
303
|
|
Net income (loss)
|
| |
3,207
|
| |
(33,077)
|
| |
(253)
|
| | | |
(30,123)
|
| |
(888)
|
| |
|
| |
(31,011)
|
|
|
Net income (loss) attributable to non-controlling members
|
| |
—
|
| |
16
|
| |
(26,340)
|
| |
(ee)
|
| |
(26,324)
|
| |
(1,159)
|
| |
(ee)
|
| |
(27,483)
|
|
Net income (loss) attributable to
Stockholders
|
| |
3,207
|
| |
(33,093)
|
| |
26,087
|
| |
|
| |
(3,799)
|
| |
271
|
| |
|
| |
(3,528)
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Basic and diluted weighted average shares outstanding,
Class A Common Stock
|
| |
23,650,000
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Basic and diluted net income per share, Class A Common
Stock
|
| |
$0.11
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Basic and diluted weighted average shares outstanding,
Class B Common Stock
|
| |
5,750,000
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Basic and diluted net income per share, Class B Common
Stock
|
| |
$0.11
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Basic and diluted pro forma weighted average shares
outstanding, Class A Common stock
|
| |
|
| |
|
| |
|
| |
|
| |
30,278,631
|
| |
|
| |
|
| |
24,877,044
|
|
Basic and diluted pro forma income per share, Class A
Common stock
|
| |
|
| |
|
| |
|
| |
|
| |
$(0.13)
|
| |
|
| |
|
| |
$(0.14)
|
85
1. Basis of Presentation
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.” Release No. 33-10786 replaces the
existing pro forma adjustment criteria with simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”).
The Business Combination will be accounted for as a reverse
recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP. Under this method of accounting, LCAP will be treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting
purposes, the Business Combination will be treated as the equivalent of MSP Recovery issuing stock for the net assets of LCAP, accompanied by a recapitalization. The net assets of LCAP will be stated at historical cost, with no goodwill or
other intangible assets recorded.
In connection with the IPO, LCAP entered into a forward purchase
agreement (the “Forward Purchase Agreement”) with Nomura, which provides for the purchase by Nomura of Class A Common Stock for an aggregate purchase price of up to $100.0 million through, other than as described below, open market purchases or
privately negotiated transactions with one or more third parties. In lieu of purchasing Class A Common Stock in the open market or privately negotiated transactions, up to $85.0 million of such aggregate purchase price may instead be in the
form of an investment in LCAP equity securities on terms to be mutually agreed between Nomura and us, to occur concurrently with the closing of our initial business combination. The decision to make such an investment in other equity securities
will not reduce the aggregate purchase price. In consideration of the Forward Purchase Agreement, LCAP will pay to Nomura (i) an amount equal to 2% of the aggregate purchase price of the purchases or investment requested by LCAP plus (ii) an
amount equal to the internal charges and carrying costs incurred by Nomura in connection with the Forward Purchase Agreement on a monthly basis during the period from and including the date LCAP executes a definitive agreement for a Business
Combination through the earlier of (x) the consummation of a Business Combination and (y) the date LCAP notifies Nomura in writing that LCAP does not require Nomura to provide the forward purchase commitment. As an investment is not required
but elective and LCAP will have no knowledge of the amount, if any, that LCAP will request as an investment from Nomura until four days prior to the Closing, the unaudited pro forma condensed combined financial information has not been adjusted
to reflect any issuances under the Forward Purchase Agreement. The New Warrants will be equity classified upon issuance at the Closing. The fair value of the New Warrants are expected to exceed the cash proceeds raised by LCAP in the IPO.
However, the difference in the expected fair value of the New Warrants and cash proceeds raised is absorbed by the repurchase right held by the Post-Combination Company which states that the Members will re-sell Up-C Units or Class A Shares to
the Post-Combination Company when the warrants are exercised. As the repurchase right has a mirrored value designed to offset the New Warrants, the debit and credit to APIC will offset so no pro forma adjustment is reflected since the amounts
would net to zero.
The unaudited pro forma condensed combined balance sheet as of
December 31, 2021 assumes that the Business Combination and related transactions occurred on December 31, 2021. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021 presents pro forma effect
to the Business Combination and related transactions as if they have been completed on January 1, 2021.
The unaudited pro forma condensed combined statement of
operations for the year ended December 31, 2021 has been prepared using, and should be read in conjunction with, the following:
|
•
|
LCAP’s audited statement of operations for year ended December 31, 2021 and the related notes included elsewhere in this
proxy statement/prospectus; and
|
|
•
|
MSP Recovery’s audited combined and consolidated statement of operations for the year ended December 31, 2021 and the
related notes included elsewhere in this proxy statement/prospectus.
|
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 anticipated tax savings or cost savings that may be associated with the Business Combination and related transactions. The unaudited
86
pro forma adjustments reflecting the consummation of the Business Combination and
related transactions are based on certain currently available information and certain assumptions and methodologies that LCAP believes are reasonable under the circumstances. The unaudited pro forma adjustments, which are described in the
accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the unaudited pro forma adjustments and it is possible the difference may be
material. LCAP believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Business Combination and related transactions based on information available to management 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.
2. Accounting Policies
Upon consummation of the Business Combination and related
transactions, management will perform a comprehensive review of the entities’ accounting policies. As a result of the review, management may identify differences between the accounting policies of the entities which, when conformed, could have
a material impact on the financial statements of the combined company. Based on its initial analysis, LCAP has identified the presentation differences that would have an impact on unaudited pro forma condensed combined financial information and
recorded the necessary adjustments.
3. VRM MSP & Series MRCS Asset Acquisitions
VRM MSP Asset Acquisition
In connection with the entry into the MIPA, and in contemplation
of MSP’s desire to receive the distributable net proceeds of a portfolio of claims owned by VRM MSP and its subsidiaries (the “Proceeds”), VRM, Series MRCS, Messrs. Ruiz and Quesada and certain other parties agreed that, upon the payment to VRM
of (i) $1.2 billion of Class A Common Stock or Up-C Units (in each case valued at $10.00 per share or unit, as applicable) in connection with the Closing (the “Upfront Consideration”) and (ii) the VRM Full Return on or prior to the one-year
anniversary of Closing, and the satisfaction of other customary conditions, then VRM and Series MRCS would assign and transfer to MSP their respective rights to receive all Proceeds (such assignment and transfer the “Assignment”, and the time
of the Assignment, the “Trigger”).
The value of the VRM Full Return was $656.6 million as of
December 31, 2021. Based on the above, the asset acquired from VRM MSP is valued at: 1) $1.9 billion to VRM ($1.2 billion In-Kind Consideration in Up-C Units and $656.6 million VRM Full Return) and 2) $2.2 billion to Series MRCS in Up-C
Units. The $656.6 million for the VRM Full Return will be paid by (i) payment of the Recovery Proceeds (as defined in the VRM Full Return Guaranty) to VRM arising from claims held by VRM MSP; (ii) on or prior to the one-year anniversary of
the Closing, (A) the sale of the Reserved Shares, and delivery of the resulting net cash proceeds thereof to VRM, or (B) sale of additional shares of Company Class A Common Stock and delivery of the net cash proceeds thereof to VRM; or
(iii) any combination of the foregoing. Opco will acquire rights to the Proceeds from members of VRM MSP that held those interests, which is initially recognized as a financial asset at cost, for which Opco has not elected the fair value
option. In subsequent periods, the Post-Combination Company will reduce its investment for realized (or receivable) distributions of net proceeds from this financial instrument in proportion to the amounts received or receivable to
management’s estimate of expected net proceeds from the underlying investments, and subject to potential impairment if indicators are present; the excess of proceeds received (or receivable) over the portion of the financial asset deemed to
be recovered will be recognized as income in the same period.
Series MRCS Asset Acquisitions
Series MRCS is party to that certain Investment Agreement,
dated as of October 23, 2020, by and among Series MRCS, Hazel Holdings I LLC, a Delaware limited liability company, and MSP Recovery Holding Series 01, LLC, a Delaware limited liability company (the “Investment Agreement”). Series MRCS also
owns all of the equity interests in each of the series set forth on Exhibit A to that certain Asset and Interest Transfer Agreement (such series, the “Excluded Series”, and such equity interests, the “Equity Interests”). Pursuant to that
certain Asset and Interest Transfer Agreement to be entered into prior to the mailing of this proxy statement/prospectus, Series MRCS will transfer to MSP Recovery, and MSP Recovery will accept from Series MRCS, all right, title and interest
of Series MRCS in, to and under the Investment Agreement, and the Equity Interests. The $2.0 billion in assets acquired pursuant thereto are reflected at fair value in the balance sheet below. The fair value was determined using a
multi-period excess earnings valuation methodology.
87
For the purposes of the unaudited pro forma condensed
combined balance sheet and statements of operations, the MSP historical unaudited condensed balance sheet as of December 31, 2021 was adjusted to include the acquisition of assets from VRM MSP and Series MRCS. The ending amounts from this
exercise are included in the “MSP Recovery As Adjusted” columns in the unaudited pro forma combined balance sheet.
“MSP Recovery As Adjusted” for unaudited pro forma condensed
combined balance sheet as of December 31, 2021 was determined as follows:
|
|
| |
As of December 31, 2021
|
| |
|
| |
|
| |
As of December 31, 2021
|
|
|
| |
MSP Recovery
(Historical)
(US GAAP)
|
| |
MRCS Asset
Acquisitions
|
| |
VRM
Asset
|
| |
MSP Recovery
(As Adjusted)
|
|
ASSETS
|
| |
|
| |
|
| |
|
| |
|
|
Current assets
|
| |
|
| |
|
| |
|
| |
|
|
Cash and cash equivalents
|
| |
1,664
|
| |
|
| |
656,621
|
| |
1,664
|
|
|
| |
|
| |
|
| |
(656,621)
|
| |
|
|
Affiliate receivable
|
| |
4,070
|
| |
|
| |
|
| |
4,070
|
|
Prepaid expenses and other current assets
|
| |
13,304
|
| |
|
| |
|
| |
13,304
|
|
Total Current Assets
|
| |
19,038
|
| |
—
|
| |
—
|
| |
19,038
|
|
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
|
Property, plant and equipment, net
|
| |
750
|
| |
|
| |
|
| |
750
|
|
Intangible assets, net
|
| |
84,218
|
| |
|
| |
|
| |
84,218
|
|
Investments
|
| |
—
|
| |
|
| |
4,006,621
|
| |
4,006,621
|
|
Other assets - Excluded Series and MSP Recovery Claim
Series 01
|
| |
|
| |
2,013,000
|
| |
|
| |
2,013,000
|
|
TOTAL ASSETS
|
| |
104,006
|
| |
2,013,000
|
| |
4,006,621
|
| |
6,123,627
|
|
|
| |
|
| |
|
| |
|
| |
|
|
LIABILITIES AND EQUITY
|
| |
|
| |
|
| |
|
| |
|
|
Current liabilities
|
| |
|
| |
|
| |
|
| |
|
|
Accounts payable
|
| |
4,609
|
| |
|
| |
|
| |
4,609
|
|
Affiliate payable
|
| |
45,252
|
| |
|
| |
|
| |
45,252
|
|
Note payable
|
| |
—
|
| |
|
| |
|
| |
—
|
|
Commission payable
|
| |
465
|
| |
|
| |
|
| |
465
|
|
Deferred service fee income
|
| |
249
|
| |
|
| |
|
| |
249
|
|
Other current liabilities
|
| |
3,489
|
| |
|
| |
|
| |
3,489
|
|
Total Current Liabilities
|
| |
54,064
|
| |
—
|
| |
—
|
| |
54,064
|
|
Claims financing obligation & notes payable
|
| |
106,805
|
| |
|
| |
|
| |
106,805
|
|
Interest payable
|
| |
94,545
|
| |
|
| |
|
| |
94,545
|
|
TOTAL LIABILITIES
|
| |
255,414
|
| |
—
|
| |
—
|
| |
255,414
|
|
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
|
Equity (Deficit)
|
| |
|
| |
|
| |
|
| |
|
|
Members’ deficit/capital
|
| |
(155,756)
|
| |
2,013,000
|
| |
656,621
|
| |
5,863,865
|
|
|
| |
|
| |
|
| |
3,350,000
|
| |
|
|
Equity Attributable to MSP Recovery
|
| |
(155,756)
|
| |
2,013,000
|
| |
4,006,621
|
| |
5,863,865
|
|
Noncontrolling interest
|
| |
4,348
|
| | | | | |
4,348
|
||
|
TOTAL EQUITY
|
| |
(151,408)
|
| |
2,013,000
|
| |
4,006,621
|
| |
5,868,213
|
|
TOTAL LIABILITIES AND EQUITY
|
| |
104,006
|
| |
2,013,000
|
| |
4,006,621
|
| |
6,123,627
|
88
Of the total consideration to VRM, $1.2 billion is prepaid
at close in Up-C Units and the remaining $0.7 billion will be settled on or prior to the one-year anniversary of the Closing by any of the following means (or any combination thereof): (a) payment of the Recovery Proceeds (as defined in the
VRM Full Return Guaranty) to VRM arising from Claims held by VRM MSP; (b) sale of the Reserved Shares, and delivery of the resulting net cash proceeds thereof to VRM; or (c) sale of additional shares of Class A Common Stock and delivery of
the net cash proceeds thereof to VRM. As there is not enough cash proceeds in VRM MSP to pay the $0.7 billion, the unaudited pro formas assume that approximately 65.7 million Up-C Units are exchanged into Class A Common Stock and then sold in
exchange for $656.6 million in cash. That cash is contributed by the MSP Principals into the Post-Combination Company and the Post-Combination Company uses the cash to settle that portion of the consideration. The 65.7 million Class V Common
Stock included in the 65.7 million Up-C Units sold are therefore shown in the unaudited pro forma capitalization table herein as belonging to a party defined as “Class V - Other” versus to the MSP Principals.
There is no “MSP Recovery As Adjusted” for the unaudited pro
forma condensed combined statement of operations for the year ended December 31, 2021. There is no amortization of the assets acquired from Series MRCS. For the asset acquired from VRM MSP, there would be a statement of operations impact
based on the excess of proceeds received (or receivable) over the portion of the financial asset deemed to be recovered which will be recognized as income in the same period. For the periods included herein, there was no such difference to be
reflected.
4. Adjustments to Unaudited Pro Forma Condensed Combined Financial
Information
Transaction Accounting Adjustments to Unaudited Pro
Forma Combined Balance Sheet
The pro forma adjustments included in the unaudited pro forma
condensed combined balance sheet as of December 31, 2021 are as follows:
|
a.
|
Reflects balance sheet reclassifications for presentation alignment between MSP Recovery and LCAP;
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|
b.
|
Reflects the redemption of 10,946,369 shares of Class A Common Stock for $109.5 million in connection with the Company
stockholder vote to approve the Extension Amendment and reclassification of cash and investments held in the Trust Account that becomes available to fund the Business Combination;
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c.
|
Reflects the reclassification of common stock subject to possible redemption to permanent equity at $0.0001 par value;
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d.
|
Reflects the reclassification of Initial Stockholder shares from Class B Common Stock to Class A Common Stock at the Closing;
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e.
|
Reflects the settlement of $78.3 million of estimated transaction costs expenses expected to be incurred for the Business
Combination, of which $11.6 million was already paid as of December 31, 2021 and $4.3 million was already expensed as of December 31, 2021. Included in the amount that remains to be settled is $8.1 million for the settlement of LCAP’s
deferred underwriting fee payable incurred during LCAP’s initial public offering due upon completion of the Business Combination, settlement of costs accrued as of the balance sheet date, costs that will be prepaid at the Closing of
the Business Combination, estimated costs for advisory, legal, and other fees that can be deducted against additional paid in capital including those capitalized as prepaids and other current assets, estimates costs that will be
expensed as incurred, and estimated costs to be offset against the net equity of LCAP at the Closing;
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f.
|
Reflects the reclassification of the historical accumulated deficit of LCAP to additional paid in capital as part of the
reverse recapitalization, which includes the accumulated deficit of LCAP and transaction related costs incurred by LCAP;
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g.
|
Reflects the net deferred tax liability related to an outside basis difference. A corporation that owns a partnership is
required to record the deferred tax related to its outside basis difference, which reflects the book basis compared to tax basis in the investment in the partnership. Based on the no redemption and expense adjusted maximum redemption
scenarios, the Post-Combination Company would record a deferred tax liability. The actual liability may change based on the facts and circumstances at the time of recording the liability in the books and records of the
Post-Combination Company;
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h.
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Reflects the issuance of 11.8 million shares of Class A Common Stock underlying LCAP’s Public Warrants and Private Warrants
as they are expected to be in the money as of Closing when the exercise price is
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89
expected to be reduced from $11.50 per warrant to $0.0001 after giving effect to
the issuance of the New Warrants, pursuant to the terms of the Existing Warrant Agreement. As such, the pro forma financial statements assume that the exercise price falls to $0.0001, and accordingly that 100% of the Public Warrants and Private
Warrants are redeemed for shares of Class A Common Stock when such warrants become exercisable;
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i.
|
Reflects the recapitalization of MSP’s equity and issuance of 2,713.7 million shares of Class V Common Stock as
consideration for the reverse recapitalization and 536.3 million shares of Class V Common Stock in connection with the purchase of assets from VRM and Series MRCS under the no redemption and expense adjusted maximum redemption
scenarios, respectively, at $0.0001 par value. The aggregate consideration of 3.25 billion Up-C Units or shares of Class A Common Stock that is payable to the Members in connection with the Business Combination includes 6.0 million
Up-C Units or shares of Class A Common Stock that will be held in escrow to satisfy each of MSP and the Members’ potential indemnification obligations under the MIPA and released for distribution to the Members on the first
anniversary of the Closing, 65.6 million Up-C Units that may be sold to satisfy the VRM Full Return discussed in Note 3, and 20.0 million Up-C Units to be paid in connection with the Virage Exclusivity Termination. The 536.3 million
shares and 20.0 million shares can be in the form of Up-C Units or shares of Class A Common Stock for the purchase of assets from VRM and Series MRCS as discussed in Note 3, and the Virage Exclusivity Termination, respectively. The
unaudited pro forma condensed combined balance sheet assumes that consideration will in the form of Up-C Units only;
|
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j.
|
Reflects the expense adjusted maximum redemption of approximately 5.4 million shares of Class A Common Stock at a
redemption price of $10.00 per share as of December 31, 2021 for $54.0 million held in trust, which is allocated to Class A Common Stock par and additional paid-in capital using $0.0001 par value per share;
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k.
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Reflects cash raised from a loan from Messrs. Ruiz and Quesada (or one of their affiliates) at the Closing in order to
satisfy the condition tied to the MSP Minimum Cash Amount (as defined in the MIPA). The loan will have an annual interest rate of 4% and will mature on the day that is six months from the Closing Date (or, if such day is not a
Business Day, the next Business Day). The maturity date may be extended, at the option of the borrower, for up to three successive six month periods (for a total of 24 months). The loan will be prepayable by the borrower at any time,
without prepayment penalties, fees or other expenses. If the cash of the Post-Combination Company after giving effect to the payment of redemptions and transaction costs is less than $30.0 million, such loan will be made. As cash
exceeds $30.0 million in the no redemption scenario, no adjustment is required under the no redemption scenario. The adjustment in the expense adjusted maximum redemption scenario reflects the maximum amount available to be loaned
from the Service Fee Account as of December 31, 2021, which is deemed to satisfy the Minimum Cash Condition pursuant to the MIPA; and
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l.
|
Reflects the recognition of 99.1% and 99.2% non-controlling interests as a result of the Up-C structure under the no
redemption and expense adjusted maximum redemption scenario, respectively. The Post-Combination Company will hold all of the voting Class A Units of Opco, whereas the Members (or their designees) will hold all of the non-voting
economic Class B Units of Opco (these Class B Units represent the non-controlling interest in Opco). The ownership percentage of Class V Common Stock held in the Post-Combination Company by the Members (or their designees) will be
equivalent to the number of Class B Units held in Opco, and as such, the non-controlling interest in Opco is 99.1% and 99.2% under the no redemption and expense adjusted maximum redemption scenario, respectively, which is equivalent
to the Class V Common Stock ownership percentage shown in the capitalization table above.
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Transaction Accounting Adjustments to Unaudited
Pro Forma Condensed Combined Statements of Operations
The pro forma adjustments included in the unaudited pro forma
condensed combined statement of operations for the year ended December 31, 2021 are as follows:
|
aa.
|
Reflects the elimination of interest income earned on the Trust Account;
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bb.
|
Reflects the elimination of the LCAP administrative service fee paid to the Sponsor that will cease upon the Closing;
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cc.
|
Reflects the portion of MSP estimated transaction costs for the Business Combination not eligible for
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90
capitalization. Transaction costs are reflected as if incurred on January 1,
2021, the date the Business Combination occurred for the purposes of the unaudited pro forma combined and consolidated statement of operations. This is a non-recurring item;
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dd.
|
Reflects the income tax effect of pro forma adjustments using the current federal corporate tax rate of 21% for the twelve
months ended December 31, 2021 and twelve months ended December 31, 2020, respectively. In the historical periods, neither entity was subject to taxes and as such for pro forma purposes, it is assumed that the combined company would
be subject to at least the minimum federal corporate statutory rate;
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ee.
|
Reflects the recognition of net income attributable to the 99.1% and 99.2% non-controlling interests as a result of the
Up-C structure under the no redemption and expense adjusted maximum redemption scenarios, respectively. The Post-Combination Company will hold all of the voting Class A Units of Opco, whereas the Members (or their designees) will hold
all of the non-voting economic Class B Units of Opco (these Class B Units represent the non-controlling interest in Opco). The ownership percentage of Class V Common Stock held in the Post-Combination Company by the Members (or their
designees) will be equivalent to the number of Class B Units held in Opco, and as such, the non-controlling interest in Opco is 99.1% and 99.2% under the no redemption and expense adjusted maximum redemption scenario, respectively,
which is equivalent to the Class V Common Stock ownership percentage shown in the capitalization table above. For the periods presented, pro forma net income (loss) of OpCo is allocated to the non-controlling interest based on these
respective pro-rata non-controlling interest percentages in the no redemption and expense adjusted maximum redemption scenarios. The pro forma net income (loss) of OpCo is substantially consistent with the pro forma consolidated net
income (loss) before income taxes, except for certain registrant expenses, including the operating and formation costs of LCAP, and transaction-related expenses allocated to the issuance of the warrants; and
|
|
ff.
|
Reflects interest expense related to member loans as noted in tickmark k.
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5. Loss per Share
Represents the net loss per share calculated using the
historical weighted average shares outstanding, and the issuance of additional shares in connection with the Business Combination and related transactions, assuming the shares were outstanding since January 1, 2021. As the Business
Combination and related transactions are being reflected as if they had occurred at the beginning of the periods presented, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the
shares issuable relating to the Business Combination and related transactions have been outstanding for the entire periods presented. When assuming the expense adjusted maximum redemption scenario, this calculation is adjusted to eliminate
such shares for the entire period.
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The unaudited pro forma condensed combined has been prepared
assuming the no redemption and expense adjusted maximum redemption scenarios, for year ended December 31, 2021:
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|
| |
Year Ended
December 31, 2021
|
|||
|
(in thousands, except share and per share data)
|
| |
No Redemption
|
| |
Expense
Adjusted
Maximum
Redemption
|
|
Pro forma net loss attributable to Stockholders
|
| |
$(3,799)
|
| |
$(3,528)
|
|
Pro forma weighted average Class A Common Stock
outstanding - basic and diluted
|
| |
30,278,631
|
| |
24,877,044
|
|
Pro forma Class A Common Stock net loss per share
|
| |
$(0.13)
|
| |
$(0.14)
|
|
|
| |
|
| |
|
|
Pro forma weighted average Class A
Common Stock outstanding - basic and diluted
|
| |
|
| |
|
|
Class A - LCAP Public Stockholders
|
| |
12,703,631
|
| |
7,302,044
|
|
Class A - LCAP Initial Stockholders
|
| |
5,750,000
|
| |
5,750,000
|
|
Class A - LCAP Private and Public Warrants
|
| |
11,825,000
|
| |
11,825,000
|
|
Total LCAP
|
| |
30,278,631
|
| |
24,877,044
|
|
Total Shares at Closing(1)(2)(3)
|
| |
30,278,631
|
| |
24,877,044
|
|
(1)
|
Excludes the 3,250,000,000 shares of Class V Common Stock issued for consideration to the Members for this Business
Combination and probable VRM MSP and Series MRCS asset acquisitions as those shares are non-economic and as such are excluded from the earnings per share calculation. Each Up-C Unit, which consists of one share of Class V Common Stock
and one Class B Unit, may be exchanged for either, at LCAP’s option, (a) cash or (b) one share of Class A Common Stock, subject to the provisions set forth in the LLC Agreement.
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|
(2)
|
Shares include the 11,825,000 Class A Common Stock underlying LCAP’s Public Warrants and Private Warrants as they are expected
to be in the money as of Closing when the exercise price could be reduced from $11.50 per warrant to $0.0001 after giving effect to the issuance of the New Warrants. As such, it is assumed that the exercise price falls to less than
$11.50 and 100% of the warrants are redeemed for LCAP Class A Common Stock.
|
|
(3)
|
Shares exclude approximately 1,029,000,000 shares of Class A Common Stock underlying approximately 1,029,000,000 New
Warrants that will be issued at Closing to the holders of record of Class A Common Stock on the Closing Date on a pro rata basis after giving effect to any redemptions by holders of Class A Common Stock and the waiver of the right,
title and interest in, to or under, participation in any such dividend by the Members, on behalf of themselves and any of their designees. These are considered out of the money as the exercise price of $11.50 per warrant is higher
than the current LCAP stock price. Such amounts will be affected by the level of redemptions by Public Stockholders and the exercise of New Warrants. See “Summary—Ownership of the
Post-Combination Company.”
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General
The Company is furnishing this proxy statement/prospectus to
Company stockholders as part of the solicitation of proxies by the LCAP Board for use at the Special Meeting of Company stockholders in lieu of the 2022 annual meeting of the Company to be held on , 2022, and at any adjournment or
postponement thereof. This proxy statement/prospectus provides Company stockholders with information they need to know to be able to vote or instruct their vote to be cast at the Special Meeting.
Date, Time and Place of Special Meeting
The Special Meeting will be held at a.m. Eastern Time, on ,
2022 in virtual format. The Special Meeting can be accessed by visiting [•], where Company stockholders will be able to listen to the meeting live and vote during the meeting. Additionally, Company stockholders have the option to listen to the
Special Meeting by dialing [•] (toll-free within the U.S. and Canada) or [•] (outside of the U.S. and Canada, standard rates apply). The passcode for telephone access is [•], but please note that Company stockholders who choose to participate
telephonically cannot vote or ask questions. Please note that you will only be able to access the Special Meeting by means of remote communication.
Voting Power; Record Date
Stockholders will be entitled to vote or direct votes to be
cast at the Special Meeting if they owned shares of common stock at the close of business on , 2022, the Record Date for the Special Meeting. Stockholders are entitled to one vote for each share of common stock owned at the close of
business on the Record Date. If stockholders’ shares are held in “street name” or are in a margin or similar account, stockholders should contact their broker, bank, or other nominee to ensure that votes related to the shares they
beneficially own are properly counted. On the Record Date, there were 18,453,631 shares of common stock outstanding, of which 12,053,631 were Public Shares, 5,750,000 were Founder Shares and 650,000 were Private Shares.
Purpose of the Special Meeting
Company stockholders are being asked to vote on the following:
|
•
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A proposal to adopt the MIPA and the transactions contemplated thereby. See the section entitled “Proposal No. 1 — The Business Combination Proposal.”
|
|
•
|
A proposal to approve, for purposes of complying with applicable listing rules of Nasdaq the issuance of more than 20% of the
issued and outstanding common stock of the Company and voting power in connection with the Business Combination. See the section entitled “Proposal No. 2 — The Nasdaq Proposal.”
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|
•
|
A proposal to adopt the Proposed Charter in the form attached hereto as Annex B.
See the section entitled “Proposal No. 3 — The Charter Approval Proposal.”
|
|
•
|
Five separate proposals with respect to certain governance provisions in the Proposed Charter, which are being separately
presented in accordance with SEC requirements and which will be voted upon on a non-binding advisory basis.
|
|
○
|
Proposal No. 4A: Change in Authorized Shares—To (i) increase the Company’s total number of authorized shares of capital stock from 111,000,000 shares to 8,760,000,000 shares of capital stock, (ii) increase the Company’s
authorized Class A Common Stock from 100,000,000 shares to 5,500,000,000 shares of Class A Common Stock, (iii) create the Class V Common Stock, consisting of 3,250,000,000 authorized shares of Class V Common Stock
and (iv) increase the Company’s authorized shares of Preferred Stock from 1,000,000 to 10,000,000 shares of Preferred Stock.
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|
○
|
Proposal No. 4B: Dual-Class Stock— To provide for a capital structure pursuant to which, subject to applicable law and the rights, if any, of the holders of any outstanding series of Preferred Stock, the holders of outstanding shares of
common stock of the Company will vote together as a single class on all matters with respect to which stockholders of the Company are entitled to vote under applicable law, the Proposed Charter or the
Amended and Restated Bylaws, or upon which a vote of the
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93
stockholders generally entitled to vote is otherwise duly called for by the
Company; provided, however, that except as may otherwise be required by applicable law, each holder of outstanding shares of common stock of the Company will not be entitled to vote on any amendment to the Proposed Charter that relates solely
to the terms of one or more outstanding series of Preferred Stock (including, without limitation, the powers (including voting powers), if any, preferences and relative, participating, optional, special or other rights, if any, and the
qualifications, limitations and restrictions, if any, of such series of Preferred Stock), if the holders of such affected series are entitled, either voting separately as a single class or together as a class with the holders of any other
outstanding series of Preferred Stock, to vote thereon pursuant to the Proposed Charter or the DGCL. In each such vote, the holders of Class A Common Stock and holders of Class V Common Stock will be entitled to one vote per share of Class A
Common Stock or Class V Common Stock, respectively, including the election of directors and significant corporate transactions (such as a merger or other sale of the Company or its assets).
|
○
|
Proposal No. 4C: Removal of Directors—To
provide that any director or the entire Board may be removed (i) at any time prior to the Voting Rights Threshold Date by a simple majority voting together as a single class, with or without cause, notwithstanding the classification
of the Board, and (ii) at any time from and after the Voting Rights Threshold Date, solely for cause and only by the affirmative vote of the holders of at least 662∕3% of the voting power of all of the then outstanding shares of the Corporation generally entitled to vote thereon, voting together as a single class.
|
|
○
|
Proposal No. 4D: Required Stockholder Vote to Amend Certain Sections of
the Proposed Charter—To provide that, from and after the Voting Rights Threshold Date, in addition to any affirmative vote required by applicable law, the approval by
affirmative vote of the holders of at least 662∕3% in voting power of
the then outstanding shares of the Company generally entitled to vote is required to make any amendment to Article Seventh (Board of Directors) or Article Eighth (Written Consent of Stockholders) of the
Proposed Charter.
|
|
○
|
Proposal No 4E: Required Stockholder Vote to Amend the Amended and
Restated Bylaws—To provide that, in addition to any affirmative vote required by the Proposed Charter, any bylaw that is to be made, altered, amended or repealed by the
stockholders of the Company shall receive, at any time (i) prior to the Voting Rights Threshold Date, the affirmative vote of the holders of at least a majority in voting power of the then outstanding shares
of the Company generally entitled to vote, voting together as a single class, and (ii) from and after the Voting Rights Threshold Date, the affirmative vote of the holders of at least 662∕3% in voting power of the then outstanding shares of stock of the Company generally entitled to vote, voting
together as a single class.
|
See the section entitled “Proposal
No. 4 — The Non-Binding Governance Proposals.”
|
•
|
A proposal to elect seven directors to serve on the Board until the first annual meeting of stockholders following the
Business Combination, in the case of Class I directors, the second annual meeting of stockholders following the Business Combination, in the case of Class II directors, and the third annual meeting of stockholders following the
Business Combination, in the case of Class III directors, and, in each case, until their respective successors are duly elected and qualified. See the section entitled “Proposal No. 5 —
The Director Election Proposal.”
|
|
•
|
A proposal to approve and adopt the MSP Recovery, Inc. 2022 Omnibus Incentive Plan, a copy of which is attached hereto as Annex J. See the section entitled “Proposal No. 6 — The Incentive Plan Proposal.”
|
|
•
|
A proposal to approve the adjournment of the Special Meeting to a later date or dates, if necessary, (A) to ensure that any
supplement or amendment to the accompanying proxy statement/prospectus that the LCAP Board has determined in good faith is required by applicable law to be disclosed to Company stockholders and for such supplement or amendment to be
promptly disseminated to Company stockholders prior to the Special Meeting, (B) if, as of the time for which the Special Meeting is originally scheduled, there are insufficient shares of common stock represented (either in person or by
proxy) to constitute a quorum necessary to conduct business at the Special Meeting or (C) to permit further solicitation and vote of proxies if there are insufficient votes for, or otherwise in connection with, the approval of the
Business Combination Proposal, the Nasdaq Proposal, the Charter Approval Proposal, the Director Election Proposal or the Incentive Plan Proposal. See the section entitled “Proposal No. 7 — The
Adjournment Proposal.”
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94
Vote of the Company’s Sponsor, Directors and Officers
The Company has entered into a letter agreement with the Sponsor
and our directors and officers, pursuant to which each such person has agreed to vote all shares of our common stock owned by it, him or her in favor of the Business Combination Proposal presented at the Special Meeting. Nomura, the underwriter
of our IPO, has agreed to vote any Founder Shares and Private Shares held by it in favor of the Business Combination. As a result, in addition to the shares of common stock held by Nomura, the Sponsor and our officers and directors, we may need
only [•], or [•]% (assuming all outstanding shares are voted), or [•], or approximately [•]% (assuming only the minimum number of shares representing a quorum are voted), of the Public Shares to be voted in favor of the Business Combination
(assuming only a quorum is present at the Special Meeting) in order to have the Business Combination approved. The Sponsor and our directors and officers have entered into a letter agreement with the Company pursuant to which they agreed to
waive their redemption rights in connection with the consummation of the Business Combination with respect to any shares of common stock they may hold. Nomura has also agreed to waive its redemption rights with respect to the Public Shares held
by it, other than Public Shares held directly or indirectly by it on behalf of a third-party client. Such waivers are common in transactions of this sort and the Sponsor and our officers and directors and Nomura did not view the waiver as
separate from the Business Combination as a whole and did not receive separate consideration for the waiver. The Founder Shares and Private Shares held by Nomura, the Sponsor and our directors and officers have no redemption rights upon our
liquidation and will be worthless if no business combination is effected by us by August 18, 2022. However, Nomura, the Sponsor and our directors and officers are entitled to redemption rights upon our liquidation with respect to any Public
Shares they may own.
Quorum and Required Vote for Proposals for the Special Meeting
A majority of the voting power of the common stock entitled to
vote at the Special Meeting must be present, in person or represented by proxy at the Special Meeting to constitute a quorum and in order to conduct business at the Special Meeting. Abstentions and broker non-votes will be counted as present
for the purpose of determining a quorum. Nomura, the Sponsor and our directors and officers, who currently own 43.0% of the issued and outstanding shares of common stock, will count towards this quorum. As of the Record Date for the Special
Meeting, [•] shares of common stock would be required to be present in person or represented by proxy to achieve a quorum.
The approval of each of the Business Combination Proposal, the
Nasdaq Proposal, the Non-Binding Governance Proposals, the Incentive Plan Proposal and the Adjournment Proposal, if presented, requires the affirmative vote (in person or by proxy) of the holders of a
majority of the shares of Class A Common Stock and Class B Common Stock entitled to vote and actually cast thereon at the Special Meeting, voting as a single class. Accordingly, a stockholder’s failure to submit a proxy or to vote in person at
the Special Meeting, as well as an abstention from voting and a broker non-vote with regard to each of the Business Combination Proposal, the Nasdaq Proposal, the Non-Binding Governance Proposals, the
Incentive Plan Proposal or the Adjournment Proposal, if presented, will have no effect on such proposals. The Company has entered into a letter agreement with the Sponsor and our directors and officers pursuant to which each such person has
agreed to vote all shares of our common stock owned by it, him or her in favor of the Business Combination Proposal presented at the Special Meeting. Nomura, the underwriter of our IPO, has agreed to vote any Founder Shares and Private Shares
held by it in favor of the Business Combination.
The approval of the Charter Approval Proposal requires the
affirmative vote (in person or by proxy) of (i) the holders of a majority of the Class A Common Stock then outstanding, voting separately as a single class, (ii) the holders of a majority of the Class B Common Stock then outstanding, voting
separately as a single class, and (iii) the holders of a majority of the shares of Class A Common Stock and Class B Common Stock entitled to vote, voting as a single class. Accordingly, a stockholder’s failure to submit a proxy or to vote in
person at the Special Meeting, as well as an abstention from voting and a broker non-vote with regard to the Charter Approval Proposal, will have the same effect as a vote “AGAINST” such proposal.
The approval of the Director Election Proposal requires the
affirmative vote (in person or by proxy) of the holders of a plurality of the outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote and actually cast thereon at the Special Meeting, voting as a single class. This
means that the director nominees who receive the most affirmative votes will be elected. Stockholders may not cumulate their votes with respect to the election of directors. Accordingly, a stockholder’s failure to submit a proxy or to vote in
person at the Special Meeting, as well as a withheld vote and a broker non-vote with regard to election of directors, will have no effect on the election of directors. Notwithstanding the approval of each of the seven director nominees to the
Board in the Director Election Proposal, if the Business Combination is not consummated for any reason, the actions contemplated by the Director Election Proposal will not be effected.
95
Consummation of the Business Combination is conditioned on the
approval of the Business Combination Proposal, the Nasdaq Proposal, the Charter Approval Proposal, the Director Election Proposal and the Incentive Plan Proposal at the Special Meeting, subject to the terms of the MIPA. The Business Combination
is not conditioned on the Non-Binding Governance Proposals or the Adjournment Proposal. If the Business Combination Proposal is not approved, the other proposals (except the Adjournment Proposal) will not
be presented to the stockholders for a vote.
It is important for you to note that the consummation of the
Business Combination is conditioned on the approval of the Business Combination Proposal, the Nasdaq Proposal, the Charter Approval Proposal, the Director Election Proposal and the Incentive Plan Proposal at the Special Meeting, subject to the
terms of the MIPA. If the Company does not consummate the Business Combination and fails to complete an initial business combination by August 18, 2022, it will be required to dissolve and liquidate the Trust Account by returning the then
remaining funds in such account to its Public Stockholders.
The LCAP Board unanimously determined that the
MIPA and the transactions contemplated thereby, including the Business Combination, were advisable, fair to, and in the best interests of, the Company and its stockholders. Accordingly, the LCAP Board unanimously recommends that its
stockholders vote “FOR” each of the Business Combination Proposal, the Nasdaq Proposal, the Charter Approval Proposal, the Non-Binding Governance Proposals, the Director Election Proposal, the Incentive Plan Proposal and the Adjournment
Proposal, if presented.
In considering the recommendation of the LCAP Board to vote in
favor of approval of the proposals, stockholders should keep in mind that the Sponsor and our directors and officers have interests in such proposals that are different from or in addition to (and which may conflict with) those of Company
stockholders generally. Stockholders should take these interests into account in deciding whether to approve the proposals presented at the Special Meeting, including the Business Combination Proposal. See “The
Business Combination — Interests of the Company’s Directors and Executive Officers in the Business Combination” beginning on page [206].
Abstentions and Broker Non-Votes
Abstentions are considered present for the purposes of
establishing a quorum and will have the same effect as a vote “AGAINST” the Charter Approval Proposal. Broker non-votes are considered present for the purposes of establishing a quorum and will have the
effect of a vote “AGAINST” the Charter Approval Proposal. Abstentions and broker non-votes will have no effect on the Business Combination Proposal, the Nasdaq Proposal, the Non-Binding Governance
Proposals, the Director Election Proposal, the Incentive Plan Proposal and the Adjournment Proposal.
In general, if your shares are held in “street” name and you do
not instruct your broker, bank, or other nominee on a timely basis on how to vote your shares, your broker, bank, or other nominee, in its sole discretion, may either leave your shares unvoted or vote your shares on routine matters, but not on
any non-routine matters. None of the Proposals are routine matters. As such, without your voting instructions, your brokerage firm cannot vote your shares on any Proposal to be voted on at the Special Meeting.
Voting Your Shares — Stockholders of Record
If your shares are owned directly in your name with our transfer
agent, Continental Stock Transfer & Trust Company, you are considered, with respect to those shares, the “stockholder of record.” If your shares are held in a stock brokerage account or by a bank or other nominee or intermediary, you are
considered the beneficial owner of shares held in “street name” and are considered a “non-record (beneficial) stockholder.”
Company stockholders of record may vote electronically at the
Special Meeting or by proxy. The Company recommends that you submit your proxy even if you plan to attend the Special Meeting. If you submit a proxy, you may change your vote by submitting a later dated proxy before the deadline or by voting
electronically at the Special Meeting.
If you are a Company stockholder of record, you may use the
enclosed proxy card to tell the persons named as proxies how to vote your shares. If you properly complete, sign and date your proxy card, your shares will be voted in accordance with your instructions. The named proxies will vote all shares at
the Special Meeting for which proxies have been properly submitted and not revoked. If you sign and return your proxy card but do not mark your card to tell the proxies how to vote, your shares will be voted “FOR”
each of the Proposals.
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Your shares will be counted for purposes of determining a quorum
if you vote:
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by submitting a properly executed proxy card (including via the Internet or by telephone); or
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electronically at the Special Meeting.
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Abstentions will be counted for determining whether a quorum is
present for the Special Meeting.
Voting instructions are printed on the proxy card you received.
Voting Your Shares — Beneficial Owners
If your shares are held in an account at a brokerage firm, bank,
or other nominee, then you are the beneficial owner of shares held in “street name” and this proxy statement/prospectus is being sent to you by that broker, bank, or other nominee. The broker, bank, or other nominee holding your account is
considered to be the stockholder of record for purposes of voting at the Special Meeting. As a beneficial owner, you have the right to direct your broker, bank, or other nominee regarding how to vote the shares in your account by following the
instructions that the broker, bank, or other nominee provides you along with this proxy statement/prospectus. Your broker, bank, or other nominee may have an earlier deadline by which you must provide instructions to it as to how to vote your
shares. As a beneficial owner, if you wish to vote at the Special Meeting, you will need to bring to the Special Meeting a legal proxy from your broker, bank, or other nominee authorizing you to vote those shares. That is the only way we can be
sure that the broker, bank or nominee has not already voted your shares of common stock.
Revoking Your Proxy
If you are a stockholder of record and you give a proxy, you may
revoke it at any time before it is exercised by doing any one of the following:
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you may send another proxy card with a later date;
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you may notify the Company’s Secretary in writing before the Special Meeting that you have revoked your proxy; or
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you may attend the Special Meeting and vote electronically by visiting and entering the control number found on your proxy
card, voting instruction form or notice you previously received. Attendance at the Special Meeting will not, in and of itself, revoke a proxy.
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If your shares are held in “street name” or are in a margin or
similar account, you should contact your broker for information on how to change or revoke your voting instructions.
No Additional Matters
The Special Meeting has been called only to consider the approval
of the Business Combination Proposal, the Nasdaq Proposal, the Charter Approval Proposal, the Non-Binding Governance Proposals, the Director Election Proposal, the Incentive Plan Proposal and the Adjournment Proposal.
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Who Can Answer Your Questions About Voting Your Shares
If you are a stockholder and have any questions about how to vote
or direct a vote in respect of your shares of common stock, you may contact our proxy solicitor, MacKenzie Partners, Inc.:
1407 Broadway
New York, New York 10018
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885
Email:
proxy@mackenziepartners.com
Redemption Rights
Holders of Public Shares may seek to redeem their shares for cash,
regardless of whether they vote for or against, or abstain from voting on, the Business Combination Proposal. Any stockholder holding Public Shares may demand that the Company redeem such shares for a pro rata portion of the Trust Account
(which, for illustrative purposes, is anticipated to be approximately $10.00 per share as of , 2022, the Record Date), calculated as of two business days prior to the anticipated consummation of the Business Combination. If a holder properly
seeks redemption as described in this section and the Business Combination is consummated, the Company will redeem these shares for a pro rata portion of funds deposited in the Trust Account and the holder will no longer own these shares
following the Business Combination.
Notwithstanding the foregoing, a holder of Public Shares, together
with any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from seeking redemption rights with respect to more than 15% of the Public
Shares without our prior consent. Accordingly, all Public Shares in excess of 15% held by a Public Stockholder, together with any affiliate of such holder or any other person with whom such holder is acting in concert or as a “group,” will not
be redeemed for cash without our prior consent.
Nomura, the Sponsor and our directors and officers will not have
redemption rights with respect to the Public Shares held by it, other than, in the case of Nomura, Public Shares held directly or indirectly by it on behalf of a third-party client.
The Public Stockholders may seek to redeem their shares for cash,
regardless of whether they vote for or against, or abstain from voting on, the Business Combination Proposal. Holders may demand redemption by delivering their stock, either physically or electronically using Depository Trust Company’s DWAC
System, to Continental Stock Transfer and Trust Company, the Company’s transfer agent, no later than the second business day preceding the vote on the Business Combination Proposal. If you hold the shares in street name, you will have to
coordinate with your broker to have your shares certificated or delivered electronically. Certificates that have not been tendered (either physically or electronically) in accordance with these procedures will not be redeemed for cash. There is
a nominal cost associated with this tendering process and the act of certificating the shares or delivering them through the DWAC system. The transfer agent will typically charge the tendering broker $80.00 and it would be up to the broker
whether or not to pass this cost on to the redeeming stockholder. In the event the proposed Business Combination is not consummated this may result in an additional cost to stockholders for the return of their shares.
Any request to redeem such shares, once made, may be withdrawn at
any time up to the vote on the Business Combination Proposal. Furthermore, if a holder of a Public Share delivered its certificate in connection with an election of its redemption and subsequently decides prior to the applicable date not to
elect to exercise such rights, it may simply request that the transfer agent return the certificate (physically or electronically).
If the Business Combination is not approved or completed for any
reason, then the Public Stockholders who elected to exercise their redemption rights will not be entitled to redeem their shares for a pro rata portion of the Trust Account, as applicable. In such case, the Company will promptly return any
shares delivered by Public Stockholders.
The closing price of the Class A Common Stock on , 2022, the
Record Date, was $ . The cash held in the Trust Account on such date is anticipated to be approximately $230.0 million ($10.00 per Public Share). Prior to exercising redemption rights, stockholders should verify the market price of the
Class A Common Stock as they may receive higher proceeds from the sale of their Class A Common Stock in the public market than from
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exercising their redemption rights if the market price per share is higher than
the redemption price. The Company cannot assure its stockholders that they will be able to sell their shares of common stock in the open market, even if the market price per share is higher than the redemption price stated above, as there may
not be sufficient liquidity in its securities when its stockholders wish to sell their shares.
If a holder of Public Shares exercises its redemption rights, then
it will be exchanging its shares of common stock for cash and will no longer own those shares. You will be entitled to receive cash for these shares only if you properly demand redemption no later than the second business day preceding the vote
on the Business Combination Proposal by delivering your stock certificate (either physically or electronically) to the Company’s transfer agent prior to the vote at the Special Meeting, and the Business Combination is consummated.
Our stockholders do not have appraisal rights in connection the
Business Combination under the DGCL.
Proxy Solicitation Costs
The Company is soliciting proxies on behalf of the LCAP Board.
This solicitation is being made by mail but also may be made by telephone or in person. The Company and its directors, officers and employees may also solicit proxies in person, by telephone or by other electronic means. The Company will bear
the cost of the solicitation.
The Company has hired MacKenzie Partners, Inc. to assist in the
proxy solicitation process. The Company will pay that firm a fee of up to $100,000, under normal circumstances. Such payment will be made from non-trust account funds.
The Company will ask banks, brokers and other institutions,
nominees and fiduciaries to forward the proxy materials to their principals and to obtain their authority to execute proxies and voting instructions. The Company will reimburse them for their reasonable expenses.
The Initial Stockholders
As of , 2022, the Record Date, Nomura, the Sponsor, and our
directors and officers were entitled to vote an aggregate of [•] Founder Shares and [•] Private Shares. Such shares currently constitute 43.0% of the outstanding shares of common stock.
Purchases of Shares
At any time prior to the Special Meeting, during a period when
they are not then aware of any material nonpublic information regarding the Company or its securities, the Sponsor, MSP, the Members and/or their respective affiliates may purchase shares from institutional and other investors who vote, or
indicate an intention to vote, against the Business Combination Proposal, or execute agreements to purchase shares from such investors in the future, or they may enter into transactions with such investors and others to provide them with
incentives to acquire shares of common stock or vote their shares in favor of the Business Combination Proposal. The purpose of such share purchases and other transactions would be to increase the likelihood of satisfaction of the requirements
to consummate the Business Combination where it appears that such requirements would otherwise not be met. While the exact nature of any such incentives has not been determined as of the date of this proxy statement/prospectus, they might
include, without limitation, arrangements to protect such investors or holders against potential loss in value of their shares, including the granting of put options and, with MSP’s consent, the transfer to such investors or holders of shares
owned by the Sponsor for nominal value.
Entering into any such arrangements may have a depressive effect
on the common stock. For example, as a result of these arrangements, an investor or holder may have the ability to effectively purchase shares at a price lower than market and may therefore be more likely to sell the shares such person owns,
either prior to or immediately after the Special Meeting.
If such transactions are effected, the consequence could be to
cause the Business Combination to be approved in circumstances where such approval could not otherwise be obtained. Purchases of shares by the persons described above would allow them to exert more influence over the approval of the Business
Combination Proposal and other Proposals and would likely increase the chances that such proposals would be approved.
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No agreements dealing with the above arrangements or purchases
have been entered into as of the date of this proxy statement/prospectus by the Sponsor, MSP, the Members or any of their respective affiliates. The Company will file a Current Report on Form 8-K to disclose arrangements entered into or
significant purchases made by any of the aforementioned persons that would affect the vote on the Business Combination Proposal or the satisfaction of any closing conditions. Any such report will include descriptions of any arrangements entered
into or significant purchases by any of the aforementioned persons.
Distribution of New Warrants to Holders of Class A Common Stock Not
Electing Redemption
In connection with the Business Combination and to provide
additional consideration to holders of Class A Common Stock that do not redeem their shares of Class A Common Stock, the Company intends, subject to compliance with applicable law, to declare a dividend comprising an aggregate of
approximately 1,029,000,000 New Warrants, conditioned upon the consummation of any redemptions by the holders of Class A Common Stock and the Closing, to the holders of record of the Class A Common Stock as of the Closing Date, after giving
effect to the waiver of the right, title and interest in, to or under, participation in any such dividend by the Members, on behalf of themselves and any of their designees. The Company intends to establish the close of business of the
anticipated Closing Date as the Warrant Record Date for stockholders entitled to receive their pro rata portion of the approximately 1,029,000,000 New Warrants. The Warrant Record Date is expected to be determined at least 10 days prior to
the Closing Date. The Company expects that a dividend of the New Warrants will be distributed following the Closing Date to stockholders of record as of the close of business on the Warrant Record Date, and after giving effect to the waiver
of the right, title and interest in, to or under, participation in any such dividend by the Members, on behalf of themselves and any of their designees. The number of New Warrants to be distributed in respect of each share of unredeemed
Class A Common Stock is contingent upon, and will vary with, the aggregate number of shares of Class A Common Stock that are redeemed in connection with the Business Combination. Holders who choose to redeem their shares of Class A Common
Stock will not receive any New Warrants. Public Stockholders who choose not to redeem their shares of Class A Common Stock will share in this fixed pool with other non-redeeming holders (on a pro-rata basis, based on the number of shares of
Class A Common Stock held at the end of business on the Closing Date, which is expected to include the 5,750,000 shares of Class A Common Stock into which Founder Shares will convert in connection with the Business Combination). As a result,
assuming the no redemption scenario and that the distribution is made, Public Stockholders who do not redeem their shares would receive at least 56 New Warrants per share of Class A Common Stock they hold, which would proportionally increase
if other holders elect to redeem their shares of Class A Common Stock. We believe this structure will likely lead to a lower level of redemptions, and therefore, we will likely have more funds available for our Business Combination. Pursuant
to the terms of the Existing Warrant Agreement, the exercise price of the Public Warrants and Private Warrants could decrease to $0.0001 after giving effect to the issuance of the New Warrants. Pursuant to the terms of the LLC Agreement, at
least twice a month, to the extent any New Warrants have been exercised in accordance with their terms, the Post-Combination Company is required to purchase from the MSP Principals, proportionately, the number of Up-C Units or shares of
Class A Common Stock owned by such MSP Principal equal to the Aggregate Exercise Price divided by the Warrant Exercise Price in exchange for the Aggregate Exercise Price. For more information, see the LLC Agreement attached hereto as Annex D. For more information on the New Warrants, see the section entitled “Description of Securities of the Post-Combination Company.”
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Overview
Holders of common stock are being asked to approve the MIPA and
the transactions contemplated thereby, including the Business Combination. Company stockholders should carefully read this proxy statement/prospectus in its entirety for more detailed information concerning the MIPA, which is attached as Annex A to this proxy statement/prospectus. Please see the sections entitled “The Business Combination” and “The Membership Interest
Purchase Agreement” in this proxy statement/prospectus for additional information regarding the Business Combination and a summary of certain terms of the MIPA. You are urged to read the MIPA carefully and in its entirety before voting
on this proposal.
Vote Required for Approval
The affirmative vote of the holders of a majority of the shares of
Class A Common Stock and Class B Common Stock that are voted at the Special Meeting, voting as a single class, is required to approve the Business Combination Proposal.
Failure to submit a proxy or to vote in person at the Special
Meeting, abstentions and broker non-votes will have no effect on the Business Combination Proposal.
The Business Combination is conditioned upon the approval of the
Business Combination Proposal, subject to the terms of the MIPA. If the Business Combination Proposal is not approved, the other Proposals (except the Adjournment Proposal, as described below) will not be presented to the stockholders for a
vote.
Recommendation of the Board of Directors
THE LCAP BOARD UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE BUSINESS COMBINATION PROPOSAL.
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Overview
In connection with the Business Combination, we intend to effect
(subject to customary terms and conditions, including the closing of the Business Combination) the issuance and/or sale of: (a) an aggregate of 3,250,000,000 shares of Class V Common Stock to the Members (or their designees) as consideration
for the Business Combination; (b) 5,750,000 shares of Class A Common Stock upon the automatic conversion of Class B Common Stock, in accordance with the terms of the Existing Charter; and (c) subject to compliance with applicable law, an
aggregate of approximately 1,029,000,000 New Warrants declared as a dividend to be issued to the holders of record of the Class A Common Stock as of the Closing Date, after giving effect to the waiver of the right, title and interest in, to or
under, participation in any such dividend by the Members, on behalf of themselves and any of their designees.
For more information, see the full text of the MIPA, a copy of
which is attached as Annex A. The discussion herein is qualified in its entirety by reference to the MIPA.
As contemplated by the Incentive Plan Proposal, we intend to
reserve 98,736,750 shares of Class A Common Stock for grants of awards under the Incentive Plan. See “Proposal No. 6 — The Incentive Plan Proposal.”
Why the Company Needs Stockholder Approval for Purposes of Nasdaq
Listing Rule 5635
We are seeking stockholder approval in order to comply with Nasdaq
Listing Rule 5635(a), (b) and (d).
Under Nasdaq Listing Rule 5635(a), stockholder approval is
required prior to the issuance of common stock, or of securities convertible into or exercisable for common stock, in connection with the acquisition of another company if such securities are not issued in a public offering for cash and:
(i) the common stock has or will have upon issuance, voting power equal to or in excess of 20% of the voting power outstanding before the issuance of such common stock (or securities convertible into or exercisable for common stock); or
(ii) the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the common stock or securities.
Under Nasdaq Listing Rule 5635(b), stockholder approval is
required prior to the issuance of securities when the issuance or potential issuance will result in a “change of control” of the registrant. Although Nasdaq has not adopted any rule on what constitutes a “change of control” for purposes of Rule
5635(b), Nasdaq has previously indicated that the acquisition of, or right to acquire, by a single investor or affiliated investor group, as little as 20% of the common stock (or securities convertible into or exercisable for common stock) or
voting power of an issuer could constitute a change of control.
Under Nasdaq Listing Rule 5635(d), stockholder approval is
required for a transaction other than a public offering involving the sale, issuance or potential issuance by an issuer of common stock (or securities convertible into or exercisable for common stock) at a price that is less than the greater of
book or market value of the stock if the number of shares of common stock to be issued is or may be equal to 20% or more of the common stock, or 20% or more of the voting power, outstanding before the issuance.
As described above, the Company will issue shares of Class V
Common Stock to the Members (or their designees), Class A Common Stock upon the conversion of Class B Common Stock and the New Warrants to the non-redeeming Public Stockholders.
Stockholder approval of the Nasdaq Proposal is also a condition to
the closing under the MIPA.
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Vote Required for Approval
If the Business Combination Proposal is not approved, the Nasdaq
Proposal will not be presented at the Special Meeting. The approval of the Nasdaq Proposal requires the affirmative vote of a majority of the votes cast by the holders of Class A Common Stock and Class B Common Stock, voting as a single class,
present in person or represented by proxy at the Special Meeting. Failure to submit a proxy or to vote in person at the Special Meeting, abstentions, and broker non-votes will have no effect on the Nasdaq Proposal.
The Business Combination is conditioned upon the approval of the
Nasdaq Proposal, subject to the terms of the MIPA. Notwithstanding the approval of the Nasdaq Proposal, if the Business Combination is not consummated for any reason, the actions contemplated by the Nasdaq Proposal will not be effected.
Recommendation of the Board of Directors
THE LCAP BOARD UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE NASDAQ PROPOSAL.
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Overview
Our stockholders are being asked to adopt the Proposed Charter in
the form attached hereto as Annex B, which, in the judgment of the LCAP Board, is necessary to adequately address the needs of the Post-Combination Company.
The following is a summary of the key changes effected by the
Proposed Charter, but this summary is qualified in its entirety by reference to the full text of the Proposed Charter, a copy of which is included as Annex B:
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change the Company’s name to “MSP Recovery, Inc.”;
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change the purpose of the Company to “engage in any lawful act or activity for which a corporation may be organized under
the DGCL”;
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provide that, upon the Closing of the Business Combination, each share of Class B Common Stock outstanding immediately prior
to the Closing will automatically be converted into one share of Class A Common Stock without any action on the part of any person and, concurrently with such conversion, the number of authorized shares of Class B Common Stock will be
reduced to zero;
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(i) increase the Company’s total number of authorized shares of capital stock from 111,000,000 shares to 8,760,000,000
shares of capital stock, (ii) increase the Company’s authorized Class A Common Stock from 100,000,000 shares to 5,500,000,000 shares of Class A Common Stock, (iii) create the Class V Common Stock, consisting of 3,250,000,000
authorized shares of Class V Common Stock and (iv) increase the Company’s authorized shares of Preferred Stock from 1,000,000 to 10,000,000 shares of Preferred Stock;
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provide that each share of Class V Common Stock will automatically be cancelled upon any sale or other transfer of such share
to a third party other than as permitted by the Proposed Charter;
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provide that, subject to applicable law and the rights, if any, of the holders of any outstanding series of Preferred
Stock, the holders of outstanding shares of common stock of the Company will vote together as a single class on all matters with respect to which stockholders of the Company are entitled to vote under applicable law, the Proposed
Charter or the Amended and Restated Bylaws, or upon which a vote of the stockholders generally entitled to vote is otherwise duly called for by the Company; provided, however, that except as may otherwise be required by applicable
law, each holder of outstanding shares of common stock of the Company will not be entitled to vote on any amendment to the Proposed Charter that relates solely to the terms of one or more outstanding series of Preferred Stock
(including, without limitation, the powers (including voting powers), if any, preferences and relative, participating, optional, special or other rights, if any, and the qualifications, limitations and restrictions, if any, of such
series of Preferred Stock), if the holders of such affected series are entitled, either voting separately as a single class or together as a class with the holders of any other outstanding series of Preferred Stock, to vote thereon
pursuant to the Proposed Charter or the DGCL; in each such vote, the holders of Class A Common Stock and holders of Class V Common Stock will be entitled to one vote per share of Class A Common Stock or Class V Common Stock,
respectively, including the election of directors and significant corporate transactions (such as a merger or other sale of the Company or its assets);
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provide that, subject to applicable law and the rights, if any, of the holders of any outstanding series of Preferred Stock,
the holders of Class A Common Stock will be entitled to receive dividends with respect to shares of Class A Common Stock, when, as and if declared by the Board, while holders of Class V Common Stock will not be entitled to receive
dividends with respect to shares of Class V Common Stock;
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provide that the Board (other than those directors, if any, elected by the holders of any outstanding series of Preferred
Stock) will be divided into three classes, as nearly equal in number as possible, designated as Class I, Class II and Class III, and that with respect to the directors of the Board (i) the directors of each class the term of which then
expires will be elected to hold office for a three-year term or until the election and qualification of their respective successors in office, subject to their earlier death, resignation, disqualification or removal and (ii) in case of
any increase or decrease, from time to time, in the number of directors (other than those directors, if any, elected by the holders of any outstanding series of Preferred Stock), the number of directors in each class will be apportioned
by resolution of the Board as nearly equal as possible;
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provide that until any time prior to the Voting Rights Threshold Date, any director elected by the stockholders generally
entitled to vote may be removed with or without cause by a simple majority voting together as a single class and, any time from and after the Voting Rights Threshold Date, any such director may be removed only for cause and only by
the affirmative vote of the holders of at least 662∕3% of the voting power of all of the then outstanding shares of the Company generally entitled to vote
thereon, voting together as a single class;
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provide that, with respect to directors elected by the stockholders generally entitled to vote, newly created directorships
resulting from an increase in the authorized number of directors or any vacancies on the Board resulting from death, resignation, disqualification, removal or other cause will be filled solely and exclusively by a majority of the
directors then in office, although less than a quorum, or by the sole remaining director and any director so elected will hold office until the expiration of the term of office of the director whom he or she has replaced and until his
or her successor is elected and qualified, subject to such director’s earlier death, resignation, disqualification or removal;
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provide that, prior to the Voting Rights Threshold Date, the affirmative vote of the holders of at least a majority in
voting power of the then outstanding shares of the Company generally entitled to vote, voting together as a single class, and, from and after the Voting Rights Threshold Date, the affirmative vote of the holders of at least 662∕3% in voting power of the then outstanding shares of the Company generally entitled to vote, is required to alter, amend, make or repeal any provision of the Amended and Restated Bylaws;
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provide that the Company will have no interests or expectancy in, or in being offered an opportunity to participate in,
and renounces, to the fullest extent permitted by applicable law, (i) any corporate opportunity with respect to any lines of business, business activity or business venture conducted by the Relevant Persons and (ii) any corporate
opportunity received by, presented to, or originated by, a Relevant Person after the date of the filing of the Proposed Charter with the Secretary of State of the State of Delaware in such Relevant Person’s capacity as a Relevant
Person (and not in his, her or its capacity as a director, officer or employee of the Company);
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provide that, unless the Company consents in writing to the selection of an alternative forum, (i) any derivative action
brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or employee of the Company to the Company or the Company’s stockholders, (iii) any action asserting a
claim arising pursuant to any provision of the DGCL, the Proposed Charter or the Amended and Restated Bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine of the State of Delaware, in each case, will
be required to be filed in the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware lacks jurisdiction over any such action or proceeding, then a state court located within the State of
Delaware or the federal district court for the District of Delaware); provided, that the exclusive forum provision does not apply to actions arising under the Securities Act or the Exchange Act;
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require that, from and after the Voting Rights Threshold Date, in addition to any affirmative vote required by applicable
law, the affirmative vote of the holders of at least 662∕3% in voting power of the then outstanding shares of the Company generally entitled to vote is
required to make any amendment to Article Seventh (Board of Directors) or Article Eighth (Written Consent of Stockholders) of the Proposed Charter;
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delete the prior provisions under Article IX (Business Combination Requirements; Existence) of the Proposed Charter relating
to our status as a blank check company; and
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provide that, from and after the Voting Rights Threshold Date, stockholders may not take action by consent in lieu of a
meeting.
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Reasons for the Amendments
Each of these amendments was negotiated as part of the Business
Combination. The LCAP Board’s reasons for proposing each of these amendments to our Existing Charter are set forth below.
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Amending Article I to change the Company’s name to “MSP Recovery, Inc.” Previously, the Company’s name was “Lionheart
Acquisition Corporation II”. The Board believes the name of the Company should more closely align with the name of the Company’s operating business and therefore has proposed the name change.
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Amending the prior Article II and renumbering such article as Article Third to provide that the purpose of the Company is
“to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware.” The Board believes this change is appropriate to remove language applicable to a blank
check company.
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Amending Article IV to remove the provision that any share of Class B Common Stock outstanding immediately prior to the
Closing will automatically be converted into one share of Class A Common Stock. The Existing Charter provides for the automatic conversion of the issued and outstanding Class B Common Stock, which will no longer be required after the
automatic conversion occurs at Closing.
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Amending Article IV to (i) increase the Company’s total number of authorized shares of capital stock from 111,000,000
shares to 8,760,000,000 shares of capital stock, (ii) increase the Company’s authorized Class A Common Stock from 100,000,000 shares to 5,500,000,000 shares of Class A Common Stock, (iii) create the Class V Common Stock, consisting of
3,250,000,000 authorized shares of Class V Common Stock and (iv) increase the Company’s authorized shares of Preferred Stock from 1,000,000 to 10,000,000 shares of Preferred Stock. The amendment provides for the creation of the
Class V Common Stock, which is required in order to effectuate the closing of the Business Combination. In addition, the increase in the total number of authorized shares provides the Company adequate authorized capital to provide
flexibility for future issuances of shares of common stock if determined by the Board to be in the best interests of the Company, without incurring the risk, delay and potential expense incident to obtaining stockholder approval for a
particular issuance.
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Amending Article IV to provide for a capital structure pursuant to which, subject to applicable law and the rights, if
any, of the holders of any outstanding series of Preferred Stock, the holders of outstanding shares of common stock of the Company will vote together as a single class on all matters with respect to which stockholders of the Company
are entitled to vote under applicable law, the Proposed Charter or the Amended and Restated Bylaws, or upon which a vote of the stockholders generally entitled to vote is otherwise duly called for by the Company; provided, however,
that except as may otherwise be required by applicable law, each holder of outstanding shares of common stock of the Company will not be entitled to vote on any amendment to the Proposed Charter that relates solely to the terms of one
or more outstanding series of Preferred Stock (including, without limitation, the powers (including voting powers), if any, preferences and relative, participating, optional, special or other rights, if any, and the qualifications,
limitations and restrictions, if any, of such series of Preferred Stock), if the holders of such affected series are entitled, either voting separately as a single class or together as a class with the holders of any other outstanding
series of Preferred Stock, to vote thereon pursuant to the Proposed Charter or the DGCL. In each such vote, the holders of Class A Common Stock and holders of Class V Common Stock will be entitled to one vote per share of Class A
Common Stock or Class V Common Stock, respectively, including the election of directors and significant corporate transactions (such as a merger or other sale of the Company or its assets). The amendment is intended to align the
Company’s capital structure with that of Opco and enables the Members, including John H. Ruiz and Frank C. Quesada, to maintain their leadership of the Company and execute on the Company’s long-term strategy while helping alleviate
short-term market pressure on the Company.
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Restating the prior Article V and renumbering such article as Article Seventh to provide that the Board be divided into
three classes, as nearly equal in number as possible, designated as Class I, Class II and Class III. The directors of each class the term of which then expires will be elected to hold office for a three-year term or until the election
and qualification of their respective successors in office, subject to their earlier death, resignation, disqualification or removal. In case of any increase or decrease, from time to time, in the number of directors, the number of
directors in each class will be apportioned by resolution of the Board as nearly equal as possible. The amendment is intended to maintain the stability of the Board and to discourage certain types of transactions that may involve an
actual or threatened hostile acquisition of the Post-Combination Company.
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Amending Article V and renumbering such article as Article Seventh to provide that any director or the entire Board may be
removed (i) at any time prior to the Voting Rights Threshold Date by a simple majority voting together as a single class, with or without cause, notwithstanding the classification of the Board, and (ii) at any time from and after the
Voting Rights Threshold Date, solely for cause and only by the affirmative vote of the holders of at least 662∕3% of the voting power of all of the then outstanding shares
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of the Corporation generally entitled to vote thereon, voting together as a single
class. The amendment is intended to protect all stockholders against the potential self-interested actions by one or a few large stockholders after the Voting Rights Threshold Date by changing the standard for removal of a director after the
Voting Rights Threshold Date to solely for cause.
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Amending Article V and renumbering such article as Article Seventh to provide that, with respect to directors elected by the
stockholders generally entitled to vote, from and after the Voting Rights Threshold Date, (i) newly created directorships resulting from an increase in the authorized number of directors or any vacancies on the Board resulting from
death, resignation, disqualification, removal or other cause will be filled solely and exclusively by a majority of the directors then in office, although less than a quorum, or by the sole remaining director and (ii) any director so
elected will hold office until the expiration of the term of office of the director whom he or she has replaced and until his or her successor is elected and qualified, subject to such director’s earlier death, resignation,
disqualification or removal. The amendment is intended to protect the Board from undue influence from potentially self-interested actions by one or a few large stockholders after the Voting Rights Threshold Date.
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Amending Article VI and renumbering such article as Article Seventh to provide that, in addition to any affirmative vote
required by the Proposed Charter, any bylaw that is to be made, altered, amended or repealed by the stockholders of the Company shall receive, at any time (i) prior to the Voting Rights Threshold Date, the affirmative vote of the
holders of at least a majority in voting power of the then outstanding shares of the Company generally entitled to vote, voting together as a single class, and (ii) from and after the Voting Rights Threshold Date, the affirmative vote
of the holders of at least 662∕3% in voting power of the then outstanding shares of stock of the Company generally entitled to vote, voting together as a
single class. The amendment is intended to protect all stockholders against the potential self-interested actions by one or more large stockholders after the Voting Rights Threshold Date. In addition, the LCAP Board believes that
following the Voting Rights Threshold Date, a supermajority voting requirement encourages any person seeking control of the Post-Combination Company to negotiate directly with the Board to reach terms that are appropriate for all
stockholders.
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Amending the prior Article X to provide that the Company will have no interests or expectancy in, or in being offered an
opportunity to participate in, and renounces, to the fullest extent permissible by law, (i) any corporate opportunity with respect to any lines of business, business activity or business venture conducted by the Relevant Persons and
(ii) any corporate opportunity received by, presented to, or originated by, a Relevant Person after the date of the filing of the Proposed Charter with the Secretary of State of the State of Delaware in such Relevant Person’s capacity
as a Relevant Person (and not in his, her or its capacity as a director, officer or employee of the Company). The prior Article X provided that the doctrine of corporate opportunity would not apply to the Company or any of its
officers or directors where it would conflict with any fiduciary duties or contractual obligations, unless it was offered to such person solely in his or her capacity as a director or officer of the Post-Combination Company. The LCAP
Board believes that this change is appropriate to permit the Members, including John H. Ruiz and his affiliates, to continue to operate their respective businesses and such provision was negotiated for specifically by the Members.
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Amending the prior Article XI and renumbering such article as Article Thirteenth to require that, from and after the
Voting Rights Threshold Date, in addition to any affirmative vote required by applicable law, the approval by affirmative vote of the holders of at least 662∕3%
in voting power of the then outstanding shares of the Company generally entitled to vote is required to make any amendment to Article Seventh (Board of Directors) or Article Eighth (Written Consent of Stockholders) of the Proposed
Charter. The LCAP Board believes this amendment protects key provisions of the Proposed Charter from arbitrary amendment and prevents a simple majority of stockholders from taking actions after the Voting Rights Threshold Date that
may be harmful to other stockholders or making changes to provisions that are intended to protect all stockholders.
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Amending the prior Article VII and renumbering such article as Article Eighth to provide that, from and after the Voting
Rights Threshold Date, stockholders may not take action by consent in lieu of a meeting. The amendment is intended to protect the Board from undue influence from potentially self-interested actions by one or a few large stockholders
after the Voting Rights Threshold Date.
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Vote Required for Approval
If the Business Combination Proposal is not approved, the Charter
Approval Proposal will not be presented at the Special Meeting. The approval of the Charter Approval Proposal requires the affirmative vote of (i) the holders of a majority of the Class A Common Stock then outstanding, voting separately as a
single class, (ii) the holders of a majority of the Class B Common Stock then outstanding, voting separately as a single class, and (iii) the holders of a majority of the shares of Class A Common Stock and Class B Common Stock entitled to vote,
voting as a single class. Failure to submit a proxy or to vote in person at the Special Meeting, abstentions, and broker non-votes will have the same effect as a vote “AGAINST” the Charter Approval
Proposal.
The Business Combination is conditioned upon the approval of the
Charter Approval Proposal, subject to the terms of the MIPA. Notwithstanding the approval of the Charter Approval Proposal, if the Business Combination is not consummated for any reason, the actions contemplated by the Charter Approval Proposal
will not be effected. The LCAP Board will abandon the Charter Approval Proposal in the event the Business Combination is not consummated.
A copy of the Proposed Charter, as will be in effect assuming
approval of the Charter Approval Proposal and upon filing with the Secretary of State of the State of Delaware prior to the Closing, is attached to this proxy statement/prospectus as Annex B.
Recommendation of the Board of Directors
THE LCAP BOARD UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE CHARTER APPROVAL PROPOSAL.
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Overview
Our stockholders are also being asked to vote on a separate
proposal with respect to certain governance provisions in the Proposed Charter, which are separately being presented in accordance with SEC guidance and which will be voted upon on a non-binding advisory basis. We believe these provisions are
necessary to adequately address the needs of the Post-Combination Company. Accordingly, regardless of the outcome of the non-binding advisory vote on these proposals, MSP and the Company intend that the Proposed Charter in the form set forth
on Annex B will take effect prior to the Closing, assuming approval of the Charter Approval Proposal.
Proposal No. 4A: Change in Authorized Shares
Description of Amendment
The amendment would (i) increase the Company’s total number of
authorized shares of capital stock from 111,000,000 shares to 8,760,000,000 shares of capital stock, (ii) increase the Company’s authorized Class A Common Stock from 100,000,000 shares to 5,500,000,000 shares of Class A Common Stock,
(iii) create the Class V Common Stock, consisting of 3,250,000,000 authorized shares of Class V Common Stock and (iv) increase the Company’s authorized shares of Preferred Stock from 1,000,000 to 10,000,000 shares of Preferred Stock.
Reasons for the Amendment
The amendment provides for the creation of the Class V Common
Stock, which is required in order to effectuate the closing of the Business Combination. In addition, the increase in the total number of authorized shares provides the Post-Combination Company adequate authorized capital to provide
flexibility for future issuances of shares of common stock if determined by the Board to be in the best interests of the Company, without incurring the risk, delay and potential expense incident to obtaining stockholder approval for a
particular issuance.
Proposal No. 4B: Dual-Class Stock
Description of Amendment
The amendment provides for a capital structure with two classes
of common stock and pursuant to which, subject to applicable law and the rights, if any, of the holders of any outstanding series of Preferred Stock, the holders of outstanding shares of common stock of the Company will vote together as a
single class on all matters with respect to which stockholders of the Company are entitled to vote under applicable law, the Proposed Charter or the Amended and Restated Bylaws, or upon which a vote of the stockholders generally entitled to
vote is otherwise duly called for by the Company; provided, however, that except as may otherwise be required by applicable law, each holder of outstanding shares of common stock of the Company will not be entitled to vote on any amendment to
the Proposed Charter that relates solely to the terms of one or more outstanding series of Preferred Stock (including, without limitation, the powers (including voting powers), if any, preferences and relative, participating, optional,
special or other rights, if any, and the qualifications, limitations and restrictions, if any, of such series of Preferred Stock), if the holders of such affected series are entitled, either voting separately as a single class or together as
a class with the holders of any other outstanding series of Preferred Stock, to vote thereon pursuant to the Proposed Charter or the DGCL. In each such vote, the holders of Class A Common Stock and holders of Class V Common Stock will be
entitled to one vote per share of Class A Common Stock or Class V Common Stock, respectively, including the election of directors and significant corporate transactions (such as a merger or other sale of the Company or its assets).
Reasons for the Amendment
The amendment is intended to align the Post-Combination
Company’s capital structure with that of Opco and enables the Members, including John H. Ruiz and Frank C. Quesada, to maintain their leadership of the Post-Combination Company and execute on the Post-Combination Company’s long-term strategy
while helping alleviate short-term market pressure on the Post-Combination Company.
Proposal No. 4C: Removal of Directors
Description of Amendment
The amendment provides that until any time prior to the Voting
Rights Threshold Date, any director of the Board elected by the stockholders generally entitled to vote may be removed with or without cause by a simple majority voting
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together as a single class and, any time from and after the Voting Rights
Threshold Date, any such director may be removed only for cause and only by the affirmative vote of the holders of at least 662∕3% of the voting power of all of the
then outstanding shares of the Company generally entitled to vote thereon, voting together as a single class.
Reasons for the Amendment
The amendment is intended to protect all stockholders against the
potential self-interested actions by one or a few large stockholders after the Voting Rights Threshold Date by changing the standard for removal of a director after the Voting Rights Threshold Date to solely for cause.
Proposal No. 4D: Required Stockholder Vote to
Amend Certain Sections of the Proposed Charter
Description of Amendment
This amendment provides that, from and after the Voting Rights
Threshold Date, in addition to any affirmative vote required by applicable law, the approval by affirmative vote of the holders of at least 662∕3% in voting power of
the then outstanding shares of the Company generally entitled to vote is required to make any amendment to Article Seventh (Board of Directors) or Article Eighth (Written Consent of Stockholders) of the Proposed Charter.
Reasons for the Amendment
The LCAP Board believes this amendment protects key provisions of
the Proposed Charter from arbitrary amendment and prevents a simple majority of stockholders from taking actions after the Voting Rights Threshold Date that may be harmful to other stockholders or making changes to provisions that are intended
to protect all stockholders.
Proposal No. 4E: Required Stockholder Vote to
Amend the Amended and Restated Bylaws
Description of Amendment
This amendment provides that, in addition to any affirmative
vote required by the Proposed Charter, any bylaw that is to be made, altered, amended or repealed by the stockholders of the Company shall receive, at any time (i) prior to the Voting Rights Threshold Date, the affirmative vote of the holders
of at least a majority in voting power of the then outstanding shares of the Company generally entitled to vote, voting together as a single class, and (ii) from and after the Voting Rights Threshold Date, the affirmative vote of the holders
of at least 662∕3% in voting power of the then outstanding shares of stock of the Company generally entitled to vote, voting together as a single class.
Reasons for the Amendment
The amendment is intended to protect all stockholders against the
potential self-interested actions by one or more large stockholders after the Voting Rights Threshold Date. In addition, the LCAP Board believes that following the Voting Rights Threshold Date, a supermajority voting requirement encourages any
person seeking control of the Post-Combination Company to negotiate directly with the Board to reach terms that are appropriate for all stockholders.
Vote Required for Approval
If the Business Combination Proposal is not approved, the
Non-Binding Governance Proposals will not be presented at the Special Meeting. The approval of the Non-Binding Governance Proposals requires the affirmative vote of a majority of the votes cast by the
holders of Class A Common Stock and Class B Common Stock, voting as a single class, present in person or represented by proxy at the Special Meeting.
Failure to submit a proxy or to vote in person at the Special
Meeting, abstentions and broker non-votes will have no effect on the Non-Binding Governance Proposals.
The Business Combination is not conditioned upon the approval of the
Non-Binding Governance Proposals.
As discussed above, a vote to approve the Non-Binding
Governance Proposals is an advisory vote, and therefore, is not binding on the Company or MSP. Accordingly, regardless of the outcome of the non-binding advisory vote, the Company and MSP intend that the Proposed Charter, in the form set
forth on Annex B and containing the provisions noted above, will take effect prior to the Closing, assuming approval of the Charter Approval Proposal.
Recommendation of the Board of Directors
THE LCAP BOARD UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE NON-BINDING GOVERNANCE PROPOSALS.
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Overview
Assuming the Business Combination Proposal, the Nasdaq Proposal
and the Charter Approval Proposal are approved at the Special Meeting, stockholders are being asked to elect seven directors to the Board, effective upon the Closing, with each Class I director having a term that expires at the
Post-Combination Company’s first annual meeting of stockholders, each Class II director having a term that expires at the Post-Combination Company’s second annual meeting of stockholders, and each Class III director having a term that expires
at the Post-Combination Company’s third annual meeting of stockholders, or, in each case, until their respective successors are duly elected and qualified, or until their earlier resignation, removal or death. The election of these directors
is contingent upon approval of the Business Combination Proposal, the Charter Approval Proposal and the Nasdaq Proposal, and completion of the Business Combination.
Our board of directors will be staggered in three classes, with
[•] and [•] as the Class I directors, [•] and [•] as the Class II directors and Ophir Sternberg, John H. Ruiz and Frank C. Quesada as the Class III directors. The following sets forth information regarding each nominee:
Thomas Hawkins. Thomas Hawkins has served as a member of the LCAP Board since 2021. He has completed hundreds of transactions including acquisitions of publicly traded and private companies, financings, divestitures, complex
joint ventures and partnerships resulting in significant positive financial impact for investors. With experience in multiple industry verticals, Mr. Hawkins has served on boards, board committees and as board secretary in
public and private corporations, advising boards on sophisticated transactions, risk and crisis management in highly regulated industries and developing corporate governance infrastructure. Mr. Hawkins helped develop the legal
division of Blockbuster, beginning his tenure there when there were only 23 stores, and was promoted to General Counsel early in his tenure. As General Counsel, he led the $8.5 billion sale to Viacom in 1994, with 5500 stores
in 14 countries, and other film, production and distribution businesses, and the related tender for Paramount Communications. Mr. Hawkins also helped build the Corporate Development department at AutoNation that delivered
over 300 transactions, $5 billion in acquisitions, and grew into the largest publicly traded automotive retailer. Acquisitions formed AutoNation’s dealer network and subsequent spin off companies including ANC Rental Corp.,
owner of National Car Rental and Alamo Car Rental, and Republic Services, a solid waste company. Mr. Hawkins also drove strategic alignment as member of the executive leadership team for Mednax Health, a high growth, high
margin healthcare company which experienced a 500% + market cap increase and 300% increase in revenue over 9 years, and Mr. Hawkins also initiated the Government Relations function for this highly regulated business and
partnered in the launch of new service lines to fuel additional growth. In 2020, Mr. Hawkins served on the board of directors of a newly established private equity management company providing oversight for businesses engaged
in the automotive retail, healthcare, technology enabled services and waste management industries. Mr. Hawkins currently serves on the board of directors of the Alumni Association of the University of Michigan and Jumptuit
Inc., a data analytics technology company. Mr. Hawkins also serves on the board of directors of Lionheart III and Lionheart IV. Mr. Hawkins received his Juris Doctor from Northwestern University in 1986 and his A.B. in Political
Science from the University of Michigan in 1983. Mr. Hawkins is qualified to serve as a director due to his previous board and committee service across multiple industries.
Roger Meltzer, Esq. Roger Meltzer has served as a member of the LCAP Board since 2021. Mr. Meltzer has practiced law at DLA Piper LLP since 2007 and has held various roles: Global Co-Chairman, since 2015, and currently
as Chairman Emeritus; Americas Co-Chairman, since 2013; Member, Office of the Chair, since 2011; Member, Global Board, since 2008; Co-Chairman, U.S. Executive Committee, since 2013; Member, U.S. Executive Committee, since
2007; and Global Co-Chairman, Corporate Finance Practice, 2007 through 2015. Prior to joining DLA Piper LLP, Mr. Meltzer practiced law at Cahill Gordon & Reindel LLP from 1977 through 2007 where he was a member of the
Executive Committee from 1987 through 2007, Co-Administrative Partner and Hiring Partner from 1987 through 1999, and Partner from 1984 through 2007. Mr. Meltzer currently serves on the Advisory Board of Harvard Law School
Center on the Legal Profession (May 2015—Present); Board of Trustees, New York University Law School (September 2011—Present); and the Corporate Advisory Board, John Hopkins, Carey Business School (January 2009—December
2012). He has previously served on the board of directors of: The Legal Aid Society (November 2013 to January 2020), Hain Celestial Group, Inc. (December 2000 to February 2020) and The Coinmach Service Corporation (December
2009 to June 2013). Mr. Meltzer has also received several awards and honors and has been actively involved in philanthropic activity throughout his career. Mr. Meltzer received Juris Doctor degree in law from New York
University School of Law and an A.B. from Harvard College. In December 2021, Mr. Meltzer
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joined the board of directors of certain subsidiaries of Nordic Aviation
Capital, an international aircraft leasing company that filed for chapter 11 bankruptcy earlier in December of 2021. In February 2021, Mr. Meltzer joined the board of directors and the audit committee of Haymaker Acquisition Corp. III
(NASDAQ: HYAC) (“HYAC”), a special purpose acquisition corporation, and Ubicquia LLC, a privately-held smart lighting solutions provider. Mr. Meltzer also serves on the board of directors of Lionheart III and Lionheart IV. Mr. Meltzer is
qualified to serve as a director due to his experience representing clients on highprofile, complex, and cross-border matters and his leadership qualities.
Beatriz Assapimonwait. Beatriz (Betty) Assapimonwait has over 38 years of experience in the managed health care industry. Ms. Assapimonwait was, up until August 2021, Regional President for the South Florida region at Humana
Inc. (NYSE:HUM), one of the largest private insurance health insurers in the U.S. with a focus on administering Medicare Advantage plans. In her role at Humana, Inc., Ms. Assapimonwait was responsible for developing market
strategies and leading all market operations for all Medicare lines of business, including HMOs and PPOs for the South Florida region. Prior to her role at Humana, she served as CEO of Family Physicians of Winter Park, Inc.,
until its acquisition by Humana, Inc., where from December 2016 to July 2019, she led the strategic and operational efforts of a global risk MSO with 22 primary clinics in the Central Florida Region. Additionally, she served
as the Vice President of Medicare Advantage Prescription Drug Plans at Aetna, Inc. from November 2014 to November 2016; Chief Operations Officer at Innovacare Health, from January 2014 to October 2014; Founder and President
of Seven Stars Quality Healthcare, from July 2013 to December 2013; and Regional President for the North Florida region at Humana, Inc., from January 2009 to June 2013. Ms. Assapimonwait was appointed to serve on the board
of directors of CareMax Inc. (Nasdaq:CMAX) in September 2021 and also serves as the Chair of the Strategy and Operations Committee since September 2021. She earned her Bachelor of Arts degree from Florida International University
in 1983, and is certified in Healthcare Compliance by the Health Care Compliance Association and in HIPAA Compliance from Kennesaw State University. She has won several awards and commendations, including being a Stevie
Award Finalist of the American Business Awards for Best Customer Service Organization in 2004 and appointed Preceptor and Clinical Adjunct Faculty for the Healthcare Administration Program in 1997 at the University of
Houston-Clear Lake.
Michael F. Arrigo. Michael Arrigo is a co-founder and the chief executive officer of No World Borders, Inc., a healthcare data, regulations, and economics firm with clients in the pharmaceutical, medical device,
hospital, surgical center, physician group, diagnostic imaging, laboratory and genetic testing, health information technology and health insurance markets. In his role at No World Borders, Inc., Mr. Arrigo advises MAOs who
provide health insurance under Part C of the Medicare Act and serves as an expert witness regarding medical coding and medical billing, fraud damages, HIPAA privacy, and Electronic Health Record software. Prior to his
current role, Mr. Arrigo served as Vice President at First American Financial (NYSE: FAF) from October 2002 to February 2007, overseeing eCommerce and regulatory compliance technology initiatives for top mortgage banks; Vice
President of Fidelity National Financial (NYSE: FNF) from 2002 to 2003; chief executive officer of one of the first cloud-based billing software companies, Erogo, from 2000 to 2002; Vice President of Marketing for an email
encryption and security software company until its acquisition by a company that merged into Axway Software SA (Euronext: AXW.PA) from 1999 to 2000; CEO of LeadersOnline, an online recruiting venture of Heidrick &
Struggles from 1997 to 1999; management consultant to Hewlett Packard, Oracle and Symantec from 1994 to 1997; Vice President of Marketing for a software company acquired by a company that merged into Cincom Systems from 1992
to 1994; Product Manager at Ashton-Tate from 1987 to 1992 responsible for database software products including Microsoft / Sybase SQL Server. Mr. Arrigo earned his Bachelor of Science in Business Administration from the
University of Southern California in 1981. His post-graduate studies include biomedical ethics at Harvard Medical School, biomedical informatics at Stanford Medical School, blockchain and crypto economics at the
Massachusetts Institute of Technology, and training as a Certified Professional Medical Auditor (CPMA).
John H. Ruiz.
John Ruiz is a founder of MSP Recovery and has served as President and Chief Executive Officer since MSP’s inception. Mr. Ruiz was named one of Lawyers of Distinction’s “2020 Power Lawyers”, for his accomplishments in healthcare law. He was
also named “2019’s DBR Florida Trailblazer”, for his work in integrating data analytics into the practice of law, and for its positive impact on healthcare recoveries across the mainland U.S. and Puerto Rico. Over the course of his 30-year
legal career, Mr. Ruiz has gained national recognition in class action, mass tort litigation, MDL consolidated cases, medical malpractice, products liability, personal injury, real estate, and aviation disaster cases. Recently, Mr. Ruiz led
the legal strategy in the landmark victory handed down by the U.S. Court of Appeals for the Eleventh Circuit, in MSP Recovery Claims Series v. Ace American (11th Circuit). In addition, he has certified more than 100 class actions and led
MSP’s participation in Humana v. Western Heritage (11th Cir), MSP Recovery v. Allstate
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(11th Cir.), and MSPA Claims 1, LLC v. Kingsway Amigo Ins. Co. (11th Cir.).
Mr. Ruiz has been involved as counsel in cases that have totaled more than $20 billion in settlements. These class actions resulted in some of the largest awards in Florida against major insurance companies. In total, Mr. Ruiz has certified
class actions against major car insurers in the State of Florida, resulting in the current and potential redistribution of billions of dollars in improperly paid claims spanning a period of more than 10 years. Starting as early as 1996,
Mr. Ruiz filed class-action lawsuits on behalf of more than 30,000 Miami-Dade County residents against the Florida Department of Agriculture for trespassing onto the private properties of homeowners and chopping down their citrus trees without
any compensation. The case was ultimately certified and the Department of Agriculture directly compensated all members of the aggrieved class. In 2001, Mr. Ruiz represented consumers in a class action lawsuit against Firestone that resulted in
dozens of fatalities and thousands of serious blowouts. Mr. Ruiz was also hired as local counsel by numerous out of state law firms that had pending cases in Florida courts. The cases in aggregate settled for more than 30 million dollars.
Mr. Ruiz also represented the families of crash victims in a wrongful death suit against Chalk’s International Ocean Airway. Mr. Ruiz was the first lawyer to file a limited fund class action. The case settled for a confidential agreed amount.
Mr. Ruiz is licensed to practice before the Court of Appeals for the Fourth Circuit, the US Court of Appeals for the Second Circuit, the US Court of Appeals for the Third Circuit, and the Florida Supreme Court. Mr. Ruiz has a proven track
record of leadership, business entrepreneurship, and IT innovation. Mr. Ruiz is qualified to serve as a director due to his extensive experience as a founder of MSP Recovery and as an executive, as well as his experience in the legal industry.
Frank C. Quesada. Frank C. Quesada is a founding member of MSP Recovery and has served as the Chief Legal Officer since its inception. Mr. Quesada is also a Partner at MSP Recovery Law Firm. With over 15 years of healthcare and complex commercial
litigation experience, Mr. Quesada oversees MSP’s in-house attorneys and several nationally recognized law firms that assist the MSP Recovery Law Firm in their efforts. Additionally, he develops MSP’s legal strategies and spearheads
execution. Notably, Mr. Quesada led the execution of federal appellate strategies in MSP cases resulting in landmark legal victories and new Medicare Secondary Payer Act precedent benefitting Medicare entities across the country. These legal
victories include MSP Recovery v. Allstate (11th Circuit), MSPA Claims 1 v. Tenet (11th Circuit), MSPA Claims 1 v. Kingsway Amigo (11th Circuit), and MSP Recovery Claims Series v. Ace American (11th Circuit). Mr. Quesada currently serves on
the Board of Directors of USA Water Polo, Inc. Mr. Quesada is qualified to serve as a director due to his extensive experience in as a founder of MSP Recovery, his prior board experience, and his experience in the legal industry.
Ophir Sternberg, Ophir Sternberg has been the Chairman, President and Chief Executive Officer of the Company since inception, has over 28 years of experience acquiring, developing, repositioning and investing in all segments of the real estate
industry, including office, industrial, retail, hospitality, ultra-luxury residential condominiums and land acquisitions. Mr. Sternberg is the Founder and Chief Executive Officer of Miami-based Lionheart Capital, founded in 2010.
Mr. Sternberg began his career assembling, acquiring and developing properties in emerging neighborhoods in New York City, which established his reputation for identifying assets with unrealized potential and combining innovative partnerships
with efficient financing structures to realize above average returns. Mr. Sternberg came to the United States in 1993 after completing three years of military service within an elite combat unit for the Israeli Defense Forces. Under
Mr. Sternberg’s leadership, Lionheart Capital executed numerous prominent real estate transactions and repositions, including The Ritz-Carlton Residences in Miami Beach, which resulted in a total sell-out value in excess of $550 million, as
well as purchase of the development’s site, the former Miami Heart Institute. Additionally, Mr. Sternberg led the $120 million sale of The Seagull Hotel, making it the highest grossing hotel sale of 2020 in Miami Beach. Mr. Sternberg and
Lionheart Capital are currently in development on a number of other projects, including retail properties in Miami’s fashion and culture epicenter, The Design District. In addition to The Ritz-Carlton Residences, Miami Beach, Lionheart
Capital also developed The Ritz-Carlton Residences Singer Island, Palm Beach, cementing a reputation for developing high-end luxury branded properties. In 2017, Mr. Sternberg founded Out of the Box Ventures, LLC, a Lionheart Capital
subsidiary, to acquire and reposition distressed retail properties throughout the United States. With 19 properties in 14 states, Out of the Box Ventures currently controls over 5 million square feet of big box stores, shopping centers and
enclosed regional mall properties with plans to improve and expand upon these acquisitions. Mr. Sternberg and Lionheart Capital are dedicated to working with best-in-class operators and partners such as Marriot International. Lionheart
Capital has been able to execute numerous, marquee transactions due largely in part to Mr. Sternberg’s extensive industry relationships particularly with key institutional investors. In March 2020, Mr. Sternberg became Chairman of
Nasdaq-listed OPES, which on June 30, 2020, announced a definitive agreement to merge with BurgerFi International LLC. The OPES-BurgerFi merger closed on December 16, 2020 to form BurgerFi International Inc.
(“BurgerFi”), a fast-causal “better burger” concept that consists
of approximately 120 restaurants nationally and internationally. Mr. Sternberg is the Chairman of the post-combination Nasdaq-listed company, BurgerFi
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(NASDAQ: BFI). The OPES team, led by Mr. Sternberg, evaluated over 50 potential
targets and negotiated business combination terms with multiple candidates in a span of a few months and acquired BurgerFi at what it believed was an attractive multiple relative to its peers. Mr. Sternberg is also the Chairman, President and
Chief Executive Officer of Lionheart III Corp and Lionheart IV Corp, SPACs that will seek to acquire a broad range of businesses. Mr. Sternberg is qualified to serve as a director due to his extensive experience in acquiring, developing,
repositioning and investing in all segments of the real estate industry.
Vote Required for Approval
If a quorum is present, directors are elected by a plurality of
the votes cast by the holders of Class A Common Stock and Class B Common Stock, present in person or represented by proxy, voting as a single class. This means that the director nominees who receive the most affirmative votes will be elected.
Stockholders may not cumulate their votes with respect to the election of directors. Votes marked “FOR” a nominee will be counted in favor of that nominee. Proxies will have full discretion to cast votes
for other persons in the event any nominee is unable to serve. Failure to submit a proxy or to vote in person at the Special Meeting, withheld votes and broker non-votes will have no effect on the vote.
The Business Combination is conditioned upon the approval of the
Director Election Proposal, subject to the terms of the MIPA. Notwithstanding the approval of each of the seven director nominees to the Board in the Director Election Proposal, if the Business Combination is not consummated for any reason, the
actions contemplated by the Director Election Proposal will not be effected.
Recommendation of the Board of Directors
THE LCAP BOARD UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE “FOR” THE ELECTION OF EACH OF THE DIRECTOR NOMINEES TO THE BOARD OF DIRECTORS IN THE DIRECTOR ELECTION PROPOSAL.
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Overview
At the Special Meeting, holders of common stock will be asked to
approve the MSP Recovery, Inc. 2022 Omnibus Incentive Plan, a copy of which is attached hereto as Annex J. On , 2022, the LCAP Board approved the Incentive Plan. The Incentive Plan will become
effective, if at all, as of and upon Closing, and subject to approval by Company stockholders. If the Incentive Plan is not approved by the Company stockholders, or if the MIPA is terminated prior to the consummation of the Business
Combination, the Incentive Plan will not become effective.
Neither MSP nor the Company currently maintains any equity incentive
plans.
The Incentive Plan is described in more detail below.
The Incentive Plan
The purpose of the Incentive Plan is to enhance our ability to
attract, retain and motivate persons who make (or are expected to make) important contributions to the Post-Combination Company by providing these individuals with equity ownership opportunities and/or equity-linked compensatory opportunities.
Equity awards and equity-linked compensatory opportunities align the interests of directors, employees and consultants with those of stockholders by giving the directors, employees and consultants the perspective of an owner with an equity or
equity-linked stake in the Post-Combination Company and providing a means of recognizing their contributions to our success. The LCAP Board believes that equity awards are necessary for the Company to remain competitive in its industry and are
essential to recruiting and retaining highly qualified employees.
Requested Share Authorization
The Incentive Plan authorizes the Post-Combination Company’s
Committee (for purposes of this summary, the term “Committee” will refer to either such duly appointed committee or the Board) to provide incentive compensation in the form of stock options, stock appreciation rights (“SARs”), restricted stock,
restricted stock units (“RSUs”), performance shares and units and other stock awards. Under the Incentive Plan, we initially will be authorized to issue up to 98,736,750 shares of the Post-Combination Company’s Class A Common Stock.
Summary of the Incentive Plan
This section summarizes certain principal features of the
Incentive Plan. The summary is qualified in its entirety by reference to the complete text of the Incentive Plan, a copy of which is attached as Annex J to this proxy statement/prospectus. We urge our
stockholders to carefully read the entire Incentive Plan before voting on this proposal.
General.
The purpose of the Incentive Plan is to advance the interests of
the Company and its stockholders by providing an incentive program that will enable the Post-Combination Company to attract, retain and motivate employees, consultants and directors and to provide them with an equity interest in the performance
of the Company. These incentives are provided through the grant of stock options, SARs, restricted stock, RSUs, performance shares, performance units and other stock awards.
Authorized Shares.
Subject to the adjustment provisions in the Incentive Plan, the
initial maximum aggregate number of shares authorized for issuance under the Incentive Plan is 98,736,750 shares of Class A Common Stock, and such shares will consist of authorized but unissued or treasury or reacquired shares or any
combination thereof. We refer to the aggregate number of shares available for awards under the Incentive Plan as the “share reserve.” The aggregate number of shares that may be issued pursuant to awards
will be subject to an annual increase on January 1 of each calendar year (commencing with January 1, 2023 and ending on and including January 1, 2031) equal to the lesser of (i) a number of shares equal to 3% of the total number of shares
actually issued and outstanding on the last day
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of the preceding fiscal year or (ii) a number of shares as determined by the
Board. The maximum number of shares in the share reserve, without taking into account any automatic increase, are available for awards of incentive stock options. The share reserve is subject to adjustment by the plan administrator in the event
of certain changes in our corporate structure, as described below.
Share Counting.
Each share made subject to an award will reduce the number of
shares remaining available for grant under the Incentive Plan by one share. If any award granted under the Incentive Plan expires or is otherwise terminated, exchanged, surrendered, forfeited or is cancelled for any reason without having been
exercised or settled in full. If the exercise price of a stock option is paid by attestation of ownership of shares or by means of a net exercise, then such number of shares shall again be made available for issuance under the Incentive Plan.
Upon payment in shares of stock pursuant to the exercise of stock appreciation rights, the number of shares available for issuance under the Incentive Plan will be reduced only by the number of shares actually issued in such payment. Shares
will not be treated as having been issued under the Incentive Plan and will therefore not reduce the number of shares available for issuance to the extent an award is settled in cash or to the extent that shares are withheld or reacquired by
the Post-Combination Company in satisfaction of tax withholding obligations. The payment of dividend equivalents in cash in conjunction with any outstanding award will not reduce the share reserve.
Adjustments for Capital Structure Changes.
Appropriate and equitable adjustments will be made to (i) the
number of shares authorized under the Incentive Plan, (ii) the number and kind of shares subject to outstanding awards or (iii) the exercise, base or purchase price or other value determinations of outstanding awards in the event of any change
in our common stock through merger, consolidation, reorganization, recapitalization, reclassification, stock dividend, extraordinary cash dividend, stock split, reverse stock split, spin-off, combination of shares, or other corporate event or
transaction or other change affecting the common stock, or if we make a distribution to our stockholders in a form other than our common stock (excluding regular, cash dividends). In such circumstances, the Committee also has the discretion
under the Incentive Plan to adjust other terms of outstanding awards as it deems appropriate.
Nonemployee Director Award Limits.
The aggregate grant date fair value (determined as of the date of
grant in accordance with GAAP) of all awards granted under the Incentive Plan to any non-employee director during each calendar year, taken together with any cash compensation paid to such non-employee director for service as a non-employee
director during such calendar year, will not exceed $500,000.
Administration.
The Incentive Plan generally will be administered by the
Committee, although the Board retains the right to administer the Incentive Plan directly. The Committee may delegate to one or more of the Post-Combination Company’s officers the authority to grant awards to persons who are not officers or
directors, subject to certain limitations contained in the Incentive Plan and award guidelines established by the committee. Subject to the provisions of the Incentive Plan, the Committee has the power and discretion necessary to administer the
Incentive Plan, with such powers including, but not limited to, the authority to select the persons to whom and the times at which awards are granted, determine the types and sizes of awards, determine the conditions and restrictions, if any,
subject to which such awards will be made, modify the terms of awards, accelerate the vesting of awards, and make determinations regarding a participant’s termination of employment or service for purposes of an award, and all of their terms and
conditions. The Committee will interpret the Incentive Plan and awards granted thereunder, and all interpretations and actions of the Committee will be final and binding on all persons having an interest in the Incentive Plan or any award.
All awards granted under the Incentive Plan will be evidenced by a
written or digitally signed agreement between the Post-Combination Company and the participant specifying the terms and conditions of the award, consistent with the requirements of the Incentive Plan.
Prohibition of Option and SAR Repricing.
The Incentive Plan expressly provides that, without the approval
of a majority of the votes cast in person or by proxy at a meeting of the Post-Combination Company’s stockholders, the Committee may not provide for any of the following with respect to underwater options or stock appreciation rights: (1) the
cancellation of such outstanding
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options or stock appreciation rights in exchange for cash, the grant of a new
award or options or stock appreciation rights with a lower exercise price or base price, (2) the amendment of outstanding options or stock appreciation rights to reduce the exercise price or base price or (3) any action with respect to a stock
option that would be treated as a “repricing” under the then applicable rules, regulations or listing requirements of the stock exchange on which common stock are listed, other than in connection with a change in control.
Eligibility.
Awards may be granted to officers, employees, non-employee
directors or any natural person who is a consultant or other personal service provider of the Post-Combination Company or any present or future parent or subsidiary corporation of the Post-Combination Company at the Committee’s discretion. In
its determination of eligible participants, the Committee may consider any and all factors it considers relevant or appropriate, and designation of a participant in any year does not require the Committee to designate that person to receive
an award in any other year. Incentive stock options may be granted only to employees who, as of the time of grant, are employees of the Post-Combination Company or any parent or subsidiary corporation of the Post-Combination Company.
Following the Closing, the Post-Combination Company is expected to have approximately 105 employees, 5 non-employee directors and 43 other service providers who are natural persons, who may be eligible to receive awards under the Incentive
Plan.
Stock Options.
The Committee may grant nonstatutory stock options, incentive
stock options within the meaning of Section 422 of the Code, or any combination of these. The exercise price of each option may not be less than the fair market value of a share of Class A Common Stock on the date of grant.
The Incentive Plan provides that the option exercise price may be
paid (i) in cash or cash equivalent acceptable to the Committee; (ii) to the extent permitted by the Committee, (A) by means of a broker-assisted cashless exercise; (B) to the extent legally permitted, by tender to the Post-Combination Company
of shares of Class A Common Stock owned by the participant having a fair market value not less than the exercise price; (C) by reducing the number of shares of Class A Common Stock otherwise deliverable upon exercise; (iii) by such other
consideration as approved by the Committee; or (iv) by any combination of these.
Options will become vested and exercisable at such times or upon
such events and subject to such terms, conditions, performance criteria or restrictions as specified by the Committee. The maximum term of any option granted under the Incentive Plan is ten years, provided that an incentive stock option granted
to a person who at the time of grant owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Post-Combination Company or any parent or subsidiary corporation of the Company must have a term not
exceeding five years.
Stock options are nontransferable except in limited circumstances.
Stock Appreciation Rights.
The Committee may grant stock appreciation rights (“SARs”) under
the Incentive Plan. A SAR may be granted on a basis that allows for the exercise of the right by the Participant, or that provides for the automatic exercise or payment of the right upon a specified date or event. The base price of each stock
appreciation right may not be less than the fair market value of a share of our common stock on the date of grant.
The Committee will determine the requirements for vesting and
exercisability of the SARs, which may be based on the continued employment or service of the participant with the Post-Combination Company for a specified time period or upon the attainment of specific performance goals. The SARs may be
terminated prior to the end of the term (with a maximum term of ten years) upon termination of employment or service, as determined by the Committee.
Upon the exercise of any stock appreciation right, the participant
is entitled to receive an amount equal to the excess of the fair market value of the underlying shares of Class A Common Stock as to which the right is exercised over the aggregate base price for such shares. At the Committee’s discretion,
payment of this amount upon the exercise of a stock appreciation right may be made in cash, shares of Class A Common Stock, or in a combination of shares of Class A Common Stock and cash as set forth in the applicable award agreement. The
maximum term of any stock appreciation right granted under the Incentive Plan is ten years.
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SARs are nontransferable, except in limited circumstances.
Restricted Stock Awards.
A restricted stock award is a grant of a specified number of
shares of Class A Common Stock to a participant, for which restrictions will lapse upon the terms that the Committee determines at the time of grant. The Committee will determine the requirements for the lapse of the restrictions for the
restricted stock awards, which may be based on the service of the participant for a specified time period or the attainment of one or more performance goals. Participants holding restricted stock awards will have the rights of a stockholder and
to receive all dividends and other distributions with respect thereto, unless the Committee determines otherwise to the extent permitted under applicable law. If a participant has the right to receive dividends paid with respect to a restricted
stock award, such dividends shall not be paid to the participant until the underlying award vests. Any shares granted under a restricted stock award are nontransferable, except in limited circumstances. A participant may make an election under
Section 83(b) of the Code for tax planning purposes.
Restricted Stock Units.
The Committee may grant RSUs under the Incentive Plan, which
represent rights to receive, upon vesting and settlement of the RSUs, shares of Class A Common Stock or, if determined by the Committee in the award agreement, a cash payment equal to the fair market value thereof at a future date, or a
combination thereof, at the discretion of the Committee. The Committee will determine the requirements for vesting and payment of the RSUs, which may be based on the service of the participant for a specified time period or the attainment of
one or more performance goals. Participants have no rights as a stockholder with respect to RSUs until shares of Class A Common Stock are issued in settlement of such awards. However, the Committee may grant RSUs that entitle their holders to
dividend equivalent rights. Dividend equivalent rights are subject to the same vesting conditions and settlement terms as the original award and are not paid until the award vests. Unless otherwise provided by the Committee, a participant will
forfeit any RSUs which have not vested prior to the participant’s termination of service.
RSUs are nontransferable, except in limited circumstances.
Performance Awards.
The Committee will be authorized to grant performance-based awards
that are earned subject to the achievement of set performance goals or criteria. The Committee may adjust performance goals, or the manner of measurement thereof, as it deems appropriate.
Stock Awards.
The Committee may grant an award of, or an award that is valued by
reference to, Class A Common Stock in such amounts and subject to such terms and conditions as the Committee determines. A stock award may be granted for past employment or service, in lieu of bonus or other cash compensation, as director’s
compensation or any other valid purpose as determined by the Committee. Such awards may be subject to vesting conditions based on continued performance of service or subject to the attainment of one or more performance goals, with the
possibility that awards may be made with no vesting requirements. The Committee may, in connection with any stock award, require the payment of a specified purchase price. Upon the issuance of shares of Class A Common Stock under a stock award,
the participant will have all rights of a stockholder with respect to shares of Class A Common Stock, including the right to vote and receive dividends (which are subject to the same vesting terms as the stock award).
Change in Control.
If there is a Change in Control (as defined in the Incentive
Plan), all outstanding awards shall either be (a) continued or assumed by the surviving company or its parent or (b) substituted by the surviving company or its parent for awards, with substantially similar terms (with appropriate adjustments
to the type of consideration payable upon settlement, including conversion into the right to receive securities, cash or a combination of both, and with appropriate adjustment of performance conditions or deemed achievement of such conditions
(i) for any completed performance period, based on actual performance, or (ii) for any partial or future performance period, at the greater of the target level or actual performance, unless otherwise provided in an award agreement).
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Only to the extent that outstanding awards are not continued,
assumed or substituted upon or following a change in control, the Committee may, but is not obligated to, make adjustments to the terms and conditions of outstanding awards, including without limitation (i) acceleration of exercisability,
vesting and/or payment immediately prior to, upon or following such event, (ii) upon written notice, provided that any outstanding stock option and SAR must be exercised during a period of time immediately prior to such event or other period
(contingent upon the consummation of such event), and at the end of such period, such stock options and SARs shall terminate to the extent not so exercised, and (iii) cancellation of all or any portion of outstanding awards for fair value (in
the form of cash, shares, other property or any combination of such consideration), less any applicable exercise or base price in the case of the options and SARs or similar awards, which fair value may be zero if applicable.
Notwithstanding the foregoing, if a participant’s employment or
service is terminated upon or within 24 months following a change in control by the Post-Combination Company without cause or upon such other circumstances as determined by the Committee, the unvested portion (if any) of all outstanding awards
held by the participant will immediately vest (and, to the extent applicable, become exercisable) and be paid in full upon such termination, with any performance conditions deemed achieved (i) for any completed performance period, based on
actual performance, or (ii) for any partial or future performance period, at the greater of the target level or actual performance, unless otherwise provided in an award agreement.
Assumption of Awards in Connection with an
Acquisition
The Committee may assume or substitute any previously granted
awards of an employee, director or consultant of another corporation who becomes eligible by reason of a corporate transaction. The terms of the assumed award may vary from the terms and conditions otherwise required by the Incentive Plan if
the Committee deems it necessary. The assumed awards will not reduce the total number of shares available for awards under the Incentive Plan, to the extent permitted by applicable law and the listing requirements of the stock exchange on which
common stock are listed.
Amendment, Suspension or Termination.
The Incentive Plan will continue in effect until its termination
by the Committee, provided that no awards may be granted under the Incentive Plan following the tenth anniversary of the Incentive Plan’s effective date, which will be the date on which it is approved by the stockholders. No amendment,
modification suspension or termination of the Incentive Plan may affect any outstanding award unless expressly provided by the Committee, and, in any event, may not have a materially adverse effect an outstanding award without the consent of
the participant subject to changes necessary to comply with any applicable law, regulation or rule, including, but not limited to, Section 409A of the Code. Certain amendments or modifications of the Incentive Plan may also be subject to the
approval of our stockholders as required by the SEC and Nasdaq rules or applicable law.
Termination of Service
Awards under the Incentive Plan may be subject to reduction,
cancellation or forfeiture upon termination of service or failure to meet applicable performance conditions or other vesting terms.
Under the Incentive Plan, unless an award agreement provides
otherwise, if a participant’s employment or service is terminated for cause, or if after termination, the Committee determines that the participant engaged in an act that falls within the definition of cause, or if after termination the
participant engages in conduct that violates any continuing obligation of the participant with respect to the Post-Combination Company, the Post-Combination Company may cancel, forfeit and/or recoup any or all of that participant’s
outstanding awards. In addition, if the Committee makes the determination above, the Post-Combination Company may suspend the participant’s right to exercise any stock option or SAR, receive any payment or vest in any award pending a
determination of whether the act falls within the definition of cause (as defined in the Incentive Plan). If a participant voluntarily terminates employment or service in anticipation of an involuntary termination for cause, that shall be
deemed a termination for cause.
Right of Recapture
Awards granted under the Incentive Plan may be subject to
recoupment in accordance with Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (regarding recoupment of erroneously awarded compensation). The Post-Combination Company has the right to recoup any gain realized by the
participant from the
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exercise, vesting or payment of any award if, within one year after such exercise,
vesting or payment (a) the participant’s service is terminated for cause, (b) if after the participant’s termination the Committee determines that the participant engaged in an act that falls within the definition of cause or materially
violated any continuing obligation of the participant with respect to the Post-Combination Company or (c) the Committee determines the participant is subject to recoupment due to a clawback policy.
Summary of U.S. Federal Income Tax Consequences
The following is only a general summary of the effect of current
U.S. federal income taxation upon participants and the Post-Combination Company with respect to awards under the Incentive Plan. It does not purport to be complete and does not discuss the impact of employment or other tax requirements, the tax
consequences of a participant’s death, or the provisions of the income tax laws of any municipality, state, or foreign country in which the participant may reside. Therefore, no one should rely on this summary for individual tax compliance,
planning or decisions. Participants in the Incentive Plan should consult their own professional tax advisors concerning tax aspects of rights under the Incentive Plan. Nothing in this proxy statement/prospectus is written or intended to be
used, and cannot be used, for the purposes of avoiding taxpayer penalties. This summary is based on the federal tax laws in effect as of the date of this proxy statement/prospectus. Changes to these laws could alter the tax consequences
described below.
Incentive Stock Options.
An optionee recognizes no taxable income for regular income tax
purposes as a result of the grant or exercise of an incentive stock option qualifying under Section 422 of the Code. Optionees who neither dispose of their shares within two years following the date the option was granted nor within one year
following the exercise of the option normally will recognize a capital gain or loss equal to the difference, if any, between the sale price and the purchase price of the shares. If an optionee satisfies such holding periods upon a sale of the
shares, the Post-Combination Company will not be entitled to any deduction for federal income tax purposes. If an optionee disposes of shares within two years after the date of grant or within one year after the date of exercise (a
“disqualifying disposition”), the difference between the fair market value of the shares on the exercise date and the option exercise price (not to exceed the gain realized on the sale if the disposition is a transaction with respect to which a
loss, if sustained, would be recognized) will be taxed as ordinary income at the time of disposition. Any gain in excess of that amount will be a capital gain. If a loss is recognized, there will be no ordinary income, and such loss will be a
capital loss. Any ordinary income recognized by the optionee upon the disqualifying disposition of the shares generally should be deductible by the Post-Combination Company for federal income tax purposes, except to the extent such deduction is
limited by applicable provisions of the Code.
The difference between the option exercise price and the fair
market value of the shares on the exercise date is treated as an adjustment in computing the optionee’s alternative minimum taxable income and may be subject to an alternative minimum tax which is paid if such tax exceeds the regular tax for
the year. Special rules may apply with respect to certain subsequent sales of the shares in a disqualifying disposition, certain basis adjustments for purposes of computing the alternative minimum taxable income on a subsequent sale of the
shares and certain tax credits which may arise with respect to optionees subject to the alternative minimum tax.
Nonqualified Stock Options.
Options not designated or qualifying as incentive stock options
will be nonqualified stock options having no special tax status. An optionee generally recognizes no taxable income as the result of the grant of such an option. Upon exercise of a nonqualified stock option, the optionee normally recognizes
ordinary income equal to the amount by which the fair market value of the shares on such date exceeds the exercise price. If the optionee is an employee, such ordinary income generally is subject to withholding of income and employment taxes.
Upon the sale of shares acquired by the exercise of a nonqualified stock option, any gain or loss, based on the difference between the sale price and the fair market value on the exercise date, will be taxed as capital gain or loss.
Stock Appreciation Rights.
In general, no taxable income is reportable when SARs are granted
to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the fair market value of any cash or shares received. If the participant is an employee, such ordinary income generally is subject to
withholding of income and employment taxes. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.
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Restricted Stock Awards.
A participant acquiring restricted stock generally will recognize
ordinary income equal to the fair market value of the shares on the vesting date. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. The participant may elect, pursuant to
Section 83(b) of the Code, to accelerate the ordinary income tax event to the date of acquisition by filing an election with the IRS no later than 30 days after the date the shares are acquired.
Upon the sale of shares acquired pursuant to a restricted stock
award, any gain or loss, based on the difference between the sale price and the fair market value on the date the ordinary income tax event occurs, will be taxed as capital gain or loss.
Restricted Stock Unit Awards.
There are no immediate tax consequences of receiving an award of
RSUs. A participant who is awarded RSUs will be required to recognize ordinary income in an amount equal to the fair market value of shares issued to such participant at the end of the applicable vesting period or, if later, the settlement date
elected by the Committee or a participant. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Any additional gain or loss recognized upon any later disposition of any
shares received would be capital gain or loss.
Stock-Based Awards.
The tax consequences associated with any other stock-based award
of unrestricted shares or an award that is valued by reference to shares granted under the Incentive Plan will vary depending on the specific terms of the award. A participant acquiring unrestricted shares generally will recognize ordinary
income equal to the fair market value of the shares on the grant date. The factors that will determine the timing and character of the income include whether or not the award has a readily ascertainable fair market value, whether or not the
award is subject to forfeiture provisions or restrictions on transfer, the nature of the property to be received by the participant under the award and the participant’s holding period and tax basis for the award or underlying the common stock.
Section 409A
Section 409A of the Code provides certain requirements for
non-qualified deferred compensation arrangements with respect to an individual’s deferral and distribution elections and permissible distribution events. Certain types of awards granted under the Incentive Plan may be subject to the
requirements of Section 409A. It is intended that the Incentive Plan and all awards comply with, or be exempt from, the requirements of Section 409A. If an award is subject to and fails to satisfy the requirements of Section 409A, the recipient
of that award may recognize ordinary income on the amounts deferred under the award, to the extent vested, which may be prior to when the compensation is actually or constructively received. Also, if an award that is subject to Section 409A
fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on compensation recognized as ordinary income, as well as interest on such deferred compensation.
New Incentive Plan Benefits
Named executive officers and other team members and directors of
the Post-Combination Company or its subsidiaries may receive grants of equity awards following the date of this proxy statement/prospectus; however, the benefits or amounts that may be received or allocated to such participants under the
Incentive Plan are not currently determinable.
Interests of Certain Persons in this Proposal
The Company’s directors and officers may be considered to have an
interest in the approval of the Incentive Plan because they may in the future receive awards under the Incentive Plan (but are not currently expected to do so). Nevertheless, the LCAP Board believes that it is important to provide incentives
and rewards for superior performance and the retention of officers and experienced directors by adopting the Incentive Plan.
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Vote Required for Approval
If the Business Combination Proposal is not approved, the
Incentive Plan Proposal will not be presented at the Special Meeting. The approval of the Incentive Plan Proposal requires the affirmative vote of a majority of the votes cast by the holders of Class A Common Stock and Class B Common Stock,
voting as a single class, present in person or represented by proxy at the Special Meeting. Failure to submit a proxy or to vote in person at the Special Meeting, abstentions, and broker non-votes will have no effect on the Incentive Plan
Proposal.
The Business Combination is conditioned upon the approval of the
Incentive Plan Proposal, subject to the terms of the MIPA. Notwithstanding the approval of the Incentive Plan Proposal, if the Business Combination is not consummated for any reason, the actions contemplated by the Incentive Plan Proposal will
not be effected.
Recommendation of the Board of Directors
THE LCAP BOARD UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE INCENTIVE PLAN PROPOSAL.
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The Adjournment Proposal, if adopted, will allow the LCAP Board to
adjourn the Special Meeting to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies. The Adjournment Proposal will only be presented to our stockholders (A) in the event that any supplement or
amendment to this proxy statement/prospectus that the LCAP Board has determined in good faith is required by applicable law to be disclosed to our stockholders, so that our stockholders have sufficient time to review such supplement or
amendment prior to the Special Meeting, (B) in the event that, as of the time for which the Special Meeting is originally scheduled, there are insufficient shares of common stock represented (either in person or by proxy) to constitute a quorum
necessary to conduct business at the Special Meeting or (C) in the event that there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Nasdaq Proposal, the Charter Approval
Proposal or the Incentive Plan Proposal, but no other proposal if the Business Combination Proposal, the Nasdaq Proposal, the Charter Approval Proposal or the Incentive Plan Proposal are approved.
Consequences if the Adjournment Proposal is not Approved
If the Adjournment Proposal is not approved by our stockholders,
we may not be able to adjourn the Special Meeting to a later date in the event that there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Nasdaq Proposal, the Charter Approval
Proposal, the Incentive Plan Proposal or any other proposal.
Vote Required for Approval
The approval of the Adjournment Proposal requires the affirmative
vote (in person or by proxy) of the holders of a majority of the shares of Class A Common Stock and Class B Common Stock, voting as a single class, entitled to vote and actually cast thereon at the Special Meeting.
Failure to vote by proxy or to vote in person at the Special
Meeting, abstentions and broker non-votes will have no effect on the Adjournment Proposal.
The Business Combination is not conditioned upon the approval of
the Adjournment Proposal.
Recommendation of the Board of Directors
THE LCAP BOARD UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE ADJOURNMENT PROPOSAL.
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In this section “we,” “us,” “our” or the
“Company” refer to the Company prior to the Business Combination and to the Post-Combination Company following the Business Combination.
Introduction
We are a blank check company incorporated on December 23, 2019 as
a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We have neither engaged in any
operations nor generated any revenue to date. Based on our business activities, we are a “shell company” as defined under the Exchange Act, because we have no operations and nominal assets consisting solely of cash and/or cash equivalents.
Our management team has an extensive track record of acquiring attractive assets at disciplined valuations, investing in growth while fostering financial discipline and improving business results.
Company History
On January 10, 2020, the Sponsor purchased an aggregate of
5,000,000 Founder Shares for an aggregate purchase price of $25,000, or approximately $0.005 per share. Subsequently, on February 6, 2020, the Company declared a stock dividend of 0.15 share for each Founder Share outstanding, resulting in the
Sponsor holding an aggregate of 5,750,000 Founder Shares. In July 2020, the Sponsor sold 82,500 Founder Shares to Nomura for a purchase price of approximately $0.005 per share.
On August 18, 2020 (the “IPO Closing Date”), we consummated the
IPO of 23,000,000 of our units, including 3,000,000 Public Units issued pursuant to the full exercise of the underwriters’ over-allotment option (the “Over-Allotment”). Each Public Unit consists of one share of our Class A Common Stock and
one-half of one Public Warrant, which entitles the holder of one whole warrant to purchase one share of our Class A Common Stock at an exercise price of $11.50 per share (subject to adjustment). Our Public Units were sold at a price of $10.00
per Public Unit, generating gross proceeds to us of $230,000,000 after giving effect to the Over-Allotment.
Simultaneously with the consummation of our Public Offering, we
completed the private sale (the “Private Placement”) of an aggregate of 650,000 units to the Sponsor and Nomura at a price of $10.00 per Private Unit, each entitling the holder thereof to purchase one share of our Class A Common Stock at an
exercise price of $11.50 per share, generating gross proceeds to us of $6,500,000. The Private Units are identical to the Public Units sold in our IPO, and the Private Warrants included in the Private Units are identical to the Public Warrants
except that the Private Warrants are non-redeemable and may be exercised on a cashless basis, in each case so long as they continue to be held by the Sponsor, Nomura or their permitted transferees. The sale of the Private Units was made
pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
In connection with the IPO, we entered into a forward purchase
agreement (as amended or modified, the “Forward Purchase Agreement”) with Nomura, which provides for the purchase by Nomura of our Public Shares for an aggregate purchase price of up to $100.0 million through, other than as described below,
open market purchases or privately negotiated transactions with one or more third parties. In lieu of purchasing Public Shares in the open market or privately negotiated transactions, up to $85.0 million of such aggregate purchase price may
instead be in the form of an investment in our equity securities on terms to be mutually agreed between Nomura and us, to occur concurrently with the closing of our initial business combination. The decision to make such an investment in other
equity securities will not reduce the aggregate purchase price. However, Nomura will be excused from its purchase obligation in connection with a specific business combination unless, within five business days following written notice delivered
by us of our intention to enter into such business combination, Nomura notifies us that it has decided to proceed with the purchase in whole or in part. Nomura may decide not to proceed with the purchase for any reason, including, without
limitation, if it has determined that such purchase would constitute a conflict of interest. Nomura will also be restricted from making purchases if they are in possession of any material nonpublic information not disclosed to the seller or if
such purchases are prohibited by Regulation M under the Exchange Act. As of date of this proxy statement/prospectus, Nomura has not purchased any Public Shares pursuant to the Forward Purchase Agreement.
On the IPO Closing Date, $230,000,000 of the gross proceeds from
the IPO and the Private Placement was deposited in the Trust Account with Continental Stock Transfer & Trust Company acting as trustee (the “Trustee”), and on the IPO Closing Date we had $2,039,384 of cash held outside of the Trust Account,
after payment of costs
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related to the IPO, and available for working capital purposes. We incurred
$13,128,937 in transaction costs related to the IPO, including $4,600,000 of underwriting discounts, $8,050,000 of deferred underwriters’ commissions and $478,937 of other offering costs. Approximately $109,469,789 was withdrawn out of the
Trust Account to pay for the 10,946,269 shares of the Company's Class A Common Stock that were redeemed in connection with the Extension Amendment. We currently have approximately $120.5 million remaining in our Trust Account to consummate a
business combination.
Funds held in the Trust Account have been invested only in 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 in any open-ended investment company that holds itself out as a money market fund, selected by the
Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of an initial business combination, (ii) the redemption of any Public Shares properly submitted in
connection with a stockholder vote to amend our Existing Charter (a) to modify the substance or timing of the ability of holders of our Public Shares to seek redemption in connection with a Business Combination or our obligation to redeem
100% of our Public Shares if we do not complete a Business Combination within 18 months from the IPO Closing Date or (b) with respect to any other provision relating to stockholders’ rights or pre-Business Combination activity, and (iii) the
redemption of our Public Shares if we are unable to complete our Business Combination within 18 months from the IPO Closing Date, subject to applicable law.
Redemption Rights for Holders of Public Shares
We are providing our Public Stockholders with the opportunity
to redeem all or a portion of their Public Shares upon the completion of the Business Combination at a per share price, payable in cash, equal to (i) the aggregate amount then on deposit in the Trust Account as of two business days prior to
the Closing, including interest not previously released to us to pay our taxes, divided by (ii) the number of then-outstanding Public Shares, subject to the limitations described herein. The amount in the Trust Account as of December 31, 2021
is anticipated to be approximately $10.00 per Public Share. The Company originally had until February 18, 2022 to complete a business combination. On January 27, 2022, after approval by the Company’s stockholders of the Extension Amendment at
a special meeting of the Company’s stockholders, we filed the Extension Amendment to our Existing Charter with the Secretary of State of the State of Delaware, to extend the date by which we must consummate an initial business combination
from February 18, 2022 to August 18, 2022. In connection with the stockholder vote to approve the Extension Amendment, an aggregate of 10,946,369 shares of the Company’s Class A Common Stock were redeemed, and approximately $109,469,789 was
withdrawn out of the Trust Account to pay for such redemption leaving approximately $120.5 million remaining in our Trust Account to consummate a business combination. In connection with the Extension, the Company will make Deposits into the
Trust Account of $0.0333 for each Public Share that was not converted in connection with the stockholder vote to approve the Extension, for each monthly period, or portion thereof, that is needed by the Company to complete the Business
Combination from and after February 18, 2022 and through and including the earlier to occur of (i) consummation of the Business Combination and (ii) August 18, 2022. Alternatively, if the Company does not have the funds necessary to make the
Deposit, the Sponsor has agreed that it and/or any of its affiliates or designees will make Contributions of $0.0333 for each Public Share that was not converted in connection with the stockholder vote to approve the Extension, for each
monthly period, or portion thereof, that is needed by the Company to complete the Business Combination from and after February 18, 2022 and through and including the earlier to occur of (i) consummation of the Business Combination and (ii)
August 18, 2022. Accordingly, if the Company takes until August 18, 2022 to complete the Business Combination, which would represent six monthly periods, the Company or the Sponsor would make Deposits or Contributions of $401,386 per month,
or an aggregate of $2,408,315. Each Deposit or Contribution will be placed in the trust account within two business days prior to the beginning of the applicable monthly period (or portion thereof), other than the first Deposit or
Contribution which will be made on or about the day of the effectiveness of the Extension Amendment. Accordingly, if the Company takes the full time through August 18, 2022 to complete the Business Combination, the conversion amount per share
at the special meeting for such business combination or the Company’s subsequent liquidation will be approximately $10.20 per share (without taking into account any interest), in comparison to the current conversion amount of approximately
$10.00 per share. The per share amount we will distribute to stockholders who properly redeem their shares will not be reduced by the deferred underwriting commissions we will pay to the underwriters or another FINRA member. The redemption
rights will include the requirement that any beneficial owner on whose behalf a redemption right is being exercised must identify itself in order to validly redeem its shares. The Sponsor and our directors and officers have entered into a
letter agreement with the Company pursuant to which they agreed to waive their redemption rights in connection with the
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consummation of the Business Combination with respect to any shares of common
stock they may hold. Nomura has also agreed to waive its redemption rights with respect to the Public Shares held by it, other than Public Shares held directly or indirectly by it on behalf of a third-party client.
Limitation on Redemption Rights
Notwithstanding the foregoing redemption rights, if we seek
stockholder approval of the Business Combination and we do not conduct redemptions in connection with the Business Combination pursuant to the tender offer rules, the Existing Charter provides that a holder of the Public Shares, together with
any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 15% of
the Public Shares without our prior consent, which we refer to as the “15% threshold.” Accordingly, all Public Shares in excess of the 15% threshold beneficially owned by a Public Stockholder or group will not be redeemed for cash without our
prior consent.
We believe this restriction will discourage stockholders from
accumulating large blocks of shares, and subsequent attempts by such holders to use their ability to exercise their redemption rights against the 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 Stockholder holding more than an aggregate of 15% of the Public Shares could threaten to exercise its redemption rights against
the Business Combination if such holder’s shares are not purchased by us, the Sponsor or our management at a premium to the then-current market price or on other undesirable terms. By limiting our stockholders’ ability to redeem no more than
15% of the Public Shares, we believe we will limit the ability of a small group of stockholders to unreasonably attempt to block our ability to complete a 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 will not be restricting our stockholders’ ability to vote all of their shares (including such shares in excess of the
15% threshold) for or against the Business Combination.
Submission of Business Combination to a Stockholder Vote
The Special Meeting to which this filing relates is to solicit
your approval of the Business Combination. The Public Stockholders are not required to vote against the Business Combination in order to exercise their redemption rights. If the Business Combination is not completed, then Public Stockholders
who elected to exercise their redemption rights will not be entitled to receive such payments. The Company has entered into a letter agreement with the Sponsor and our directors and officers pursuant to which each such person has agreed to vote
all shares of our common stock owned by it, him or her in favor of the Business Combination Proposal presented at the Special Meeting. Nomura, the underwriter of our IPO, has agreed to vote any Founder Shares and Private Shares held by it in
favor of the Business Combination. As a result, in addition to the shares of common stock held by Nomura, the Sponsor and our officers and directors, we may need only [•], or [•]% (assuming all outstanding shares are voted), or [•], or
approximately [•]% (assuming only the minimum number of shares representing a quorum are voted), of the Public Shares to be voted in favor of the Business Combination (assuming only a quorum is present at the Special Meeting) in order to have
the Business Combination approved.
Permitted Purchases of Our Securities
If we seek stockholder approval of the Business Combination and we
do not conduct redemptions in connection with the Business Combination pursuant to the tender offer rules, the Sponsor, directors, officers, advisors or their affiliates may purchase Public Shares in privately negotiated transactions or in the
open market. 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 Public Shares in such transactions. If they engage in such transactions, they will not make 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 the Sponsor, directors, officers, advisors or
their affiliates purchase shares in privately negotiated transactions from stockholders who have already elected to exercise their redemption rights, such selling stockholders 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
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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 vote such
shares in favor of the Business Combination and thereby increase the likelihood of obtaining stockholder approval of the Business Combination. Any such purchases of our securities may result in the completion of the Business Combination that
may not otherwise have been possible.
In addition, if such purchases are made, the public “float” of our
shares of Class A Common Stock 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.
The Sponsor, officers, directors and/or their affiliates
anticipate that they may identify the stockholders with whom the Sponsor, officers, directors or their affiliates may pursue privately negotiated purchases by either the stockholders contacting us directly or by our receipt of redemption
requests submitted by stockholders (in the case of shares of Class A Common Stock) following our mailing of proxy materials in connection with the Business Combination. To the extent that the Sponsor, officers, directors, advisors or their
affiliates enter into a private purchase, they would identify and contact only potential selling stockholders who have expressed their election to redeem their shares for a pro rata share of the Trust Account or vote against the Business
Combination, whether or not such stockholder has already submitted a proxy with respect to the Business Combination, but only if such shares have not already been voted at the stockholder meeting related to the Business Combination. The
Sponsor, officers, directors, advisors or any of their affiliates will select which stockholders to purchase shares from based on the 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. The Sponsor, officers, directors and/or their affiliates will not make purchases of shares if the purchases would violate
Section 9 (a)(2) or Rule 10b-5 of the Exchange Act. 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.
Redemption of Public Shares and Liquidation if no Initial Business
Combination
Our Existing Charter provides that we will have only 18 months
from the IPO Closing Date to complete a business combination. If we are unable to complete a business combination within such 18-month 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, subject to lawfully available funds therefor, redeem 100% 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 not previously released to us to pay our taxes (less 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 Stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval
of our remaining stockholders and the LCAP Board, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other 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 Business Combination within the 18-month time period.
The Sponsor, our officers and directors and Nomura have agreed to
waive their rights to liquidating distributions from the Trust Account with respect to any Founder Shares and Private Shares held by them (other than, in the case of Nomura, Public Shares held directly or indirectly by Nomura on behalf of a
third-party client) if we fail to complete our business combination within 18 months from the IPO Closing Date. However, if the Sponsor or our officers and directors acquire Public Shares at a later date, they will be entitled to liquidating
distributions from the Trust Account with respect to such Public Shares if we fail to complete our business combination within the allotted 18-month time period.
The Sponsor and our officers and directors have agreed, pursuant
to the Sponsor Agreement, that they will, among other things, not redeem, elect to redeem or tender or submit any shares of common stock owned by it, him or her for redemption in connection with the transactions contemplated by the MIPA or any
vote to amend the Existing Charter.
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 $353,032 of proceeds currently
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held outside the Trust Account, although we cannot assure you that there will be
sufficient funds for such purpose. We will depend on sufficient interest being earned on the proceeds held in the Trust Account to pay any tax obligations we may owe. 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 on interest income earned on the Trust Account balance, 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 the IPO and the
sale of the Private Units, other than the proceeds deposited in the Trust Account, and without taking into account interest, if any, earned on the Trust Account, the per-share redemption amount received by stockholders upon our dissolution
would be approximately $10.00. On January 27, 2022, the Company’s stockholders approved the Extension Amendment to our Existing Charter to extend the date by which we must consummate an initial business combination from February 18, 2022 to
August 18, 2022. In connection with the stockholder vote to approve the Extension Amendment, an aggregate of 10,946,369 shares of the Company’s Class A Common Stock were redeemed, and approximately $109,469,789 was withdrawn out of the Trust
Account to pay for such redemption leaving approximately $120.5 million remaining in our Trust Account to consummate a business combination. In connection with the Extension, the Company will make Deposits into the Trust Account of $0.0333 for
each Public Share that was not converted in connection with the stockholder vote to approve the Extension, for each monthly period, or portion thereof, that is needed by the Company to complete the Business Combination from and after February
18, 2022 and through and including the earlier to occur of (i) consummation of the Business Combination and (ii) August 18, 2022. Alternatively, if the Company does not have the funds necessary to make the Deposit, the Sponsor has agreed that
it and/or any of its affiliates or designees will make Contributions of $0.0333 for each Public Share that was not converted in connection with the stockholder vote to approve the Extension, for each monthly period, or portion thereof, that is
needed by the Company to complete the Business Combination from and after February 18, 2022 and through and including the earlier to occur of (i) consummation of the Business Combination and (ii) August 18, 2022. Accordingly, if the Company
takes until August 18, 2022 to complete the Business Combination, which would represent six monthly periods, the Company or the Sponsor would make Deposits or Contributions of $401,386 per month, or an aggregate of $2,408,315. Each Deposit or
Contribution will be placed in the trust account within two business days prior to the beginning of the applicable monthly period (or portion thereof), other than the first Deposit or Contribution which will be made on or about the day of the
effectiveness of the Extension Amendment. Accordingly, if the Company takes the full time through August 18, 2022 to complete the Business Combination, the conversion amount per share at the special meeting for such business combination or the
Company’s subsequent liquidation will be approximately $10.20 per share (without taking into account any interest), in comparison to the current conversion amount of approximately $10.00 per share. 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 Stockholders. We cannot assure you that the actual per-share redemption amount received by stockholders will not be
substantially less than $10.00. Under Section 281(b) of the DGCL, our plan of dissolution must provide for all claims against us to be paid in full or make provision for payments to be made in full, as applicable, if there are sufficient
assets. These claims must be paid or provided for before we make any distribution of our remaining assets to our stockholders. 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 have sought and will continue to seek 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 any monies held in the Trust Account for the
benefit of our Public Stockholders, 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 perform an analysis of the alternatives available to it and will only enter
into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would be significantly more beneficial to us than any alternative. 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
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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. We are not aware of any product or service providers who have not or will not provide such waiver other than the underwriters of our IPO and our independent registered public
accounting firm.
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. The 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 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 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 our IPO against certain liabilities, including liabilities
under the Securities Act. However, we have not asked the Sponsor to reserve for such indemnification obligations, nor have we independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations, and we believe
that the Sponsor’s only assets are securities of the Company. Therefore, we cannot assure you that the Sponsor would be able to satisfy those obligations. 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 (i) $10.00 per Public Share or (ii) such lesser amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account, due to reductions in value of the trust assets, in each case net of the amount of
interest which may be withdrawn to pay taxes, and the 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 the Sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against the 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 if, for example, the cost of such legal action is deemed by the independent directors to be too
high relative to the amount recoverable or if the independent directors determine that a favorable outcome is not likely. We have not asked the Sponsor to reserve for such indemnification obligations and we cannot assure you that the Sponsor
would be able to satisfy those obligations. 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 Public Share.
We will seek to reduce the possibility that the Sponsor will have
to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, 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. The Sponsor will also not be liable as to any claims under our indemnity of the underwriters of our IPO against certain liabilities, including liabilities under the
Securities Act. We will have access to up to approximately $1,150,000 from the proceeds of the IPO 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, stockholders who received funds from our Trust Account could be liable for
claims made by creditors.
Under the DGCL, stockholders may be held liable for claims by
third parties against a corporation to the extent of distributions received by them in a dissolution. The pro rata portion of our Trust Account distributed to our Public Stockholders upon the redemption of our Public Shares in the event we do
not complete our Business Combination within 18 months from the IPO Closing Date may be considered a liquidating distribution under Delaware law. If the Company complies with certain procedures set forth in Section 280 of the DGCL intended to
ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the Company, a 90-day period during which the Company may reject any claims
brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata
share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution.
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Furthermore, if the pro rata portion of our Trust Account
distributed to our Public Stockholders upon the redemption of our Public Shares in the event we do not complete our initial business combination within 18 months from the closing of our IPO is not considered a liquidating distribution under
Delaware law and such redemption distribution is deemed to be unlawful (potentially due to the imposition of legal proceedings that a party may bring or due to other circumstances that are currently unknown), then pursuant to Section 174 of the
DGCL, the statute of limitations for claims of creditors could then be six years after the unlawful redemption distribution, instead of three years, as in the case of a liquidating distribution. If we are unable to complete our Business
Combination within 18 months from the IPO Closing Date, 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 subject to lawfully available
funds therefor, redeem 100% 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 not previously released to us to pay our taxes (less 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 Stockholders’ rights as stockholders (including the right to receive further liquidating
distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and the LCAP Board, dissolve and liquidate, subject in each case to
our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. Accordingly, it is our intention to redeem our Public Shares as soon as reasonably possible following the expiration of such
18-month period and, therefore, we do not intend to comply with those procedures. As such, our stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of our
stockholders may extend well beyond the third anniversary of such date.
Because we will not be complying with Section 280 of the DGCL,
Section 281(b) requires us to adopt a plan, based on facts known to us at such time that will provide for our payment of all existing and pending claims or claims that may be potentially brought against us within the subsequent 10 years.
However, because we are a blank check company, rather than an operating company, and our operations will be limited to searching for prospective target businesses to acquire, the only likely claims to arise would be from our vendors (such as
lawyers, investment bankers, etc.) or prospective target businesses. As described above, pursuant to the obligation contained in our underwriting agreement, we have sought and will continue to seek 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 any monies held in the Trust Account. As a result of this obligation, the
claims that could be made against us are significantly limited and the likelihood that any claim that would result in any liability extending to the Trust Account is remote. Further, the Sponsor may be liable only to the extent necessary to
ensure that the amounts in the Trust Account are not reduced below (i) $10.00 per Public Share or (ii) such lesser amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account, due to reductions in
value of the trust assets, in each case net of the amount of interest withdrawn to pay taxes and will not be liable as to any claims under our indemnity of the underwriters of the IPO against certain liabilities, including liabilities under the
Securities Act. In the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims.
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 stockholders. 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 Stockholders. Additionally, if we file a bankruptcy petition or an
involuntary bankruptcy petition is filed against us that is not dismissed, any distributions received by stockholders 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 stockholders. Furthermore, our Board may be viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad faith,
thereby exposing itself and our company to claims of punitive damages, by paying Public Stockholders 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 Stockholders will be entitled to receive funds from the
Trust Account only upon the earlier to occur of: (i) the completion of our Business Combination, (ii) the redemption of any Public Shares properly tendered in connection with a stockholder vote to amend any provisions of our Existing Charter
(A) to modify the substance or timing of the ability of holders of our Public Shares to seek redemption in connection with our business combination or our obligation to redeem 100% of our Public Shares if we do not complete our business
combination within
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18 months from the IPO Closing Date or (B) with respect to any other provision
relating to stockholders’ rights or pre-business combination activity, and (iii) the redemption of all of our Public Shares if we are unable to complete our business combination within 18 months from the IPO Closing Date, subject to applicable
law. In no other circumstances will a stockholder have any right or interest of any kind to or in the Trust Account. However, in the event we seek stockholder approval in connection with our business combination, a stockholder’s voting in
connection with the business combination alone will not result in a stockholder’s redeeming its shares to us for an applicable pro rata share of the Trust Account.
Such stockholder must have also exercised its redemption rights as
described above. These provisions of our Existing Charter, like all provisions of our Existing Charter, may be amended with a stockholder vote.
Facilities
Our executive offices are located at 4218 NE 2nd Avenue, Miami,
Florida 33137, and our telephone number is (305) 573-3900. Our executive offices are provided to us by the Sponsor. Commencing on August 18, 2020, we have agreed to pay the Sponsor a total of $15,000 per month for office space, utilities and
secretarial and administrative support. We consider our current office space adequate for our current operations.
Employees
We currently have three officers. 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 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 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 the
Business Combination.
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.
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In this section “we,” “us,” “our” or the
“Company” refer to the Company prior to the Business Combination and to the Post-Combination Company following the Business Combination.
Directors and Executive Officers
The Company’s current directors and executive officers are as
follows:
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Name
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| |
Age
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| |
Title
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Ophir Sternberg
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| |
51
|
| |
Chairman, President and Chief Executive Officer
|
|
Paul Rapisarda
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| |
67
|
| |
Chief Financial Officer
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Faquiry Diaz Cala
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| |
46
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| |
Chief Operating Officer
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|
James Anderson
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| |
72
|
| |
Director
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|
Thomas Byrne
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| |
59
|
| |
Director
|
|
Thomas Hawkins
|
| |
60
|
| |
Director
|
|
Roger Meltzer
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| |
70
|
| |
Director
|
Ophir Sternberg. Ophir Sternberg has been the Chairman, President and Chief Executive Officer of the Company since inception, has over 28 years of experience acquiring, developing, repositioning and investing in all segments of the real estate
industry, including office, industrial, retail, hospitality, ultra-luxury residential condominiums and land acquisitions. Mr. Sternberg is the Founder and Chief Executive Officer of Miami-based Lionheart Capital, founded in 2010.
Mr. Sternberg began his career assembling, acquiring and developing properties in emerging neighborhoods in New York City, which established his reputation for identifying assets with unrealized potential and combining innovative partnerships
with efficient financing structures to realize above average returns. Mr. Sternberg came to the United States in 1993 after completing three years of military service within an elite combat unit for the Israeli Defense Forces. Under
Mr. Sternberg’s leadership, Lionheart Capital executed numerous prominent real estate transactions and repositions, including The Ritz-Carlton Residences in Miami Beach, which resulted in a total sell-out value in excess of $550 million, as
well as purchase of the development’s site, the former Miami Heart Institute. Additionally, Mr. Sternberg led the $120 million sale of The Seagull Hotel, making it the highest grossing hotel sale of 2020 in Miami Beach. Mr. Sternberg and
Lionheart Capital are currently in development on a number of other projects, including retail properties in Miami’s fashion and culture epicenter, The Design District. In addition to The Ritz-Carlton Residences, Miami Beach, Lionheart
Capital also developed The Ritz-Carlton Residences Singer Island, Palm Beach, cementing a reputation for developing high-end luxury branded properties. In 2017, Mr. Sternberg founded Out of the Box Ventures, LLC, a Lionheart Capital
subsidiary, to acquire and reposition distressed retail properties throughout the United States. With 19 properties in 14 states, Out of the Box Ventures currently controls over 5 million square feet of big box stores, shopping centers and
enclosed regional mall properties with plans to improve and expand upon these acquisitions. Mr. Sternberg and Lionheart Capital are dedicated to working with best-in-class operators and partners such as Marriot International. Lionheart
Capital has been able to execute numerous, marquee transactions due largely in part to Mr. Sternberg’s extensive industry relationships particularly with key institutional investors. In March 2020, Mr. Sternberg became Chairman of
Nasdaq-listed OPES, which on June 30, 2020, announced a definitive agreement to merge with BurgerFi International LLC. The OPES-BurgerFi merger closed on December 16, 2020 to form BurgerFi, a fast-causal “better burger” concept that consists
of approximately 120 restaurants nationally and internationally. Mr. Sternberg is the Chairman of the post-combination Nasdaq-listed company, BurgerFi (NASDAQ: BFI). The OPES team, led by Mr. Sternberg, evaluated over 50 potential targets and
negotiated business combination terms with multiple candidates in a span of a few months and acquired BurgerFi at what it believed was an attractive multiple relative to its peers. Mr. Sternberg is also the Chairman, President and Chief
Executive Officer of Lionheart III Corp and Lionheart IV Corp, SPACs that will seek to acquire a broad range of businesses. Mr. Sternberg is qualified to serve as a director due to his extensive experience in acquiring, developing,
repositioning and investing in all segments of the real estate industry.
Paul Rapisarda. Paul Rapisarda currently serves as our Chief Financial Officer, has also served as Chief Financial Officer at Lionheart Capital and Out of the Box Ventures since 2019. In addition, he has served as Chief Financial Officer of
Lionheart III and Lionheart IV since March 2021. Mr. Rapisarda is an experienced public company C-suite executive and investment banking professional with more than 25 years working in and for a variety of public and private companies. Prior
to joining Lionheart Capital in June 2019, he served as Chief Financial Officer at Etrion Corp. (TSX:ETX), a dual-listed (Canada/Sweden) solar energy development company from October 2015 to December 2017. Etrion Corp. is part of The Lundin
Group, a portfolio of 13 public companies in the energy and
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mining sectors with a combined market capitalization in excess of $16 billion,
started or sponsored by the Lundin family. Mr. Rapisarda was responsible for managing all finance functions, including financial reporting, treasury & cash management, corporate finance, regulatory/SEC compliance matters and investor
relations. In addition, Mr. Rapisarda established Garrison Capital Advisors LLC, a financial advisory and consulting services company in 2014. From 2008 to 2014, he worked for another dual-listed company (Canada/United States), Atlantic Power
Corporation (NYSE:AT), most recently serving as Executive Vice President-Commercial Development. The company was a portfolio company controlled by Arclight Capital Partners, a private equity firm with $10.4 billion of assets under management
and a focus on the energy sector. He was a key member of the executive team that successfully engineered the $1.8 billion merger with Capital Power Income L.P. and had primary responsibility for the investment of over $1.2 billion in capital
from 2008-2012. Prior to Atlantic Power, Mr. Rapisarda worked for over 20 years in investment banking and private equity for several firms, including Compass Advisers LLP, Schroders, Merrill Lynch and BT Securities. He has also acted as a board
member at several emerging growth companies, primarily in the energy, technology and infrastructure sectors. Mr. Rapisarda has a B.A. from Amherst College and an M.B.A. from the Harvard Business School.
Faquiry Diaz Cala. Faquiry Diaz Cala currently serves as our Chief Operating Officer, also serves as the Chief Operating Officer for Lionheart Capital and its affiliated entities. In this role, he leads the Mergers & Acquisitions and Corporate
Strategy divisions. An investor and operator, over the past 25 years, Mr. Diaz Cala has held positions as an executive, board member, and observer at various public and private corporations in the US and internationally. Mr. Diaz Cala also
serves as Chief of Mergers and Acquisitions and Corporate Strategy at BurgerFi International, Inc., where Ophir Sternberg serves as Executive Chairman. He has also served on the boards of several non-profit organizations and educational
institutions. Mr. Diaz Cala also serves as the Chief Operating Officer of Lionheart III and Lionheart IV. He is a graduate of the Wharton School at the University of Pennsylvania and resides in Miami, Florida.
James Anderson. James Anderson has served as a member of the LCAP Board since 2021 and has over 40 years of entrepreneurial business experience with a major focus in real estate and business development including internationally.
He has either been a sole founder or founding partner in several commercial ventures. He has been an owner/broker of JA Real Estate Partners, LLC (New York, NY) since 2001. He co-founded Iowa State Commercial Investment
Company, LLC in 2017; he acted as Senior Advisor to F&T Group from 2008-2014 in connection with the Nanjing World Trade Center mixed-use development project; in 1998 he founded and was the initial president of Fultonex
International Realty (New York, NY), which is owned by F&T Group; and he was a regional manager/vice president of DeWolfe Companies, Inc. from 1989-1996. Mr. Anderson resided in China for nearly 10 years (2008-2017)
where he was involved in numerous business/real estate development projects. Mr. Anderson also serves on the board of directors of Lionheart III and Lionheart IV. He holds a BBA degree from the University of Iowa. Mr. Anderson
is qualified to serve as a director due to his extensive global experience in real estate and business development.
Thomas Byrne.
Thomas Byrne has served as a member of the LCAP Board since 2021 and has over 30 years of experience managing and investing in both public and private growth companies and is the co-founder and Chief Strategy Officer of Kaptyn Holding Corp.,
an electric vehicle rideshare company since November 2018. He is also a general partner of New River Capital Partners, LP, a private equity fund which he co-founded in 1997. From 2015 to 2016 he served as the President of Pivotal Fitness.
From 2004 to 2014, he was an executive of Swisher Hygiene, most recently as its CEO. In 2005, Mr. Byrne co-founded Service Acquisition Corp. International, a SPAC that later merged into Jamba Juice, where he served on the company’s board and
Audit Committee until 2010. From 1988 to 1996, Mr. Byrne was an executive at Blockbuster Entertainment Group, a division of Viacom, where he last served as its Vice-Chairman and President of the Viacom Retail Group. From 1984 to 1988,
Mr. Byrne served as a CPA with KPMG. He has also served on the boards of Jamba Juice, LDN CBD, Reel.com, Avaltus, ITC Learning, The Transformational Travel Council and Friends of Birch State Park. Mr. Byrne also serves on the board of
directors of Lionheart III and Lionheart IV. Mr. Byrne is qualified to serve as a director due to his broad leadership experience in the public and private sector.
Thomas Hawkins. Thomas Hawkins has served as a member of the LCAP Board since 2021. He has completed hundreds of transactions including acquisitions of publicly traded and private companies, financings, divestitures, complex joint ventures and
partnerships resulting in significant positive financial impact for investors. With experience in multiple industry verticals, Mr. Hawkins has served on boards, board committees and as board secretary in public and private corporations,
advising boards on sophisticated transactions, risk and crisis management in
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highly regulated industries and developing corporate governance infrastructure.
Mr. Hawkins helped develop the legal division of Blockbuster, beginning his tenure there when there were only 23 stores, and was promoted to General Counsel early in his tenure. As General Counsel, he led the $8.5 billion sale to Viacom in
1994, with 5500 stores in 14 countries, and other film, production and distribution businesses, and the related tender for Paramount Communications. Mr. Hawkins also helped build the Corporate Development department at AutoNation that delivered
over 300 transactions, $5 billion in acquisitions, and grew into the largest publicly traded automotive retailer. Acquisitions formed AutoNation’s dealer network and subsequent spin off companies including ANC Rental Corp., owner of National
Car Rental and Alamo Car Rental, and Republic Services, a solid waste company. Mr. Hawkins also drove strategic alignment as member of the executive leadership team for Mednax Health, a high growth, high margin healthcare company which
experienced a 500% + market cap increase and 300% increase in revenue over 9 years, and Mr. Hawkins also initiated the Government Relations function for this highly regulated business and partnered in the launch of new service lines to fuel
additional growth. In 2020, Mr. Hawkins served on the board of directors of a newly established private equity management company providing oversight for businesses engaged in the automotive retail, healthcare, technology enabled services and
waste management industries. Mr. Hawkins currently serves on the board of directors of the Alumni Association of the University of Michigan and Jumptuit Inc., a data analytics technology company. Mr. Hawkins also serves on the board of
directors of Lionheart III and Lionheart IV. Mr. Hawkins received his Juris Doctor from Northwestern University in 1986 and his A.B. in Political Science from the University of Michigan in 1983. Mr. Hawkins is qualified to serve as a director
due to his previous board and committee service across multiple industries.
Roger Meltzer, Esq. Roger Meltzer has served as a member of the LCAP Board since 2021. Mr. Meltzer has practiced law at DLA Piper LLP since 2007 and has held various roles: Global Co-Chairman, since 2015, and currently as Chairman Emeritus; Americas
Co-Chairman, since 2013; Member, Office of the Chair, since 2011; Member, Global Board, since 2008; Co-Chairman, U.S. Executive Committee, since 2013; Member, U.S. Executive Committee, since 2007; and Global Co-Chairman, Corporate Finance
Practice, 2007 through 2015. Prior to joining DLA Piper LLP, Mr. Meltzer practiced law at Cahill Gordon & Reindel LLP from 1977 through 2007 where he was a member of the Executive Committee from 1987 through 2007, Co-Administrative
Partner and Hiring Partner from 1987 through 1999, and Partner from 1984 through 2007. Mr. Meltzer currently serves on the Advisory Board of Harvard Law School Center on the Legal Profession (May 2015—Present); Board of Trustees, New York
University Law School (September 2011—Present); and the Corporate Advisory Board, John Hopkins, Carey Business School (January 2009—December 2012). He has previously served on the board of directors of: The Legal Aid Society (November 2013 to
January 2020), Hain Celestial Group, Inc. (December 2000 to February 2020) and The Coinmach Service Corporation (December 2009 to June 2013). Mr. Meltzer has also received several awards and honors and has been actively involved in
philanthropic activity throughout his career. Mr. Meltzer received Juris Doctor degree in law from New York University School of Law and an A.B. from Harvard College. In December 2021, Mr. Meltzer joined the board of directors of certain
subsidiaries of Nordic Aviation Capital, an international aircraft leasing company that filed for chapter 11 bankruptcy earlier in December of 2021. In February 2021, Mr. Meltzer joined the board of directors and the audit committee of
Haymaker Acquisition Corp. III (NASDAQ: HYAC) (“HYAC”), a special purpose acquisition corporation, and Ubicquia LLC, a privately-held smart lighting solutions provider. Mr. Meltzer also serves on the board of directors of Lionheart III and
Lionheart IV. Mr. Meltzer is qualified to serve as a director due to his experience representing clients on high-profile, complex, and cross-border matters and his leadership qualities.
Number and Terms of Office of Officers and Directors
We have five members on the LCAP Board. Members of the LCAP Board
are elected each year, but in accordance with Nasdaq corporate governance requirements, we are not required to hold an annual meeting until one year after our first fiscal year end following our listing on Nasdaq. Our officers are appointed by
the LCAP Board and serve at the discretion of the LCAP Board, rather than for specific terms of office. The LCAP Board is authorized to appoint persons to the offices set forth in our bylaws as it deems appropriate. Our bylaws provide that our
officers may consist of a Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer, Vice Presidents, Secretary, Treasurer and such other offices as may be determined by the LCAP Board.
Director Independence
Nasdaq listing standards require that a majority of the LCAP Board
be independent. An “independent director” is defined generally as a person other than an officer or employee of a company or its subsidiaries or any other individual having a relationship which in the opinion of the LCAP Board, would interfere
with the director’s exercise
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of independent judgment in carrying out the responsibilities of a director. The
LCAP Board has determined that James Anderson, Thomas Byrne, Thomas Hawkins and Roger Meltzer are “independent directors” as defined in the Nasdaq listing standards and applicable SEC rules. Our independent directors will have regularly
scheduled “executive sessions” at which only independent directors are present.
Officer and Director Compensation
None of our officers or directors has received any cash
compensation for services rendered to us. We have agreed to pay the Sponsor a total of $15,000 per month for office space, utilities and secretarial and administrative support. Upon completion of our business combination or our liquidation, we
will cease paying these monthly fees. In addition, we may pay the Sponsor or any of our existing officers or directors, or any entity with which they are affiliated, a finder’s fee, consulting fee or other compensation in connection with
identifying, investigating and completing our business combination. These individuals will also 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 the Sponsor, officers, directors or our or their affiliates and will determine which fees and
expenses and the amount of expenses that will be reimbursed.
After the completion of the Business Combination, any compensation
to be paid to our directors and executive officers will be determined, or recommended to the Board for determination, either by a compensation committee constituted solely by independent directors or by a majority of the independent directors
on the Board.
We are not party to any agreements with our executive officers and
directors that provide for benefits upon termination of employment.
Committees of the Board of Directors
The LCAP Board has two standing committees: an audit committee and
a compensation committee. Subject to phase-in rules and a limited exception, the rules of Nasdaq and Rule 10A-3 of the Exchange Act require that the audit committee of a listed company be comprised solely of independent directors, and the rules
of Nasdaq require that the compensation committee of a listed company be comprised solely of independent directors.
Audit Committee
We established an audit committee of the LCAP Board. James
Anderson, Thomas Byrne, Thomas Hawkins and Roger Meltzer serve as members of our audit committee. Under the Nasdaq listing standards and applicable SEC rules, we are required to have at least three members of the audit committee, all of whom
must be independent.
Each member of the audit committee is financially literate and the
LCAP Board has determined that [•] qualifies as an “audit committee financial expert” as defined in applicable SEC rules.
We adopted an audit committee charter, which details the principal
functions of the audit committee, including:
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•
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the appointment, compensation, retention, replacement, and oversight of the work of the independent auditors and any other
independent registered public accounting firm engaged by us;
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•
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pre-approving all audit and permitted non-audit services to be provided by the independent auditors or any other registered
public accounting firm engaged by us, and establishing pre-approval policies and procedures;
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•
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reviewing and discussing with the independent auditors all relationships the auditors have with us in order to evaluate their
continued independence;
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•
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setting clear hiring policies for employees or former employees of the independent auditors;
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•
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setting clear policies for audit partner rotation in compliance with applicable laws and regulations;
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•
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obtaining and reviewing a report, at least annually, from the independent auditors describing (i) the independent auditor’s
internal quality-control procedures and (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the audit firm, or by any inquiry or investigation by governmental or professional
authorities within the preceding five years respecting one or more independent audits carried out by the firm and any steps taken to deal with such issues;
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•
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reviewing and approving any related party transaction required to be disclosed pursuant to Item 404 of Regulation S-K
promulgated by the SEC prior to us entering into such transaction; and
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•
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reviewing with management, the independent auditors, and our legal advisors, as appropriate, any legal, regulatory or
compliance matters, including any correspondence with regulators or government agencies and any employee complaints or published reports that raise material issues regarding our financial statements or accounting policies and any
significant changes in accounting standards or rules promulgated by the Financial Accounting Standards Board, the SEC or other regulatory authorities.
|
Compensation Committee
We established a compensation committee of the LCAP Board. James
Anderson, Thomas Byrne, Thomas Hawkins and Roger Meltzer serve as members of our compensation committee. Under the Nasdaq listing standards and applicable SEC rules, we are required to have at least two members of the compensation committee,
all of whom must be independent.
We adopted a compensation committee charter, which details the
principal functions of the compensation committee, including:
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•
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reviewing and approving on an annual basis the corporate goals and objectives relevant to our Chief Executive Officer’s
compensation, evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of our Chief Executive Officer based on such evaluation;
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•
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reviewing and approving on an annual basis the compensation of all of our other officers;
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•
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reviewing on an annual basis our executive compensation policies and plans;
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•
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implementing and administering our incentive compensation equity-based remuneration plans;
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•
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assisting management in complying with our proxy statement and annual report disclosure requirements;
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•
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approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our
officers and employees;
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•
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if required, producing a report on executive compensation to be included in our annual proxy statement; and
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•
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reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors.
|
Our compensation committee’s charter also provides that our
compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any
such adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each such adviser, including the factors
required by Nasdaq and the SEC.
Compensation Committee Interlocks and Insider
Participation
None 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 one or more executive officers serving on the LCAP Board.
Code of Ethics
We have adopted a code of ethics applicable to our directors,
officers and employees (“Code of Ethics”). 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
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. These entities, including Lionheart III
and Lionheart IV, may compete with us for acquisition opportunities. If these entities decide to pursue any such opportunity, we may be precluded from pursuing such opportunities. 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 to present the opportunity to such entity, he or she may honor his or her fiduciary or contractual
obligations to present such opportunity to such entity first, including Lionheart III or Lionheart IV, and only present it to us if such entities reject the opportunity and he or she determines to present the opportunity to us. These conflicts
may not be resolved
136
in our favor and a potential target business may be presented to another entity
prior to its presentation to us. The Sponsor and our directors and officers are also not prohibited from sponsoring, investing or otherwise becoming involved with, any other blank check companies, including in connection with their initial
business combinations, prior to us completing our initial business combination. Our management team, in their capacities as directors, officers or employees of the Sponsor or its affiliates or in their other endeavors, may choose to present
potential business combinations to the related entities described above, current or future entities affiliated with or managed by the Sponsor, or third parties, before they present such opportunities to us, subject to his fiduciary duties under
Delaware law and any other applicable fiduciary duties. For example, Messrs. Sternberg, Rapisarda and Diaz Cala are currently officers or directors of, each of Lionheart III and Lionheart IV and each owes fiduciary duties to Lionheart III and
Lionheart IV and Mr. Meltzer is currently a director of HYAC, each such entity may compete with us for acquisition opportunities. We believe, however, that (aside from Lionheart III, Lionheart IV and HYAC) the fiduciary duties or contractual
obligations of our officers or directors will not materially affect our ability to complete our initial business combination. Our Existing Charter provides 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 our 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.
Stockholders should also be aware of the following other potential
conflicts of interest:
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None of our officers or directors is required to commit his full time to our affairs and, accordingly, may have conflicts of
interest in allocating his time among various business activities.
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•
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In the course of their other business activities, our officers and directors may become aware of investment and business
opportunities which may be appropriate for presentation to us as well as the other entities with which they are affiliated. Our management may have conflicts of interest in determining to which entity a particular business opportunity
should be presented.
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•
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Nomura, the Sponsor, our officers and directors and the underwriters have agreed to waive their redemption rights with
respect to any Founder Shares, Private Shares and any Public Shares held by them (other than, in the case of Nomura, Public Shares held directly or indirectly by Nomura on behalf of a third-party client) in connection with the
consummation of our initial business combination. Additionally, Nomura, the Sponsor and our officers and directors have agreed to waive their redemption rights with respect to any Founder Shares and Private Shares held by them if we
fail to consummate our initial business combination within 18 months after the IPO Closing Date. If we do not complete our initial business combination within such applicable time period, the proceeds of the sale of the private
securities held in the trust account will be used to fund the redemption of our Public Shares, and the Private Warrants will expire worthless. With certain limited exceptions, the Founder Shares will not be transferable, assignable by
the Sponsor until the earlier of: (A) six months after the completion of our initial business combination or (B) subsequent to our initial business combination, (x) if the last reported sale price of our Class A common stock equals or
exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 30 days after our initial business
combination, or (y) the date on which we complete a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of our stockholders having the right to exchange their shares of common
stock for cash, securities or other property. With certain limited exceptions, the Private Shares, the Private Warrants and the Class A Common Stock underlying such warrants, will not be transferable, assignable or saleable by the
initial purchaser of the Private Units or their permitted transferees until 30 days after the completion of our initial business combination. Since the Sponsor and our officers and directors may directly or indirectly own common stock
and warrants, our officers and directors 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. Permitted transferees of
the Founder Shares would be subject to the same restrictions.
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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.
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The Sponsor and our officers or directors may have a conflict of interest with respect to evaluating a business combination
and financing arrangements as we may obtain loans from the Sponsor or an affiliate of the Sponsor or any of our officers or directors to finance transaction costs in connection with an intended
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initial business combination. Up to $1,000,000 of such loans may be convertible
into units, at a price of $10.00 per unit, or warrants, at a price of $1.00 per warrant, at the option of the lender. The units would be identical to the Private Units and the warrants would be identical to the Private Warrants. The approximate
value of the Sponsor’s interest in the Post Combination Company is $56.1 million, consisting of 5,642,000 shares of Class A Common Stock. The approximate value was calculated based on a trailing 30-day average price of $9.94 per share. The cost
basis of this investment was approximately $5,975,000, consisting of 595,000 private placement units at $10.00 per unit, or $5,950,000, plus the purchase of 5,667,500 shares of Class B Common Stock for $24,641.
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In addition, our independent directors will receive a grant of 10,000 shares of Class A Common Stock at the time of the
consummation of the Business Combination. The approximate value of this grant is $100,000 (10,000 shares at a price of $10.00 per share). These shares will come from the pool of Founder Shares and will not result in any dilution to
Public Stockholders or the Members.
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The conflicts described above may not be resolved in our favor.
In general, officers and directors of a corporation incorporated
under the laws of the State of Delaware are required to present business opportunities to a corporation if:
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the corporation could financially undertake the opportunity;
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the opportunity is within the corporation’s line of business; and
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it would not be fair to the company and its stockholders for the opportunity not to be brought to the attention of the
corporation.
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Accordingly, as a result of multiple business affiliations, our
officers and directors may have similar legal obligations relating to presenting business opportunities meeting the above-listed criteria to multiple entities. Furthermore, our Existing Charter provides 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 our 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.
Below is a table summarizing the entities to which our officers
and directors currently have fiduciary duties or contractual obligations:
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Individual
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Entity
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Entity’s Business
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Affiliation
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Ophir Sternberg
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BurgerFi International Inc.
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Restaurant chain company
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Executive Chairman
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Lionheart III Corp
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SPAC
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Chairman, President and Chief Executive Officer
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Lionheart IV Corp
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SPAC
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Chairman, President and Chief Executive Officer
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Lionheart Capital LLC
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Real estate investment firm
|
| |
Chief Executive Officer
|
|
|
| |
Lionheart Management LLC
|
| |
Real estate holding company
|
| |
Manager
|
|
|
| |
Out of the Box Holdings LLC
|
| |
Retail space redevelopment company
|
| |
Manager
|
|
|
| |
Whitecap Lofts, LLC
|
| |
Retail space redevelopment company
|
| |
Manager
|
|
|
| |
6610 Mooretown Road, LLC
|
| |
Retail real estate company
|
| |
Manager
|
|
|
| |
Contrarian Retail Partners, LLC
|
| |
Retail real estate company
|
| |
Chairman
|
|
|
| |
Cigarette Holdings, LLC
|
| |
Own and operate Cigarette Racing Team
|
| |
Non-controlling Member
|
|
|
| |
RC Lakehouse, LLC
|
| |
Residential real estate holding company
|
| |
Non-controlling Member
|
|
|
| |
|
| |
|
| |
|
138
|
Individual
|
| |
Entity
|
| |
Entity’s Business
|
| |
Affiliation
|
|
Paul Rapisarda
|
| |
Lionheart Capital LLC
|
| |
Real estate investment firm
|
| |
Chief Financial Officer
|
|
|
| |
Lionheart Management LLC
|
| |
Real estate holding company
|
| |
Chief Financial Officer
|
|
|
| |
Lionheart III Corp
|
| |
SPAC
|
| |
Chief Financial Officer
|
|
|
| |
Lionheart IV Corp
|
| |
SPAC
|
| |
Chief Financial Officer
|
|
|
| |
Out of the Box Holdings LLC
|
| |
Retail space redevelopment company
|
| |
Chief Financial Officer
|
|
|
| |
Garrison Capital Advisors LLC
|
| |
Financial consulting and advisory services company
|
| |
Sole Member
|
|
|
| |
Whitecap Lofts, LLC
|
| |
Retail space redevelopment company
|
| |
Chief Financial Officer
|
|
|
| |
6610 Mooretown Road, LLC
|
| |
Retail real estate company
|
| |
Chief Financial Officer
|
|
|
| |
Contrarian Retail Partners, LLC
|
| |
Retail real estate company
|
| |
Chief Financial Officer
|
|
|
| |
|
| |
|
| |
|
|
Faquiry Diaz Cala
|
| |
Lionheart Capital LLC
|
| |
Real estate investment firm
|
| |
Chief Operating Officer
|
|
|
| |
BurgerFi International, Inc.
|
| |
Restaurant chain company
|
| |
Chief of Mergers and Acquisitions and Corporate Strategy
|
|
|
| |
Lionheart III Corp
|
| |
SPAC
|
| |
Chief Operating Officer
|
|
|
| |
Lionheart IV Corp
|
| |
SPAC
|
| |
Chief Operating Officer
|
|
|
| |
|
| |
|
| |
|
|
James Anderson
|
| |
Lionheart III Corp
|
| |
SPAC
|
| |
Director
|
|
|
| |
Lionheart IV Corp
|
| |
SPAC
|
| |
Director
|
|
|
| |
|
| |
|
| |
|
|
Thomas Byrne
|
| |
Lionheart III Corp
|
| |
SPAC
|
| |
Director
|
|
|
| |
Lionheart IV Corp
|
| |
SPAC
|
| |
Director
|
|
|
| |
Kaptyn Holding Corp.
|
| |
Electric Vehicle Rideshare Company
|
| |
Co-Founder and Chief Strategy Officer
|
|
|
| |
New River Capital Partners, LP
|
| |
Private Equity Fund
|
| |
General Partner
|
|
|
| |
|
| |
|
| |
|
|
Thomas Hawkins
|
| |
Lionheart III Corp
|
| |
SPAC
|
| |
Director
|
|
|
| |
Lionheart IV Corp
|
| |
SPAC
|
| |
Director
|
|
|
| |
Alumni Association of the University of Michigan
|
| |
Educational Outreach
|
| |
Director
|
|
|
| |
Jumptuit Inc.
|
| |
Data Analytics Technology Company
|
| |
Director
|
|
|
| |
|
| |
|
| |
|
|
Roger Meltzer, Esq.
|
| |
DLA Piper LLP (US)
|
| |
Legal services
|
| |
Partner
|
|
|
| |
Haymaker Acquisition Corp. III
|
| |
SPAC
|
| |
Director
|
|
|
| |
Lionheart III Corp
|
| |
SPAC
|
| |
Director
|
|
|
| |
Lionheart IV Corp
|
| |
SPAC
|
| |
Director
|
|
|
| |
Ubicquia LLC
|
| |
Smart lighting solutions provider
|
| |
Director
|
Accordingly, if any of the above officers or directors becomes
aware of a business combination opportunity which is suitable for any of the above entities to which he has current fiduciary or contractual obligations, he will honor his fiduciary or contractual obligations to present such business
combination opportunity to such entity, and only present it to us if such entity rejects the opportunity. These entities, including Lionheart III, Lionheart IV and HYAC, may compete with us for acquisition opportunities. If these entities
decide to pursue any such opportunity, we may be precluded from pursuing such opportunities.
139
The Company has limited the application of the “corporate
opportunity” doctrine in the Existing Charter. The corporate opportunity doctrine generally provides that, as a part of his or her duty of loyalty to the corporation and its stockholders, a director may not take a business opportunity for his
or her own if: (1) the corporation is financially able to exploit the opportunity; (2) the opportunity is within the corporation’s line of business; (3) the corporation has an interest or expectancy in the opportunity; and (4) by taking the
opportunity for his or her own, the self-interest of the director will be brought into conflict with the director’s duties to the corporation. Section 122(17) of the DGCL expressly permits a Delaware corporation to renounce in its certificate
of incorporation any interest or expectancy of the corporation in, or in being offered an opportunity to participate in, specified business opportunities or specified classes or categories of business opportunities that are presented to the
corporation or its officers, directors or stockholders. Accordingly, the Existing Charter provides that the corporate opportunity doctrine shall not apply with respect to the Company or any of its officers or directors. The Company does not
believe that the limitation of the application of the corporate opportunity doctrine in the Existing Charter had any impact on its search for a potential business combination.
We are not prohibited from pursuing an initial business
combination with a company that is affiliated with the Sponsor or our officers or directors. However, in the event we seek to complete our initial business combination with such a company, we, or a committee of independent directors, would
obtain an opinion from an independent investment banking firm that is a member of FINRA or from an independent accounting firm, that such an initial business combination is fair to our company from a financial point of view.
The Sponsor and our officers and directors have agreed to vote
their shares of common stock held by them in favor of the Business Combination.
Limitation on Liability and Indemnification of Officers and
Directors
Our Existing Charter provides that our officers and directors will
be indemnified by us to the fullest extent authorized by Delaware law, as it now exists or may in the future be amended. In addition, our Existing Charter provides that our directors will not be personally liable for monetary damages to us or
our stockholders for breaches of their fiduciary duty as directors, unless they violated their duty of loyalty to us or our stockholders, acted in bad faith, knowingly or intentionally violated the law, authorized unlawful payments of
dividends, unlawful stock purchases or unlawful redemptions, or derived an improper personal benefit from their actions as directors.
We have entered into agreements with our officers and directors to
provide contractual indemnification in addition to the indemnification provided for in our Existing Charter. Our bylaws also permit us to secure insurance on behalf of any officer, director or employee for any liability arising out of his or
her actions, regardless of whether Delaware law would permit such indemnification. We have purchased a policy of directors’ and officers’ liability insurance that insures our officers 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.
These provisions may discourage stockholders from bringing a
lawsuit against our directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against officers and directors, even though such an action, if successful, might
otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against officers and directors pursuant to these indemnification
provisions.
We believe that these provisions, the directors’ and officers’
liability insurance and the indemnity agreements are necessary to attract and retain talented and experienced officers and directors.
140
THE COMPANY’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the
Company’s financial condition and results of operations should be read in conjunction with the Company’s financial statements and the notes thereto contained elsewhere in this proxy statement/prospectus. Certain information contained in the
discussion, including, but not limited to, those described under the heading “Risk Factors” and analysis set forth below includes forward-looking statements that involve risks and uncertainties. References in this section to “LCAP,” “we,” “us,”
“our” and “the Company” are intended to mean the business and operations of the Company.
Overview
We are a blank check company incorporated on December 23, 2019 as
a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We intend to effectuate the Business
Combination using cash from the proceeds of the IPO and the sale of the Private Units and shares issued to the owners of the target.
Results of Operations
We have neither engaged in any operations nor generated any
revenues to date. Our only activities from December 23, 2019 (inception) through December 31, 2021 were organizational activities, those necessary to prepare for the IPO, described below, and, subsequent to the IPO, identifying a target
company for a business combination, in particular activities in connection with the potential acquisition of MSP. We do not expect to generate any operating revenues until after the completion of our business combination. We expect to
generate non-operating income in the form of interest income on marketable securities held after the IPO. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as
for due diligence expenses.
For the year ended December 31, 2021, we had a net income of
$3,206,635, which consists of the change in fair value of warrant liabilities of $6,976,750 and interest earned on marketable securities held in the Trust Account of $15,188, offset by operating and formation costs of $3,785,303.
For the year ended December 31, 2020, we had a net loss of
$2,061,769, which consists of operating and formation costs of $1,472,168 and transaction costs associated with the Initial Public Offering of $837,355, offset by the change in fair value of warrant liabilities of $236,500 and interest income
on marketable securities held in the Trust Account of $11,254.
Liquidity and Capital Resources
Until the consummation of the IPO, our only source of liquidity
was an initial purchase of common stock by the Sponsor and loans from the Sponsor.
On August 18, 2020, we consummated the IPO of 20,000,000 of our
units. Each Public Unit consists of one share of our Class A Common Stock and one-half of one Public Warrant, which entitles the holder of one whole warrant to purchase one share of our Class A Common Stock at an exercise price of $11.50 per
share (subject to adjustment). Our Public Units were sold at a price of $10.00 per Public Unit, generating gross proceeds to us of $200,000,000. Simultaneously with the consummation of our Public Offering, we completed the Private Placement of
an aggregate of 650,000 units to the Sponsor and Nomura at a price of $10.00 per Private Unit, each entitling the holder thereof to purchase one share of our Class A Common Stock at an exercise price of $11.50 per share, generating gross
proceeds to us of $6,500,000.
On August 24, 2020, in connection with the underwriters’ election
to fully exercise of their option to purchase additional Units, we consummated the sale of an additional 3,000,000 Units, generating total gross proceeds of $30,000,000.
On the IPO Closing Date, $230,000,000 of the gross proceeds
from the IPO and the Private Placement was deposited in the Trust Account with Trustee, and on the IPO Closing Date we had $1,421,063 of cash held outside of the Trust Account, after payment of costs related to the IPO, and available for
working capital purposes. We incurred $13,128,937 in transaction costs related to the IPO, including $4,600,000 of underwriting discounts, $8,050,000 of deferred underwriters’ commissions and $478,937 of other offering costs.
141
For the year ended December 31, 2021, cash used in operating
activities was $847,669, Net income of $3,206,635 was affected by the change in fair value of warrant liability of $6,976,750 and interest earned on marketable securities held in the Trust Account of $15,188. Changes in operating assets and
liabilities provided $2,937,634 of cash from operating activities.
For the year ended December 31, 2020, cash used in operating
activities was $434,376, Net loss of $2,061,769 was affected by the change in fair value of warrant liability of $236,500, transaction costs associated with the Initial Public Offering of $837,355, interest earned on marketable securities
held in the Trust Account of $11,254 and changes in operating assets and liabilities, which provided $1,037,792 of cash from operating activities.
As of December 31, 2021, we had cash and marketable securities
held in the Trust Account of $230,013,074. We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account to complete our Business Combination. We may
withdraw interest to pay franchise and income taxes. Through December 31, 2021, we have withdrawn $13,368 of interest earned on the Trust Account for the payment of franchise and income taxes. To the extent that our capital stock or debt is
used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other
acquisitions and pursue our growth strategies.
As of December 31, 2021, we had cash of $177,386 outside of the
Trust Account. We intend to use the funds held outside the Trust Account primarily to complete our disclosed Business Combination as agreed upon in the MIPA.
In addition, the Sponsor, an affiliate of the Sponsor, or our
officers and directors may, but are not obligated to, loan us funds as may be required. If we complete a business combination, we would repay such loaned amounts. In the event that a business combination does not close, we may use a portion of
the working capital held outside the trust account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,000,000 of such loans may be convertible into units, at a price of $10.00 per unit
at the option of the lender. The units would be identical to the Private Units. The terms of such loans by our officers and directors, if any, have not been determined and no written agreements exist with respect to such loans. The loans would
be repaid upon consummation of a business combination, without interest.
In order to fund working capital deficiencies or finance
transaction costs in connection with a business combination, on February 21, 2021, the Sponsor committed up to $750,000 in loans to the Company for continuing operations to consummate a business combination. The Sponsor committed up to an
additional $250,000 in loans to the Company for continuing operations to consummate a business combination on July 29, 2021, for an aggregate commitment of $1,000,000. The loans are non-interest bearing, unsecured, and to be repaid upon the
consummation of a business combination. In the event that a business combination does not occur, then all loaned amounts under this commitment will be forgiven except to the extent that the Company has funds available to it outside the trust
account.
We will need to raise additional funds in order to meet the
expenditures required for operating our business. Based off our estimates of the costs of identifying a target business, undertaking in-depth due diligence, and negotiating a business combination, we may have insufficient funds available to
operate our business prior to our business combination. Moreover, we may need to obtain additional financing either to complete our business combination or because we become obligated to redeem a significant number of our Public Shares upon
consummation of our business combination, in which case we may issue additional securities or incur debt in connection with such business combination. Subject to compliance with applicable securities laws, we would only complete such financing
simultaneously with the completion of our business combination. If we are unable to complete our business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust
Account. In addition, following our business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
Off-Balance Sheet Financing Arrangements
We did not have any off-balance sheet arrangements as of December
31, 2021.
142
Contractual Obligations
We do not have any long-term debt, capital lease obligations,
operating lease obligations or long-term liabilities, other than an agreement to pay the Sponsor a monthly fee of $15,000 for office space, utilities and secretarial and administrative support to the Company. We began incurring these fees on
August 14, 2020 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and the Company’s liquidation.
The underwriters are entitled to a deferred fee of $0.35 per Unit,
or $8,050,000 in the aggregate. The deferred fee will become payable to the underwriters 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.
Critical Accounting Policies and Estimates
The preparation of condensed financial statements and related
disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Warrant Liability
We account for the warrants issued in connection with our IPO in
accordance with the guidance contained in Accounting Standards Codification (“ASC”) 815 under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, we classify the warrants as
liabilities at their fair value and adjust the warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement
of operations.
Common Stock Subject to Possible Redemption
We account for common stock subject to possible redemption in
accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock
(including common stock that feature redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all
other times, common stock is classified as stockholders’ equity. Our common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, common
stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of our condensed balance sheets.
Net Income (Loss) Per Common Share
We comply with accounting and disclosure requirements of FASB ASC
Topic 260, “Earnings Per Share”. Net income (loss) per common stock is computed by dividing net income (loss) by the weighted average number of common stocks outstanding for the period. We apply the two-class method in calculating earnings per
share. Accretion associated with the redeemable shares of Class A Common Stock is excluded from earnings per share as the redemption value approximates fair value.
The calculation of diluted income (loss) per share does not
consider the effect of the warrants issued in connection with the (i) IPO, and (ii) the private placement since the exercise of the warrants is contingent upon the occurrence of future events. The warrants are exercisable to purchase
11,825,000 shares of Class A Common Stock in the aggregate. As of December 31, 2021 and 2020, we did not have any dilutive securities or other contracts that could, potentially, be exercised or converted into common stocks and then share in
the earnings of the Company. As a result, diluted net loss per common stock is the same as basic net loss per common stock for the periods presented.
Recent accounting standards
Management does not believe that any recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.
143
THE COMPANY AND THE POST-COMBINATION COMPANY
The following table and accompanying footnotes set forth
information known to the Company regarding the (i) actual beneficial ownership of Class A Common Stock and Class B Common Stock, as of March 11, 2022 (the “Ownership Date”), (ii) actual beneficial ownership percentage of MSP as of the
Ownership Date and (iii) expected beneficial ownership of the Post-Combination Company immediately following consummation of the Business Combination, assuming no Public Shares are redeemed, and alternatively that all Public Shares are
redeemed, by:
|
•
|
each person who is, or is expected to be, the beneficial owner of more than 5% of the outstanding shares of common stock of
the Company or the Post-Combination Company, as applicable;
|
|
•
|
each of the Company’s directors and executive officers;
|
|
•
|
each person who will become a director or named executive officer of the Post-Combination Company; and
|
|
•
|
all directors and officers of the Company, as a group, and of the Post-Combination Company, as a group.
|
The beneficial ownership of the common stock of the Company is
based on 12,703,631 shares of Class A Common Stock issued and outstanding and 5,750,000 shares of Class B Common Stock issued and outstanding as of the Ownership Date. The beneficial ownership percentages of MSP are based on MSP management’s
estimates of the proportion of the aggregate enterprise value of the MSP Purchased Companies that is attributable to each MSP Purchased Company.
Beneficial ownership for the purposes of the following table is
determined in accordance with the rules and regulations of the SEC, which generally provide that a person is a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the
voting of the security, or “investment power,” which includes the power to dispose of or to direct the disposition of the security or has the right to acquire such powers within 60 days.
Unless otherwise noted in the footnotes to the following table, we
believe that the persons and entities named in the table have sole voting and investment power with respect to their beneficially owned common stock.
The expected beneficial ownership of shares of our Class A
Common Stock post-Business Combination, assuming none of our Public Shares are redeemed, has been determined based upon the following: (i) no Public Stockholders have exercised their redemption rights to receive cash from the Trust Account in
exchange for their shares of Class A Common Stock, (ii) other than in connection with the exercise of all of the Public Warrants and the Private Warrants, we have not issued any additional shares of Class A Common Stock and (iii) no New
Warrants have been exercised (except as described in Note (6) in the table below). The expected beneficial ownership of shares of our Class A Common Stock post-Business Combination, assuming the maximum number of our Public Shares are
redeemed, has been determined based upon the following: (i) Public Stockholders holding an aggregate of 16,107,626 shares of Class A Common Stock have exercised their redemption rights to receive cash from the Trust Account in exchange for
their shares of Class A Common Stock, (ii) other than in connection with the exercise of all of the Public Warrants and the Private Warrants, we have not issued any additional shares of Class A Common Stock and (iii) no New Warrants have been
exercised (except as described in Note (6) in the table below). The expected beneficial ownership of shares of the Post-Combination Company also assumes in each case that all of the Equity Consideration to be issued in connection with the
transaction is issued in the form of Up-C Units, and no such Up-C Unit has been exchanged. In the case of both the no redemption scenario and the expense adjusted maximum redemption scenario, the aggregate Equity Consideration of
3,250,000,000 Up-C Units to be received by the Members that is reflected in the following table is reduced by an aggregate of 621,200,000 Up-C Units, which are anticipated to be designated by the Members to their designees as of the Closing.
The approximately 1,029,000,000 Up-C Units that are subject to repurchase upon exercise of the New Warrants, the 71,000,000 Up-C Units that will be held in escrow, as well as any additional Up-C Units that may be exchanged for Class A Common
Stock pursuant to the VRM Full Return Guaranty, are each reflected as being beneficially owned by the applicable Members in the table below.
144
Based on the foregoing assumptions, the expected beneficial
ownership of the common stock of the Post-Combination Company is based on 30,278,631 shares of Class A Common Stock expected to be issued and outstanding as of immediately following the Closing (assuming the no redemption scenario) and
24,877,004 shares of Class A Common Stock expected to be issued and outstanding as of immediately following the Closing (assuming the expense adjusted maximum redemption scenario), in each case including 11,825,000 shares of Class A Common
Stock issuable upon the exercise of all of the Public Warrants and the Private Warrants, because we expect that these securities will be exercised within 60 days following the Closing, assuming the issuance of the New Warrants.
|
|
| |
MSP
|
| |
Company Common Stock
|
| |
Post-Combination Company Shares after Consummation of the Business
Combination
|
|||||||||||||||||||||
|
|
| |
|
| |
|
| |
|
| |
|
| |
No Redemption Scenario
|
| |
Expense Adjusted Maximum Redemption Scenario
|
||||||||||||
|
Name and Address of Beneficial Owner
|
| |
Percentage
of MSP
|
| |
Class A
Common
Stock
|
| |
Class B
Common
Stock
|
| |
Percentage
of
Company
Common
Stock
|
| |
Class A
Common
Stock
|
| |
Class V
Common
Stock
|
| |
Percentage
of Total
Voting
Power
|
| |
Class A
Common
Stock
|
| |
Class V
Common
Stock
|
| |
Percentage
of Total
Voting
Power
|
|
5% Holders Pre-Business Combination
|
||||||||||||||||||||||||||||||
|
Mizuho Financial Group, Inc.(1)
|
| |
—
|
| |
1,613,533
|
| |
—
|
| |
8.74%
|
| |
1,613,533
|
| |
—
|
| |
**
|
| |
1,613,533
|
| |
—
|
| |
**
|
|
Nomura Holdings, Inc.(2)
|
| |
—
|
| |
1,537,087
|
| |
—
|
| |
8.33%
|
| |
1,537,087
|
| |
—
|
| |
**
|
| |
1,537,087
|
| |
—
|
| |
**
|
|
Magnetar Financial LLC(3)
|
| |
—
|
| |
1,444,754
|
| |
—
|
| |
7.83%
|
| |
1,444,754
|
| |
—
|
| |
**
|
| |
1,444,754
|
| |
—
|
| |
**
|
|
Bank of Montreal(4)
|
| |
—
|
| |
1,300,000
|
| |
—
|
| |
7.04%
|
| |
1,300,000
|
| |
—
|
| |
**
|
| |
1,300,000
|
| |
—
|
| |
**
|
|
Marshall Wace, LLC(5)
|
| |
—
|
| |
1,197,522
|
| |
—
|
| |
6.49%
|
| |
1,197,522
|
| |
—
|
| |
**
|
| |
1,197,522
|
| |
—
|
| |
**
|
|
LCAP Officers and Directors Pre-business Combination
|
||||||||||||||||||||||||||||||
|
Ophir Sternberg(6)
|
| |
—
|
| |
427,500
|
| |
5,165,000
|
| |
30.31%
|
| |
5,317,275
|
| |
—
|
| |
**
|
| |
5,317,275
|
| |
—
|
| |
**
|
|
Paul Rapisarda
|
| |
—
|
| |
10,000
|
| |
30,000
|
| |
**
|
| |
230,225
|
| |
—
|
| |
**
|
| |
230,225
|
| |
—
|
| |
**
|
|
Faquiry Diaz Cala
|
| |
—
|
| |
17,500
|
| |
52,500
|
| |
**
|
| |
95,000
|
| |
—
|
| |
**
|
| |
95,000
|
| |
—
|
| |
**
|
|
Total
|
| |
—
|
| |
7,547,896
|
| |
5,247,500
|
| |
69.34%
|
| |
12,735,396
|
| |
—
|
| |
**
|
| |
12,735,396
|
| |
—
|
| |
**
|
|
James Anderson
|
| |
—
|
| |
—
|
| |
—
|
| |
**
|
| |
10,000
|
| |
—
|
| |
**
|
| |
10,000
|
| |
—
|
| |
**
|
|
Thomas Byrne
|
| |
—
|
| |
—
|
| |
—
|
| |
**
|
| |
10,000
|
| |
—
|
| |
**
|
| |
10,000
|
| |
—
|
| |
**
|
|
Thomas W. Hawkins
|
| |
—
|
| |
—
|
| |
—
|
| |
**
|
| |
10,000
|
| |
—
|
| |
**
|
| |
10,000
|
| |
—
|
| |
**
|
|
Roger Meltzer
|
| |
—
|
| |
—
|
| |
—
|
| |
**
|
| |
10,000
|
| |
—
|
| |
**
|
| |
10,000
|
| |
—
|
| |
**
|
|
Total
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
12,775,396
|
| |
—
|
| |
**
|
| |
12,775,396
|
| |
—
|
| |
**
|
|
MSP 5% Holders Pre-Business Combination
|
||||||||||||||||||||||||||||||
|
John H. Ruiz(7)(9)(11)
|
| |
69.78%(2)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
2,139,397,170
|
| |
65.22%
|
| |
—
|
| |
2,139,397,170
|
| |
65.33%
|
|
Frank C. Quesada(8)(10)(11)(12)(13)
|
| |
29.91%(3)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
897,440,460
|
| |
27.36%
|
| |
—
|
| |
897,440,460
|
| |
27.40%
|
|
Post-Combination Company Named Executive Officers,
Director Nominees and 5% Holders Post-Business Combination
|
||||||||||||||||||||||||||||||
|
John H. Ruiz(7)(9)(11)
|
| |
69.78%(2)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
2,139,397,170
|
| |
65.22%
|
| |
—
|
| |
2,139,170
|
| |
65.33%
|
|
Frank C. Quesada(8)(10)(11)(12)(13)
|
| |
29.91%(3)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
897,440,460
|
| |
27.36%
|
| |
—
|
| |
897,440,460
|
| |
27.40%
|
|
Ophir Sternberg(1)
|
| |
—
|
| |
427,500
|
| |
5,165,000
|
| |
30.31%
|
| |
5,317,275
|
| |
—
|
| |
**
|
| |
5,317,275
|
| |
—
|
| |
**
|
|
Beatriz Assapimonwait
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
Michael Arrigo
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
Thomas W. Hawkins
|
| |
—
|
| |
—
|
| |
—
|
| |
**
|
| |
10,000
|
| |
—
|
| |
**
|
| |
10,000
|
| |
—
|
| |
**
|
|
Roger Meltzer
|
| |
—
|
| |
—
|
| |
—
|
| |
**
|
| |
10,000
|
| |
—
|
| |
**
|
| |
10,000
|
| |
—
|
| |
**
|
|
Ricardo Rivera(14)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
Alexandra Plascencia(14)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
[•]
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
Total(11)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
5,337,275
|
| |
3,042,174,905
|
| |
92.74%
|
| |
5,337,275
|
| |
3,042,174,905
|
| |
92.89%
|
|
(1)
|
Based solely upon information contained in a Schedule 13G filed on February 14, 2022, represents 1,613,533 shares of Class
A Common Stock. The business address of Mizuho Financial Group, Inc. is 1-5-5 Otemachi, Chivoda-ku, Tokyo 100-8176, Japan.
|
|
(2)
|
Based solely upon information contained in a Schedule 13G filed on February 14, 2022, represents 1,537,087 shares of Class
A Common Stock beneficially owned by Nomura Global Financial Products, Inc., a wholly owned subsidiary of Nomura Holdings, Inc., which accordingly may be deemed to beneficially own the shares. The business address of Nomura Holdings,
Inc. is 13-1, Nihonbashi 1-chome, Chuo-ku, Tokyo 103-8645, Japan.
|
|
(3)
|
Based solely upon information contained in a Schedule 13G filed on January 28, 2022 by Magnetar Financial LLC (“Magnetar Financial”), Magnetar Capital Partners LP (“Magnetar Capital Partners”), Supernova Management LLC (“Supernova Management”), and Alec N. Litowitz, represents 1,444,754 shares of Class A Common Stock held for Magnetar Constellation Fund II, Ltd, Magnetar Constellation Master Fund, Ltd,
Magnetar Systematic Multi-Strategy Master Fund Ltd, Magnetar Capital Master Fund Ltd, Magnetar Discovery Master Fund Ltd, Magnetar Xing He Master Fund Ltd, Purpose Alternative Credit Fund Ltd, Magnetar SC Fund Ltd, all Cayman Islands
exempted companies; Magnetar Structured Credit Fund, LP, a Delaware limited partnership; Magnetar Lake Credit Fund LLC, Purpose Alternative Credit Fund - T LLC, Delaware limited liability companies; collectively (the “Magnetar Funds”). Magnetar Financial serves as the investment adviser to the Magnetar Funds, and as such, Magnetar Financial exercises voting and investment power over the shares held for
the
|
145
Magnetar Funds’ accounts. Magnetar Capital Partners serves as the sole member
and parent holding company of Magnetar Financial. Supernova Management is the general partner of Magnetar Capital Partners. The manager of Supernova Management is Mr. Litowitz. The business address of Magnetar Financial, Magnetar Capital
Partners, Supernova Management, and Mr. Litowitz is 1603 Orrington Avenue, 13th Floor, Evanston, Illinois 60201.
|
(4)
|
Based solely upon information contained in a Schedule 13G filed on February 15, 2022, represents 1,300,000 shares of Class
A Common Stock. The business address of Bank of Montreal is 100 King Street West, 21st Floor, Toronto, M5X 1A1, Ontario, Canada.
|
|
(5)
|
Based solely upon information contained in a Schedule 13G filed on February 14, 2022, represents 1,197,525 shares of Class
A Common Stock. The business address of Marshall Wace, LLC is George House, 131 Sloane Street, London, SW1X 9AT, UK.
|
|
(6)
|
In addition to ownership interests held by Mr. Sternberg in his individual capacity, Mr. Sternberg also beneficially owns
Lionheart Investments and Lionheart Equities, LLC, and, when taken together with his individual holdings, owns the reported percentage of beneficial ownership.
|
|
(7)
|
In addition to ownership interests held by Mr. Ruiz in his individual capacity, Mr. Ruiz also beneficially owns the
following Members, and, when taken together with his individual holdings, owns the reported percentage of beneficial ownership of the MSP Purchased Companies: Jocral Holdings, Jocral Family, and Ruiz Group Holdings Limited, LLC.
Reported figures do not include the approximately (i) 8,070,617 Up-C Units expected to be beneficially owned by John Ruiz II, Mr. Ruiz’s son, in his capacity as a Member, of which Mr. Ruiz disclaims beneficial ownership or (ii)
30,000,000 Up-C Units expected to be designated to Alex Ruiz, Mr. Ruiz’s son, of which Mr. Ruiz disclaims beneficial ownership.
|
|
(8)
|
In addition to ownership interests held by Mr. Quesada in his individual capacity, Mr. Quesada also beneficially owns
Quesada Group Holdings LLC, and, when taken together with his individual holdings, owns the reported percentage of beneficial ownership of the MSP Purchased Companies.
|
|
(9)
|
Reported figures do not include any attributed ownership based on Mr. Ruiz’s investment in VRM, which have been transferred
to affiliated trusts of Mr. Ruiz and of which Mr. Ruiz disclaims beneficial ownership. Messrs. Ruiz and Quesada together invested in VRM, which investment represented a 1.14% ownership interest in VRM. Mr. Ruiz is entitled to 70% of
such investment, and Mr. Quesada is entitled to 30% of such investment. As a result, the indirect beneficial ownership attributable to such affiliated trusts would be 0.8% of VRM.
|
|
(10)
|
Reported figures do not include any attributed ownership based on Mr. Quesada’s investment in VRM, which have been
transferred to affiliated trusts of Mr. Quesada and of which Mr. Quesada disclaims beneficial ownership. Messrs. Ruiz and Quesada together invested in VRM, which investment represented a 1.14% ownership interest in VRM. Mr. Ruiz is
entitled to 70% of such investment, and Mr. Quesada is entitled to 30% of such investment. As a result, the indirect beneficial ownership attributable to such affiliated trusts would be 0.3% of VRM.
|
|
(11)
|
In connection with the Business Combination and to provide additional consideration to holders of Class A Common Stock that
do not redeem their shares of Class A Common Stock, the Company intends, subject to compliance with applicable law, to declare a dividend comprising an aggregate of approximately 1,029,000,000 New Warrants, conditioned upon the
consummation of any redemptions by the holders of Class A Common Stock and the Closing, to the holders of record of the Class A Common Stock as of the Closing Date, after giving effect to the waiver of the right, title and interest
in, to or under, participation in any such dividend by the Members, on behalf of themselves and any of their designees. Further, pursuant to the terms of the LLC Agreement, at least twice a month, to the extent any New Warrants have
been exercised in accordance with their terms, the Post-Combination Company is required to purchase from the MSP Principals, proportionately, the number of Up-C Units or shares of Class A Common Stock owned by such MSP Principal equal
to the Aggregate Exercise Price divided by the Warrant Exercise Price in exchange for the Aggregate Exercise Price. The approximately 1,029,000,000 New Warrants will be exercisable for Class A Common Stock representing approximately
31.4% and 31.4% of total voting power in the no redemption scenario and expense adjusted maximum redemption scenario, respectively, and will be distributed pro rata among each share of Class A Common Stock held at the end of business
on the Closing Date, which is expected to include the 5,750,000 shares of Class A Common Stock into which Founder Shares will convert in connection with the Business Combination. The number of New Warrants to be distributed in respect
of each share of unredeemed Class A Common Stock is contingent upon, and will vary with, the aggregate number of shares of Class A Common Stock that are redeemed in connection with the Business Combination, which may, depending on the
redemptions made by Public Stockholders, result in certain holders becoming beneficial owners of more than 5% of the total voting power following the Business Combination. As such, the beneficial ownership of holders of record of the
Class A Common Stock on the Closing Date reflecting the exercise of New Warrants is not shown above. Assuming redemptions of Public Stockholders who have not waived their redemption rights and full exercise of the New Warrants:
(i) directors and officers of the Company and beneficial owners of more than 5% of outstanding shares of Class A Common Stock, in each case, pre-Business Combination, are expected to hold a total of 322,546,563 and 453,680,722 shares
of Class A Common Stock, representing approximately 9.8% and 13.9% of total voting power and assuming a no redemption scenario and expense adjusted maximum redemption scenario, respectively, (ii) Mr. Ruiz would beneficially own
approximately 1,414,485,286 shares of Class V Common Stock, representing approximately 43.12% and 43.19% of total voting power, assuming a no redemption scenario and expense adjusted maximum redemption scenario, respectively and
(iii) Mr. Quesada would beneficially own approximately 593,352,344 shares of Class V Common Stock, representing approximately 18.09% and 18.12% of total voting power, assuming a no redemption scenario and expense adjusted maximum
redemption scenario, respectively. For additional impact of such New Warrant Exercise, see “Summary—Ownership of the Post-Closing Company.”
|
|
(12)
|
Assumes [25,000,000] Forfeited Units, which will be designated to Opco in connection with the Closing, Following the
Closing, the Post-Combination Company will establish the Bonus Pool, allocations of which may be paid to certain individuals, including executive officers and other employees of MSP, or may be made under the terms of the Incentive
Plan, at the discretion of Messrs. Ruiz and Quesada. The number of Forfeited Units and the number of securities comprising the Bonus Pool may be increased, and greater bonuses may be paid, in order to gross up recipients thereof for
any applicable withholding taxes.
|
|
(13)
|
Does not include 10,000,000 Up-C Units to be designated from Mr. Quesada to a third party.
|
|
(14)
|
Does not include any allocations that may be made pursuant to the Bonus Pool, as described in note (12) above.
|
|
**
|
Represents less than 5%
|
The Initial Stockholders beneficially own % of the Company’s
issued and outstanding shares of common stock as of the Record Date. Because of this ownership block, the Initial Stockholders may be able to influence the outcome of all matters requiring approval by our stockholders, including the election of
directors, amendments to our Existing Charter and approval of significant corporate transactions, including approval of the Business Combination.
The Sponsor and our directors and officers have entered into a
letter agreement with us pursuant to which they have agreed (A) to vote any shares of the Company’s common stock owned by them as of the Record Date in favor of the Proposals and (B) to waive their redemption rights with respect to any shares
of the Company’s common stock held by them in connection with the completion of the Business Combination. Nomura has also agreed to (A) to vote any shares of the Company’s common stock owned by it as of the Record Date in favor of the Business
Combination Proposal and (B) waive its redemption rights with respect to the Public Shares held by it, other than Public Shares held directly or indirectly by it on behalf of a third-party client.
146
In this section “we,” “us,” “our,” or the “Company” refers to MSP
prior to the Business Combination and to the Post-Combination Company following the Business Combination.
Glossary of Business Terms
As used in the section titled “Information
About MSP” in this proxy statement/prospectus, unless otherwise noted or the context otherwise requires, references to:
“ACO” means Accountable Care Organizations.
“Assignor” or “Client” means any person, including a Medicare
Advantage Organization, health maintenance organization, maintenance service organization, independent physician association, medical center, hospital, or other health care organization, that (i) contracts with (a) governmental healthcare
programs to provide Medicare benefits to persons who are covered under these programs (i.e., Medicare insureds) or (b) Medicare Advantage Organizations, (ii) has a statutory right to recover from a responsible party for conditional payments for
healthcare, services or supplies provided to such beneficiary, or (iii) pays, provides, or arranges for the provision of medical and healthcare services or supplies, including medications, treatment or other procedures to persons.
“Billed Amount” means the full amount billed by the provider to the
health plan or commercial insurer.
“Claim Line” refers to a medical service or item that is
documented electronically. A healthcare claim is a medical bill (e.g., UB04 or CMS1500 form) that is comprised of Claim Lines which each contain a procedure code and several diagnostic codes.
“CMS” means the Centers for Medicare & Medicaid Services, a
federal agency within the United States Department of Health and Human Services that administers the Medicare program.
“Commercial Insurance” refers to employer-sponsored purchased health
insurance coverage.
“First Tier and Downstream Entities” refers to Management Services
Organizations (MSOs) and Independent Physician Associations (IPAs).
“First Tier Entity” means any private entity that contracts with
an MAO to provide administrative services or healthcare services for the MAO.
“Funnel” refers to a selection of applicable diagnostic (ICD9/10),
procedure (CPT), drug (NDC), or provider (NPI) codes which are designed to identify a discrete set of Claim Lines associated with a particular potential recovery. A single potential recovery may require only one Funnel or multiple Funnels in
order to identify the appropriate Claim Lines.
“Government Related Recoveries” refers to certain lawsuits, also
known as whistleblower lawsuits, by individuals or “Relators” brought on behalf of the government against individuals who have defrauded the government under the False Claims Act (“FCA”).
“HHS” means the United States Department of Health and Human
Services.
“IPA” refers to an Independent Physician Association.
“Layer” means in a string of logic, including single or multiple
Funnels as elements, which is tailored to refine applicable Claim Lines in a hierarchy. Layers incorporate member and claim level conditions in order to categorize recoverable claims.
“MAO”, “Medicare Advantage”, or “MA Plan” refers to a Medicare
Advantage Organization that contracts with the CMS to administer Medicare benefits for Medicare beneficiaries under Medicare Advantage plans, as well as First Tier and Downstream Entities.
“Medicaid” refers to health coverage provided to eligible
low-income adults, children, pregnant women, elderly adults and people with disabilities.
“MSO” refers to a Management Services Organization.
“MSP Act” refers to the Medicare Secondary Payer Act, which is
codified at 42 U.S.C. § 1395y.
“MSP Laws” refers to the Medicare Secondary provisions of the Social
Security Act.
147
“Paid Amount” means the amount actually paid to the provider
from the health plan, including incorporation of capitated amounts. Capitated payments are typically based on a fixed amount per enrollee in a plan rather than amounts paid on a fee-for-service basis. As a result, to derive the equivalent of a
Paid Amount for purposes of measuring potential recoveries, in cases where payments were based on capitated amounts, MSP Recovery reviews capitated encounter data typically found in Medicare Part B payments. These capitation encounters have
been converted into Medicare-allowable reimbursement rates based on the Medicare rate tables to properly assess potential recoveries. Currently, the industry has not ordinarily converted capitated amounts, which by virtue of their capitated
status would have no Paid Amount or a Paid Amount reflected as zero. Since the law allows for the recovery of capitated amounts pursuant to 42 C.F.R. 411.31, MSP Recovery has converted these capitated claims as part of its Paid Amount
calculations, and thereby establishes a damage assessment of claims that otherwise would have been recoverable and not limited to a capitated amount.
“Paid Value of Potentially Recoverable Claims” or “PVPRC”
represents the cumulative Paid Amount of potentially recoverable claims identified using MSP proprietary algorithms which comb through historical paid claims data and search for possible recoveries based on our approximately 600 Funnels and
1,100 Layers.
“Primary Payer” refers to payers, such as insurers, that have the
primary responsibility for paying a claim.
“Reasonable and Customary Rate” refers to the amount paid for a
medical service in a geographic area based on what providers in the area usually charge for the same or similar medical service.
Information related to the Business
Industry Overview
The market for healthcare data and healthcare claims recovery
solutions is large and growing. In 2019, U.S. National Health expenditure was an estimated $3.8 trillion and accounted for 17.7% of the United States’ gross domestic product (or GDP). The Office of the Actuary of CMS estimates that U.S.
National Healthcare expenditure will amount to $6.2 trillion, accounting for 19.7% of the GDP in 2028. National health expenditures are projected to grow 1.1% faster than the GDP over 2019 through 2028.
CMS estimates that $1.6 trillion will be spent on Medicare and
Medicaid in 2021. This $1.6 trillion includes $684 billion on Medicaid expenditures and $923 billion on Medicare expenditures. The serviceable addressable market for Medicare is $102 billion and $75 billion for Medicaid for 2021.
Further, CMS estimates that they review less than 0.2% of the over
one billion claims that Medicare processes every year, which leads to a potential high frequency or number of improper payments of claims submitted.
MSP Business Overview
We are a leading healthcare recoveries and data analytics company.
Our business model includes two principal lines of business:
|
•
|
Claims Recovery. Through our claims recovery services, we acquire
payment claims from our Assignors, leverage our data analytics capability to identify payments that were improperly paid by our Assignors, and seek to recover the full amounts owed to our Assignors against those parties who under
applicable law or contract were primarily responsible.
|
|
•
|
Chase to Pay Services. Our “chase to pay” service (“Chase to
Pay”), through which we use our data analytics to assist our clients who are healthcare providers to identify, in the first instance, the proper primary insurer at the point of care and thereby avoid making wrongful payments. We are
currently developing the Chase to Pay Platform and are in the initial stages of offering these services.
|
For both lines of business, we focus on Medicare Advantage, Medicaid
and Commercial Insurance markets.
|
•
|
| |
Medicare Advantage
|
| |
MAOs contract with CMS to administer Medicare benefits to Medicare
beneficiaries pursuant to Medicare Advantage plans; and MAOs, in turn, contract with First Tier and Downstream Entities to assist the MAOs in administering those Medicare benefits.
|
|
•
|
| |
Medicaid
|
| |
Health coverage provided to eligible low-income adults, children, pregnant
women, elderly adults and people with disabilities.
|
148
|
•
|
| |
Commercial Insurance
|
| |
Employer-sponsored purchased health insurance coverage.
|
MSP’s History
In April 2014, MSP Recovery’s predecessor, La Ley Recovery
Systems, entered into its first Assignment Agreement. Later that year, MSP Recovery, LLC was founded, and La Ley Recovery Systems filed its first lawsuit against a Primary Payer — Allstate Insurance Company. Towards the end of 2014, we signed
our second and third Assignors. To date, we have over 150 Assignors.
Since 2014, we have had several significant victories,
specifically several significant appellate court wins, including; Humana Med. Plan, Inc. v. W. Heritage Ins. Co., 832 F.3d 1229, 1238 (11th Cir. 2016) in which MSP participated as an Amicus; MSP Recovery, LLC v. Allstate Ins. Co., 835 F.3d 1351, 1358 (11th Cir. 2016); MSPA Claims 1, LLC v. Tenet Fla., Inc., 918 F.3d 1312 (11th Cir. 2019); MSPA Claims 1, LLC v. Kingsway Amigo Ins. Co., 950 F.3d 764 (11th Cir. 2020); and MSP Recovery Claims, Series LLC v. ACE Am. Ins. Co., 974 F.3d 1305 (11th Cir.
2020), cert. denied, No. 20-1424, 2021 WL 2405179 (U.S. 2021). In MSP Recovery Claims, Series LLC v. ACE Am. Ins. Co., 974 F.3d 1305, 1308 (11th Cir. 2020), cert. denied, No. 20-1424, 2021 WL 2405179
(U.S. June 14, 2021), the court agreed with MSP on all issues, including:
|
•
|
Downstream entities (such as MSOs and IPAs) having standing to sue primary plans under the Medicare secondary payer laws;
|
|
•
|
A plaintiff under the Medicare secondary payer laws not being required to first transmit a demand letter to a Primary Payer;
and
|
|
•
|
The entering of a settlement agreement with beneficiaries being an example of an instance when a Primary Payer has
constructive knowledge that they owed the primary payments.
|
Our Recovery Model
Through our claims recovery business, we acquire claims from our
Assignors, and leverage our data analytics capability to identify payments that were improperly paid by secondary payers, and seek to recover the full amounts owed to our Assignors against those parties who, under applicable law or contract,
are primarily responsible.
As of December 31, 2021, we have been assigned certain recovery
rights for more than 150 Assignors in the Medicare, Medicaid, and Commercial Insurance space, with approximately $1.5 trillion in Billed Amount of health care claims. We have Assignors with claims stemming from all 50 states, as well as
Puerto Rico.
Our primary focus is on the Medicare and Medicaid market segments.
Medicare is the second largest government program, with estimated annual expenditures during 2021 of approximately $923 billion with approximately 63.5 million enrollees. Medicaid is a state-based program with estimated annual expenditures
during 2021 of approximately $684 billion with approximately 76.5 million enrollees. Of the amount spent yearly by Medicare on medical expenses for its beneficiaries, we estimate that at least 10% equals improper payments by private Medicare
Advantage plans instead of a Primary Payer.
Under the MSP Act, under certain conditions, Medicare is the
secondary payer rather than the Primary Payer for its insureds. When Medicare (or an MAO) makes a payment for medical services that are the responsibility of a primary plan under the MSP Act, those payments are secondary and subject to
recoupment in all situations where one of the statutorily enumerated sources of primary coverage could pay instead. Legislation enacted after the MSP Act authorizes private parties to recover unreimbursed payments in cases where a primary plan
fails to provide for primary payment (or appropriate reimbursement) in accordance with MSP Laws. We use the MSP Laws, among others, including “double damages” provisions, to hold Primary Payers accountable.
We believe our access to large volumes of data, sophisticated data
analytics, and one of the leading technology platforms provide a unique opportunity to discover and recover claims. Using our proprietary algorithms and data system, we identify fraud, waste, and abuse in the Medicare, Medicaid, and Commercial
Insurance segments. Our proprietary algorithms have identified what we currently estimate to be significant amounts of potentially recoverable claims.
Our team of data scientists and medical professionals create the
algorithms and processes that are applied to our data sets, and analyze historical medical claims data to identify recoverable opportunities in respect of Claims we have acquired. Once these potential recoveries are reviewed by our team, we can
aggregate them and pursue them.
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To date, we have developed over 1,400 proprietary algorithms which we believe will
help identify billions in waste, fraud, and abuse in the Medicare, Medicaid, and Commercial Insurance segments.
Our assets are generally comprised of a portion of the recovery
rights of our Assignors relating to the improper payment of medical expenses. We are typically entitled to 50% of recovery rights pursuant to our CCRAs, but in certain cases we have also purchased from our Assignors from time to time rights to
100% of the recovery. As opposed to service-based contracts, the entirety of these recovery rights have been irrevocably assigned to us, and because we own these rights, our assets cannot be cancelled.
Although we primarily target MAOs, MSOs and IPAs, we also can (and
in certain cases do) provide our claims recovery services to other entities such as:
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Physicians
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Home Healthcare Facilities
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States and Municipalities
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Skilled Nursing Facilities
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Additionally, our data recovery system operates across a Health
Insurance Portability and Accountability Act (“HIPAA”) compliant IT platform that incorporates the latest in business intelligence and data technology. Due to the sensitive nature of the data we receive from our Assignors, our systems need to
pass certain HIPAA security mandates. In June 2019, our systems received HITRUST CSF v9.1 certification, and we are currently in an audit process for the renewal of such certification. This certification assures that we are in compliance with
HIPAA rules and regulations. For our cloud computing services, we currently use the Amazon Web Services (AWS), which has received HITRUST certification.
The Opportunity
Through federal statutory law and a series of legal cases and
precedents, we believe we have an established basis for future recoveries.
By discovering, quantifying, and settling the gap between Billed
Amount and Paid Amount on a large scale, we believe we are positioned to generate meaningful annual recovery revenue at high profit margins. The Billed Amount is the full amount billed by the provider to the health plan or commercial insurer.
In other words, it is the total charged value of the claim. The Billed Amount for a specific procedure code is based on the provider and varies from location to location. The Billed Amount is often referred to as the “charged amount,” which we
also refer to as the “retail price.” The Paid Amount is the amount actually paid to the provider from the health plan or insurer, which we also refer to as the “wholesale price.” This amount varies based on the party making payment. For
example, Medicare pays a lower fee for service rate than commercial insurers. Pursuant to the “right-to-charge” provision in the MSP Laws, an MAO may charge, or authorize providers to charge, insurance carriers for any charges allowed under a
law, plan, or policy. Because such laws, plans, and policies provide for payment of the providers’ actual charges – rather than the reduced Medicare payments – MSP is able to pursue recovery of the Billed Amount and in certain cases, as
provided by law, pursue two times the Billed Amount for medical services and treatments. The below graphic demonstrates the difference between the Paid Amount, the Billed Amount, the potential for double damages, and additional statutory
penalties for noncompliance:
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For additional information, see “Development of Medicare and the
MSP Law” below.
Medicare Paid Rate:
The Paid Amount actually paid to the provider from the health plan. Medicare pays a lower fee for service (“FFS”) rate than commercial insurers. Subsequent thereto, MSP can recover in excess of the Paid Amount pursuant to
federal law.
Charged Amount from Provider (Billed Amount): For a majority of claims, the Company has the ability to recover in excess of the Paid Amount by collecting the Billed Amount and/or collecting double damages plus additional penalties and
interest under applicable law.
Double Damages:
Under existing statutory and case law, the private cause of action under the Medicare Secondary Payer Act permits an award of double damages when a primary plan fails to provide for primary payment or appropriate
reimbursement. We are entitled to recover medical expenses paid by our Assignors that should have been paid by Primary Plans.1 Under the MSP Act, we are entitled to double the amount that a provider
charged. The private cause of action under 42 U.S.C. § 1395y(b)(3)(A), works in concert with 42 U.S.C. § 1395w-22(a)(4), which expressly provides MAOs with the right to “charge or authorize the provider of such services to charge, in accordance with the charges allowed under
a law, plan, or policy, described in such section—the insurance carrier, employer, or
other entity which under such law, plan, or policy is to pay for the provision of such services…”.2,3 Moreover, the MSP regulations in Part 411 also support
the fact that a provider may bill its full charges for services
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See MSP Recovery Claims, Series LLC v. ACE Am. Ins. Co., 974 F.3d 1305, 1315 (11th Cir. 2020), cert. denied, 141 S. Ct. 2758, 210 L. Ed. 2d 906 (2021) (finding that “the payment of medical expenses that should have been covered by a primary payer—is
precisely the kind of injury that the Medicare Secondary Payer Act was meant to remove from the Medicare and Medicare Advantage systems”).
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42 U.S.C. § 1395w-22(a)(4)(A) (emphasis added); see also W. Heritage, 832 F.3d at 1238 (“An MAO has a statutory right to charge a primary plan when an MAO payment is made secondary
pursuant to the MSP.”); ACE, 974 F.3d at 1308-09 (noting that if an MAO “has made a conditional payment, and the
primary payer’s ‘responsibility for such payment’ has been ‘demonstrated,’…the primary payer is obligated to reimburse…the MAO” pursuant to § 1395w-22(a)(4)).
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to primary payers. The statute provides MSP the ability to seek double the
charged or otherwise Billed Amounts from primary plans. The payment disparity between the Paid Amount and the Billed Amount creates a free rider scenario where the primary payer is in a better financial position if it does not comply with the
law. In other words, if a primary payer’s liability is capped at double the Paid Amount (an amount less than what the primary payer would have paid) then the entire purpose of the MSP
Act—to make Medicare secondary—is defeated. That is why Congress set the damage amount at the billed rate, to incentivize compliance with the MSP Act.
MMSEA Multiple: In
addition, the MMSEA provides for a $1,000 per day, per claim, penalty for inaccurate or untimely reporting of certain settlements with Medicare beneficiaries. The precedential effect of ongoing settlements supports the
Company’s ability to collect multiples of the Paid Amount.4 Since individual claim lines may have the potential to be recoverable from either a property and casualty insurer (or other self-insurer), product
liability manufacturers or other potential responsible parties, each claim line may represent the ability to collect from different responsible parties.
Interest Multiple:
In addition to the full billed amount, MSP is entitled to interest pursuant to Section 1862(b)(2)(B)(i) of the Social Security Act and 42 C.F.R. 411.24(m) which provide express authority to assess interest on Medicare
Secondary Payer debts. Therefore, when litigation is needed to recover on a claim, MSP can recover the amount owed for its Assignor’s accident-related medical expenses plus interest. Then, that amount is statutorily
required to be doubled under 42 U.S.C. § 1395y(b)(3)(A).
Chase to Pay
Over time we plan to pivot the business to the “Chase to Pay”
model. Chase to Pay is a real-time analytics driven platform that identifies the proper primary payer at the point of care. Chase to Pay is intended to plug into the real-time medical utilization platforms used by providers at the point of
care. Rather than allow an MAO to make a wrongful payment whereby MSP would need to chase down the proper payer and collect a reimbursement for the MAO, Chase to Pay is intended to prevent the MAO from making that wrongful payment and ensures
the correct payer pays in the first instance. Furthermore, the Primary Payer typically will make payments at a higher multiple than the MAO would have paid, and MSP will be entitled to receive its portion of the recovery proceeds on the amounts
paid by the Primary Payer. As part of our “Chase to Pay” model, we launched LifeWallet in January 2022, a platform powered by our sophisticated data analysis, designed to locate and organize users’ medical records, facilitating efficient access
to enable informed decision-making and improved patient care.
Competitive Strengths
Irrevocable Assignments
We differ from some of our competitors because we receive our
recovery rights through irrevocable assignments of claims, and with respect to a significant portion of our claims, identify recoveries through data access rights granted to us by Assignors. When we are assigned these rights, we take on
ownership rights that our competitors do not. Rather than provide services under a third-party vendor services contract, we receive the rights to our Assignors’ claims, and therefore step into the Assignor’s shoes. Because we take claims by
assignment, we are the plaintiff in any action filed in connection with such claims and therefore, have total control over the direction of the litigation. By receiving claims through assignment, we can pursue additional recoveries under
numerous legal theories that our competitors cannot.
Scale of Current Portfolio
Our current portfolio has scaled significantly. As of December
31, 2021, we are entitled to a portion of any recovery rights associated with approximately $1.5 trillion in Billed Amount (and approximately $453 billion in Paid Amount), which contains an approximately $113 billion in Paid Value of
Potentially Recoverable Claims. We are
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Moreover, the MSP regulations in Part 411 also support the fact that a provider may bill its
full charges for services to primary payers. See 42 C.F.R. § 411.31(b) (stating that, with respect to
workers’ compensation plans, no-fault insurers, and employer group health plans, a provider generally “may bill its full charges and expect those charges to be paid.”).
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MSP has entered into settlement agreements to recover amounts
in excess of the paid amount. In MSPA Claims 1, LLC v. Ocean Harbor Cas. Ins. Co., Case No. 2015-1946-CA-01, MSP was
granted class certification and obtained approval of a class action settlement agreement,pursuant to which, subject to certain time and threshold limitations, Ocean Harbor has agreed to pay more than the Medicare Fee-for-Service
Schedule Rate by 3.5 times, for Medicare Part A emergency services and Medicare Part D claims, and by 1.6 times, for Medicare Part A non-emergency services, claims for MRI services and Medicare Part B claims. In MSP Recovery Claims, Series LLC v. Horace Mann Insurance Company, Case No. 1:20-cv-24419, we entered into a settlement agreement with
Horace Mann in which it has agreed to pay matched claims according to applicable commercial rates, subject to the assertion of certain agreed upon defenses. We believe the difference between the Paid
Amount of claims in that case and commercial rates would generally be between 4 to 6 times.
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typically entitled to 50% of recovery rights pursuant to our CCRAs, but in
certain cases we have also purchased from our Assignors from time to time rights to 100% of the recovery that would otherwise typically be retained by such Assignors. As of December 31, 2021, we were entitled to up to approximately 53% in the
aggregate of the approximately $113 billion in Paid Value of Potentially Recoverable Claims. Our recoveries would constitute a portion of the approximately $113 billion in Paid Value of Potentially Recoverable Claims that are actually
recovered, after giving effect to our expenses, including any contingent fee payment payable including to the Law Firm, described below under “Fee Sharing Arrangement.” See “Risk Factors — Our fee sharing arrangement with the Law Firm materially reduces our recoveries.” This approximately $113 billion in Paid Value of Potentially Recoverable Claims was
identified using MSP proprietary algorithms which comb through historical paid claims data and search for possible recoveries based on the various Funnels and Layers we have identified. As of December 31, 2021, the approximately $113 billion
in Paid Value of Potentially Recoverable Claims and approximately $453 billion in Paid Amount included approximately $32 billion and approximately $111 billion in capitated payments, respectively. Such capitated amounts are typically based on
a fixed amount per enrollee in a plan rather than amounts paid on a fee-for-service basis and, in calculating the equivalent of Paid Amount for purposes of measuring potential recoveries, in cases where payments were based on capitated
amounts, MSP Recovery reviews capitated encounter data typically found in Medicare Part B payments. MSP has successfully recovered full amounts on these capitated payments in prior settlements.
The typical timeline for claims being identified as potentially
recoverable claims to actual claims recovery revenue can vary greatly depending on the complexity of recovery strategy and litigation, as well as the status of each claim in the recovery process. MSP monitors the penetration status of the
claims portfolio, which categories the status of cases based on their status in the recovery process in the following categories: in development, recovery process initiated, data collected and matched, resolution discussions in process and
other cases. Potentially recoverable claims can take multiple years to reach resolution based on their status in the recovery process. For more information on the penetration status of the claims portfolio, please see the section of this proxy
statement/consent solicitation statement/prospectus entitled “MSP Recovery’s Management’s Discussion And Analysis Of Financial Condition And Results Of Operations — Key Performance Indicators.”
Our Proprietary Data Analytics System
We believe our access to large volumes of data, sophisticated data
analytics, and one of the leading technology platforms provide a unique opportunity to discover and recover claims. We have developed a proprietary system with over 1,400 algorithms that combs through historical paid claims data and searches
for possible recoveries. Each recovery path is categorized into an “MSP Funnel”. We currently have identified
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approximately 600 funnels and 1,100 Layers to estimate a Paid Value of
Potentially Recoverable Claims of $113 billion as of December 31, 2021. We continue to identify new trends and more reimbursement opportunities, as data mining identifies new potential recoveries.
Our Founders and Broad Team with Extensive Experience
Our experienced management also gives us a competitive advantage.
Our founder, John H. Ruiz, is recognized as one of America’s pre-eminent trial lawyers, named “2019’s DBR Florida Trailblazer” for groundbreaking work in integrating data analytics into the practice of law and for the impact it is having on
healthcare recoveries. Over the course of a distinguished 30-year legal career, Mr. Ruiz has gained national recognition in class action, mass tort litigation, multi-district litigation (“MDL”) consolidated cases, medical malpractice, products
liability, personal injury, real estate, and aviation disaster cases. Our Chief Legal Officer, Frank C. Quesada, has extensive experience in healthcare litigation, including numerous legal wins at the state and federal level.
Due to our team’s extensive knowledge of the MSP Act, and decades
worth of experience in data analytics within the medical industry and the regulations affecting this industry, we believe we are well positioned to recover monies owed to our Assignors under the MSP Act, as well as other state and federal laws.
We use our proprietary software and a highly trained staff including IT personnel, accountants, statisticians, physicians, data analysts and attorneys to maximize the recovery of claims already paid.
Growth Strategy
Expansion of Assignor Claims. CMS has projected that health spending will continue to grow at an average rate of 5.4% a year between 2019 and 2028. We anticipate that this trend will be reflected in our own growth. We plan to expand our
Assignor base by implementing new strategies to secure new Assignors and continue receiving assignments of claims from our existing Assignors. These strategies will include a platform to educate potential Assignors about our company, making
strategic business partnerships, potential mergers, acquisitions of personnel, as well as other marketing strategies.
Further Development of our Chase to Pay
Services. MSP is currently developing the Chase to Pay model. This model would allow payers and providers to identify the proper Primary Payer in real time, at the point of care. Our plan is to develop these
services to form a source of revenue that does not require the acquisition costs and recovery sharing associated with our claims recovery business.
Continued Development of our Data Analytics
System. We will also continue to develop our proprietary system and anticipate shifting to AI and machine learning to better enhance our recovery potential. The development of our system will allow us to be
more efficient in the services we provide our Assignors, as well as being able to attract more Assignors.
Monetizing Existing Software Applications. We intend to offer certain of our software applications, including our Claims to Med application as separate products. The Claims to Med application translates medical claims data, and medical bills, specifically
the codified component of procedural codes (CPT codes), into medical records that are consistent with claims records. This allows patients, providers, attorneys, corporations, and the general public to better understand their medical history.
Virage Investment Capacity Agreement. On September 30, 2021, MSP announced an Investment Capacity Agreement (the “ICA”) providing for potential future transactions regarding select healthcare claims recovery interests with its investment partner,
Virage, which transactions may include the sale of claims by MSP. The ICA provides that the maximum value of such claims would be $3 billion.
When MSP takes an assignment, we take an assignment of the entire
recovery but often we have a contractual obligation to pay the Assignor 50% of any recoveries. This 50% interest typically is retained by the Assignor (the “Retained Interest”), although in some cases, MSP has acquired all of the recoveries
from the Assignor, and the applicable Assignor has not kept any Retained Interest. The Retained Interest is not an asset of MSP, but an obligation to pay these Assignors, and MSP keeps the other 50% interest of any recoveries. Virage’s funding
in connection with future transactions generally will be used to purchase Retained Interests from existing or new MSP Assignors, although its funds can also be used to buy 50% of the recoveries from MSP, in the event the applicable Assignor did
not retain any Retained Interest. In connection with transactions consummated under the ICA, MSP may receive certain fees, including a finders fee for identifying the recoveries and a servicing fee for servicing the claims.
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Although the ICA provides for potential future transactions
regarding sales by MSP of Retained Interests to Virage, no definitive documentation with respect to any transactions under the ICA has been entered into as of the date of this proxy statement/prospectus. The first transaction under the ICA
may occur as early as before the end of the second quarter of 2022.
Our Services
Claims Recovery
As part of our claims recovery business, we pursue a number of types
of recoveries, including:
Contractual Cases
When Medicare or an MAO, as a secondary payer, makes a payment on
behalf of a beneficiary for injuries related to the use, maintenance, or operation of a vehicle, that payment may be recoverable from a no-fault insurer, as a Primary Payer. No-fault coverage does not require an assessment of liability, and
thus, when a covered medical expense is incurred, the insurer must accept Primary Payer responsibility. The no-fault insurer’s failure to pay or reimburse Medicare and MAOs constitutes a breach of the beneficiary’s no-fault coverage.
Settlement Cases
The MSP Act allows Medicare beneficiaries, providers and MAOs to
seek reimbursement from any entity or person that has settled a dispute and failed to pay or reimburse Medicare and MAOs for an enrollee’s medical expenses related to that dispute. We review our Assignor’s claims data and compare these records
with the CMS database and court dockets to determine if any of our Assignor’s enrollees have been involved in a dispute that resulted in a settlement.
Product Liability
Defective or dangerous products cause thousands of injuries every
year. Many product liability cases arise from instances in which an implantable medical device causes an adverse reaction due to a design or manufacturing defect. These adverse reactions may range from minor rashes to cancer and subsequent
death. Where Medicare or an MAO has paid an enrollee’s medical expenses for these injuries, we can pursue recoveries.
Antitrust-Pharmaceutical
Antitrust laws, including the Sherman Antitrust Act of 1890 (the
“Sherman Act”) and the Clayton Antitrust Act of 1914 (the “Clayton Act”) prohibit business practices that unreasonably deprive consumers of the benefits of competition, resulting in higher prices for products and services. The Sherman Act also
outlaws all contracts, combinations, and conspiracies that unreasonably restrain interstate and foreign trade.
Our antitrust cases typically derive from one of the two following
scenarios: (1) either a group of manufacturers who make similar products decide to raise product prices collectively irrespective of market fluctuations; or (2) a manufacturer of a branded pharmaceutical enters into a “pay for delay” agreement
with a generic drug manufacturer so that the generic drug manufacturer delays the market launch of a cheaper competing drug. We are able to bring antitrust claims on behalf of our Assignors under both scenarios pursuant to the Sherman Act,
Clayton Act or state consumer protection statutes.
False Claims Act
The False Claims Act (the “FCA”) is widely regarded as an
effective tool in combating waste, fraud and abuse against the federal government. The FCA prohibits the submission of false or fraudulent claims for payment from the government. The FCA, which imposes civil penalties, fees, and treble damages
for fraudulent claims, permits private individuals to file qui tam suits on behalf of the federal government.
Mass Tort and Private Lien Resolution Programs
When a defendant in an MDL settles its cases with the plaintiffs,
the issues can be resolved through a Master Settlement Agreement (“MSA”), which settles all pending lawsuits and provides that the defendant(s) agrees to set aside funds to settle the MDL related cases involving various conditions.
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An MSA governs the terms of the settlement and provides for the
resolution of all liens against the settlement proceeds. A lien resolution administrator assists in resolving all liens that are asserted by government payers or private payers against settlement funds and ensures that all such liens are
resolved prior to settlement payments being disbursed to the settling claimants.
An MSA typically provides for a Private Lien Resolution Agreement
(the “PLRP Agreement”) whereby the lien resolution administrator and our entities (the “MSP Group”) establish an efficient procedure to resolve MSP Group’s claims and liens accordingly.
Upon payment of MSP Group’s liens as provided in the PLRP
Agreement, MSP Group’s reimbursement claims against recoveries by claimants as defined in the MSA are resolved, and all potential liabilities related to such liens in favor of MSP Group are released. The only liens subject to resolution are
those liens that qualify for a settlement payment pursuant to the MSA. No other claims owned or otherwise held by the MSP Group are encompassed in the PLRP Agreement.
MSP Group conducts an analysis of the claimants in the MDL
settlement and identifies liens belonging to MSP Group arising from medical care and treatment provided to claimants for which MSP Group has a legal right of recovery. A lien administrator provides the list of claimants to MSP Group. MSP Group
then provides the claims data supporting MSP Group’s liens to the lien administrator, which includes the specific Billed and Paid Amount of MSP Group’s liens. The lien administrator reviews and verifies MSP Group’s data and confirms that the
claims included in the liens are reimbursable.
Our Claims Portfolio
As of December 31, 2021, we have received assignments to
recovery rights for more than 150 Assignors in the Medicare, Medicaid, and Commercial Insurance segments, associated with approximately $1.5 trillion in Billed Amount of health care claims. Our clients have assigned claims stemming from all
50 states, as well as Puerto Rico.
We typically acquire claims by entering into an assignment
agreement (a “CCRA”) with an Assignor, pursuant to which the Assignor assigns all right, title, and interest in and to its claims recovery and reimbursement rights to MSP Recovery, or to an affiliated entity, partner, or investor, in exchange
for (a) deferred compensation, typically structured as 50% of any net recovery earned by and paid to us or (b) an upfront lump sum payment. Some of these CCRAs are “limited recovery” agreements, meaning that they are limited in time or scope
as to what is assigned to us. For example, certain of our CCRAs relate specifically to claims against manufacturers, distributors and producers of Actos, pioglitazone, metformin, glimepiride or Duetact. Additionally, certain other CCRAs
relate specifically to healthcare services rendered and paid for during a specified timeframe. We engage individuals or companies to assist us in entering into assignment agreements with prospective Assignors in exchange for a commission. In
general, our CCRAs allow the Company to recover historical claims. Under the current CCRAs, the Company has been assigned rights to both historical and future claims data and therefore has the ability to collect through both the Recovery
Model and Chase to Pay model with each Assignor. However, the Company currently expects to generate substantially all revenue from current CCRAs through recoveries on historical claims under our Recovery Model. The Company believes as it
builds out the Chase to Pay platform and recovery model, a significant portion of the Company’s revenue from these CCRAs will also be derived through the Chase to Pay model by recovering on claims as they occur.
In the cases where we acquire claims for an upfront lump sum
payment, instead of a CCRA we typically enter into a Claims Purchase and Assignment Agreement (“Purchase Agreement”). In our Purchase Agreements, an entity typically assigns all right, title, and interest in and to its claims recovery and
reimbursement rights to us (or our affiliated entity, partner or investor) in exchange for an upfront lump sum payment. In these arrangements, we (or our affiliated entity, partner or investor) would typically own all of the future net
recoveries from those purchased claims.
MSP Lien Resolver
We intend to further develop and expand the offering for our MSP
Lien Resolver. MSP Lien Resolver is a disruptive new product that helps identify, quantify, and resolve outstanding liens. Currently, this product is primarily used by attorneys as an online platform that enables settlement on individual cases
with MSP. Key areas of
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functionality for MSP Lien Resolver include modules for related lien notices,
claims history, claims dispute and negotiation, and case settlement and payment. MSP Lien Resolver benefits us because the additional proprietary data enhances overall data quality and efficacy. This product also deepens relationships with
attorneys and outside information providers.
Geographic Coverage
We have Assignors with claims stemming from all 50 states, as well
as Puerto Rico. Each dot in the following graphic represents a ZIP code for which MSP maintains data.
Sales and Marketing
Our sales force is comprised of internal and external sales
professionals. We have sales professionals located throughout the United States and Puerto Rico. Our sales force finds potential Assignors and also manages our relationships with existing Assignors. The sales force is incentivized via a
performance-based strategy. Once we have received recoveries for claims related to an Assignor, the applicable sales professional is compensated. This mechanism ensures to keep our salary and fixed costs low while encouraging the sales team
to take advantage of a generous commission model.
We have also created and produced our own health awareness program
that is broadcast daily to the local community. Our marketing strategies generate new Assignors, educate investors and Assignors about our company, as well as many other benefits.
Development of Medicare and the MSP Law
The Medicare Secondary Payer Act
The MSP Act states that, under certain conditions, Medicare is the
secondary payer rather than the Primary Payer for its insureds. When Medicare (or an MAO) makes a payment for medical services that are the responsibility of a primary plan under the MSP Act, those payments are conditional. Conditional payments
are made by Medicare (or an MAO) as an accommodation for its beneficiaries, but are secondary and subject to recoupment in all situations where one of the statutorily enumerated sources of primary coverage could pay instead.
Subsequent to the initial passage of the MSP Laws, Congress
provided a private cause of action, which authorizes private parties to recover unreimbursed payments in cases where a primary plan fails to provide for primary payment (or appropriate reimbursement) in accordance with MSP Laws. We use the MSP
Laws, among others, including its “double damages” provisions to hold Primary Payers accountable.
Medicare Advantage Plans
In 1997, Congress enacted the Medicare Part C program to allow
Medicare beneficiaries to receive Medicare Part A and B benefits through privately-run managed care plans. Under the Medicare Advantage program, a private
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insurance company contracts with CMS to provide Medicare Parts A and B benefits on
behalf of Medicare beneficiaries enrolled in an MA Plan. Under such a contract, the MAO receives a fixed amount per enrollee (the “capitation”) and must provide at least the same level of benefits that enrollees would receive under the
fee-for-service option. The capitation structure incentivizes MAOs to provide Medicare benefits more efficiently than under the fee-for-service model due to the competition among MAOs for enrollees as well as the savings recovered from Primary
Payers resulting in additional benefits to enrollees.
An MAO’s payment obligation under Part C is coextensive with that
of the Secretary under Parts A and B. Part C includes a reference to the MSP Act and renders an MAO a “secondary payer” under the Act. In addition, the CMS regulations provide that an MAO will exercise the same rights to recovery from a primary
plan, entity or individual that the Secretary exercises under the MSP regulations. The U.S. Court of Appeals for the Eleventh Circuit has accordingly recognized parity between MAOs and Medicare, as “Congress empowered (and perhaps obligated)
MAOs to make secondary payments under the same circumstances as the Secretary.” MAOs, however, are merely the first layer of the Medicare Advantage program. Due to the customary practices within the MAO industry, the financial injury caused by
a primary plan’s failure to reimburse conditional payments is often felt primarily by First Tier and Downstream Entities.
First-Tier and Downstream Entities
Federal regulations recognize First Tier and Downstream Entities
as active participants in the provision of benefits under Medicare Part C. 42 C.F.R. § 422.2 defines a “first-tier entity” as “any party that enters into an acceptable written arrangement with an MA organization or contract applicant to provide
administrative services or health care services for a Medicare eligible individual.” A “downstream entity” is an entity that enters into a similar written arrangement at a level below that of a first-tier entity. Such written arrangements
continue down to the level of the ultimate provider of both health and administrative services. These contracts are both encouraged and regulated by CMS, which requires First Tier and Downstream Entities to furnish healthcare services in a
manner consistent with the dictates of the Medicare program and a Medicare Advantage plan’s obligations thereunder. In this way, First Tier and Downstream Entities are the parties actually responsible for managing and providing healthcare
services to Medicare beneficiaries under the Medicare Advantage program.
First-tier entities include MSOs and IPAs. An IPA is a business
entity organized and owned by a network of independent physician practices for the purpose of reducing overhead and optimizing efficiency and effectiveness in the delivery of health care to Medicare beneficiaries. Put simply, IPAs are
healthcare providers who often bear the full financial risk of managing their patients’ care. An MSO is a group that owns or manages multiple physician practices for the same purpose. The core business of IPAs and MSOs within the Medicare Part
C infrastructure is to manage the care of patients, leverage their delivery systems, and focus on preventive health in order to create value and cost savings.
Because of an MSO and IPA’s role as a point of service provider
and manager of a beneficiary’s care, MAOs customarily pass their risk of loss onto MSOs and IPAs. Under these arrangements, an MAO deducts a percentage of the CMS Capitation Rate for its administrative costs and pays the balance to the IPA or
MSO. In exchange, the provider (IPA or MSO) assumes the full financial risk for the care of the MAO’s enrollee. As such, “at-risk” IPAs and MSOs are charged with producing competition, innovation, progress, and savings in the Medicare Part C
environment. In accepting the full financial risk of a Medicare beneficiary’s health care, an IPA or MSO assumes the MAO’s position within the Medicare Part C framework.
When a Medicare Advantage enrollee is injured in an accident, an
IPA or MSO can meet its obligation to that enrollee in one of two ways. First, it can render the requisite care to the enrollee directly through its network of physicians, providers, or medical centers. Under this scenario, the MSO or IPA
suffers the full cost of providing items and services to the Medicare beneficiary.
Alternatively, if the enrollee is treated in an emergency room or
other facility outside of the MSO or IPA’s provider system, then the MSO or IPA must pay the full cost of that treatment because it is financially responsible for the enrollee’s care. Under this second scenario, the contracting MAO pays the
outside provider (i.e., the emergency room) and then charges the full amount of that payment to the MSO or IPA who bears the risk of loss. In other words, the MSO or IPA must reimburse the MAO for the full amount of its payment to the outside
provider (or that payment is applied as a set-off against capitated funds that the MSO or IPA would otherwise receive).
If an MAO makes a secondary payment which is later appropriately
reimbursed by a Primary Payer, then the MAO will not charge and collect that same amount from the MSO or IPA responsible for that particular enrollee. On
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the other hand, if the Primary Payer violates the MSP Act, it is the First Tier
and Downstream Entities that are damaged as a result. When an MSO or IPA is damaged by a Primary Payer, that entity may likewise turn to the MSP Act’s broadly worded private cause of action against the Primary Payer.
Licensing and Regulation
We are subject to federal and state laws and regulations governing
privacy, security and breaches of patient information and the conduct of certain electronic health care transactions, including, HIPAA and other health information privacy and security requirements. Some of our Assignors with which we have or
may establish business relationships, are “covered entities” that are regulated under HIPAA. We also are a “business associate” of our Assignors; as such, we must comply with HIPAA regulations. To provide our covered entity Assignors with
services that involve the use or disclosure of protected health information, HIPAA requires us to enter into business associate agreements with our Assignors.
In addition to HIPAA, we may be subject to other U.S. federal and
state laws relating to the collection, dissemination, use of and access to, personal information. While we believe that we are in material compliance with such laws and regulations, failure to comply with these laws could expose us to lawsuits,
data security incidents, regulatory enforcement or fines.
Intellectual Property and R&D
We rely on trade secret laws. We use a combination of confidential
agreements and licenses with our Assignors, employees, vendors, and other parties. We also rely on other security measures to control the access to our confidential information, software, and other intellectual property.
Our research and development team uses proprietary software and a
highly trained staff including I.T. personnel, accountants, statisticians, physicians, data analysts and attorneys to search through numerous data sources. We will continue the investment of resources into our proprietary systems.
Our intellectual property licensing agreements grant, during
the term of the agreement, a non-exclusive, non-transferable, non-assignable, irrevocable, worldwide, fully paid-up license under our software and technology to use, perform, import, export, and all other rights pursuant to our software and
technology solely in connection with the parties’ assigned claims and the transactions contemplated in the agreements between the parties. Nothing in these agreements affect our ownership or control in our software and technology. Except for
the license, all of our other rights with respect to our software and technology are reserved.
Competition
We believe we do not have any direct competitors. Other entities
in the industry act as vendors and pursue reactive recoveries, while we aggressively pursue recovery using various state and federal laws. Although somewhat different in approach, we compete with in-house recovery departments, collection and
financial services companies and other companies. Some of these entities are Cotiviti Holdings, Inc., MultiPlan Corporation, Encore Capital Group, Inovalon Holdings, Inc., Optum, Inc., Verisk Health, Inc., McKesson Corporation, Change
Healthcare Corporation, HMS Holdings Corp., The Rawlings Group, Equian, LLC, Trover Solutions, Inc. and other, smaller companies.
Human Capital
Our employees and culture are critical components to our
success and growth as a company. As of December 31, 2021, we had approximately 90 employees. None of our employees are covered by collective bargaining agreements or represented by a labor union. We believe that the relationships we have with
our employees are positive.
In addition, we employ specialized contract or part-time employees
on a temporary basis, which include highly trained IT personnel, accountants, statisticians, physicians, data analysts and attorneys to maximize the recovery of claims. We have historically been able to transition many of these top performers
from contract or part-time to full time employment.
We strive to attract, develop and retain the best talent by
providing competitive pay and benefits, continuous growth and development, and a diverse and inclusive workplace. Our human capital resource objectives include not only acquiring the best talent but also motivating those that drive our business
forward. We aim to achieve these objectives using generous compensation programs and offering a one-of-a-kind employee experience.
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To better develop and incentivize our employees, we regularly
provide employee feedback and recognition. We have an annual bonus program, and we regularly utilize spot bonuses in order to continue to drive our employees to find opportunities and innovate our business.
Fee Sharing Arrangements
We are engaged on an Assignor-by-Assignor basis. As compensation
for identifying and pursuing the assigned claims, an Assignor typically assigns to us (or our affiliated entity, partner or investor) 50% of the Net Proceeds of any recovery made on the assigned claims. The “Net Proceeds” of any assigned claim
is defined as the gross amount recovered on an assigned claim, minus any costs directly traceable to such assigned claim(s) for which recovery was made. In some instances, we may purchase outright an Assignor’s recovery rights; in this
instance, we are entitled to the entire recovery.
We enter into legal services agreements with the Law Firm and
the various entities that hold claims. In this relationship, MSP Recovery (and other claims holding entities) serves as the Assignor and the Law Firm serves as its counsel. The Law Firm is engaged to act as exclusive lead counsel to represent
MSP Recovery and each of its subsidiaries and affiliates (or other applicable entity) as it pertains to the Assigned claims, on a contingency basis. The Law Firm engages outside litigation counsel from around the nation as co-counsel and
these arrangements are made directly between the Law Firm and other counsel. For the services provided, the Law Firm typically collects a 40% fee from the proceeds recovered, which amount is typically paid from our 50% portion of the Net
Proceeds. This contingency fee can change in the future. The Law Firm is also entitled to attorney’s fees that are awarded to the Law Firm pursuant to any fee shifting statute, by agreement, or court award.
The below is an illustration of how the recovery proceeds
arrangement typically works when co-counsel is (and is not) involved:
Properties
Our corporate headquarters, which we lease, is located at 2701 S.
Le Jeune Road, 10th Floor, Coral Gables, FL 33134. We also lease office space in Puerto Rico.
Seasonality
Seasonality does not have a material impact on our business.
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Other Information about MSP
COVID-19
In March 2020, the World Health Organization labeled the outbreak
of COVID-19 as a global pandemic. The outbreak has led to material and adverse impacts on the economy. We will continue to monitor the COVID-19 situation and make adjustments to our business operations if necessary. We do not know the full
extent COVID-19 could have on our business, results of operations and financial condition. We will take actions as required by the federal, state, local authorities or actions that we determine are best for our company.
Organizational Structure
The following diagram depicts the current ownership structure of
MSP
|
(1)
|
The Members have a 50% ownership interest in each of MAO-MSO Recovery, LLC, MAO-MSO Recovery II, LLC, MAO-MSO Recovery LLC,
Series FHCP and MAO-MSO Recovery II LLC, Series PMPI.
|
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The following diagram, which assumes (1) the no redemption
scenario and (2) that the holders of the Company’s existing Public Warrants and Private Warrants exercise those warrants, and no New Warrants are exercised, in connection with the Business Combination, illustrates the ownership structure of
the Post-Combination Company immediately following the Business Combination:
|
(1)
|
The Members (or their designees) will hold all of the Class B Units of Opco.
|
|
(2)
|
The Members (or their designees) will hold all of the shares of the Class V Common Stock of the Post-Combination Company,
which are voting, non-economic shares. The shares of Class V Common Stock, together with their accompanying Class B Units of Opco, are convertible on a 1-for-1 basis into shares of the Company’s Class A Common Stock (or cash, at the
Post-Combination Company’s option), in accordance with the terms of the LLC Agreement.
|
|
(3)
|
The Initial Stockholders will hold 5,750,000 shares of Class A Common Stock of the Post-Combination Company. This amount will
be affected by the exercise of outstanding warrants or New Warrants. See “Summary— Ownership of the Post-Combination Company.”
|
|
(4)
|
The Public Stockholders and holders of Private Shares will hold 12,703,631 shares of Class A Common Stock of the
Post-Combination Company. This amount will be affected by the level of redemptions by Public Stockholders and the exercise of outstanding warrants or New Warrants. See “Summary—Ownership of the Post-Combination Company.”
|
|
(5)
|
The Post-Combination Company will hold all of the Class A Units of Opco.
|
|
(6)
|
The MSP Purchased Companies will own 50% of the membership interest in each of MAO-MSO Recovery, LLC, MAO MSO Recovery II,
LLC, MAO-MSO Recovery LLC, Series FHCP and MAO-MSO Recovery II LLC, Series PMPI.
|
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MSP RECOVERY’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis
provides information that MSP’s management believes is relevant to an assessment and understanding of MSP’s combined and consolidated results of operations and financial condition. The discussion should be read together with “Selected
Historical Combined and Consolidated Financial and Operating Data of MSP” and the historical audited annual combined and consolidated financial statements as of and for the years ended December 31, 2021 and 2020, and the related respective
notes thereto, included elsewhere in this proxy statement/prospectus. The discussion and analysis should also be read together with MSP’s unaudited pro forma financial information for the year ended December 31, 2021. See “Unaudited Pro Forma
Condensed Combined Financial Information.” This discussion may contain forward-looking statements based upon MSP’s current expectations, estimates and projections that involve risks and uncertainties. Actual results could differ materially
from those anticipated in these forward-looking statements due to, among other considerations, the matters discussed under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” Unless the context otherwise requires, all
references in this subsection to “We”, “the Company” or “MSP” refers to the business of the MSP Companies prior to the consummation of the Business Combination, which will be the business of the Post-Combination Company and its subsidiaries
following the consummation of the Business Combination.
Our Business
We are a leading healthcare recoveries and data analytics company.
We focus on the Medicare, Medicaid and commercial insurance spaces. We are disrupting the antiquated healthcare reimbursement system, using data and analytics to identify and recover improper payments made by Medicare, Medicaid, and Commercial
Health Insurers.
Medicare and Medicaid are payers of last resort. Too often, they
end up being the first and only payer, because the responsible payer is not identified or billed. Because Medicare and Medicaid pay a far lower rate than what other insurers are often billed, this costs the healthcare system (and the supporting
taxpayers) tens of billions a year in improper billing and lost recoveries. By discovering, quantifying and settling the billed-to-paid gap on a large scale basis, MSP is positioned to generate meaningful annual recovery revenue at high profit
margins.
Our access to large volumes of data, sophisticated data
analytics, and a leading technology platform provide a unique opportunity to discover and recover claims. We have developed over 1,400 proprietary algorithms which help identify billions in waste, fraud, and abuse in the Medicare, Medicaid,
and Commercial Health Insurance segments. Our deep team of data scientists and medical professionals analyze historical medical claims data to identify recoverable opportunities. Once these potential recoveries are reviewed by our team, they
are aggregated and pursued. Through federal statutory law and a series of legal cases and precedents, we believe we have an established basis for future recoveries.
We differ from some of our competitors because we receive our
recovery rights through irrevocable assignments of claims. When we are assigned these rights, we take on a risk that our competitors do not. Rather than provide services under a third-party vendor services contract, we receive the rights to
certain recovery proceeds from our Assignors’ claims (and, in many cases, actually take assignment of the claims themselves, which allow us to step into the Assignor’s shoes). In the instances where we take Claims by assignment, we have total
control over the direction of the litigation. We would be the plaintiff in any action filed and would have total control over the direction of the lawsuit. By receiving Claims through assignment, we can pursue additional recoveries under
numerous legal theories that our competitors cannot. In the cases where we take Claims by assignment, we typically agree that 50% of the recoveries generated by those Claims is paid to the applicable Assignor. In the cases where we do not
take Claims by assignment, we typically would still be entitled to receive 50% of the recoveries generated by those Claims, subject to certain expenses. Although we typically own assigned claims, for a significant portion of assigned claims
our ability to pursue recoveries depends on our ongoing access to data through data access rights granted to us. In these cases, termination of such health care data access would affect our ability to generate recoveries on those claims.
Our current portfolio has scaled significantly. We are entitled
to a portion of any recovery rights associated with approximately $1.5 trillion in Billed Amount (and approximately $453 billion in Paid Amount), which contains approximately $113 billion in Paid Value of Potentially Recoverable Claims, as of
December 31, 2021. We are typically entitled to 50% of recovery rights pursuant to our CCRAs but in certain cases we have also purchased from
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our Assignors, from time to time, rights to 100% of the recovery. We believe it
would take any competitor a long time to amass the portfolio of claims rights currently owned by us due, among things, to the volume of our claims data retained and strength of our data analytics, which we believe are key to attracting
counterparties willing to assign claims to us.
Our Business Model
Recovery Model
In our current business model, we receive irrevocable assignments
of health claims recovery rights through Claims Cost Recovery Agreements (“CCRA”) from a variety of sources including, but not limited to, MAOs, MSOs, HMOs, Hospitals, and other at risk entities. Prior to executing a CCRA, we utilize our
proprietary internal data analytics platform to review the set of claims and identify claims with probable recovery paths.
Once claims have been assigned, our data analysts run proprietary
algorithms to identify potential recoveries. Results are then analyzed by our internal Medical Team. Each claim is then reviewed on an individual basis to ensure that the identified claim can be pursued. We contract with the Law Firm and
various other firms across the country. After the Data and Medical teams review the claims, they are aggregated and ready to be pursued through the legal system. The Law Firm then reaches out to the liable parties to pay the amounts that are
owed. Prior to litigation, there is an incentive for the primary insurer to settle. If legal action is required for recovery from primary insurers, claimholders are entitled to “double damages” under the Medicare Secondary Payer Act.
We are engaged on an Assignor by Assignor basis. As compensation
for identifying and pursuing the assigned claims, under our typical assignment arrangement, our Assignors assign a percentage, typically 50%, of the net proceeds of any recovery made on the assigned claims. In some instances, we may purchase
outright an Assignor’s recovery rights and, in this instance, we are entitled to the entire recovery. In some cases, we have entered into arrangements to transfer CCRAs or rights to proceeds from CCRAs to other parties. Such sales include
variable consideration in the form of payments that will be made only upon achievement of certain recoveries or based on a percentage of actual recoveries.
We have yet to generate substantial revenue from the Recovery
Model. To date, the majority of our revenue has been generated by claims recovery services which are either performance based or fee for service arrangements as described below.
Chase to Pay
Over time we plan to pivot the business to the “Chase to Pay”
model. Chase to Pay is a real-time analytics driven platform that identifies the proper primary insurer at the point of care. Chase to Pay is intended to plug into the real-time medical utilization platforms used by providers at the points of
care. Rather than allow an MAO to make a wrongful payment whereby we need to chase down the Primary Payer and collect a reimbursement for the MAO, Chase to Pay is intended to prevent the MAO from making that wrongful payment and ensures the
correct payer pays in the first instance. Furthermore, the Primary Payer typically will make payments at a higher multiple than the MAO would have paid, and MSP will be entitled to receive its portion of the recovery proceeds on the amounts
paid by the Primary Payer.
As Chase to Pay works at the point of care, it is expected to
decrease legal costs of recovery. As a result, Chase to Pay would improve the net recovery margin as the recovery multiple grows and variable legal costs to recover decline.
We have yet to generate revenue from this model, nor have executed
any agreements with customers. We are currently in the process of determining the pricing and form of these arrangements. As part of our “Chase to Pay” model, we launched LifeWallet in January 2022, a platform powered by our sophisticated data
analysis, designed to locate and organize users’ medical records, facilitating efficient access to enable informed decision-making and improved patient care.
Claims Recovery Services
We also recognize claims recovery service revenue for our services
to customers to assist those entities with pursuit of claims recovery rights. We provide services to other parties in identifying recoverable claims as well as data matching and legal services. Under our claims recovery services model, we do
not own the rights to claims but provide our services for a fee based on budgeted expenses for the month with an adjustment for the variance between budget and actual expense from the prior month.
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We are party to that certain Recovery Services Agreement
(the “VRM Recovery Services Agreement”), dated March 27, 2018, by and between VRM MSP and MSP Recovery, LLC, which provides that MSP will provide recovery services to VRM MSP, including identifying, processing, prosecuting and recovering
money from certain claims of VRM MSP. As part of Virage Recovery Master LP’s investment in VRM MSP, funds are set aside to pay service fees to MSP. Under the terms of the VRM Recovery Services Agreement, VRM MSP pays service fees to the
Company, commensurate with the operational expenses and costs of the Company. As of December 31, 2021, VRM had $30.7 million reserved in an account for the payment of services fees (the “Service Fee Account”).
In addition, we are party to that certain Recovery Services
Agreement (the “MSP RH Series 01 Recovery Services Agreement”), dated as of October 23, 2020, by and between MSP Recovery Holdings Series 01, LLC (“MSP RH Series 01”) and MSP Recovery, LLC, pursuant to which MSP Recovery will provide services
including identifying, processing, prosecuting and recovering money for certain claims of MSP RH Series 01. In return for these services, MSP RH Series 01 paid a one-time fee of approximately $7.2 million and has agreed to pay annual service
fees of approximately $3.0 million commencing January 1, 2021, subject to adjustment based on the aggregate value of claims of MSP RH Series 01 subject to the MSP RH Series 01 Recovery Services Agreement.
The fees received pursuant to these agreements are related to
expenses incurred and are not tied to the Billed Amount or potential recovery amounts. Although we believe our future business to be highly tied to the Recovery Model and Chase to Pay, we will continue to enter into these contracts as the
market dictates.
Business Combination and Public Company Costs
On July 11, 2021, we entered into the MIPA with LCAP. Pursuant to
the MIPA, and assuming a favorable vote of LCAP’s stockholders and that all other closing conditions are satisfied or waived, the Members will sell and assign all of their membership interests in MSP to Opco in exchange for non-economic voting
shares of Class V Common Stock and non-voting economic Class B Units (or shares of Class A Common Stock). Following the Closing, the Company will be organized in an “Up-C” structure in which all of the business of MSP will be held directly or
indirectly by Opco, and the Company will own all of the voting Class A Units of Opco and the Members or their designees will own all of the non-voting economic Class B Units in accordance with the terms of the LLC Agreement (the “Business
Combination”). MSP will be deemed the accounting predecessor and the Post-Combination Company will be the successor SEC registrant, which means that MSP’s financial statements for previous periods will be disclosed in the Company’s future
periodic reports filed with the SEC.
The Business Combination is anticipated to be accounted for as
a reverse recapitalization. Under this method of accounting, the Company will be treated as the acquirer for financial statement reporting purposes. The most significant change in the Post-Combination Company’s future reported financial
position and results are expected to be an estimated increase in cash (as compared to MSP’s consolidated balance sheet at December 31, 2021) of between approximately $0, assuming the expense-adjusted maximum redemption scenario, and $53.8
million, assuming the no redemption scenario. Total non-recurring transaction costs are estimated at approximately $78.3 million, of which MSP expects approximately $4.8 million to be expensed. See “Unaudited
Pro Forma Condensed Combined Financial Information.”
As a consequence of the Business Combination, MSP will become the
successor to an SEC-registered and Nasdaq-listed company which will require MSP to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. MSP expects 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 and legal and administrative resources, including increased
audit and legal fees.
Key Factors Affecting Our Results
Our Claims Portfolio
We differ from some of our competitors because we receive our
recovery rights through irrevocable assignments. When we are assigned these rights, we take on the risk that such claims may not be recoverable. We are entitled to a portion of any recovery rights associated with approximately $1.5 trillion
in Billed Amount (and approximately $453 billion in Paid Amount), which contained approximately $113 billion in Paid Value of Potentially Recoverable Claims, as of December 31, 2021. We are typically entitled to 50% of recovery rights
pursuant to our CCRAs but in certain cases we have also purchased from our Assignors, from time to time, rights to 100% of the
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recovery. By discovering, quantifying, and settling the gap between Billed Amount
and Paid Amount on a large scale, we believe we are positioned to generate substantial annual recovery revenue at high profit margins for our assigned claims. In litigation, we have a competitive advantage by our experienced management and
legal teams. While our model of being assigned the claim rights allows us the flexibility to direct the litigation and potentially generate higher margins, we have, on an opportunistic basis, paid the Assignor an upfront purchase price for
these rights.
To date, we have not generated substantial revenue from our claims
portfolio, and our business model is dependent of achieving revenue from this model in the future. If we are unable to recover the upfront purchase price from the assigned claims or the investments we have made in pursuing recoveries, it would
have an adverse effect on our profitability and business.
Our potential claims recovery revenue in a given period will be
impacted by the amount of claims we review and ultimately pursue. The number of claims that we review is driven by the claims we receive through assignment. As we are assigned more claims, we can review the claims and identify additional
recoveries. To expand our Assignor base and obtain more claims, we plan to implement new strategies to secure new Assignors. These strategies will include a platform to educate potential Assignors about our company, making strategic business
partnerships, potential mergers, acquisitions of personnel, as well as other marketing strategies. Our Assignors have grown from 32 in 2015, to 105 in 2018, to 123 in 2019, to 134 in 2020 and over 150 Assignors to date. If we are unable to
continue to attract new Assignors to our platform, this could adversely affect future profitability.
In addition to obtaining new claims, our ability to collect on
identified claims on our estimated multiples is key to our future profitability. Per the Medicare Secondary Payer Act, we are entitled to reasonable and customary rates. Under existing statutory and case law, the private cause of action under
the Medicare Secondary Payer Act permits an award of double damages when a primary plan fails to provide for primary payment or appropriate reimbursement. In addition to double damages, MSP is entitled to interest from Primary Payers on any
amounts owed. Federal law also provides express authority to assess interest on Medicare Secondary Payer debts. Further the Medicare, Medicaid and SCHIP Extension Act (“MMSEA”) requires defendants and healthcare providers to report certain
settlements with Medicare beneficiaries. The MMSEA statute includes a $1,000 per day, per claim penalty for inaccurate or untimely reporting.
As a result, we are able to pursue double damages, interest, and
applicable penalties for non-compliance from Primary Payers in our Medicare Secondary Payer Act related recoveries. We can recover these amounts under either the Recovery Model or the Chase to Pay Model. Federal law also expressly provides MAOs
with the right to charge providers for the Billed Amount when auto insurer liability exists. Per the terms of various legal services agreement MSP has with the Law Firm, for legal services provided, the Law Firm would receive a percentage of
the total claim recovery which would include double damages and additional penalties. In the near term, we believe our claims portfolio can achieve a 1.9x Recovery Multiple. As we continue to expand our claims portfolio and data matching
capabilities, we believe we can reach up to 2.9x Recovery Multiple.
Our claims recovery revenue is typically recognized upon
reaching a binding settlement or arbitration with the counterparty or when the legal proceedings, including any appellate process, are resolved. A decrease in the willingness of courts to grant these judgments, a change in the requirements
for filing these cases or obtaining these judgments, or a decrease in our ability to collect on these judgments could have an adverse effect on our business, financial condition and operating results. Of our Property & Casualty portfolio
as of December 31, 2021, approximately 76% of claims are already in the recovery process, which are claims where either the recovery process has been initiated, data has been collected and matched or resolution discussions are in process.
Key Performance Indicators
To evaluate our business, key trends, risks and opportunities,
prepare projections, make strategic decisions and measure our performance, we track several key performance indicators (“KPIs”). As our company has yet to achieve significant revenues and the drivers of expected revenues require significant
lead time before revenue can be generated, MSP’s management utilizes KPIs to assist in tracking progress and believes such KPIs are useful in evaluating the performance of our business, in addition to our financial results prepared in
accordance with GAAP. The KPIs are Total Paid Amount Paid Value of Potentially Recoverable Claims, Recovery Multiple and Penetration Status of Portfolio.
Total Paid Amount: Total
Paid Amount represents the total within the claims portfolio of the amount actually paid to the provider from the health plan, including incorporation of capitated amounts. As we continue to expand, we
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anticipate our revenue growth will be greatly dependent on our ability to
increase the Total Paid Amount, and correspondingly, the Paid Value of Potentially Recoverable Claims, in our portfolio. Management believes this metric is a useful measure to investors and in managing or monitoring company performance
because we view an increase in Paid Amount as a positive indicator as it should provide the Company with the ability to increase the Paid Value of Potentially Recoverable Claims. Conversely, a decrease would produce a diminishing expectation
of the Paid Value of Potentially Recoverable Claims.
Paid Value of Potentially Recoverable Claims: The Paid Value of Potentially Recoverable Claims represents the cumulative Paid Amount of potentially recoverable claims. We analyze our claims portfolio and identify
potentially recoverable claims using MSP proprietary algorithms which comb through historical paid claims data and search for possible recoveries based on our approximately 600 Funnels and 1,100 Layers. The
Paid Value of Potentially Recoverable Claims is a measure of the actual Paid Amount that has been paid to providers in respect of those potentially recoverable claims. Management believes this measure provides a useful
baseline for potential recoveries, but it is not a measure of the total amount that may be recovered in respect of potentially recoverable claims, which in turn may be influenced by any applicable potential statutory
recoveries such as double damages or fines, as described below. We believe our ability to generate future claims recovery income is largely dependent on our ability to accurately identify potentially recoverable claims
through our data analytics and ultimately recover on these claims. Management believes this metric is a useful measure to investors and in managing or monitoring company performance because we view an increase
in PVPRC as a positive indicator as it should provide the Company with the ability to increase claims recovery income and otherwise shows growth.
Billed Value of Potentially Recoverable Claims: Billed Value of Potentially Recoverable Claims “BVPRC” represents the cumulative Billed Amount of potentially recoverable claims. We analyze our claims portfolio and identify potentially
recoverable claims using MSP proprietary algorithms which comb through historical paid claims data and search for possible recoveries based on our approximately 600 Funnels and 1,100 Layers. For a majority of our claims, the
Company believes it has the ability to recover in excess of the Paid Amount by collecting the Billed Amount plus interest plus double damages under applicable law. Under existing statutory and case law, the private cause of
action under the Medicare Secondary Payer Act permits an award of double damages when a primary plan fails to provide for primary payment or appropriate reimbursement. Federal law expressly provides MAOs with the right to
charge providers for the Billed Amount when auto insurer liability exists. For additional information on potentially recoverable amounts, please see “Information
About MSP – The Opportunity.”
We believe our ability to generate future claim recovery income is largely
dependent on our ability to accurately identify potentially recoverable claims through our data analytics and ultimately recover on these claims. Management believes this metric is a useful measure to investors and in managing or monitoring
company performance because we view an increase in BVPRC as a positive indicator as it should provide the Company with the ability to increase claims recovery income and otherwise shows growth.
Recovery Multiple: The
Recovery Multiple is the amount of income of any generated claims recovery income obtained by the Company in respect of any claims as compared to the Paid Amount of those claims
(e.g., on a $600 recovery, if the paid amount for said claim was $100, the Recovery Multiple is 6x). For these purposes, we record values under the Recovery Multiple only once we have recorded claims recovery income either
through the receipt of cash or recognition of accounts receivable on the claims. Management believes this metric is useful to investors and in managing or monitoring company performance because the Recovery
Multiple provides a measure of the Company’s ability to recover on its claims recovery rights. A Recovery Multiple above 1x would illustrate the Company’s ability to collect in excess of the Paid
Amount.
MSP has entered into settlement agreements to recover amounts in excess of the
paid amount. In MSPA Claims 1, LLC v. Ocean Harbor Cas. Ins. Co., Case No. 2015-1946-CA-01, MSP was granted class certification and obtained approval of a class action settlement
agreement, pursuant to which, subject to certain time and threshold limitations, Ocean Harbor has agreed to pay more than the Medicare Fee-for-Service Schedule Rate by 3.5 times, for Medicare Part A emergency services and Medicare Part D
claims, and by 1.6 times, for Medicare Part A non-emergency services, claims for MRI services and Medicare Part B claims. In MSP Recovery Claims, Series LLC v. Horace Mann Insurance Company,
Case No. 1:20-cv-24419, we entered into a settlement agreement with Horace Mann in which it has agreed to pay matched claims according to applicable commercial rates, subject to the assertion of certain agreed upon defenses. We believe the
difference between the Paid Amount of claims in that case and commercial rates would generally be between 4 to 6 times.
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To date, because actual recoveries have been limited, this measure has had
limited utility in historical periods. However, management believes this measure will become more meaningful during 2022 and beyond to the extent the Company begins to report actual increases in recoveries during those periods. As of December
31, 2021, the Company has obtained settlements with two counterparties where the Recovery Multiple would be in excess of the Paid Amount. However, the settlement amounts have not been finally tabulated and therefore do not provide a large
enough sample to be statistically significant and are therefore not shown in the table. Because the Recovery Multiple is based on actual recoveries, this measure is not based on the Penetration Status of Portfolio, as described below.
Penetration Status of Portfolio: Penetration Status of Portfolio provides a measure of the Company’s recovery efforts by taking into account the current stages of recovery of claims in the portfolio and tying it in with the estimated
market share of the related Primary Payers. The total percentage represents the estimated aggregate market share for the respective Primary Payers in which the Company is
in some stage of recovery. As the Company initiates additional recovery efforts against additional Primary Payers, the Company expects this number to increase. These stages of recovery include
where (1) the recovery process has been initiated, (2) data has been collected and matched or (3) potential resolution discussions are in process. The Company uses third-party
sources to estimate the aggregate market share of those Primary Payers in the property & casualty auto insurance market with whom the Company is engaged in one of these stages of recovery. Management
believes this metric is useful to investors and in managing or monitoring company performance because it provides insight as to the estimated share of the market that is covered by
existing recovery efforts. We estimate that cases that are in the potential resolution discussions and/or data matching are closer to generating potential future claims recovery income.
|
$ in billions
|
| |
Year Ended
December 31, 2021
|
| |
Year Ended
December 31, 2020
|
|
Paid Amount
|
| |
$452.7
|
| |
$ 58.4
|
|
Paid Value of Potentially Recoverable Claims
|
| |
113.5
|
| |
14.7
|
|
Billed Value of Potentially Recoverable Claims
|
| |
363.2
|
| |
52.3
|
|
Recovery Multiple
|
| |
N/A(1)
|
| |
N/A(1)
|
|
Penetration Status of Portfolio
|
| |
75.6%
|
| |
N/A
|
|
(1)
|
Each claim line that is paid or is otherwise converted from encounter data to Paid Amount and Billed Amount for which
recoveries can be made have a potential for recovery through different Funnels. As of December 31, 2021, the Company has obtained settlements with two counterparties who have agreed to pay multiples of Paid Amount. However, the
settlement amounts have not been finally tabulated and therefore do not provide a large enough sample to be statistically significant, and are therefore not shown in the table.
|
Healthcare Industry
Our business is directly related to the healthcare industry and is
affected by healthcare spending and complexity in the healthcare industry. We estimate that our total addressable market is over $150 billion annually. Our primary focus is on the Medicare and Medicaid market segments. Medicare is the second
largest government program, with estimated annual expenditures during 2021 of approximately $923 billion and approximately 63.5 million enrollees. Medicaid has a combined estimated annual expenditure during 2021 of approximately $684 billion
with approximately 76.5 million enrollees. Of the billions spent yearly by Medicare on medical expenses for its beneficiaries, we estimate that at least 10% of this was improperly paid by private Medicare plans.
Our addressable market and therefore revenue potential is impacted
by the expansion or contraction of healthcare coverage and spending, which directly affects the number of claims available. CMS has projected that health spending will continue to grow at an average rate of 5.4% a year between 2019 and 2028. We
also believe reimbursement models may become more complex as healthcare payers accommodate new markets and lines of business and as advancements in medical care increase the number of testing and treatment options available. As reimbursement
models grow more complex and healthcare coverage increases, the complexity and number of claims may also increase, which could impact the demand for our solutions. Such changes could have a further impact on our results of operations.
Approximately 88% of our expected recoveries arise from claims
being brought under the Medicare Secondary Payer Act. While we believe the act has bipartisan support, changes to the laws on which we base our recoveries, particularly the Medicare Secondary Payer Act, can adversely affect our business. Our
ability to generate future revenue is therefore significantly dependent on factors outside our control.
168
Impact of the COVID-19 Pandemic
The impact of the COVID-19 pandemic (“COVID-19”) and related
stay at home orders and social distancing guidelines caused significant disruptions in many of the jurisdictions in which we operate. These measures had an impact on many aspects of our business operations, including delays within the court
system due to court/administrative closures or reduced court dockets and the availability of associates, employees, and business partners. While we were able to continue operations throughout these periods, these delays potentially impacted
timing of resolving pending legal matters as a result of court, administrative and other closures and could impact any potential future legislation or litigation. For the years ended December 31, 2021 and 2020, there was not a material impact
to our operations or financial results including total claims recovery, claims recovery service revenue or cost of recoveries. In addition, changes in KPIs such as Paid Amount, Paid Value of Potentially Recoverable Claims, Recovery Multiple
and Penetration Status of Portfolio were not materially impacted for the years ended December 31, 2021 and 2020 and the number of Assignors or Clients has also not been negatively impacted by COVID-19. While to date, there has not been a
material impact on our operations, we are unable to predict the extent of the impact COVID-19 will have on our financial position and operating results in the future due to numerous uncertainties. These uncertainties include the severity of
the virus, the duration of the pandemic, government, business or other actions (which could include court, administrative and other closures, limitations on our operations, or mandates to us and our customers and providers). The situation
surrounding COVID-19 remains fluid, and we are actively managing our response in collaboration with our customers, associates and employees, and business partners and assessing potential impacts to our financial position and operating
results, as well as adverse developments in our business. The ultimate content, timing or effect of any potential future legislation or litigation and the outcome of other lawsuits cannot be predicted and may be delayed as a result of court
closures and reduced court dockets as a result of the COVID-19 pandemic, which could have a material adverse impact on our business, results of operations, cash flows or financial condition. For more information on our operations and risks
related to health epidemics, including the coronavirus. Please see the section of this proxy statement/consent solicitation statement/prospectus entitled “Risk Factors.”
Key Components of Sales and Expenses
The following represent the components of our results of operations.
Claims Recovery Income
Our primary income-producing activities are associated with the
pursuit and recovery of proceeds related to claims recovery rights that the Company obtains through CCRAs, in which we become the owner of those rights. As such, this income is not generated from the transfer of control of goods or services to
customers, but through the proceeds realized from perfection of claims recoveries from rights we hold outright. We recognize claims recovery income based on a gain contingency model – that is, when the amounts are reasonably certain of
collection. This typically occurs upon reaching a binding settlement or arbitration with the counterparty or when the legal proceedings, including any appellate process, are resolved.
In some cases, we would owe an additional payment to the original
assignor in connection with the realized value of the recovery right. Claims recovery income is recognized on a gross basis, as we are entitled to the full value of proceeds and make payment to the original assignor similar to a royalty
arrangement. Such payments to prior owners are recognized as cost of claims recovery in the same period the claims recovery income is recognized.
Claims Recovery Service Income
We also recognize claims recovery service income for our services
to a related party and a third party to assist those entities with pursuit of claims recovery rights. We have determined we have a single performance obligation for the series of daily activities that comprise claims recovery services, which
are recognized over time using a time-based progress measure. We enter into claims recovery service contracts with third parties. Amounts payable for services to third parties are typically based on budgeted expenses for the current month with
an adjustment for the variance between budget and actual expenses from the prior month.
Costs of Recoveries
Costs of recoveries consist of all directly attributable costs
specifically associated with claims processing activities, including contingent payments payable to assignors (i.e., settlement expenses) as well as amortization of CCRA intangible assets for those CCRAs in which we made upfront payments in
order to acquire claims recovery rights.
169
Operating Expenses
General and Administrative Expenses
General, and administrative expenses consist primarily of
personnel-related expenses for employees involved in general corporate, selling and marketing functions, including executive management and administration, legal, human resources, accounting, finance, tax, and information technology.
Personnel-related expenses primarily include wages and bonuses. General, and administrative expenses also consist of rent, IT costs, insurance, and other office expenses.
As we continue to grow as a company and build out our team, we
expect that our selling, general and administrative costs will increase. We also expect to incur additional expenses as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable
to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for general and director and officer insurance, investor
relations, and professional services.
Professional Fees
Professional Fees consist of legal, consulting, accounting, and
other professional services from third party providers.
Depreciation and Amortization
Depreciation and amortization expense consist of depreciation and
amortization of property and equipment related to our investments in leasehold improvements, office and computer equipment, and internally generated capitalized software development costs. We provide for depreciation and amortization using the
straight-line method to allocate the cost of depreciable assets over their estimated useful lives.
Interest Expense
In some cases, we have entered into arrangements to transfer CCRAs
or rights to proceeds from CCRAs to other parties. When such transfers are considered to be sales of future revenue that are debt-like in nature as defined in Accounting Standards Codification (“ASC”) 470, these arrangements are recognized as
debt based on the proceeds received, and are imputed an interest rate based on the expected timing and amount of payments to achieve contractual hurdles. Our interest expense consists of the imputed interest on these payments. We anticipate
that as we recognize claims recoveries related to CCRAs in these arrangements the interest expense on these arrangements will decrease.
Interest income consists primarily of interest on short term
investments.
Other Income (expense)
Other income consists of equity investment earnings and some
affiliate related income. Other expenses consist of bank service charges, airing fees, tax penalties, settlement expense, political contributions and donations, and some affiliate related expense.
Income Tax Benefit
The various entities that comprise MSP are each currently treated
as partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, our taxable income or loss is passed through to and included in the tax returns of its members. Consequently, no income tax, income tax
payable, or deferred tax assets and liabilities are recorded for any financial reporting date.
170
Results of Operations
Comparison of Year Ended December 31, 2021 to
Year Ended December 31, 2020
The following table sets forth a summary of our combined and
consolidated results of operations for the years ended December 31, 2021 and December 31, 2020 indicated.
|
|
| |
Year Ended December 31
|
|||||||||
|
(In thousands)
|
| |
2021
|
| |
2020
|
| |
$Change
|
| |
% Change
|
|
Claims recovery income
|
| |
$126
|
| |
$255
|
| |
$(129)
|
| |
(51%)
|
|
Claims recovery service income
|
| |
14,500
|
| |
13,632
|
| |
868
|
| |
6%
|
|
Total Claims Recovery
|
| |
$14,626
|
| |
$13,887
|
| |
$739
|
| |
5%
|
|
Operating expenses
|
| |
|
| |
|
| |
|
| |
|
|
Cost of claims recoveries
|
| |
190
|
| |
172
|
| |
18
|
| |
10%
|
|
General and administrative
|
| |
12,761
|
| |
14,598
|
| |
(1,837)
|
| |
(13%)
|
|
Professional fees
|
| |
8,502
|
| |
2,211
|
| |
6,291
|
| |
285%
|
|
Depreciation and amortization
|
| |
343
|
| |
235
|
| |
108
|
| |
46%
|
|
Total operating expenses
|
| |
21,796
|
| |
17,216
|
| |
4,580
|
| |
27%
|
|
Operating Income/ (Loss)
|
| |
$(7,170)
|
| |
$(3,329)
|
| |
$(3,840)
|
| |
115%
|
|
Interest expense
|
| |
(27,046)
|
| |
(20,886)
|
| |
(6,160)
|
| |
29%
|
|
Other income (expense), net
|
| |
1,139
|
| |
(51)
|
| |
1,190
|
| |
(2,333%)
|
|
Net loss
|
| |
$(33,077)
|
| |
$(24,266)
|
| |
$(8,811)
|
| |
36%
|
|
Less: Net (income) loss attributable to non-controlling
members
|
| |
(16)
|
| |
18
|
| |
(34)
|
| |
(189%)
|
|
Net loss attributable to controlling members
|
| |
$(33,093)
|
| |
$(24,248)
|
| |
$(8,845)
|
| |
36%
|
Claims Recovery Service Income. Claims recoveries service income increased by $0.9 million in 2021, or 6%, to $14.5 million in 2021 from $13.6 million
in 2020, primarily driven by an increase in third party service fees due to volume as the headcount needed and related operational expenses to service the claims expanded.
Cost of Claims Recoveries. Cost of claims recoveries increased by $18 thousand in 2021, or 10%, to $190 thousand in 2021 from $172 thousand in 2020,
primarily driven by the increase in amortization expense related to CCRAs.
General and Administrative. G&A decreased by $1.8 million in 2021, or 13%, to $12.8 million in 2021 from $14.6 million in 2020,
primarily driven by decreases in legal expense. Legal expenses decreased by $1.8 million in 2021 due to a decreased use of expert witnesses during
litigation for claims recovery and data matching related to discovering new claims as compared to 2020. Legal expenses in G&A related to services provided by the Law Firm were immaterial in 2020.
Professional Fees. Professional fees increased by $6.3 million in 2021, or 285%, to $8.5 million in 2021 from $2.2 million in 2020, primarily
driven by an increase in accounting and consulting fees due to the Business Combination. Professional fees accounted for 59% of our revenue in 2021
compared to 16% in 2020.
Depreciation and Amortization. Depreciation and amortization increased by $0.1 million in 2021, or 46%, to $0.3 million in 2021 from $0.2 million in 2020,
primarily driven by newly acquired office and computer equipment that was subsequently depreciated.
Interest Expense. Interest expense increased by $6.2 million in 2021, or 29%, to $27.0 million in 2021 from $20.9 million in 2020,
primarily driven by an increase in the basis for which interest is incurred on our Claims Financing Obligations.
Other Income, net. Other income increased by $1.2 million in 2021 to income of $1.1 million in 2021 from a loss of $51 thousand in 2020 primarily driven by a
gain on debt extinguishment related to PPP loans.
171
Liquidity and Capital Resources
Sources of Liquidity
Since inception, we have financed our operations primarily from
partnership contributions. As of December 31, 2021, we had $1.7 million in cash and cash equivalents. As of December 31, 2021 we had loan payables of $106.8 million consisting of our Claims Financing Obligations and notes payable. We also had
$94.5 million in interest payable related to our Claims Financing Obligations.
As an early stage growth company, we have incurred substantial net
losses since inception. Our liquidity will depend on our ability to generate substantial claims recovery income and claims recovery services income in the near future. Our principal liquidity needs have been, and will continue to be, capital
expenditures, working capital and claims obligation financing. Our capital expenditures support investments in our underlying infrastructure to enhance our solutions and technology for future growth. We expect our capital expenditures to
increase primarily due to investments in our technology stack. Our strategy includes the expansion of our existing solutions and the development of new solutions, which will require cash expenditures over the next several years and will be
funded primarily by cash provided by operating activities and the cash from the Business Combination. We also expect our operating expenses to increase as we hire additional employees to support to the claim recovery team. We expect these
investments to be a key driver of our long-term growth and competitiveness but to negatively impact our free cash flow.
We believe that our cash on hand following the consummation of
the Business Combination of approximately $53.3 million assuming the no redemption scenario, will be sufficient to meet our operating expenditure and working capital requirements for a period of at least twelve months from the date of this
proxy statement/prospectus. If we are required to raise additional capital to finance our operations, which may include seeking additional capital through equity offerings or debt financings, the amount and timing of our future funding will
depend on many factors, including the pace and results of our claims recovery efforts. We may be unable to obtain any such additional financing on reasonable terms or at all. Our ability to access capital when needed is not assured and, if
capital is not available to us when, and in the amounts needed, we could be required to delay, scale back or abandon some or all of our claims recovery efforts and other operations, which could materially harm our business, prospects,
financial condition and operating results.
The expenditures associated with the development and launch of our
additional recovery services and the anticipated increase in claims recovery capacity are subject to significant risks and uncertainties, many of which are beyond our control, which may affect the timing and magnitude of these anticipated
expenditures. These risk and uncertainties are described in more detail in this proxy statement/prospectus in the sections entitled “Risk Factors”
PPP Loan
During 2020, we obtained funds under the Paycheck Protection
Program (the “PPP Loans”) in the amount of $1.1 million. The PPP Loan bears interest of 1%, with repayments to be made from 2022 to 2025. We may apply to have the loan forgiven in part or in full, depending if certain requirements are met, in
2021. Any amounts forgiven will be recognized as other income in the period in which they are officially relieved. As of December 31, 2021, all of the PPP Loans have been forgiven.
Claims Financing Obligations
On February 20, 2015 the Company entered into a Claims Proceeds
Investment Agreement with a third-party investor to invest directly and indirectly in claims, disputes, and litigation and arbitration claims. For such investment, the Company has assigned to the investor a portion of the future proceeds of
certain claims, albeit the Company remains the sole owner and assignee of rights to claims as the investor is only acquiring rights to a portion of the proceeds of the claims. The investor return is based on its investment ($23 million between
the original and amended agreements) and an internal rate of return of 30% calculated from the Closing Date. The investor has priority of payment regarding any proceeds until full payment of the investment is satisfied. However, to the extent
that, upon final resolution of the Claims, the investor receives from proceeds an amount that is less than the agreed upon return, the investor has no recourse to recover such deficit from the Company. See Note 9 to our combined and
consolidated financial statements appearing elsewhere in this proxy statement/prospectus for a description of the claims financing obligations.
TRA
Under the terms of the Tax Receivable Agreement, we generally will
be required to pay to the Members, and to each other person from time to time that becomes a “TRA Party” under the Tax Receivable Agreement, 85% of
172
the tax savings, if any, that we are deemed to realize in certain circumstances as
a result of certain tax attributes that exist following the Business Combination and that are created thereafter, including as a result of payments made under the Tax Receivable Agreement. The term of the Tax Receivable Agreement will continue
until all such tax benefits have been utilized or expired unless we exercise our right to terminate the Tax Receivable Agreement for an amount representing the present value of anticipated future tax benefits under the Tax Receivable Agreement
or certain other acceleration events occur. Any payments made by us under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise been available to us, and, to the extent that we are unable
to make payments under the Tax Receivable Agreement for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by us.
Cash Flows
The following table summarizes our cash flows for the periods
indicated:
|
|
| |
Years ended
December 31,
|
|||
|
|
| |
2021
|
| |
2020
|
|
(in thousands)
|
| |
|
| |
|
|
Net cash provided by (used in) operating activities
|
| |
$2,249
|
| |
$(14)
|
|
Net cash (used in) provided by investing activities
|
| |
(2,007)
|
| |
986
|
|
Net cash (used in) provided by financing activities
|
| |
(10,457)
|
| |
9,610
|
|
Net increase (decrease) in cash
|
| |
(10,215)
|
| |
10,582
|
|
Cash at beginning of period
|
| |
11,879
|
| |
1,297
|
|
Cash at end of period
|
| |
$1,664
|
| |
$11,879
|
Cash Flows Provided by (Used in) Operating Activities
Net cash provided by operating activities increased by $2.2
million to $2.2 million for the year ended December 31, 2021 compared to net cash used of $14 thousand for the year ended December 31, 2020. The net cash provided in the year ended December 31, 2021 was primarily due to increases in 2021 in
accounts of payable and accrued liabilities of $2.0 million and increases in affliate payable of $6.2 million, partially offset by an increase in our net loss from operations of $6.8 million for the year ended December 31, 2021 net of
non-cash charges. Net cash used for the year ended December 31, 2020, was primarily due to an increase in our net loss from operations of $2.8 million and an increase in affiliate receivables of $3.3 million, partially offset by an increase
in affiliate payables of $5.7 million. Net non-cash charges primarily included $27.0 million and $20.8 million of paid in-kind interest for the year ended December 31, 2021 and 2020, respectively.
Cash Flows (Used in) Provided by Investing Activities
Net cash used in investing activities increased by $3.0 million
to $2.0 million for the year ended December 31, 2021 compared to net cash provided of $1.0 million for the year ended December 31, 2020, primarily reflecting purchases of equity securities of $4.1 million and purchases to cover short position
of $1.8 million. This was partially offset by proceeds from sale of equity securities of $4.5 million.
Cash Flows (Used in) Provided by Financing Activities
Net cash used in financing activities increased to $10.5
million for the year ended December 31, 2021 compared to net cash provided of $9.6 million for the year ended December 31, 2020. This is primarily due to additions to deferred transaction costs of $8.0 million, distributions of $2.7 million
in 2021 compared to contributions of $8.5 million and proceeds from debt financing of $1.1 million in 2020.
173
Contractual Obligations, Commitments and Contingencies
The following table and the information that follows
summarizes our contractual obligations as of December 31, 2021.
The future minimum lease payments under non-cancelable
operating leases as of December 31, 2021 are as follows (in thousands):
|
|
| |
Lease
Payments
|
|
2022
|
| |
231
|
|
2023(1)
|
| |
217
|
|
Total
|
| |
$448
|
|
(1)
|
Operating lease expires before or during the year ending December 31, 2023
|
Based on claims financing obligations and notes payable
agreements, as of December 31, 2021 and 2020, the present value of amounts owed under these obligations were $201.4 million and $90.5 million, respectively, including unpaid interest to date of $94.5 million and $67.5 million, respectively.
The weighted average interest rate is 22% based on the current book value of $201.4 million with rates that range from 2% to 30%. The Company is expected to repay these obligations from cash flows from claim recovery income.
As December 31, 2021, the minimum required payments on these
agreements are $368.0 million with $117.5 million of the required payments being non-recourse. Certain of these agreements have priority of payment regarding any proceeds until full payment of the balance due is satisfied. However, in some
cases, to the extent that, upon final resolution of the Claims, the investors receive from proceeds an amount that is less than the agreed upon return, the investors have no recourse to recover such deficit from the Company. Certain of these
agreements fall under ASC 470 for the sale of future revenues classified as debt. The maturity of the commitments range from the date sufficient claims recoveries are received to cover the required return or in some cases by 2031.
Off-Balance Sheet Commitments and Arrangements
As of the balance sheet dates of December 31, 2021, and
December 31, 2020, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Critical Accounting Policies
Our combined and consolidated financial statements and the related
notes thereto included elsewhere in this proxy statement/prospectus are prepared in accordance with GAAP. The preparation of our combined and consolidated financial statements requires us to make estimates and assumptions that affect the
reported amounts and related disclosures in our financial statements and accompanying notes. We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions due to the
inherent uncertainty involved in making those estimates and any such differences may be material.
We believe that the following accounting policies involve a high
degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our combined and consolidated financial condition and results of our operations. See Note 2 to
our combined and consolidated financial statements appearing elsewhere in this proxy statement/prospectus for a description of our other significant accounting policies.
Revenue Recognition
Claims Recovery Income
We recognize revenue based on a gain contingency model when the
amounts are reasonably certain of collection, typically upon reaching a binding settlement or arbitration with the counterparty or when the legal proceedings, including any appellate process, are resolved. Claims recovery income is recognized
on a gross basis, as the Company is entitled to the full value of proceeds and makes a payment to the original assignor similar to a royalty arrangement. Such payments to prior owners are recognized as cost of claims recovery in the same period
the claims recovery income is recognized.
174
Claims Recovery Service Income
We recognize claims recovery service income for our services to
third parties for our services to assist those entities with pursuit of claims recovery rights. We have determined we have a single performance obligation for the series of daily activities that comprise claims recovery services, which are
recognized over time using a time-based progress measure. Amounts owed under existing arrangements or as a result of actual settlements or resolved litigation are recognized as accounts receivable. Amounts estimated and recognized, but not yet
fully settled or resolved as part of litigation are recognized as contract assets. We enter into claims recovery service contracts with third parties. Amounts for services to third parties are typically based on budgeted expenses for the
current month with an adjustment for the variance between budget and actual expenses from the prior month.
Impairment of Intangible Assets
We evaluate long-lived assets, such as property and equipment,
and finite-lived intangibles such as claims recovery rights and capitalized software costs, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. If the
estimated future cash flows (undiscounted and without interest charges) from the use of an asset group are less than the carrying value, a write-down would be recorded to reduce the related asset group to its estimated fair value. There were
no impairment indicators or charges in the years ended December 31, 2021 and 2020.
For the CCRA intangibles we will also assess the intangible
assets recognized for CCRAs for impairment in accordance with ASC 350-30-35-14, whereby an impairment loss shall be recognized if the carrying amount of the intangible asset is not recoverable and its carrying amount exceeds its fair value
based on the model for long-lived assets to be held and used under ASC 360-10. ASC 360-10 requires entities to evaluate long-lived assets (including finite-lived intangible assets) when indicators are present. Impairment indicators would
result only when the potential recoveries under the claim paths of all remaining claims suggests the unamortized carrying value is not recoverable. As the amount of upfront payments for CCRAs is typically only a fraction of the potential
recoveries, it would typically take a substantial negative event (such as an unfavorable court ruling upheld on appeal or a change in law/statute with retroactive effect) to suggest an impairment may be triggered. There were no impairment
indicators or charges in the years ended December 31, 2021 and 2020.
Recently Adopted and Issued Accounting Pronouncements
Recently issued and adopted accounting pronouncements are
described in Note 2 to our audited combined and consolidated financial statements included elsewhere in this Proxy Statement.
Emerging Growth Company Accounting Election
Section 102(b)(1) of the Jumpstart Our Business Startups Act of
2012 (“JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS
Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition
period is irrevocable. The Company is an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, and has irrevocably elected to take advantage of the benefits of this extended transition period, which
means that when a standard is issued or revised and has different application dates for public or private companies, the Company or, following the consummation of the Business Combination, we, as an emerging growth company, may adopt the new or
revised standard at the time private companies are required to adopt the new or revised standard. The Post Combination Company is expected to remain an emerging growth company at least through the end of the 2021 fiscal year and is expected to
continue to take advantage of the benefits of the extended transition period. This may make it difficult or impossible to compare MSP’s financial results with the financial results of another public company that is either not an emerging growth
company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions for emerging growth companies because of the potential differences in accounting standards used.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks in the ordinary course of our
business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of concentrations of credit risk.
175
Concentration of Credit
Cash and cash equivalents are financial instruments that are
potentially subject to concentrations of credit risk. The Company’s cash and cash equivalents are deposited in accounts at large financial institutions, and amounts may exceed federally insured limits. The Company believes it is not exposed to
significant credit risk due to the financial strength of the depository institutions in which the cash and cash equivalents are held.
176
FOLLOWING THE BUSINESS COMBINATION
References in this section to “we,” “our,”
“us” and the “Company” generally refer to MSP and its consolidated subsidiaries prior to the Business Combination and to the Post-Combination Company and its consolidated subsidiaries after giving effect to the Business Combination.
Management and Board of Directors
The following sets forth certain information, as of , 2022,
concerning the persons who are expected to serve as executive officers and members of the Board following the consummation of the Business Combination. The director-nominees below will be appointed to the Board effective as of the Closing
Date.
|
Name
|
| |
Age
|
| |
Position
|
|
Director Nominees
|
| |
|
| |
|
|
John H. Ruiz
|
| |
54
|
| |
Class III Director
|
|
Frank C. Quesada
|
| |
41
|
| |
Class III Director
|
|
Ophir Sternberg
|
| |
51
|
| |
Class III Director
|
|
Beatriz Assapimonwait
|
| |
59
|
| |
Class [•] Director
|
|
Michael F. Arrigo
|
| |
63
|
| |
Class [•] Director
|
|
Thomas W. Hawkins
|
| |
60
|
| |
Class [•] Director
|
|
Roger Meltzer
|
| |
71
|
| |
Class [•] Director
|
|
Executive Officers
|
| |
|
| |
|
|
John H. Ruiz
|
| |
54
|
| |
Chief Executive Officer
|
|
Frank C. Quesada
|
| |
41
|
| |
Chief Legal Officer
|
|
Ricardo Rivera
|
| |
50
|
| |
Chief Operating Officer
|
|
Alexandra Plasencia
|
| |
36
|
| |
General Counsel
|
|
[•]
|
| |
[•]
|
| |
Chief Financial Officer
|
Information about Anticipated Executive Officers and Directors Upon
the Closing
Director Nominees
John H. Ruiz. John Ruiz is a founder of MSP Recovery and has served as President and Chief Executive Officer since MSP’s inception. Mr. Ruiz was named one of Lawyers of Distinction’s “2020 Power Lawyers”, for his accomplishments
in healthcare law. He was also named “2019’s DBR Florida Trailblazer”, for his work in integrating data analytics into the practice of law, and for its positive impact on healthcare recoveries across the mainland U.S. and
Puerto Rico. Over the course of his 30-year legal career, Mr. Ruiz has gained national recognition in class action, mass tort litigation, MDL consolidated cases, medical malpractice, products liability, personal injury, real
estate, and aviation disaster cases. Recently, Mr. Ruiz led the legal strategy in the landmark victory handed down by the U.S. Court of Appeals for the Eleventh Circuit, in MSP Recovery Claims Series v. Ace American (11th Circuit). In addition, he has certified more than 100 class actions and led MSP’s participation in Humana v. Western Heritage (11th Cir), MSP Recovery v. Allstate (11th Cir.), and MSPA Claims 1, LLC v. Kingsway Amigo Ins. Co. (11th Cir.). Mr. Ruiz
has been involved as counsel in cases that have totaled more than $20 billion in settlements. These class actions resulted in some of the largest awards in Florida against major insurance companies. In total, Mr. Ruiz has certified
class actions against major car insurers in the State of Florida, resulting in the current and potential redistribution of billions of dollars in improperly paid claims spanning a period of more than 10 years. Starting as early
as 1996, Mr. Ruiz filed class-action lawsuits on behalf of more than 30,000 Miami-Dade County residents against the Florida Department of Agriculture for trespassing onto the private properties of homeowners and chopping down
their citrus trees without any compensation. The case was ultimately certified and the Department of Agriculture directly compensated all members of the aggrieved class. In 2001, Mr. Ruiz represented consumers in a class
action lawsuit against Firestone that resulted in dozens of fatalities and thousands of serious blowouts. Mr. Ruiz was also hired as local counsel by numerous out of state law firms that had pending cases in Florida courts. The cases
in aggregate settled for more than $30 million. Mr. Ruiz also represented the families of crash victims in a wrongful death suit against Chalk’s International Ocean Airway. Mr. Ruiz was the first lawyer to
file a limited fund class action.
177
The case settled for a confidential agreed amount. Mr. Ruiz is licensed to practice
before the Court of Appeals for the Fourth Circuit, the US Court of Appeals for the Second Circuit, the US Court of Appeals for the Third Circuit, and the Florida Supreme Court. Mr. Ruiz has a proven track record of leadership, business
entrepreneurship, and IT innovation.
Frank C. Quesada. Frank C. Quesada is a founding member of MSP Recovery and has served as the Chief Legal Officer since its inception. Mr. Quesada is also a Partner at MSP Recovery Law Firm. With over 15 years of healthcare and complex commercial
litigation experience, Mr. Quesada oversees MSP’s in-house attorneys and several nationally recognized law firms that assist the MSP Recovery Law Firm in their efforts. Additionally, he develops MSP’s legal strategies and spearheads
execution. Notably, Mr. Quesada led the execution of federal appellate strategies in MSP cases resulting in landmark legal victories and new Medicare Secondary Payer Act precedent benefitting Medicare entities across the country. These legal
victories include MSP Recovery v. Allstate (11th Circuit), MSPA Claims 1
v. Tenet (11th Circuit), MSPA Claims 1 v. Kingsway Amigo (11th Circuit), and MSP Recovery Claims Series v. Ace American (11th Circuit). Mr. Quesada currently serves on the Board of Directors of USA Water Polo, Inc.
Ophir Sternberg. – See “Management Of The Company – Directors and Executive Officers.”
Beatriz Assapimonwait. Beatriz (Betty) Assapimonwait has over 38 years of experience in the managed health care industry. Ms. Assapimonwait was, up until August 2021, Regional President for the South Florida region at Humana
Inc. (NYSE:HUM), one of the largest private insurance health insurers in the U.S. with a focus on administering Medicare Advantage plans. In her role at Humana, Inc., Ms. Assapimonwait was responsible for developing market
strategies and leading all market operations for all Medicare lines of business, including HMOs and PPOs for the South Florida region. Prior to her role at Humana, she served as CEO of Family Physicians of Winter Park, Inc.,
until its acquisition by Humana, Inc., where from December 2016 to July 2019, she led the strategic and operational efforts of a global risk MSO with 22 primary clinics in the Central Florida Region. Additionally, she served
as the Vice President of Medicare Advantage Prescription Drug Plans at Aetna, Inc. from November 2014 to November 2016; Chief Operations Officer at Innovacare Health, from January 2014 to October 2014; Founder and President
of Seven Stars Quality Healthcare, from July 2013 to December 2013; and Regional President for the North Florida region at Humana, Inc., from January 2009 to June 2013. Ms. Assapimonwait was appointed to serve on the board
of directors of CareMax Inc. (Nasdaq:CMAX) in September 2021 and also serves as the Chair of the Strategy and Operations Committee since September 2021. She earned her Bachelor of Arts degree from Florida International University
in 1983, and is certified in Healthcare Compliance by the Health Care Compliance Association and in HIPAA Compliance from Kennesaw State University. She has won several awards and commendations, including being a Stevie
Award Finalist of the American Business Awards for Best Customer Service Organization in 2004 and appointed Preceptor and Clinical Adjunct Faculty for the Healthcare Administration Program in 1997 at the University of
Houston-Clear Lake.
Michael F. Arrigo. Michael Arrigo is a co-founder and the chief executive officer of No World Borders, Inc., a healthcare data, regulations, and economics firm with clients in the pharmaceutical, medical device,
hospital, surgical center, physician group, diagnostic imaging, laboratory and genetic testing, health information technology and health insurance markets. In his role at No World Borders, Inc., Mr. Arrigo advises MAOs who
provide health insurance under Part C of the Medicare Act and serves as an expert witness regarding medical coding and medical billing, fraud damages, HIPAA privacy, and Electronic Health Record software. Prior to his
current role, Mr. Arrigo served as Vice President at First American Financial (NYSE: FAF) from October 2002 to February 2007, overseeing eCommerce and regulatory compliance technology initiatives for top mortgage banks; Vice
President of Fidelity National Financial (NYSE: FNF) from 2002 to 2003; chief executive officer of one of the first cloud-based billing software companies, Erogo, from 2000 to 2002; Vice President of Marketing for an email
encryption and security software company until its acquisition by a company that merged into Axway Software SA (Euronext: AXW.PA) from 1999 to 2000; CEO of LeadersOnline, an online recruiting venture of Heidrick &
Struggles from 1997 to 1999; management consultant to Hewlett Packard, Oracle and Symantec from 1994 to 1997; Vice President of Marketing for a software company acquired by a company that merged into Cincom Systems from 1992
to 1994; Product Manager at Ashton-Tate from 1987 to 1992 responsible for database software products including Microsoft / Sybase SQL Server. Mr. Arrigo earned his Bachelor of Science in Business Administration from the
University of Southern California in 1981. His post-graduate studies include biomedical ethics at Harvard Medical School, biomedical informatics at Stanford Medical School, blockchain and crypto economics at the
Massachusetts Institute of Technology, and training as a Certified Professional Medical Auditor (CPMA).
178
Thomas W. Hawkins. – See “Management Of The Company – Directors and Executive Officers.”
Roger Meltzer. – See “Management Of The Company – Directors and Executive Officers.”
Executive Officers
John H. Ruiz
– See “Management Of The Post-Combination Company Following The Business Combination – Director Nominees.”
Frank C. Quesada – See “Management Of The Post-Combination Company Following The Business Combination – Director Nominees.”
Alexandra Plasencia. Alexandra Plasencia currently serves as the General Counsel of MSP Recovery. Prior to becoming General Counsel, Ms. Plasencia served as MSP Recovery’s Chief Compliance Officer and Corporate Counsel. Ms. Plasencia is a corporate and
healthcare attorney who focuses her practice on complex business transactions, contracting, and healthcare and organizational compliance. Ms. Plasencia utilizes her comprehensive healthcare background to advise MSP Recovery on a full spectrum
of legal and regulatory business issues. Prior to her role at MSP Recovery, Alexandra was General Counsel and Corporate Secretary for Conviva Care Solutions, a management services organization overseeing 300,000 patients, throughout 300
practices and 800 clinicians throughout Florida and Texas. In that role, Ms. Plasencia worked closely with and advised the board of directors, developed the organization’s legal strategy and oversaw legal affairs, including acquisitions,
regulatory compliance & oversight, corporate governance, litigation oversight, and provider, payor, and physician contracting. Ms. Plasencia has extensive experience in managed care and full-risk arrangements. Prior to her role with
Conviva, Ms. Plasencia was the General Counsel for MCCI Medical Group where she developed a legal team and oversaw the company’s legal and organizational strategy. During her tenure, Ms. Plasencia handled various multi-million dollar
acquisitions, corporate financing, and successfully integrated various physician practices into MCCI. Most notably, Ms. Plasencia represented MCCI in its sale to Humana and played a pivotal role in the structure, development and creation of
Conviva Care Solutions and Conviva Physician Group. Ms. Plasencia earned her Juris Doctor and MBA in 2011 from the University of Miami, where she also received her BBA from the School of Business, and is certified in healthcare compliance.
Ms. Plasencia has supported and contributed her time to Kristi House, the Leadership Learning Center, Amigos for Kids, and the Friends of St. Jude.
Ricardo Rivera. Ricardo Rivera currently serves as Chief Operating Officer of MSP Recovery. Mr. Rivera joined MSP Recovery in September 2019, and from September 2019 until July 2021, Mr. Rivera served as the Chief of Staff. Over the past 25 years
Mr. Rivera has held positions as COO & CFO at various private corporations in the US and internationally. Before joining MSP Recovery, Mr. Rivera was COO & CFO of Transatlantic Power Fund Management, LLC, a subsidiary of Transatlantic
Power Holdings LLC. Mr. Rivera has a Master’s in Professional Accounting and a BBA in Accounting from the University of Miami.
Controlled Company Exemption
Because Mr. Ruiz will control more than a majority of the total
voting power of the Post-Combination Company, the Post-Combination Company will be a “controlled company” within the meaning of the Nasdaq listing standards. Under Nasdaq listing standards, a company of which more than 50% of the voting power
for the election of directors is held by an individual, another company or a group of persons acting together is a “controlled company” and may elect not to comply with the following Nasdaq listing standards regarding corporate governance:
|
•
|
the requirement that a majority of its board of directors consist of independent directors;
|
|
•
|
the requirement that compensation of its executive officers be determined by a compensation committee comprised solely of
independent directors with a written charter addressing the committee’s purpose and responsibilities; and
|
|
•
|
the requirement that director nominees be selected, or recommended for the board of directors’ selection, by a nominating
committee comprised solely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
|
The Post-Combination Company currently expects that upon
consummation of the Business Combination, four of its seven directors will be independent directors and the Board will have an independent audit committee comprised of three directors that meet the applicable Nasdaq and SEC rules for audit
committee service. However, the Post-Combination Company does not anticipate that the Board will have a compensation committee or a
179
nominating committee comprised of solely independent directors. We anticipate that
[•] will be “independent directors,” as defined in Nasdaq listing standards and applicable SEC rules.
Classified Board of Directors
In accordance with the Proposed Charter, the Board 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 meeting of stockholders) serving a three-year term.
As discussed above, in connection with the Business Combination,
the LCAP Board has nominated [•] and [•] to serve as Class I directors, [•] and [•] to serve as Class II directors and John H. Ruiz, Frank C. Quesada and Ophir Sternberg to serve as Class III directors of the Post-Combination Company upon
completion of the Business Combination.
Board Committees
Following the Closing, the Board will direct the management of our
business and affairs, as provided by Delaware law, and conduct its business through meetings of the Board and standing committees. After the Business Combination, we will have a standing audit committee, compensation committee, and nominating
and corporate governance committee. In addition, from time to time, special committees may be established under the direction of the Board when necessary to address specific issues.
Audit Committee
Our audit committee will be responsible for, among other things:
|
•
|
retaining, overseeing the work of and evaluating the independence and performance of independent auditor;
|
|
•
|
reviewing and discussing with the independent auditors their annual audit, including the timing and scope of audit
activities;
|
|
•
|
pre-approving audit services;
|
|
•
|
overseeing the financial reporting process and discussing with management and our independent registered public accounting
firm the quarterly and annual financial statements that we file with the SEC;
|
|
•
|
reviewing the adequacy and effectiveness of our accounting and internal control over financial reporting and disclosure
controls and policies and procedures;
|
|
•
|
reviewing and discussing guidelines and policies governing the process by which our senior management assesses and manages
our exposure to risk;
|
|
•
|
reviewing, and if appropriate, approving or ratifying any to related party transactions and other significant conflicts of
interest;
|
|
•
|
establishing procedures for the receipt, retention and treatment of complaints received by us and the confidential, anonymous
submission by our employees of concerns regarding questionable accounting or auditing matters;
|
|
•
|
reviewing our program to monitor compliance with our code of ethics; and
|
|
•
|
overseeing significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting.
|
Upon the completion of the Business Combination, our audit
committee will consist of [•], [•] and [•], with [•] serving as chair. Rule 10A-3 of the Exchange Act and Nasdaq rules require that our audit committee must be composed entirely of independent members. We expect that [•], [•] and [•] each meet
the definition of “independent director” for purposes of serving on the audit committee under Rule 10A-3 of the Exchange Act and Nasdaq rules. Each member of our audit committee also meets the financial literacy requirements of Nasdaq listing
standards. In addition, our Board is expected to determine that [•] will qualify as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K. Our Board will adopt a written charter for the audit
committee, which will be available on our corporate website at [•] upon the completion of the Business Combination. The information on any of our websites is deemed not to be incorporated in this proxy statement/prospectus or to be part of this
proxy statement/prospectus.
180
Compensation Committee
Our compensation committee will be responsible for, among other
things:
|
•
|
evaluating and determining, and recommending to our Board, the compensation of our executive officers;
|
|
•
|
administering and recommending to our Board the compensation of our directors;
|
|
•
|
reviewing and approving our executive compensation plan and recommending that our Board amend these plans if deemed
appropriate;
|
|
•
|
administering our general compensation plan and other employee benefit plans, including incentive compensation and
equity-based plans and recommending that our Board amend these plans if deemed appropriate;
|
|
•
|
reviewing and approving any severance or termination arrangements to be made with any of our executive officers; and
|
|
•
|
reviewing and approving at least annually the corporate goals and objectives relevant to the compensation of the CEO and
other executive officers.
|
Upon the completion of the Business Combination, our compensation
committee will consist of [•], [•] and [•], with [•] serving as chair. Our Board is expected to determine that each of [•] will meet the definition of “independent director” for purposes of serving on the compensation committee under Nasdaq
rules. Our Board will adopt a written charter for the compensation committee, which will be available on our corporate website at upon the completion of the Business Combination. The information on any of our websites is deemed not to be
incorporated in this proxy statement/prospectus or to be part of this proxy statement/prospectus.
Compensation Committee Interlocks and Insider Participation
None of our executive officers currently serves, and in the past
year has not served, as a member of the board of directors or compensation committee (or other committee performing equivalent functions) of any entity that has one or more executive officers serving on our board of directors or compensation
committee.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee will be
responsible for, among other things:
|
•
|
identifying, screening and recommending to our Board director candidates for election or re-election;
|
|
•
|
overseeing the policies and procedures with respect to the consideration of director candidates recommended by stockholders;
|
|
•
|
reviewing and recommending to our Board for approval, as appropriate, and reviewing disclosure concerning our policies and
procedures for identifying and screening Board nominee candidates, the criteria used to evaluate Board membership and director independence and any policies with regard to diversity on our Board;
|
|
•
|
reviewing independence qualifications of directors under the applicable Nasdaq rules;
|
|
•
|
developing and coordinating with management on appropriate director orientation programs; and
|
|
•
|
reviewing stockholder engagement plan, if any, and overseeing relations with stockholders.
|
Upon the completion of the Business Combination, our nominating
and corporate governance committee will consist of [•], [•] and [•], with [•] serving as chair. Our Board will adopt a written charter for the nominating and corporate governance committee, which will be available on our corporate website at
[•] upon the completion of the Business Combination. The information on any of our websites is deemed not to be incorporated in this proxy statement/prospectus or to be part of this proxy statement/prospectus.
181
Limitation on Liability and Indemnification of Directors and
Officers
The Proposed Charter, which will be effective prior to the
Closing, limits the Post-Combination Company’s directors’ liability to the fullest extent permitted under the DGCL. The DGCL provides that directors of a corporation will not be personally liable for monetary damages for breach of their
fiduciary duties as directors, except for liability:
|
•
|
for any transaction from which the director derives an improper personal benefit;
|
|
•
|
for any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
|
|
•
|
for any unlawful payment of dividends or redemption of shares; or
|
|
•
|
for any breach of a director’s duty of loyalty to the corporation or its stockholders.
|
If the DGCL is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability of the Post-Combination Company’s directors will be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
Delaware law and the Amended and Restated Bylaws, which will be
effective prior to the Closing, provide that the Post-Combination Company will, in certain situations, indemnify the Post-Combination Company’s directors and officers and may indemnify other team members and other agents, to the fullest
extent permitted by law. Any indemnified person is also entitled, subject to certain limitations, to advancement, direct payment, or reimbursement of reasonable expenses (including attorneys’ fees and disbursements) in advance of the final
disposition of the proceeding.
The Post-Combination Company plans to maintain a directors’ and
officers’ insurance policy pursuant to which the Post-Combination Company’s directors and officers are insured against liability for actions taken in their capacities as directors and officers. We believe these provisions in the Proposed
Charter and the Amended and Restated Bylaws and these indemnification agreements are necessary to attract and retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, or control persons, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Board Leadership Structure
It is not anticipated that a policy requiring the positions of the
Chairperson of the Board and Chief Executive Officer to be separate or held by the same individual will be implemented by the Board, as the Board’s determination is expected to be based on circumstances existing from time to time, based on
criteria that are in the Post-Combination Company’s best interests and the best interests of its stockholders, including the composition, skills and experience of the Board and its members, specific challenges faced by the Post-Combination
Company or the industry in which it operates and governance efficiency. The Board intends to elect Mr. Ruiz as Chairman of the Board because it believes that Mr. Ruiz’s strategic vision for the business, his in-depth knowledge of MSP’s
operations, and his experience serving as the Chief Executive Officer of MSP Recovery make him well qualified to serve as both Chairman of the Board and Chief Executive Officer. Combining the roles of Chairman and Chief Executive Officer will
help provide strong and consistent leadership for the management team and the Board. If the Board convenes for a meeting, it is expected that the non-management directors will meet in one or more executive sessions, if the circumstances
warrant. The Board may consider appointing a lead independent director, if the circumstances warrant.
Risk Oversight
Upon the consummation of the Business Combination, the Board will
administer the risk oversight function directly through the Board as a whole, as well as through its committees, where applicable, monitoring and assessing strategic risk exposure, enterprise risk, and governance risks. The audit committee will
have the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures. The allocation of risk oversight responsibility may change, from time to time,
based on the evolving needs of the Post-Combination Company.
182
Code of Business Conduct and Ethics
The Board will adopt a Code of Ethics applicable to our directors,
executive officers and team members that complies with the rules and regulations of Nasdaq and the SEC. The Code of Ethics will be available on the Post-Combination Company’s website. In addition, the Post-Combination Company intends to post on
the Corporate Governance section of the Post- Combination Company’s website all disclosures that are required by law or Nasdaq listing standards concerning any amendments to, or waivers from, any provision of the Code of Ethics. The reference
to the Post-Combination Company’s website address in this proxy statement/prospectus does not include or incorporate by reference the information on the Post-Combination Company’s website into this proxy statement/prospectus.
183
References in this section to “we,” “our,”
“us” and the “Company” generally refer to MSP and its consolidated subsidiaries prior to the Business Combination and to the Post-Combination Company and its consolidated subsidiaries after giving effect to the Business Combination. The
following section provides compensation information applicable to “emerging growth companies” and “small reporting companies” under the SEC disclosure rules.
MSP Named Executive Officer and Director Compensation
Overview
The following tables and accompanying narrative disclosure provide
information regarding compensation during the fiscal year ended December 31, 2021, awarded to, earned by or paid to those individuals who we currently expect to serve as our principal executive officer and two most highly compensated executive
officers, other than our principal executive officer (such executive officers, our “named executive officers”). We expect these individuals to become employees of the Post-Combination Company in connection with the consummation of the Business
Combination. These individuals include:
|
•
|
John H. Ruiz, Chief Executive Officer
|
|
•
|
Frank C. Quesada, Chief Legal Officer
|
|
•
|
Ricardo Rivera, Chief Operating Officer
|
As further detailed below, during the fiscal year ended December
31, 2021, compensation to Mr. Ruiz and Mr. Quesada for their services to MSP was primarily paid by the Law Firm. For a discussion of the relationship between the Company and the Law Firm, including the Legal Services Agreement, see “Certain
Relationships and Related Party Transactions—MSP and the Post-Combination Company—Legal Services-MSP Recovery Law Firm.”
Summary Compensation Table
Our named executive officers received compensation for their
services to the Company in 2021 and 2020 either directly from MSP or by the Law Firm for services provided to MSP. The following table sets forth certain information regarding the total compensation awarded to, earned by or paid to our named
executive officers for their services to MSP in respect of the fiscal years ended December 31, 2021 and December 31, 2020. These amounts do not include any ownership interest in, or fees paid by, the Law Firm for services outside of those to
MSP.
|
Name and Principal Position
|
| |
Year
|
| |
Salary
($)(1)
|
| |
Bonus
($)
|
| |
Stock
awards
($)
|
| |
Option
awards
($)
|
| |
Nonequity
incentive plan
compensation
($)
|
| |
Nonqualified
deferred
compensation
earnings
($)
|
| |
All other
compensation
($)(2)
|
| |
Total
($)
|
|
John H. Ruiz,
Chief Executive Officer
|
| |
2021
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
$739,832(3)
|
| |
$739,832
|
|
|
| |
2020
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
675,000
|
| |
1,384,090
|
|
Frank C. Quesada,
Chief Legal Officer
|
| |
2021
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
$355,750(4)
|
| |
$355,750(5)
|
|
|
| |
2020
|
| |
|
| |
|
| |
|
| |
—
|
| |
|
| |
|
| |
769,985
|
| |
1,519,985
|
|
Ricardo Rivera,
Chief Operating Officer
|
| |
2021
|
| |
$400,000
|
| |
$75,000
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
$475,000
|
|
|
| |
2020
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
150,000
|
| |
613,462
|
|
(1)
|
The 2021 base salary amounts represent the actual amounts paid during fiscal year 2021.
|
|
(2)
|
Amounts reported in the “All Other Compensation” column for 2021 reflect amounts paid to our named executive officers by the
Law Firm for their services to MSP. The relationship between the Company and the Law Firm, which is an entity that is not part of the Business Combination, is fully described in “Certain Relationships and Related Party Transactions—MSP
and the Post-Combination Company—Legal Services-MSP Recovery Law Firm.” In 2021, the total amount of perquisites and personal benefits for each of the NEOs was less than $10,000.
|
|
(3)
|
This amount includes $89,832 paid by the Law Firm for life insurance premium.
|
|
(4)
|
This amount includes $5,750 paid by the Law Firm for life insurance premium.
|
|
(5)
|
This amount includes $400,000 paid by the Law Firm to a limited liability company, which is owned by Mr. Quesada.
|
184
Narrative Disclosure to Summary Compensation Table
Base Salary
During 2021, the base salary paid to Mr. Ruiz
and Mr. Quesada was paid by the Law Firm and is reflected in the “All Other Compensation” column of the Summary Compensation Table above. Mr. Rivera’s base salary was paid by MSP. Following the Business Combination, each of our named executive
officers will receive an annual base salary from the Company to provide a fixed component of compensation for such executive officers. See the section entitled “Post-Combination Company Executive Officer and Director Compensation”.
Cash Bonus Compensation
None of our named executive officers received
a cash bonus, except that Mr. Rivera received a discretionary cash bonus of $75,000 from MSP in the fiscal year ended December 31, 2021.
Equity Compensation
MSP did not issue any equity compensation in
fiscal year ended December 31, 2021. Following the closing of the Business Combination, MSP intends to issue equity awards under the Incentive Plan. For a description of the material terms of the Incentive Plan see “Proposal No. 6 – Incentive
Plan Proposal”.
Outstanding Equity Awards at Fiscal Year-End
As of December 31, 2021, the named executive officers did not have
any outstanding equity awards.
Director Compensation
During fiscal year 2021, there were no
non-employee directors and no fees were paid to any individuals for services as a director.
Post-Combination Company Executive Officer and Director Compensation
The following disclosure concerns the
compensation of individuals who will serve as the Post-Combination Company’s executive officers and directors.
Employment Agreements
Under the terms of the MIPA and in connection
with the Business Combination, Mr. John Ruiz and Mr. Frank C. Quesada will enter into an employment agreement with Opco prior to the Closing which will become effective as of the Closing (the “Employment Agreements”). The Employment Agreements
will provide for an initial term of three years that automatically renews for one-year terms thereafter, unless notice of non-renewal is provided 90 days before the end of the term then in effect, and a minimum base salary of $1,800,000 per
year for Mr. Ruiz and $600,000 per year for Mr. Quesada. In addition, the Employment Agreements provide for annual target bonuses, based on pre-established performance metrics, equal to at least 100% of base salary for Mr. Ruiz and 100% of base
salary for Mr. Quesada and certain other benefits and perquisites, which are discussed in detail in the Employment Agreements.
The Employment Agreements provide that
Mr. Ruiz and Mr. Quesada will be granted long-term incentive equity awards under the Incentive Plan
In the event of a termination of employment by MSP without cause
or by Mr. Ruiz or Mr. Quesada for good reason at any time other than within 18 months following a change in control, Mr. Ruiz and Mr. Quesada will receive (i) continuation of annual base salary for 6 months following the termination date,
(ii) payment of any earned but unpaid annual bonus for the fiscal year prior to the year of termination; and (iii) payment of an amount equal to the COBRA premium costs for 6 months (equal to the amount MSP was paying as the employer-portion of
health care premiums prior to termination of employment). In the event of a termination of employment by MSP without cause or by Mr. Ruiz or Mr. Quesada for good reason within 18 months following a change in control, Mr. Ruiz and Mr. Quesada
will also receive the severance payments and benefits previously described and an amount equal to the target bonus in effect for the year of termination. Any such severance payments will be subject to applicable taxes and the executive’s
execution and non-revocation of a general release of claims and continued compliance with restrictive covenant provisions.
The Employment Agreements also contain a
covenant not to compete, generally prohibiting Mr. Ruiz and Mr. Quesada from providing services to a competitor or soliciting or hiring employees or business contacts for the greater of two years following the termination of employment and
three years after the date of the Closing. In addition, the Employment Agreements mandate that Mr. Ruiz’s and Mr. Frank’s confidentiality obligations continue after his termination of employment.
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The following is a discussion of the Business
Combination and the material terms of the MIPA. You are urged to read the MIPA carefully and in its entirety, a copy of which is attached as Annex A to this proxy statement/prospectus. This summary does not purport to be complete and may not
contain all of the information about the MIPA that is important to you. This section is not intended to provide you with any factual information about the Company or MSP. Such information can be found elsewhere in this proxy
statement/prospectus.
Terms of the Business Combination
Pursuant to the MIPA, the Members will sell and assign all of
their membership interests in MSP to Opco in exchange for non-economic voting shares of Class V Common Stock and non-voting economic Class B Units. Following the Closing, the Company will be organized in an “Up-C” structure in which all of
the business of MSP will be held directly or indirectly by Opco, and the Company will own all of the voting Class A Units of Opco and the Members or their designees will own all of the non-voting economic Class B Units in accordance with the
terms of the LLC Agreement. Each Up-C Unit may be exchanged for either, at the Company’s option, (a) cash or (b) one share of Class A Common Stock, subject to the provisions set forth in the LLC Agreement. Subject to the terms and conditions
set forth in the MIPA, the aggregate consideration to be paid to the Members (or their designees) will consist of (i) 3,250,000,000 Up-C Units and (ii) rights to receive payments under the tax receivable agreement to be entered into at the
Closing. Of the Up-C Units to be issued to certain Members at Closing, 6,000,000 will be deposited into an escrow account with Continental Stock Transfer and Trust, to satisfy potential indemnification claims brought pursuant to the MIPA.
Additionally, in connection with the Business Combination and to provide additional consideration to holders of Class A Common Stock that do not redeem their shares of Class A Common Stock, the Company intends, subject to compliance with
applicable law, to declare a dividend comprising an aggregate of approximately 1,029,000,000 New Warrants, conditioned upon the consummation of any redemptions by the Company’s stockholders and the closing of the Business Combination, to the
holders of record of the Class A Common Stock as of the Closing Date, after giving effect to the waiver of the right, title and interest in, to or under, participation in any such dividend by the Members, on behalf of themselves and any of
their designees. Following the Closing, the Company will have two classes of authorized common stock. The shares of Class A Common Stock and Class V Common Stock each will have one vote per share. The Class V Common Stock will not have any of
the economic rights (including rights to dividends and distributions upon liquidation) provided to holders of the Class A Common Stock.
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Organizational Structure (MSP)
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(1)
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The Members have a 50% ownership interest in each of MAO MSO Recovery, LLC, MAO MSO Recovery II, LLC, MAO-MSO Recovery LLC,
Series FHCP and MAO-MSO Recovery II LLC, Series PMPI.
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The Members include John H. Ruiz, JOCRAL Family LLLP, Jocral
Holdings, LLC, Frank C. Quesada, Quesada Group Holdings, LLC, Ruiz Group Holdings Limited, LLC and John H. Ruiz II.
MSP, which are wholly-owned by the Members, include the following
entities: MDA Series, LLC, Series LLC, MSP Recovery Services LLC, MSP Recovery, LLC, MSP Recovery PROV, Series LLC, MSP Recovery Claims CAID, Series LLC, MSP Recovery Claims HOSP, Series LLC, MSP Recovery of Puerto Rico, LLC, MSP WB, LLC, MSP
Recovery Claims COM, Series LLC, MSP Recovery Claims HP, Series LLC and MSP Productions, LLC. MSP also include 130 wholly owned subsidiaries.
The Members also own various interest in entities outside of MSP
that will be transferred in connection with Business Combination. The Members have a 50% ownership interest in MAO-MSO Recovery, LLC (including the affiliates thereto, MAO-MSO Recovery LLC, Series FHCP) and MAO-MSO II Recovery, LLC (including
the affiliates thereto, MAO-MSO Recovery II LLC, Series PMPI).
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The following diagram, which assumes that (1) the no
redemption scenario and (2) that the holders of the Company’s existing Public Warrants and Private warrants exercise those warrants, and no New Warrants are exercised, in connection with the Business Combination, illustrates the ownership
structure of the Post-Combination Company immediately following the Business Combination:
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(1)
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The Members (or their designees) will hold all of the Class B Units of Opco.
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(2)
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The Members (or their designees) will hold all of the shares of the Class V Common Stock of the Post-Combination Company,
which are voting, non-economic shares. The shares of Class V Common Stock are convertible on a 1-for-1 basis into shares of the Company’s Class A Common Stock (or cash, at the Post-Combination Company’s option), in accordance with the
terms of the LLC Agreement.
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(3)
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The Initial Stockholders will hold 5,750,000 shares of Class A Common Stock of the Post-Combination Company. This amount will
be affected by the exercise of outstanding warrants or New Warrants. See “Summary—Ownership of the Post-Combination Company.”
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(4)
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The Public Stockholders and holders of Private Shares will hold 12,703,631 shares of Class A Common Stock of the
Post-Combination Company. This amount will be affected by the level of redemptions by Public Stockholders and the exercise of outstanding warrants or New Warrants. See “Summary—Ownership of the
Post-Combination Company.”
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(5)
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The Post-Combination Company will hold all of the Class A Units of Opco.
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(6)
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The MSP Purchased Companies will own 50% of the membership interest in each of MAO-MSO Recovery, LLC, MAO MSO Recovery II,
LLC, MAO-MSO Recovery LLC, Series FHCP and MAO-MSO Recovery II LLC, Series PMPI.
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Headquarters; Stock Symbols
The name of MSP after the Business Combination will be “MSP
Recovery Inc.” and its headquarters will be located at 2701 Le Jeune Road, Floor 10, Coral Gables, Florida 33134. We intend to apply to list the Class A Common Stock and the New Warrants to be issued in connection with the Business Combination
on Nasdaq under the symbol “MSPR” and “MSPRW” upon the closing of the Business Combination.
Background of the Business Combination
The proposed Business Combination was the result of an extensive
search by LCAP for a potential transaction using the network, investment and operating experience of its management team. With the assistance of the Sponsor, LCAP explored more than 45 potential targets as described in further detail in the
following paragraphs. The terms of the proposed Business Combination with MSP were the result of extensive negotiations between LCAP and MSP over the course of approximately eight months. The following is a brief description of the background
of this process.
LCAP is a blank check company that was formed on December 23,
2019, for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses, which is referred to as its initial business combination.
On January 10, 2020, the Sponsor purchased an aggregate of
5,000,000 Founder Shares for an aggregate purchase price of $25,000, or approximately $0.005 per share. Subsequently, on February 6, 2020, LCAP declared a stock dividend of 0.15 shares for each Founder Share outstanding, resulting in the
Sponsor holding an aggregate of 5,750,000 Founder Shares. In July 2020, the Sponsor sold 82,500 Founder Shares to Nomura for a purchase price of approximately $0.005 per share.
On July 27, 2020 LCAP completed its IPO, for which Nomura and
Cantor Fitzgerald & Co will receive deferred underwriting commissions from the IPO in connection with the consummation of LCAP’s initial business combination.
Simultaneously with the consummation of the IPO, LCAP completed a
private placement of an aggregate of 650,000 Private Units to the Sponsor and Nomura at a price of $10.00 per Private Unit, consisting of one share of Class A Common Stock and one half of one redeemable warrant to purchase one share of Class A
Common Stock at an exercise price of $11.50 per share, generating gross proceeds to LCAP of $6,500,000.
Prior to the consummation of the IPO, neither LCAP, nor anyone on
its behalf, selected any specific target business or initiated any substantive discussions, directly or indirectly, with any target business with respect to a transaction with LCAP.
Following the IPO, LCAP commenced a search for prospective
businesses and assets to acquire. LCAP’s goal was to search for business combination targets in the Property Technology (“PropTech”) sector or alternatively to pursue an acquisition in any business, industry, or sector well positioned to
benefit from innovative digital technologies and technology-enhanced services and valued between approximately $500.0 million and $2.5 billion or more. However, LCAP was not limited by these target characteristics.
In evaluating potential businesses and assets to acquire, LCAP,
together with LCAP’s advisory partners and the Sponsor, generally surveyed the landscape of potential acquisition opportunities based on their knowledge of and familiarity with the M&A marketplace.
LCAP focused its search using the general criteria and guidelines
identified in the IPO prospectus which it believed would be important in evaluating a prospective target, including, businesses that it believed:
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are driving technological innovation across the real estate ecosystem;
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offer innovative software, hardware, products, operations, or services;
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can serve as a platform for expansion, both organically and through further acquisitions, including “roll-ups” of smaller
players;
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are established businesses of scale and are poised for continued growth with capable management teams and proven unit
economics, but potentially in need of financial, operational, strategic or managerial enhancement to maximize value; and/or
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have seasoned, proven business plans.
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In addition, LCAP focused its search on acquisition targets
that it believed would benefit from LCAP’s operating partners’ expertise, including those of the Sponsor and its affiliates, on a post-closing basis. The foregoing criteria were not exhaustive and evaluations relating to the merits of each
potential business combination was based, to the extent relevant, on these general guidelines as well as other considerations, factors and criteria that LCAP’s management and the LCAP Board deemed relevant.
During the search process, LCAP conducted an evaluation of
numerous potential targets. LCAP held meetings with 45 potential targets, which were narrowed down to 21 targets with which LCAP entered into non-disclosure agreements. The Sponsor and its affiliates were actively involved during this process.
Based on assessments of the 21 targets with which LCAP entered into non-disclosure agreements, including in respect of their product and market fit, growth potential, and management team strength. LCAP held multiple meetings with 19 of those
potential targets (including MSP) to evaluate the business of these targets further as well as to determine which targets had marketable stories for going public and were properly equipped to enter into a business combination within a
reasonable time. Before entering into a non-binding letter of intent with MSP (as described below), LCAP’s management team actively pursued select potential business combination targets, conducted preliminary due diligence on, had management
meetings with, and negotiating preliminary terms of, potential transactions with such potential business combination targets, as further described below. Beginning shortly after the IPO, LCAP held numerous meetings via teleconference among
members of LCAP’s management team, certain of LCAP’s advisors, the Sponsor and its affiliates, and in some cases members of the LCAP Board, in order to discuss matters relating to LCAP’s initial business combination. Initially, such meetings
were intended to allow management and certain of its advisors to provide updates regarding the status of the evaluation of, and outreach to, potential business combination targets.
Of the 19 targets with which LCAP held multiple meetings, LCAP
performed financial and operational due diligence on 14 potential targets (including MSP). Out of those 14 potential targets, six proceeded to negotiate a letter of intent with LCAP, with four (including MSP) signing a non-binding letter of
intent. Members of the then LCAP Board were actively involved in the negotiation of each letter of intent and the terms for the potential business combinations including providing feedback on potential deal structure and valuation. Members of
the LCAP Board informally consulted with members of LCAP’s management team regarding several targets with whom LCAP did not negotiate letters of intent. Non-binding letters of intent were signed with two such potential targets in October 2020
in expectation of consummating a three-way business combination. Specifically, on October 14, 2020, LCAP signed a non-binding LOI with a group of companies operating under a common name engaged in the business of owning and operating
powersport vehicle retail dealerships (“Potential Target A”) with an exclusivity provision in favor of LCAP that expired on November 30, 2020. On October 26, 2020, LCAP signed a non-binding LOI with a complementary target in the business of
providing an online marketplace for the purchase and sale of powersport vehicles (“Potential Target B”) with an exclusivity provision in favor of LCAP that expired on November 30, 2020. One of LCAP’s then directors was affiliated with
Potential Target A.
On October 18, 2020, representatives of LCAP discussed with
representatives of Potential Target A a potential business combination between LCAP, Potential Target A, and Potential Target B. In the days that followed, representatives of LCAP and Potential Target A engaged in discussions regarding terms
for a potential business combination as well as Potential Target A’s business strategy and financial information, as LCAP and its representatives conducted business and legal due diligence on Potential Target A.
On October 28, 2020 representatives of LCAP discussed with
representatives of Potential Target B regarding a potential business combination between LCAP, Potential Target A and Potential Target B. Representatives of LCAP and Potential Target B then engaged in discussions regarding terms for a
potential business combination as well as Potential Target B’s business strategy and financial information as LCAP and its representatives conducted business and legal due diligence on Potential Target B.
In each case, the parties exchanged drafts of definitive
agreements and conducted extensive due diligence. However, the discussions between LCAP and both Potential Target A and Potential Target B were eventually discontinued due to divergence of expectations between the parties around timing of a
business combination, valuation of the targets, and other transaction terms and the letters of intent with these targets were terminated on December 4, 2020.
On November 23, 2020, LCAP signed a non-exclusive, non-binding
letter of intent with a third potential target in the business of providing wellness design and construction consulting services in the PropTech sector (“Potential Target C”). This non-binding letter of intent was terminable by either party (in
its sole discretion) at any time if it
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no longer desired to pursue a potential combination. For several weeks,
representatives of LCAP and Potential Target C engaged in discussions regarding terms for a potential business combination as well as Potential Target C’s business strategy and financial information, as LCAP and its representatives conducted
business and legal due diligence on Potential Target C. The discussions between LCAP and Potential Target C were discontinued due to divergence of expectations between the parties around valuation and other transaction terms during the last
week of January 2021.
In mid-December 2020, John H. Ruiz visited The Ritz Carlton
Residences, Miami Beach related to a potential purchase of residential property (by way of an exchange of MSP claims for real estate) from a developer entity in which Ophir Sternberg has an interest and was introduced to Mr. Sternberg. As a
part of this introductory meeting, Mr. Ruiz explained that he was the CEO of MSP Recovery, LLC and discussed the general business model of MSP. Mr. Sternberg raised with Mr. Ruiz the possibility of MSP pursuing a business combination with a
special purpose acquisition company (“SPAC”) counterparty. Subsequent to the meeting, both MSP and LCAP began conducting high-level due diligence on each other, with a view to considering a potential business combination between MSP and LCAP.
On December 18, 2020, management teams from MSP, LCAP and Virage,
a long-time institutional investor in MSP, held a virtual meeting to facilitate an introduction between Mr. Sternberg, Mr. Ruiz and certain representatives of the Virage senior management team.
On January 19, 2021, Mr. Sternberg and Mr. Ruiz engaged in general
discussions regarding the possibility of a business combination transaction. In particular, Messrs. Sternberg and Ruiz discussed MSP’s then current and projected financial position and Mr. Ruiz’s vision to grow MSP, and certain potential
benefits for MSP if it were to operate as a public company. Among these benefits, Mr. Sternberg and Mr. Ruiz discussed the lower cost of capital for public equity compared to hedge fund investments, the ability to use public equity as merger
consideration for future acquisitions, the ability to attract and retain key employees with an equity incentive plan, and the ability for MSP to raise its public profile. Mr. Sternberg and Mr. Ruiz also discussed the ability to use this
enhanced public profile to capitalize on MSP’s first mover advantage in order to lock in the top tier of the claims portfolio and to identify and diversify into related or otherwise profitable claims.
During the period of January 20, 2021 to January 29, 2021,
representatives from MSP and LCAP negotiated a nondisclosure agreement to govern the process of exchanging materials between MSP and LCAP to foster a more in-depth business and legal due diligence process. The non-disclosure agreement was
executed on January 29, 2021, at which time Mr. Sternberg and Mr. Ruiz met in Miami, Florida to discuss the possibility of pursuing a business combination transaction between LCAP and MSP.
On February 3, 2021, Mr. Sternberg presented a summary of MSP’s
business model to representatives of Nomura, financial advisor to LCAP, with representatives of MSP in attendance. Throughout February 2021, the management teams of LCAP and MSP discussed a possible preliminary valuation range of MSP between
$20.0 billion and $50.0 billion based on MSP’s portfolio value of potential claims as estimated by MSP through its consultations with investment bankers, research of the industry, and conversations with financial advisors.
The wide range for the preliminary valuation reflected ongoing
negotiations regarding which assets and claims from MSP’s portfolios would be included in the business combination and the early stage of diligence by LCAP on the claims and business model. On February 18, 2021, representatives of Stifel
Financial Corp., historic financial advisor to MSP (“Stifel”), MSP, LCAP and Nomura held a meeting via teleconference to discuss MSP’s financial model. No written materials were prepared for this discussion. Following the February 18
teleconference, LCAP’s senior management team expressed its interest in learning more about MSP’s business model, MSP’s growth trajectory, and the portfolios of claims owned or controlled by MSP. Throughout the negotiations, representatives
from Nomura participated in or attended various meetings or conversations with LCAP and MSP as well as MSP’s financial advisors, assisted LCAP in its negotiations on and considerations of various aspects of the business combination, and
provided market data summaries to LCAP relating to warrant issuances and private placement of public equity (“PIPE”) transactions in SPAC transactions. Nomura did not provide LCAP with a valuation of MSP or a fairness opinion in connection
with the Business Combination.
Beginning on March 4, 2021, LCAP and its representatives received
access to a virtual data room containing extensive information on MSP’s business and legal operations as LCAP continued to perform due diligence on a potential business combination transaction. During the period of January 29, 2021, to
March 14, 2021, the parties negotiated a non-binding letter of intent, which was executed on March 14, 2021 (the “Letter of Intent”). The Letter
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of Intent reflected, among other terms, a potential pre-money equity valuation
for MSP of $26.8 billion, payable in LCAP stock, subject to variation based on changes in MSP’s portfolio. The initial pre-money equity valuation contained in the Letter of Intent was based on the Company’s evaluation of MSP’s internal
preliminary valuation estimate derived from summary financial information provided by MSP, Such key prospective information is summarized in “—Certain Unaudited Projected Financial Information of MSP”,
including net recoveries MSP expects to receive from its core claims recovery services business other than claims recovery services related to the Governmental Claims Portfolio (as defined below) (“MSP’s core business”). Using this
information, the Company agreed on a potential value for MSP based on a traditional discounted cash flow analysis. This initial valuation was subject to the Company’s completing due diligence and did not account for the Governmental Claims
Portfolio. For more information regarding the valuation process, see “Valuation of the MSP Business” below. While the Company and its professional advisors performed due diligence on MSP’s business model and financial information, at no time
did LCAP or any professional advisor develop a separate financial model.
The Letter of Intent also contemplated an escrow of 5.0 million
shares (or $50.0 million in value, based upon the initial public offering price and historic trading price of the Company’s common stock) to secure MSP Members’ indemnification obligations, and prescribed a 60-day mutual exclusivity period
terminating on May 13, 2021.
On March 5, 2021, MSP formally engaged Keefe, Bruyette &
Woods, Inc., a Stifel company (“KBW”), to provide financial advisory and investment banking services to MSP in connection with the potential transaction with LCAP. MSP selected KBW because KBW is a nationally recognized investment banking firm
with substantial experience in transactions in connection with the mergers and acquisitions of financial services businesses. As part of its engagement, representatives from KBW participated in or attended various meetings or conversations with
MSP, LCAP, or Nomura, and assisted MSP in their negotiations on and considerations of various aspects of the business combination. KBW did not provide MSP with a fairness opinion in connection with the business combination.
On March 16, 2021, LCAP senior management held an initial
meeting with representatives of MSP, Nomura and KBW, to discuss the potential transaction and to coordinate efforts in negotiating definitive agreements regarding the arrangements set forth in the Letter of Intent. At such meeting, MSP
management and KBW made a fulsome presentation of the MSP Model.
Throughout March and April 2021, representatives of LCAP, MSP, KBW
and Nomura met or held discussions with potential investors and placement agents to explore a possible PIPE transaction in connection with the Business Combination, and discussed with them relevant information to support the valuation described
in the Letter of Intent. After discussions with several potential investors and placement agents, MSP and LCAP determined not to pursue a PIPE in conjunction with the Business Combination due primarily to the perceived lack of need for
immediate capital by the combined company following Closing.
Throughout March 2021, LCAP continued its due diligence
investigation of MSP and engaged in several communications with representatives of MSP and its advisors, including KBW, regarding the MSP Model and MSP’s market opportunity. In addition, the parties continued to discuss the valuation for MSP.
LCAP’s advisors attended certain of these meetings.
On March 18, 2021, Gutierrez Bergman Boulris PLLC (“GBB”), outside
legal counsel to LCAP, sent an initial draft of a membership interest purchase agreement (the “MIPA”) regarding the proposed Business Combination to representatives of MSP and Weil, Gotshal & Manges LLP (“Weil”), outside legal counsel to
MSP, copying DLA Piper LLP (US) (“DLA Piper”), which was providing selected legal services to LCAP. The following day, on March 19, 2021, members of the MSP senior management team met with the LCAP Board, to discuss MSP, its valuation, and the
terms of the potential Business Combination. On March 21, 2021, representatives of MSP, KBW, LCAP and Nomura discussed the March 19 meeting with the LCAP Board, and related issues.
In the following days, representatives of Nomura and KBW held
initial discussions regarding the development of investor presentation materials to be used in connection with the potential Business Combination. Additionally, representatives from LCAP and MSP discussed the process for the preparation and
audit of MSP’s historical financial statements and the anticipated timing of the audit and proposed Business Combination.
On March 29, 2021, Weil sent GBB a revised draft of the MIPA which
included, among other things, revisions to account for an Up-C structure and to more fully describe the businesses comprising MSP. On March 30, 2021, LCAP engaged Holland & Knight to conduct legal due diligence on the material legal
agreements underlying the
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MSP Model. This diligence centered around providing the LCAP Board and LCAP
management team with an understanding of the legal risks associated with the MSP Model, issues surrounding privacy and patient data as well as the legal foundation of MSP’s claims in its portfolio. On April 6, 2021, Frank C. Quesada, Chief
Legal Officer of MSP, held a meeting with representatives of Holland & Knight as well as members of senior management from LCAP regarding the MSP Model, the material legal agreements underlying the MSP Model, and recent legal victories
related to the claims referenced in the MSP Model. Holland & Knight reviewed the materials provided to LCAP in the virtual data room, participated in numerous calls with MSP management and LCAP management to obtain additional background
information and clarify materials in the data room, and were given the opportunity to ask numerous follow-up questions regarding such materials.
In early April, representatives of KBW and Nomura held several
discussions regarding the assumptions included in the MSP Model, as well as valuation metrics, which did not include the value of certain governmental claims rights held by MSP WB, LLC (the “Governmental Claims Portfolio”) relating to actions
to recover civil penalties and damages on behalf of governmental healthcare programs under the federal False Claims Act. While the Governmental Claims Portfolio is not part of MSP’s core business, the parties consider it a valuable, distinct
asset. It differs from the claims recovery model in that MSP is acting directly on behalf of the federal government.
On April 8, 2021, representatives of LCAP and MSP held a meeting
to discuss the appointment of Deloitte as auditor to MSP, as well as due diligence items. Throughout April 2021, MSP, LCAP, and their respective representatives discussed the proposed “Up-C” deal structure, other terms of the potential Business
Combination, including the valuation of MSP based on the MSP Model. The parties also exchanged drafts of an investor presentation to be used in connection with the potential Business Combination.
On April 9, 2021, GBB sent Weil a revised draft of the MIPA
reflecting, among other things, a proposed six-month lockup for the members of MSP’s core executive team, a minimum cash closing condition for the MSP Companies of $30 million, provisions regarding a simultaneous PIPE transaction, and a
proposed outside closing date of December 31, 2021. On April 16, 2021, Weil returned a further revised draft of the MIPA to GBB reflecting, among other things, rejection of a termination right in favor of LCAP if MSP failed to deliver certain
required financial statements within specified periods of time, and a proposed outside closing date of March 31, 2022. Weil also sent GBB initial drafts of an operating agreement and amended and restated charter and bylaw documents. During this
period, MSP and LCAP continued to negotiate timing of the Business Combination, and matters related to various ancillary agreements to be required in connection with the Business Combination, and re-considered then abandoned again the
desirability of a PIPE. In further discussions regarding the possibility of a PIPE, MSP advised LCAP that it believed its existing financing sources would remain available after the Closing, and that other similar sources were likely to be
available. In addition, MSP and LCAP discussed market data summaries, assembled by their respective financial advisors, regarding the frequency and pricing of PIPE transactions in SPAC transactions. MSP and LCAP determined that the PIPE markets
for SPACs had materially deteriorated from prior levels, that a PIPE transaction would be difficult to complete at a price and on terms deemed appropriate by MSP and LCAP and that, in light of other available sources of future financing, the
transaction would proceed without PIPE financing.
On April 21, 2021, Mr. Ruiz and Ricardo Rivera, Chief Operating
Officer of MSP, conducted an investor presentation to certain parties, including certain of the limited partner investors of Virage, to give an update on the potential Business Combination and anticipated timing of the audited financial
statements. Representatives of Virage and representatives of LCAP were in attendance at this meeting.
On April 26, 2021, representatives of MSP, LCAP, Nomura and KBW
met in person in Miami, Florida to discuss the proposed transaction structure, including which claims would be included from MSP’s portfolio, possible capital alternatives, including confirming a PIPE was not desirable based on the then current
PIPE market, valuation, including discount dynamics, business assumptions and outlook based on the then current market conditions. No terms of the Business Combination were agreed upon or negotiated at this meeting.
Throughout May 2021, representatives of MSP and LCAP held several
discussions regarding the negotiation of terms to be included in an amended and restated non-binding letter of intent, in order to reflect the recent negotiations and to extend the term of mutual exclusivity provided for in the Letter of
Intent; however, such proposed amended and restated non-binding letter of intent was never executed, although the parties continued to negotiate exclusively with one another in respect of terms then under consideration.
Throughout May and June 2021, MSP and LCAP continued to
negotiate the structure and terms of the proposed Business Combination. During this time, MSP proposed including the Governmental Claims Portfolio, and
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correspondingly increasing the overall size of the transaction. In conjunction
with this concept, the parties discussed a potential structure in which LCAP or an affiliate of LCAP would issue a contingent value right or similar instrument to MSP’s Members in connection with the Governmental Claims Portfolio. Ultimately,
MSP and LCAP agreed, on or about May 15, 2021, to include the Governmental Claims Portfolio in the Business Combination in consideration for an overall increase in purchase price to $32.5 billion. The increase in valuation from $26.8 billion
in the Letter of Intent to $32.5 billion reflected a negotiated discount rate applied to an after-tax earnings terminal multiple applied to the projected earnings of MSP and the additional value of the Governmental Claims Portfolio. In
addition, the parties agreed that, as part of the Business Combination, LCAP’s Board would, subject to certain parameters, declare a dividend consisting of the New Warrants to non-redeeming holders of Class A Common Stock in conjunction with
the Closing, and MSP’s Members would agree to sell Up-C Units (or shares of Class A Common Stock) to the Post-Combination Company on a one-for-one basis when any shares of LCAP Common Stock were issued upon exercise of a New Warrant at a
fixed price of $11.50 per share, in order to prevent dilution resulting from such warrant exercise.
Also throughout May and June 2021, LCAP and its representatives
continued their due diligence on MSP, including meetings during which Holland & Knight discussed its diligence memorandum outlining areas of interest for LCAP, including how MSP utilizes its “data mining” technology to identify claims.
Throughout June and July, Holland & Knight continued to discuss their due diligence findings in further detail with members of LCAP management. In addition, Holland & Knight also circulated its diligence memorandum to LCAP management
summarizing its due diligence findings. Holland & Knight also held several follow-up phone calls with MSP management during this time to further refine their analysis and conclusions. Nomura participated in several of these discussions.
LCAP, MSP, and their advisors also continued to prepare the investor presentation to describe negotiated deal terms and summarize results from financial, business, and legal diligence.
In late June 2021, representatives of LCAP, MSP, and their
respective financial, legal (which in terms of LCAP, then included DLA Piper) and accounting advisors discussed the potential terms of VRM rolling over its existing investment in MSP into the Business Combination transaction, and selling its
participation rights to certain future recoveries of certain healthcare claims for an agreed upon upfront value. During the period of April 5, 2021 through June 27, 2021, representatives of Virage, MSP and LCAP exchanged drafts of a term sheet
regarding such potential rollover and sale, which ultimately resulted in the execution of a term sheet with Virage contemplating the terms of such rollover and sale on July 1, 2021. On July 2, 2021, representatives of LCAP senior management and
representatives of Virage further held a call to discuss preparation of audited financial statements of VRM MSP.
Between June 28, 2021 and July 11, 2021, representatives of each
of LCAP, MSP, Weil and DLA Piper exchanged drafts of the MIPA and the ancillary agreements thereto, including related disclosure schedules that tied to representations and warranties by the parties, the Tax Receivable Agreement, the SPAC
Charter and SPAC Bylaws, the Registration Rights Agreement, the Employment Agreements, the New Warrant Agreement, and the Incentive Plan.
On June 30, 2021, an all-hands meeting was held in-person in
Miami, Florida, and via teleconference, with representatives of MSP, LCAP, KBW, Royal Bank of Canada, an advisor of MSP, Nomura, Virage, DLA, Weil, Bilzin Sumberg Baena Price & Axelrod LLP (“Bilzin”), another outside legal counsel to MSP
and its Members, and certain other MSP advisors in attendance, to discuss the remaining open items in the definitive transaction documents that were being negotiated among the parties. On July 1, 2021, DLA sent Weil a revised draft of the MIPA
reflecting, among other things, equity consideration payable to MSP’s Members of $32.5 billion, with $50.0 million of such consideration being placed into an indemnity escrow, and the terms relating to the proposed dividend to LCAP’s existing
stockholders consisting of the New Warrants. The key issues that were discussed and negotiated among the parties during the period between June 28, 2021 and July 11, 2021 included the representations and warranties of the MSP Companies, the
mechanics and other issues related to reflecting the commercial agreement that had been reached among the parties regarding the New Warrants, the number of Up-C Units comprising the Escrow Consideration, and the minimum cash closing condition
applicable to the MSP Companies.
During the period between June 28, 2021 and July 11, 2021,
representatives of each of LCAP, MSP, Weil and DLA Piper also exchanged drafts of, and negotiated various aspects of the Sponsor Agreement, the LLC Agreement, the Lock-up Agreement, the form of Registration Rights Agreement, the Share Escrow
Agreement, the Form of New Warrant, the Form of Legal Services Agreement, and various other agreements contemplated in the MIPA. The key issues that were discussed and negotiated among the parties during this period included the duration of and
carveouts to the lock-up provisions affecting shares held by the Members of the MSP Purchased Companies, the Sponsor, and
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the Insiders, the insurance and indemnification obligations of the
Post-Combination Company related to directors and officers, the fees due to the Law Firm under the Legal Services Agreement, the terms of a guarantee by the MSP Principals for payments to Virage of any amount of the VRM Full Return, the
repurchase mechanics of the MSP Principals’ Up-C Units following the exercise of New Warrants, and the restrictive covenants and severance terms under the Employment Agreements.
During the period from March 26, 2021 to July 5, 2021, LCAP
underwent changes to the LCAP Board in order to replace Steven Berrard, a director who had passed away during the negotiations of the Business Combination, as well as Aman Kapadia and Mark Walsh, who resigned in conjunction with the
appointment of new and independent directors to the LCAP Board. Trevor Barran, who had been the Chief Operating Officer of LCAP and Lionheart Capital, also resigned in connection with his resignation from Lionheart Capital. As a result of
these changes, four of the five directors of the LCAP Board were determined to be independent.
In connection with their appointments, Mr. Sternberg provided each
new director with a detailed overview of LCAP’s business acquisition process since its IPO, with an emphasis on the MSP transaction that was being negotiated with a view to finalization in the near term. These new directors were provided the
opportunity to ask questions of and otherwise discuss LCAP’s acquisition strategy and process, and the history and current status of the MSP transaction.
The reconstituted LCAP Board met as a group on July 5, 2021.
LCAP’s management team provided an overview of its acquisition strategy and history, recounting various previously considered target companies. The meeting then focused on MSP and its business and executive team, the MSP Model, including the
projected cash flows included in the MSP Model, and the valuation for MSP agreed upon by MSP and LCAP. LCAP’s Chief Financial Officer, Paul Rapisarda, and representatives of Nomura noted that traditional benchmarking metrics, such as
comparable transactions, or the trading prices of comparable companies, were unavailable to this transaction, given that MSP is essentially a first mover company, helping to establish a new category of business enterprise. In conjunction with
the discussion of the valuation for MSP agreed upon by MSP and LCAP, LCAP management and representatives of Nomura noted that MSP and LCAP had determined to add MSP’s Governmental Claims Portfolio to the transaction, balancing the potential
attractiveness of the portfolio, against the more contingent nature of these kinds of claims. In addition to the resulting change in valuation for MSP that was agreed to by the parties, discussion centered around the issuance of the New
Warrants, to provide the non-redeeming holders of shares of Class A Common Stock additional upside while minimizing dilution. The Board reviewed a draft investor presentation which would introduce the MSP team, business and MSP Model to the
investment community. The status of the transaction and potential timetable for key events, such as signing, completion of an audit of MSP, and the filing of proxy materials, were also discussed.
In June, with the assistance of Nomura, LCAP approached several
litigation consulting firms to discuss further due diligence of the MSP Model and economics of the recovery strategies. After several discussions, LCAP engaged the Brattle Group (“Brattle”) on July 2, 2021. Brattle was granted access to the
virtual data room and had numerous opportunities to submit further questions to members of MSP management over the following week. Members of LCAP management and representatives from Nomura additionally participated in these discussions. On
July 6, 2021, representatives from Brattle, MSP, and LCAP participated in a conference call to discuss the MSP Model ahead of Brattle discussing its diligence findings with the LCAP Board as part of its review and approval of the Business
Combination.
On July 7, 2021, the LCAP Board held another meeting with
representatives of LCAP’s management, Holland & Knight, Brattle, and DLA Piper also in attendance. Brattle presented its findings from the due diligence it performed on the MSP Model to the LCAP Board, concluding that; (x) MSP’s recovery
strategy was sound, subject to timing variability based on defendant litigation strategy, (y) the recovery multiple assumptions were backed by applicable statutes, and (c) costs were contained under the contingency fee arrangement. Brattle
did not provide LCAP with a valuation of MSP or a fairness opinion in connection with the Business Combination. Representatives of DLA Piper reviewed with the LCAP Board their fiduciary duties in the context of a transaction of this nature.
DLA Piper representatives reviewed with the LCAP Board the material terms of the transaction, including the “Up-C” structure and the New Warrant dividend, along with the indemnification and escrow provisions. Representatives from
Holland & Knight presented to the LCAP Board their legal due diligence process and findings. Specifically, representatives from Holland & Knight presented their conclusions that: (i) MSP’s litigation-focused business model (including
the assignment of rights to recover claims erroneously paid by Medicaid under federal and state Medicaid laws, subject to proper assignment and applicable time limitations) is based on sound legal theories; (ii) case law,
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supported by several courts, supports that MSP has legal standing and the right to
bring a private cause of action under the Medicare secondary payer laws; and (iii) the actions taken by MSP were permitted under HIPAA, so long as MSP complied with the business associate agreements reviewed by Holland & Knight as a part of
their diligence. Holland & Knight additionally summarized best practices to remain compliant with HIPAA for the Post-Combination Company. Representatives of LCAP’s management team presented to the LCAP Board their due diligence process and
findings regarding MSP’s business, including the role of Virage and LCAP management’s view of the valuation relating to Virage’s equity rollover and sale. The LCAP Board instructed the LCAP management team and representatives of DLA Piper on
the final negotiation points on the MIPA and related agreements ahead of a vote on the final version of the MIPA reflecting those points to be held later in the week.
On July 9, 2021, the LCAP Board met again, with members of
management and representatives from DLA Piper in attendance, to discuss the status of the MIPA negotiations and timeline for execution as well as to discuss the investor presentation and joint press release.
On July 11, 2021, DLA sent Weil a revised draft of the MIPA
reflecting, among other things, revisions to the representations and warranties of the MSP Companies and confirming under the covenants that the LCAP Board would be permitted to modify or withdraw its recommendation to LCAP stockholders to vote
in favor of the Business Combination in order to comply with the directors’ fiduciary duties under Delaware law. Also on July 11, 2021, Weil sent DLA a revised draft of the MIPA reflecting, among other things, an increase in the number of New
Warrants that would be anticipated to be issued in connection with the Business Combination, from 1 billion to approximately 1.029 billion New Warrants in the aggregate, in order to provide for a round number of shares issuable to LCAP
stockholders, if none exercised redemption rights.
On July 11, 2021, the LCAP Board met to discuss and approve the
proposed final terms of the MIPA with members of management and representatives from DLA Piper in attendance. The LCAP Board discussed with its representatives the process of negotiations since the LCAP Board had met, and reviewed the due
diligence process and findings from LCAP and certain of its representatives. Representatives from DLA Piper again presented to the LCAP Board regarding the directors’ fiduciary duties, as well as a summary of the proposed final terms of the
MIPA and related ancillary agreements. Following discussions, the members of the LCAP Board unanimously adopted and approved resolutions (i) determining that the MIPA and the transactions contemplated thereby, including the Business Combination
and the issuance of shares in connection therewith, are fair and advisable to, and in the best interests of, LCAP and its stockholders, (ii) approving the MIPA and the ancillary documents thereto and the transactions contemplated by each of the
MIPA and the ancillary documents thereto (including the Business Combination), and (iii) recommending that Company stockholders vote in favor of the Business Combination Proposal, the Nasdaq Proposal, the Charter Approval Proposal, the
Non-Binding Governance Proposals, the Director Election Proposal, and the Incentive Plan Proposal. Following such meeting, on July 11, 2021, MSP, LCAP and the other parties to the MIPA signed and exchanged the MIPA and certain ancillary
documents.
On July 12, 2021, in advance of the Nasdaq opening for trading,
LCAP and MSP issued a joint press release announcing the execution of the MIPA and the proposed Business Combination.
In late October and early November 2021, LCAP, VRM, Virage, and
MSP discussed and negotiated the terms of an alternative transaction to the planned acquisition of the equity of Series MRCS and VRM MSP. The parties agreed that in lieu of acquiring such equity, Opco would take assignment of rights to all
proceeds by Series MRCS and VRM MSP from claims recovery rights held in primary and collateral series of VRM MSP (the “Assignment”), following receipt by VRM of the VRM Full Return, in exchange for such amount paid to VRM and the consideration
received by MRCS as a designee under the MIPA.
On November 8, 2021, the LCAP Board met to discuss and approve the
Assignment, the filing and form of the registration statement of which this proxy statement/prospectus forms a part, and Amendment No. 1 to the MIPA whereby the parties agreed to: (a) extend the deadlines for (i) the parties to make the
required filings or application under the HSR Act and (ii) the Company to seek stockholder approval to extend the deadline for LCAP to consummate its initial business combination; (b) require each party to pay 50% of the filing fee with respect
to the HSR Act; (c) permit the MSP Principals to contribute any amount to MSP necessary to meet the minimum cash requirement in the MIPA; and (d) reflect the MSP Principals paying the registration fee for the securities registered on the
registration statement of which the this proxy statement/prospectus forms a part, and Parent reimbursing such amount at Closing. On November 10, 2021, LCAP, Opco, the MSP Purchased Companies and the Members’ Representative (on behalf of the
Members) entered into Amendment No. 1 to the MIPA.
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On December 22, 2021, the LCAP Board met to discuss comments
received by the SEC staff to the initial filing of this Registration Statement, approve the filing of Amendment No. 1 to the Registration Statement and approve or ratify certain other matters related to the Business Combination. Specifically,
the Board reevaluated: (i) the various business relationships between Mr. Sternberg and Mr. Ruiz, (i) the fact that the Company’s investment bank will receive fees for both its initial public offering and the Business Combination; and
(iii) Amendment No. 1 to the MIPA, which the Board had discussed at its November 8, 2021 meeting, and Amendment No. 2 to the MIPA. Following such reevaluation and related approvals, the Board confirmed its recommendation to the stockholders
to vote in favor of the Business Combination and determined that neither Amendment No. 1 nor Amendment No. 2 materially change the business to be acquired or the price to be paid for MSP. On December 22, 2021, LCAP, Opco, the MSP Purchased
Companies and the Members’ Representative (on behalf of the Members) entered into Amendment No. 2 to the MIPA.
On March 11, 2022, LCAP, Opco, the MSP Purchased Companies and
the Members’ Representative (on behalf of the Members) agreed to extend the Outside Closing Date to June 30, 2022 and entered into, Amendment No. 3 to the MIPA.
Valuation of the Business
During negotiation of the Business Combination, MSP management
and its advisors provided various financial information, including projections, relating to the current and anticipated business of MSP. Presentations and negotiations through the beginning of March 2021 were largely based on discussions
between the CEO of MSP, John Ruiz, and the CEO of LCAP, Ophir Sternberg, with Mr. Ruiz verbally summarizing financial information and expectations around valuation as part of his discussion of the overall business thesis of MSP. In March, MSP
provided to LCAP a written version of the MSP Model and in April MSP provided to LCAP a more refined version of the MSP Model derived from its work with its advisor KBW.
The parties referred to the MSP Model for purposes of
negotiating the purchase price of the transaction. While the Company and its professional advisors performed diligence on the MSP Model, as more fully described in “—Background of the Business
Combination”, at no time did the Company or any of its professional advisors develop a separate financial model for MSP and no such advisor has independently prepared a valuation or rendered a fairness opinion in connection
with the Business Combination.
Valuation Models
Typically, companies are valued using one or more of the following
models:
The Comparable Companies Approach
The Comparable Companies Approach is a valuation methodology
that provides an estimation of fair market value by comparing various public data (dividend yield, price/earnings multiples, etc.) taken from a group of public companies to the target company’s similar information.
Precedent Transactions Approach
The Precedent Transactions Approach is a valuation technique
that provides an estimate of fair market value based on market prices realized in actual arms-length transactions and on asking prices for assets or businesses. The valuation process is a comparison and correlation between the subject asset
or business and other similar assets or businesses. Considerations such as time and condition of sale and terms of agreements are analyzed for similar assets and are adjusted to arrive at an estimation of the fair market value of the subject
asset or business.
The Income Approach (Discounted Cash Flow
Analysis)
The Income Approach is a valuation technique that provides an
estimation of the fair market value of an asset or business based on the cash flows that an asset or business can be expected to generate over its remaining useful life. The Income Approach begins with an estimation or forecast of the annual
cash flows a market participant would expect the subject asset or business to generate over a discrete projection period. The estimated cash flows for each of the years in the discrete projection period are then converted to their present
value equivalents using a rate of return appropriate for the risk of achieving the projected cash flows. The present value of the estimated cash flows are added to the present value equivalent of the residual/terminal value (if any) of the
asset or business at the end of the discrete projection period to arrive at an estimate of fair market value of the business or asset.
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The Company and its advisors did not believe that there were
sufficient data sets available to utilize the Comparable Companies Approach or Predecent Transactions Approach in evaluating the Business Combination, given the unique nature of the business of MSP and lack of comparable companies or
transactions to analyze. Accordingly, the Company and its advisors applied the Income Approach to the MSP Model provided by MSP. Although the Company did not deem any company or category of companies sufficiently comparable to perform a
fulsome Comparable Companies Approach, the Company identified three broad categories of companies, described below, that contained some level of business comparability for purposes of the Company developing discount rates for MSP’s core
business and Governmental Claims Portfolio, as well as a terminal value for MSP’s core business. The Company used the same discount rates for MSP’s core business and Government Claims Portfolio because it believes that the
assets—insurance-based claims—contained in those portfolios are sufficiently similar to warrant this treatment. However, the Company did not assume a terminal value for the Government Claims Portfolio because it is a distinct, fixed asset
portfolio, and is not an ongoing business like MSP’s core business.
The Company determined the following three groups of companies
have sufficient elements of comparability to MSP to warrant use of their derived discount rates and terminal values: insurance and healthcare disruptors, such as Teledoc Health, Inc. and Oak Street Health, Inc; data analytics and information
services businesses, such as Experian and Verisk; and asset managers, such as Apollo Global Management and Brookfield Asset Management. In selecting companies within each category, the Company considered each company’s size, growth outlook,
capital requirements, and profit margins, among other characteristics.
Application of the Income Approach
(Discounted Cash Flow Analysis)
In connection with its valuation analysis, the Company analyzed
the estimated future unlevered free cash flows for both the MSP core business and the Governmental Claims Portfolio for the fiscal years ending December 31, 2020 through December 31, 2030. Unlevered “free cash flow” is defined as cash that is
available either to reinvest or to distribute to security holders. The discounted cash flow analysis was used to determine the net present value of estimated future free cash flows utilizing a rate of return for a company exhibiting
characteristics similar to MSP.
The Company considered a number of factors in determining the
discount rate, including: (1) MSP’s stage in the cycle of management’s business plan, (2) MSP’s projected financial performance and growth, and (3) the risks facing MSP in order to achieve the projected results, including execution risk and
competitive risks, among others. Company management believes that this range of discount rates is consistent with the rate of return that a security holder could expect to realize on alternative investment opportunities with comparable
companies and similar risk profiles.
For both MSP’s core business and the Governmental Claims
Portfolio, the Company used discount rates ranging from 10% to 16%. For purposes of MSP’s core business, the Company estimated the net present value of all cash flows attributable to MSP after fiscal year 2030 (the “Terminal Value”) using a
terminal earnings multiple range of 5x to 10x.
Based on these assumptions, the Company’s discounted cash flow
analysis resulted in an estimated enterprise value range for MSP of $22.5 billion to $42.9 billion, with MSP’s core business representing the majority of this value ($22.5 billion to $32.9). Based on this enterprise value range, the Company
estimated MSP’s equity value to range from $22.3 to $42.7 billion, after taking into account cash of $17.0 million and the absence of debt. The purchase price of $32.5 billion, assuming a share value of $10 per share, is within such range.
In reaching its unanimous resolution (i) determining that the MIPA
and the transactions contemplated thereby, including the Business Combination and the issuance of shares in connection therewith, are fair and advisable to, and in the best interests of, the Company and its stockholders and (ii) recommending
that Company stockholders adopt the MIPA and approve the Business Combination and the other transactions contemplated by the MIPA, the LCAP Board consulted with the Company’s legal and financial advisors in connection with its evaluation of the
MIPA and the Business Combination, reviewed the results of due diligence conducted by the Company’s management, together with its legal and financial advisors and considered a range of factors, including, but not limited to, the factors
discussed below. In light of the large number and wide variety of factors considered in connection with its evaluation of the Business Combination, the LCAP Board did not consider it practicable to, and did not attempt to, quantify or
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otherwise assign relative weights to the specific factors that it considered in
reaching its determination and supporting its decision. The LCAP Board viewed its decision as being based on all of the information available and the factors presented to and considered by it. In addition, individual directors may have given
different weight to different factors.
In approving the Business Combination, the LCAP Board determined
not to obtain a fairness opinion. The officers and directors of LCAP have substantial experience with mergers and acquisitions and in evaluating the operating and financial merits of companies from a wide range of industries and concluded that
their experience and backgrounds enabled them to make the necessary analyses and determinations regarding the Business Combination with MSP. In analyzing the Business Combination, the LCAP Board conducted due diligence on the Company and
researched the industry in which it operates and concluded that the Business Combination was in the best interest of stockholders.
In the prospectus for the IPO, the Company identified general
criteria and guidelines that the Company believed would be important in evaluating prospective target businesses. The Company indicated its intention to acquire companies that it believes possess the following characteristics:
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businesses that focus on PropTech, a domain in which the Company’s management has a substantial track record, deep
experience, and the technical ability to diligence efficiently.
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consider reasonably accepted valuation standards and methodologies to seek businesses, as determined in the sole discretion
of the Company’s officers and directors.
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businesses that have generated attractive unit economics at scale, have established and growing revenue streams. The Company
did not expect to acquire startup companies, companies with speculative business plans or companies that are excessively leveraged.
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businesses that have a leading, growing or unique niche market position in their respective sectors. The Company expected to
analyze the strengths and weaknesses of target businesses relative to their competitors and seek to invest in one or more businesses that demonstrate advantages when compared to their competitors, including capable management team,
defensible proprietary technology, strong adoption rates and relevant domain expertise.
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businesses that have experienced management teams or those that provide a platform to assemble an effective and capable
management team. The Company expected to focus on management teams with a track record of driving revenue growth and creating value for their shareholders.
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businesses that will benefit from being publicly listed and can effectively utilize the broader access to capital and the
public profile to grow and accelerate shareholder value creation.
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companies that have a leading or niche market position and that demonstrate advantages when compared to their competitors,
which may help to create barriers to entry against new competitors.
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businesses that have historically generated, or has the near-term potential to generate, strong and sustainable free cash
flow.
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In considering the Business Combination, the LCAP Board considered
a number of factors pertaining to the Business Combination as generally supporting its decision to enter into the MIPA and the transactions contemplated thereby, including, but not limited to, the following factors (not necessarily in order of
relative importance):
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Reasonableness of the aggregate consideration to be paid to the Members under the MIPA.
Following a review of the financial data provided to the Company, including certain unaudited prospective financial information of MSP (including, where applicable, the assumptions underlying such unaudited prospective financial
information) and the Company’s due diligence review of MSP’s business, the LCAP Board determined that the consideration to be paid to the Members was reasonable in light of such data and financial information. Additionally, the issuance
of the New Warrants will provide Company stockholders who do not redeem their shares of Class A Common Stock with additional value, which the LCAP Board considered in conjunction with the reasonableness of the aggregate consideration to
be paid to the Members under the MIPA.In this context “reasonable” means (i) given the uniqueness of the MSP business model, that the work done by the third party due diligence advisors supported the “reasonableness” of the assumptions
used to validate the business model, (ii) that the variables considered by the LCAP Board in
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relation to the financial analysis for the MSP business and the government claims
were a reasonable basis to compute the valuation, and (iii) given the inherent uncertainties in any long-term projections, particularly in a business like MSP’s where there is limited historical financial information to extrapolate, the
inclusion of the New Warrants as partial consideration to Company stockholders who do not exercise their redemption rights provides a meaningful counter-balance to the uncertainties in the projections.
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Due Diligence. The Company’s management and advisors conducted due diligence
examinations of MSP, including: commercial, financial, legal and regulatory due diligence, and extensive discussions with MSP’s management and the Company’s management and legal advisors concerning such due diligence examinations of
MSP.
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Industry and Trends. MSP’s business is based in a serviceable market that has a
long-standing history of improper claim reimbursement concerns, and that the LCAP Board considers attractive, and which, following a review of industry trends and other industry factors (including, among other things, historic and
projected market growth), the LCAP Board believes has continued growth potential in future periods.
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Defensive, niche business model, coupled with a first mover advantage has led to MSP
identifying approximately $15 billion of Paid Value of Potentially Recoverable Claims (as of the date of the MIPA) that could be recoverable in the near future. Based on the Company’s discussions with MSP’s management, the
Company’s management understands that MSP has (i) developed over 1,400 proprietary algorithms and has proven experience aggregating, normalizing and analyzing large volumes of data, which has identified approximately $15 billion of Paid
Value of Potentially Recoverable Claims, as of the date of the MIPA, and (ii) data assigned from more than 150 Assignors spanning 50 states and Puerto Rico, which include, but are not limited to: Medicare Advantage Organizations,
Management Service Organizations, Accountable Care Organizations, Managed Care Organizations, Physicians, Healthcare Providers and Independent Practice Associations. The Company believes that MSP is positioned to achieve substantial
potential growth on the basis of its assets.
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Commitment of MSP’s Owners. The Members (or their designees) will own
approximately 99.1% of the Post-Combination Company, assuming the no redemption scenario and exercise of the Public Warrants, Private Warrants or New Warrants. Such ownership percentage will be affected by the level of redemptions by
Public Stockholders and the exercise of outstanding warrants or New Warrants. See “Summary—Ownership of the Post-Combination Company.” The LCAP Board believes that the Members
continuing to own a substantial percentage of the Post-Combination Company on a pro forma basis reflects such equityholders’ belief in and commitment to the continued growth prospects of MSP going forward.
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Lock-Up and Employment Agreements. The LCAP Board considered the agreement by John
H. Ruiz and Frank C. Quesada to be subject to a post-Closing lockup in respect of their Up-C Units and shares of Class A Common Stock, subject to certain exceptions, and to enter into employment agreements with the Post-Combination
Company, which is expected to provide important stability to the leadership and governance of MSP.
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Opportunity to introduce an attractive asset class to public investors that has historically
been transacted in private market settings. The Company’s belief that recent transactions involving SPACs indicate a market trend to bring private companies with novel business models and innovative asset classes to the public
markets.
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Driven MSP management with diverse experience and an entrepreneurial mindset to bring this
asset class to the public markets. MSP founder, John H. Ruiz, brings more than 30 years of leadership, information technology innovation and a successful track record in large class actions and multi-district litigation. MSP’s
management team has the unique capability to combine data analytics and legal expertise, including having extensive knowledge of applicable recovery laws and track record of successful class action recoveries related to insurance
payments.
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Negotiated Transaction. The LCAP Board considered the terms and conditions of the
MIPA and the related agreements and the transactions contemplated thereby, each party’s representations, warranties and covenants, the conditions to each party’s obligation to consummate the Business Combination and the
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termination provisions, as well as the strong commitment by both the Company and
MSP to complete the Business Combination. The LCAP Board also considered the financial and other terms of the MIPA and the fact that such terms and conditions are reasonable and were the product of arm’s length negotiations between MSP and the
Company.
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Other Alternatives. After a review of other business combination opportunities
reasonably available to the Company, the LCAP Board believes that the proposed Business Combination represents the best potential business combination reasonably available to the Company taking into consideration, among other things,
the timing and likelihood of accomplishing the goals of any alternatives.
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Post-Closing Governance. The fact that the Sponsor had negotiated the right to
nominate two members of the Board following the Business Combination, which the LCAP Board believes will allow for the Post-Combination Company to benefit from the Sponsor’s professional relationships to identify potential board members
that will have appropriate industry and/or financial knowledge and professional experience to oversee the Post-Combination Company and drive returns for stockholders.
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Unique Social Focus. The LCAP Board considered MSP’s unique social focus on
supporting the long-term sustainability of Medicare and Medicaid programs relied upon by over 100 million Americans.
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Proprietary Data System. The LCAP Board’s belief that MSP has a proprietary data
system that has proven experience aggregating, normalizing and analyzing large volumes of data to identify recoverable healthcare claims.
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The LCAP Board also considered various uncertainties and risks and
other potentially negative factors concerning the Business Combination, including, but not limited to, the following:
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Key Man Risk: John H. Ruiz and Frank C. Quesada are key business drivers of MSP and
the success of MSP remains highly dependent on their continued involvement.
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Benefits May Not Be Achieved. The potential benefits of the Business Combination may
not be fully achieved or may not be achieved within the expected timeframe.
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Validity of Claims underlying MSP’s business model, and other risks relating to MSP’s
business model. The risks relating to the fact that the validity of MSP’s claim assignments, legal standing of the MSP claims, penalties and double damages provisions, and other key legal issues remain subject to continued
affirmation in the U.S. court system. Additionally, the LCAP Board considered the risks associated with the fact that healthcare insurers and other Assignors continue to revise expense policies which may limit the size of future pools
of claims relevant to MSP’s business.
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Regulation. The risk that changes in the regulatory and legislative landscape or new
industry developments may adversely affect the projected financial results and the other business benefits anticipated to result from the Business Combination, including the risk that the Medicare Secondary Payer Act of 1980 remains
subject to legal interpretation and potential revision.
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Scale of Operations. While the MSP management has modeled the expected expenses, they
have not previously operated at a scale indicated in the MSP management projections nor executed on the scale of growth contemplated.
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Stockholder Vote. The Company’s stockholders may fail to approve the proposals
necessary to effect the Business Combination.
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Closing Conditions. The completion of the Business Combination is conditioned on the
satisfaction of certain closing conditions that are not within the Company’s control, including the receipt of certain required regulatory approvals.
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The Public Stockholders Holding a Minority Position in the Post-Combination Company.
The Public Stockholders will hold a minority position in the Post-Combination Company approximately 0.4%, assuming (1) the no redemption scenario and (2) that the holders of the Company’s existing Public Warrants and Private Warrants
exercise those warrants, and no New Warrants are exercised, as such, the Company’s
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current stockholders are unlikely to have an influence on the management of the
Post-Combination Company. Such ownership percentage will be affected by the level of redemptions by Public Stockholders and the exercise of outstanding warrants or New Warrants. See “Summary—Ownership of the
Post-Combination Company.”
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Due Diligence. Legal due diligence review from the Company’s advisor raised concerns
over internal controls and documentation related to HIPAA compliance and data protection.
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No PIPE Investment. The risk posed by the fact that there is no PIPE as part of the
Business Combination, since public investors often rely on PIPE investors for third-party validation of the valuation of a transaction.
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Litigation Related to the Business Combination. The possibility of litigation
challenging the Business Combination or that an adverse judgment granting permanent injunctive relief could indefinitely enjoin consummation of the Business Combination.
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Listing Risks. The challenges associated with preparing MSP, which is a private
company, for the applicable disclosure and listing requirements to which MSP will be subject as a publicly traded company.
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Financial Condition: As of the date the LCAP Board approved the Business Combination,
MSP did not have any combined or consolidated historical financial statements, and therefore the LCAP Board could not consider MSP’s historical financial results or historical and current balance sheet information in conjunction with
its consideration of other financial information of MSP in making its determination. Once MSP’s audited financial statements became available, the LCAP Board reviewed the audited financial statements in conjunction with the other
unaudited financial data available to it and continued to recommend the Business Combination. See “Risk Factors—The Sponsor, certain members of the LCAP Board and our officers have interests in the
Business Combination that are different from or are in addition to other stockholders in recommending that stockholders vote in favor of approval of the Business Combination Proposal and approval of the other proposals described in
this proxy statement.”
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Market Volatility: The possibility that the SPAC market experiences volatility and
disruptions, causing deal disruption.
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Liquidation. The risks and costs to the Company if the Business Combination is not
completed, including the risk of diverting management focus and resources from other business combination opportunities, which could result in the Company being unable to effect an initial business combination by August 18, 2022.
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No Third-Party Valuation. The LCAP Board did not obtain a third-party valuation or
fairness opinion in connection with the Business Combination.
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Fees and Expenses. The fees and expenses associated with completing the Business
Combination. In addition, the LCAP Board considered the fact that Nomura has contingent fees owing to it upon the successful completion of the Business Combination, consisting of (a) an M&A fee of $20 million and (b) deferred
underwriting fees of approximately $4.4 million. The LCAP Board did not believe such fees would be such a conflict of interest that it should prevent Nomura from serving as financial advisor to the Company in evaluating and advising on
the Business Combination.
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Risks related to VRM: MSP has entered into certain arrangements with VRM and its
affiliates, which include preferred returns on cash distributions, which may impact existing and new investors. (see “Certain Relationships and Related Party Transactions” beginning on page [243]).
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In addition to considering the factors described above, the LCAP
Board also considered other factors, including, without limitation:
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Interests of Certain Persons. The Sponsor, our officers and certain of our directors
may have interests in the Business Combination (see “— Interests of the Company’s Directors and Executive Officers in the Business Combination”).
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Other Risk Factors. Various other risk factors associated with the business of MSP,
as described in the section entitled “Risk Factors” appearing elsewhere in this proxy statement/prospectus.
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The LCAP Board concluded, in its business judgment, that the
potential benefits that it expects the Company and its stockholders to achieve as a result of the Business Combination outweigh the potentially negative and other factors associated with the Business Combination. Accordingly, the LCAP Board
unanimously determined that the Business Combination and the transactions contemplated by the MIPA are fair and advisable to, and in the best interests of, the Company and its stockholders.
Certain Unaudited Projected Financial Information of MSP
The prospective financial information set forth below was
requested by, and disclosed to, the Company for use as a component in its overall evaluation of MSP, and is included in this proxy statement/prospectus because it was provided by MSP to the LCAP Board for its evaluation of the Business
Combination. The Company did not perform a formal sensitivity analysis on the projections, did not prepare its own projections, and did not secure a third party valuation or fairness opinion. However, with the assistance of Nomura and
litigation experts, the Company performed diligence on the MSP projections and related business thesis, and management determined and reported to the LCAP Board that they believed the assumptions underlying the projections were reasonable. MSP
has not warranted the accuracy, reliability, appropriateness or completeness of the prospective financial information to anyone, including the Company.
Neither the management of MSP nor any of its representatives,
advisors or affiliates has made or makes any representation to any person regarding the ultimate performance of MSP compared to the information contained in the prospective financial information, and none of them intends to or undertakes any
obligation to update or otherwise revise the prospective financial information to reflect circumstances existing after the date when made or to reflect the occurrence of future events in the event that any or all of the assumptions underlying
the prospective financial information are shown to be in error. MSP provided the Company with its internally prepared prospective financial information for each of the years in the 6-year period ending December 31, 2026. MSP does not as a
matter of course make public projections as to future sales, earnings, or other results. However, the management of MSP prepared the prospective financial information set forth below in connection with the Business Combination and disclosed it
to the Company for use as a component in its evaluation of MSP. The accompanying prospective financial information was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the
American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of MSP’s management, was prepared on a reasonable basis, and reflected reasonable estimates and judgments at the time it was
prepared and presents, to the best of MSP management’s knowledge and belief, the expected course of action and the expected future financial performance of the Company. However, this information is not fact and should not be relied upon as
being necessarily indicative of future results, and readers of this proxy statement/prospectus are cautioned not to place undue reliance on the prospective financial information.
The inclusion of prospective financial information in this proxy
statement/prospectus should not be regarded as an indication that MSP or the Company, their respective boards of directors or managers, or their respective affiliates, advisors or other representatives considered, or now considers, such
prospective financial information necessarily to be predictive of actual future results or to support or fail to support your decision whether to vote for or against the Business Combination Proposal. The prospective financial information is
not fact and should not be relied upon as being necessarily indicative of future results, and readers of this proxy statement/prospectus, including investors or holders of shares of Class A Common Stock, are cautioned not to place undue
reliance on this information.
While presented with numeric specificity, the prospective
financial information reflects numerous estimates and assumptions with respect to business, economic and market conditions and other future events, as well as matters specific to MSP’s business, all of which are difficult to predict and many of
which are beyond MSP’s control. Furthermore, the prospective financial information does not take into account any circumstances or events occurring after the date it was prepared, which was in April 2021. The prospective financial information
are forward looking statements that are inherently subject to significant uncertainties and contingencies, many of which are beyond MSP’s control. The various risks and uncertainties include those set forth in the “Risk Factors,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations of MSP” and “Cautionary Note Regarding Forward-Looking Statements” sections of this proxy statement/prospectus, respectively. While all prospective financial information
are necessarily speculative, MSP believes that prospective financial information covering periods beyond 12 months from its date of preparation carries increasingly higher levels of uncertainty and should be read in that context. This
prospective financial information is subjective in many respects and thus is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments.
Neither MSP’s nor the Company’s independent auditors, nor any
other independent accountants, have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor
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have they expressed any opinion or any other form of assurance on such information
or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information.
EXCEPT TO THE EXTENT REQUIRED BY APPLICABLE FEDERAL SECURITIES
LAWS, BY INCLUDING IN THIS PROXY STATEMENT/PROSPECTUS A SUMMARY OF THE FINANCIAL PROJECTIONS FOR MSP, THE COMPANY, AND THEIR RESPECTIVE OFFICERS, DIRECTORS AND AFFILIATES UNDERTAKE NO OBLIGATIONS AND EXPRESSLY DISCLAIM ANY RESPONSIBILITY TO
UPDATE OR REVISE, OR PUBLICLY DISCLOSE ANY UPDATE OR REVISION TO, THESE FINANCIAL PROJECTIONS TO REFLECT CIRCUMSTANCES OR EVENTS, INCLUDING UNANTICIPATED EVENTS, THAT MAY HAVE OCCURRED OR THAT MAY OCCUR AFTER THE PREPARATION OF THESE FINANCIAL
PROJECTIONS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE FINANCIAL PROJECTIONS ARE SHOWN TO BE IN ERROR OR CHANGE.
The key elements of the projections provided by management of MSP
to the Company are summarized in the table below:(1)
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$ in millions
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2021
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2022
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2023
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2024
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2025
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2026
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Forecasted New Potentially Recoverable Claims to MSP(2)
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$5,931
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$5,862
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$7,214
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$6,322
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$4,683
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$4,888
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Estimated Paid Value of Potentially Recoverable Claims(3)
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$20,993
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$26,856
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$34,070
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$40,392
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$45,075
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$49,963
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Cumulative % of Potentially
Recoverable Claims Recovered(4)
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0%
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2%
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7%
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19%
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35%
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51%
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Cumulative Recoveries(5)
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$—
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$535
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$2,328
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$7,514
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$15,915
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$25,471
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Implied Annual Recoveries(6)
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$—
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$535
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$1,793
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$5,186
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$8,400
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$9,556
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Estimated Recovery Multiple of
Annual Recoveries(7)
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NM
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1.9 x
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1.7 x
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2.1 x
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2.4 x
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2.5 x
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Gross Annual Recoveries(8)
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NM
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$992
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$3,105
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$10,744
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$20,371
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$23,765
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Net Recoveries To MSP(9)
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$—
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$342
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$963
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$3,252
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$6,139
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$7,247
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After-Tax Net Income to MSP(10)
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$(37)
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$204
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$632
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$2,313
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$4,434
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$5,232
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(1)
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This section is a non-GAAP financial projection and reflects all claims of which MSP takes assignment, as well as those claims
owned by a third party but to which MSP is entitled to a recovery percentage. These projections do not include potential recoveries from Government Related Recoveries or interest expense accruals. Totals may not sum due to rounding.
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(2)
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Forecasted New Potentially Recoverable Claims to MSP (“NPRC”) represents MSP’s good faith estimates of the portion of Paid
Amount in respect of new claims to which MSP would be entitled to receive a portion of recovery proceeds (typically 50%), as analyzed through MSP’s approximately 600 Funnels and 1,100 Layers. NPRC is calculated first by estimating the
total annual Medicare and Medicaid spend across four modules, representing Accident Claims within the Medicare Advantage market (reflecting such claims in the private sector of the Medicare Program), Other Claims within Medicare
Advantage market (reflecting such claims in the private sector of the Medicare Program), Original Medicare market (reflecting the public sector of the Medicare Program) and Medicaid market. The total annual Medicare and Medicaid spend
is estimated for each year in the forecast period based on historical annual growth rates in Medicare and Medicaid spend. The total spend in the Accident Claims and Other Claims modules is then adjusted to reflect an assumed level of
administrative costs (i.e., the medical loss ratio) of 15%, to account for the private sector nature of such modules, consistent with the standardized 15% medical loss ratio provided by CMS. The resulting adjusted spend equals the
annual total addressable market opportunity within the Accident Claims and Other Claims modules. Of the annual total addressable market opportunity in each module, MSP management calculates claims that could represent a recovery
opportunity within each module, based on the assumption that 8-10% of annual medical claims are accident related and 2% of claims are related to fraud and misconduct, consistent with historical market data on such claims. MSP then
estimates its new market share for each year in each module in good faith, and the new market share is then multiplied by recoverable opportunities for each module. The resulting amounts for each module are then aggregated to calculate
NPRC. NPRC for each of the years shown reflects MSP market penetration of less than 1%.
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(3)
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Estimated Paid Value of Potentially Recoverable Claims (“EPVPRC”) represents the cumulative Paid Amount of potentially
recoverable claims to which MSP would be entitled to receive a portion of recovery proceeds (typically 50%), as analyzed through MSP’s approximately 600 Funnels and 1,100 Layers. EPVPRC for the year ending December 31, 2021 was
calculated by adding $15.062 billion of Paid Claims held by MSP as of December 31, 2020 with Forecasted NPRC to MSP for the year ending December 31, 2021. EPVPRC for each of the years ending December 31, 2022 through 2026 is
calculated by adding NPRC to EPVPRC for the prior year.
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(4)
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Represents MSP management’s good faith estimate of the timing of reaching recovery settlements or other resolutions. MSP
management produced this estimate based on the nature of the claims then held and forecasted to be held in MSP’s claim’s portfolio, the stages of MSP’s claims portfolio in terms of the recovery process, as well as MSP management’s
experience with claims recovery.
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(5)
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Represents EPVPRC multiplied by Cumulative % of Potentially Recoverable Claims Recovered
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(6)
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Implied Annual Recoveries for a given year is calculated by subtracting the Cumulative Recoveries for the prior year, from the
Cumulative Recoveries for such year.
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(7)
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Represents MSP management’s good faith estimate of potential upside from claims recoveries that may result from payment to
MSP, based on MSP management’s experience with claims recovery.
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(8)
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Represents Implied Annual Recoveries multiplied by Estimated Recovery Multiple on Annual Recoveries.
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(9)
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Represents Gross Annual Recoveries after paying assignor interests and contingent legal fees, and represents portion of
recoveries that are forecasted to be recognized as part of MSP’s gross revenues. Assigner interests are equal to 50% of Gross Annual Recoveries through 2025 and 55% of Gross Annual Recoveries in 2026; contingent legal fees (including
amounts paid to the Law Firm) equal 40% of Gross Annual Recoveries net of assignor interests through 2025 and 32.5% of Gross Annual Recoveries net of assignor interests in 2026, reflective of a shift to revenue less dependent on legal
process.
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(10)
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Represents Net Recoveries to MSP minus operating expenses and taxes, and reflects the assumption that MSP will see cost
reduction efficiencies in operating expenses as its claims portfolio grows.
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Projected Financial Information Approach
At the time the projected financial information was prepared,
MSP did not have any combined or consolidated historical financial statements and had achieved limited actual recoveries from its claims portfolio. As a result, the projected financial information of MSP was not prepared on the basis of any
combined or consolidated historical financial statements of MSP, other than in respect of the approximate $15.062 billion of Paid Claims held by MSP as of December 31, 2020. Instead, as discussed above, MSP estimates New Forecasted Claims to
MSP to calculate EPVPRC, and adjusts EPVPRC based on MSP management’s good faith estimate of the timing of reaching recovery settlements or other adjudicated resolutions, and the potential upside from recoveries to calculate Net Recoveries To
MSP. MSP’s projected financial information is based on numerous of assumptions, including assumptions with respect to general market and regulatory conditions, the number of claims that MSP will be assigned or under which it will be entitled
to a recovery percentage, estimated cumulative recoveries with respect to MSP’s claims portfolio and various other factors, all of which are difficult to predict and many of which are beyond MSP’s control, such as the risks and uncertainties
discussed in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”
MSP selected a six-year period to be covered by the MSP projected
financial information because the period reflects a meaningful period to illustrate potential recoveries for claims held within MSP’s claims portfolio, based on the nature of the claims then held and forecasted to be held in MSP’s claim’s
portfolio and the stages of MSP’s claims portfolio in terms of the recovery process.
Updates to Portfolio as Compared to the
Financial Projections
Subsequent to MSP providing the Company with the projections,
MSP entered into additional arrangements with new and existing clients for additional healthcare claims. As a result of such additional claims, as of December 31, 2021, MSP’s portfolio included approximately $1.5 trillion in Billed Amount
(and approximately $453 billion in Paid Amount), which contains approximately $113 billion in Paid Value of Potentially Recoverable Claims. See “Information about MSP—Scale of Current
Portfolio.”
Satisfaction of 80% Test
The Nasdaq rules require that the Company’s initial business
combination must occur with one or more operating businesses or assets with a fair market value equal to at least 80% of the net assets held in the Trust Account (net of amounts disbursed to management for working capital purposes and excluding
the amount of any deferred underwriting discount held in the Trust Account) at the time of the Company’s signing a definitive agreement in connection with its initial business combination. As of July 11, 2021, the date of the execution of the
MIPA, the value of the net assets held in the Trust Account was approximately $230 million (excluding approximately $8.05 million of deferred underwriting discount held in the Trust Account) and 80% thereof represents approximately
$184 million. In reaching its conclusion that the Business Combination meets the 80% asset test, the LCAP Board used as a fair market value the enterprise value of approximately $32.5 billion, which was implied based on the terms of the
transactions agreed to by the parties in negotiating the MIPA. The enterprise value consists of an implied equity value of approximately $32.6 billion. In determining whether the enterprise value described above represents the fair market value
of MSP, the LCAP Board considered all of the factors described in this section and the section of this proxy statement/prospectus entitled “The Membership Interest Purchase Agreement” and the fact that
the purchase price for MSP was the result of an arm’s length negotiation. As a result, the LCAP Board concluded that the fair market value of the business acquired was significantly in excess of 80% of the net assets held in the Trust Account
(net of amounts disbursed to management for working capital purposes and excluding the amount of any deferred underwriting discount held in the Trust Account).
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The Sponsor and our directors and officers have interests in the
Business Combination that are different from or in addition to (and which may conflict with) your interests. You should take these interests into account in deciding whether to approve the Proposals. As a result of such interests, the Sponsor
and our directors and officers may be incentivized to complete a business combination with a less favorable combination partner or on terms less favorable to public shareholders rather than fail to complete a business combination by August 18,
2022 (or such later date as may be approved by the Company’s stockholders) and be forced to liquidate and dissolve the Company. These interests include:
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the fact that our Initial Stockholders have agreed not to redeem any of the Founder Shares in connection with a stockholder
vote to approve the proposed Business Combination;
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the fact that Ophir Sternberg, Tom Hawkins and Roger Metzler will serve as directors of the Post-Combination Company;
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the fact that Ophir Sternberg is party to certain joint business ventures with John Ruiz, as described under “Interests of MSP’s Directors and Executive Officers in the Business Combination—RC Lakehouse, LLC” and “Interests of MSP’s Directors and Executive Officers in the
Business Combination—Cigarette Holdings, LLC”;
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the fact that the Sponsor paid an aggregate of $25,000 for 5,000,000 Founder Shares in January 2020 and, in February 2020,
the Company declared a stock dividend of 0.15 share for each Founder Share outstanding, resulting in the Sponsor holding an aggregate of 5,750,000 Founder Shares. After giving effect to the sales or transfer of Founder Shares to Nomura
and in connection with the IPO to certain insiders, the remaining 5,667,500 Founder Shares will have a significantly higher value at the time of the Business Combination, which if unrestricted and freely tradable would be valued at
approximately $56,675,000 but, given the restrictions on such shares, we believe such shares have less value. In addition, given the differential in the purchase price that our Sponsor paid for the Founder Shares as compared to the
price of the units sold in the IPO and the substantial number of shares of Class A Common Stock that our Sponsor will receive upon conversion of the Founder Shares in connection with the Business Combination, our Sponsor and its
affiliates may earn a positive rate of return on their investment even if the common stock of the combined company trades below the price initially paid for the units in the IPO and the Public Stockholders experience a negative rate of
return following the completion of the Business Combination;
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the fact that our Initial Stockholders have agreed to waive their rights to liquidating distributions from the Trust Account
with respect to their Founder Shares if we fail to complete an initial business combination by August 18, 2022 (or such later date as may be approved by the Company’s stockholders);
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the fact that our Initial Stockholders, being holders of Class A Common Stock, are eligible to receive the dividend comprised
of the New Warrants to be issued upon the automatic conversion of the Founder Shares at Closing, and the fact that, because our Initial Stockholders have agreed not to redeem their shares in connection with the Business Combination,
they may receive a significant number of such New Warrants, if other holders of Class A Common Stock elect to exercise their redemption rights;
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the fact that the Sponsor paid an aggregate of $5,950,000 for Private Units comprised of 297,500 Private Warrants to purchase
shares of Class A Common Stock and that such Private Warrants will expire worthless if a business combination is not consummated by August 18, 2022;
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the continued right of the Sponsor to hold Class A Common Stock and the shares of Class A Common Stock to be issued to the
Sponsor upon exercise of its Private Warrants following the Business Combination, subject to certain lock-up periods;
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if the Trust Account is liquidated, including in the event we are unable to complete an initial business combination within
the required time period, the Sponsor has agreed to indemnify us to ensure that the proceeds in the Trust Account are not reduced below $10.00 per Public Share, or such lesser per Public Share amount as is in the Trust Account on the
liquidation date, by the claims of prospective target businesses with which we have entered into an acquisition agreement or claims of any third party (other than our independent public accountants) for services rendered or products
sold to us, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;
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the Sponsor (including its representatives and affiliates) and the Company directors and officers, are, or may in the future
become, affiliated with entities that are engaged in a similar business to the Company. For example, each of the Company’s officers may be considered an affiliate of the Sponsor and directors and officers of the Company are also
affiliated with Lionheart III and Lionheart IV, all of which are blank check companies incorporated for the purpose of effecting their respective initial business combinations. In addition, Mr. Meltzer serves on the board of directors
of Haymaker Acquisition Corp. III, a blank check company incorporated for the purpose of effecting a business combination. The Sponsor and the Company’s directors and officers are not prohibited from sponsoring, or otherwise becoming
involved with, any other blank check companies prior to the Company completing its initial business combination. Moreover, certain of the Company’s directors and officers have time and attention requirements for certain other companies.
The Company’s directors and officers also may become aware of business opportunities which may be appropriate for presentation to the Company, and the other entities to which they owe certain fiduciary or contractual duties, including
Lionheart III and Lionheart IV. Accordingly, they may have had conflicts of interest in determining to which entity a particular business opportunity should be presented. These conflicts may not be resolved in the Company’s favor and
such potential business opportunities may be presented to other entities prior to their presentation to the Company, subject to applicable fiduciary duties. The Existing Charter provides that the Company renounces its 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 the Company is
legally and contractually permitted to undertake and would otherwise be reasonable for the Company to pursue, and to the extent the director or officer is permitted to refer that opportunity to the Company without violating another
legal obligation. For more information, see “Management of the Company— Conflicts of Interests.”
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the continued indemnification of our existing directors and officers and the continuation of our directors’ and officers’
liability insurance after the Business Combination;
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the fact that our independent directors will receive a grant of 10,000 shares of Class A Common Stock at the time of the
consummation of the Business Combination. The approximate value of this grant is $100,000 (10,000 shares at $10.00 per share). These shares will come from the pool of Founder Shares and will not result in any dilution to Public
Stockholders or the Members;
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the fact that the Sponsor and our directors and officers will lose their entire investment in us and will not be reimbursed
for any out-of-pocket expenses if an initial business combination is not consummated by August 18, 2022; and
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that, at the closing of the Business Combination we will enter into the amended and restated registration rights agreement
with the Sponsor and our directors and officers which provides for registration rights to such persons and their permitted transferees.
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These interests may influence our directors and officers in making
their recommendation that you vote in favor of the approval of the Business Combination.
Interests of MSP’s Directors and Executive Officers in the Business
Combination
Legal Fees
During the years ended December 31, 2021 and December 31, 2020,
MSP made payments to MSP La Ley con John H. Ruiz P.A., d/b/a MSP Recovery Law Firm, a Florida corporation, and MSP Law Firm, a Florida PLLC (either or both such entities, the “Law Firm”) of $58,000 and $0, respectively, and had accrued an
additional $2,000 and $0, respectively, for legal services under the Existing LSAs for claims recoveries for which the Law Firm had a right to receive payment from MSP. During these periods, the Law Firm also received legal services payments
awarded pursuant to court orders as a result of fee shifting statutes in respect of claims recoveries in which MSP had an interest. These payments were made directly by third parties to the Law Firm as required by the applicable court orders,
and not by MSP. In addition, MSP has historically been party to a legal services agreement, and following the Closing will be party to the Legal Services Agreement attached to this proxy statement/prospectus as Annex L, pursuant to which the
Law Firm will be entitled to an amount, if greater than zero, equal to the difference calculated as 40% of the amount due to Opco for its recovered claims before deduction of certain costs less, to the extent applicable for such case or
matter, attorneys’ fees that are awarded to the Law Firm pursuant to a fee shifting statute by agreement or court award in any given case or matter related to such recovered claims.
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Please see section entitled “Certain
Relationships and Related Party Transactions—Legal Services—MSP Recovery Law Firm” for additional information.
Service Fee Account Loan
The Closing is conditioned upon the satisfaction of the Minimum
Cash Condition. In connection with Closing, John H. Ruiz and Frank C. Quesada have agreed to loan (or cause to be loaned) to MSP up to the aggregate amount then-remaining in the Service Fee Account, and the Minimum Cash Condition will be
deemed to be satisfied if that amount is so loaned, irrespective of the amount of cash actually held by MSP and Opco. As of December 31, 2021, VRM had $30.7 million reserved in the Service Fee Account. Pursuant to the MIPA, the loan shall be
made on terms no less favorable to the MSP Purchased Companies than: (i) bearing interest (computed on the basis of a year of 365 or 366 days, as applicable, and the actual days elapsed) at a rate per annum equal to 4.0%, payable in arrears
on the last business day of each quarter and at maturity, (ii) maturing on the day that is six months from the Closing Date (or, if such day is not a business day, the next succeeding business day); provided that such date may be extended, at
the option of the borrower, for up to three successive six month periods (for a total of 24 months) and (iii) being prepayable by the borrower at any time, without prepayment penalties, fees or other expenses.
Transaction Bonus Pool – MSP
In connection with the Closing, John H. Ruiz, Frank C. Quesada
and/or their respective affiliates who are Members intend to designate to Opco (and forfeit any and all rights with respect thereto) up to [25,000,000] Up-C Units (the “Forfeited Units”) from the consideration that otherwise would have been
paid to them pursuant to the MIPA. In addition, following the Closing, the Post-Combination Company will establish a bonus pool of up to [25,000,000] shares of common stock or RSUs (the “Bonus Pool”). Any allocations from such Forfeited Units
or Bonus Pool (which may be paid to certain individuals, including executive officers and other employees of MSP, or may be made under the terms of the Incentive Plan) will be determined by Mr. Ruiz and Mr. Quesada in their discretion. In
addition, the number of Forfeited Units and the number of securities comprising the Bonus Pool may be increased, and greater bonuses may be paid, in order to gross up recipients thereof for any applicable withholding taxes.
New Warrant Repurchases
In connection with the Business Combination, the Company
intends to distribute a dividend of the New Warrants following the Closing Date to stockholders of record as of the close of business on the Warrant Record Date, after giving effect to the waiver of the right, title and interest in, to or
under, participation in any such dividend by the Members, on behalf of themselves and any of their designees. Pursuant to the terms of the LLC Agreement, at least twice a month, to the extent any New Warrants have been exercised in accordance
with their terms, the Post-Combination Company is required to purchase from John H. Ruiz and Frank C. Quesada, as the MSP Principals, proportionately, the number of Up-C Units or shares of Class A Common Stock owned by such MSP Principal
equal to the Aggregate Exercise Price divided by the Warrant Exercise Price in exchange for the Aggregate Exercise Price. For more information, see the LLC Agreement attached hereto as Annex D.
RC Lakehouse, LLC
Ophir Sternberg and an affiliate of John Ruiz, are partners in an
entity, RC, that purchased a condominium unit located at The Ritz-Carlton Residences Miami Beach on or about May 31, 2021. Ophir Sternberg retained a 1% non-voting, non-economic interest in RC Lakehouse, LLC. Please see section entitled “Certain Relationships and Related Party Transactions—RC Lakehouse, LLC” for additional information.
Cigarette Holdings, LLC
Affiliates of each of Ophir Sternberg and John Ruiz are partners
in an entity, Cigarette Holdings, LLC (“CH”), that purchased the assets and operations of the former Cigarette Racing Team, LLC on or about May 21, 2021.
Policies and Procedures for Related Party Transactions
As a private company, MSP does not have a formal written related
party transaction policy. The Post-Combination Company will implement policies and procedures with respect to the approval of related party transactions in connection with the closing of the Business Combination.
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Sources and Uses for the Business Combination
The following table summarizes the sources and uses for funding
the Business Combination. These figures assume that no Public Stockholders exercise their redemption rights in connection with the Business Combination. If the actual facts are different from these assumptions, the below figures will be
different.
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Sources and Uses
No Redemption Scenario
(in millions)
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Sources
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| |
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| |
Uses
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| |
|
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Company Cash in Trust Account(1)
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| |
$121
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| |
Remaining Cash to Balance Sheet(1)(4)
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| |
$43
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PIPE
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| |
0
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| |
Company Estimated Transaction Cost(4)
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| |
78
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|
Member rollover(2)
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| |
32,500
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| |
Member rollover(2)
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| |
32,500
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Total Sources
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| |
$32,621
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| |
Total Uses
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| |
$32,621
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(1)
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Assumes that no additional shares of Class A Common Stock are redeemed (after giving effect to the redemption of
10,946,369 shares of Class A Common Stock in connection with the Company stockholder vote to approve the Extension Amendment). This amount will be reduced by the amount of cash used to satisfy any redemptions.
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|
(2)
|
Represents Up-C Units (or shares of Class A Common Stock) equal to $32.5 billion divided by $10.00.
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The following table summarizes the sources and uses for funding
the Business Combination. These figures assume the expense adjusted maximum redemption scenario. If the actual facts are different from these assumptions, the below figures will be different.
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Sources and Uses
Expense Adjusted Maximum Redemption Scenario
(in millions)
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Sources
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| |
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| |
Uses
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| |
|
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Company Cash in Trust Account(1)
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$69
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Remaining Cash to Balance Sheet(1)
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| |
$19
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Cash from Members(2)
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| |
28
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| |
Company Estimated Transaction Cost(4)
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| |
78
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|
Member rollover (3)
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| |
32,500
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| |
Member rollover(3)
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| |
32,500
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Total Sources
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$32,597
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| |
Total Uses
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| |
$32,597
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(1)
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Assumes that 5,401,587 shares of Class A Common Stock are redeemed for an aggregate payment of approximately $54.0 million
(based on the estimated per share redemption price of approximately $10.00 per share) from the Trust Account. The remaining shares not redeemed include 650,000 shares of Class A Common Stock that are not subject to redemption as the
shareholders have waived redemption rights. Cash available for maximum redemptions is calculated as the cash in trust less remaining transaction costs to be paid in cash reflected in the unaudited pro forma condensed combined balance
sheet.
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|
(2)
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Represents an assumed cash contribution raised from a loan from Messrs. Ruiz and Quesada (or their affiliates) at the
Closing in order to satisfy the condition tied to the MSP Minimum Cash Amount (as defined in the MIPA), assuming cash and cash equivalents of MSP as of December 31, 2021.
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|
(3)
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Represents Up-C Units (or shares of Class A Common Stock) equal to $32.5 billion divided by $10.00.
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|
(4)
|
Reflects the settlement of $78.3 million of estimated transaction costs expenses expected to be incurred for the Business
Combination, of which $11.6 million was already paid as of December 31, 2021 and $4.2 million was already expensed as of December 31, 2021. Included in the amount that remains to be settled is $8.1 million for the settlement of the
Company’s deferred underwriting fee payable incurred during the IPO, due upon completion of the Business Combination, settlement of costs accrued as of the balance sheet date, costs that will be prepaid at the Closing, estimated costs
for advisory, legal, and other fees that can be deducted against additional paid in capital including those capitalized as prepaids and other current assets, estimates costs that will be expensed as incurred, and estimated costs to be
offset against the net equity of the Company at the Closing.
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Completion of the Business Combination is subject to approval
under the HSR Act. Each of MSP and the Company has agreed to use their respective reasonable best efforts to take all actions to consummate and make effective the transactions contemplated by the MIPA and use their reasonable best efforts to
obtain each material third-party consent and approval required to be obtained in order to consummate the transactions set forth under the MIPA as promptly as practicable.
HSR Act
Under the HSR Act, and related rules, the transactions may not
be completed until notifications have been filed with and certain information has been furnished to the Antitrust Division of the Department of Justice (the “Antitrust Division”) and the FTC and all statutory waiting period requirements have
been satisfied. On November 30, 2021, the Company and MSP filed the required forms under the HSR Act with respect to the Business Combination with the Antitrust Division and the FTC and requested early termination. The related HSR Act waiting
period expired on December 30, 2021.
At any time before or after the completion of the Business
Combination, the Antitrust Division or the FTC could take action under the U.S. law, including seeking to prevent the Business Combination, to rescind the Business Combination or to clear the Business Combination subject to the divestiture of
assets of the Company or MSP or subject to other remedies. In addition, U.S. state attorneys general could take action under the antitrust laws as they deem necessary or desirable in the public interest including without limitation seeking to
enjoin the completion of the transactions or permitting completion subject to the divestiture of assets of the Company or MSP or other remedies. Private parties may also seek to take legal action under the antitrust laws under some
circumstances. There can be no assurance that a challenge to the transactions on antitrust grounds will not be made or, if such challenge is made, that it would not be successful.
There can be no assurances that the regulatory approvals discussed
above will be received on a timely basis, or as to the ability of the Company and MSP to obtain the approvals on satisfactory terms or the absence of litigation challenging such approvals.
The Business Combination will be accounted for as a reverse
recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP. MSP Recovery’s founder, John H. Ruiz, and certain other related parties will continue to control the Post-Combination Company. As the Business
Combination represents a common control transaction from an accounting perspective, the Business Combination will be treated similar to a reverse recapitalization. As there is no change in control, MSP Recovery has been determined to be the
accounting acquirer. Under this method of accounting, LCAP will be treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent of MSP
Recovery issuing stock for the net assets of LCAP, accompanied by a recapitalization. The net assets of LCAP will be stated at historical cost, with no goodwill or other intangible assets recorded.
The Class A Common Stock, the Public Warrants and the Public Units
are currently listed on Nasdaq under the symbols “LCAP,” “LCAPW” and “LCAPU,” respectively. We intend to apply to continue the listing of our Class A Common Stock and Public Warrants on Nasdaq under the symbols “MSPR” and “LCAPW,” respectively,
and apply to list the New Warrants under the symbol “MSPRW,” upon the closing of the Business Combination. If issued, the New Warrants are expected to trade promptly following their issuance. At the Closing, each Unit will separate into its
components, comprising one share of Class A Common Stock and one-half of one Public Warrant.
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This section describes the material terms of
the MIPA. The description in this section and elsewhere in this proxy statement/prospectus is qualified in its entirety by reference to the complete text of the MIPA, a copy of which is attached as Annex A to this proxy statement/prospectus and
incorporated by reference herein. This summary does not purport to be complete and may not contain all of the information about the MIPA that is important to you. You are urged to read the MIPA carefully and in its entirety. This section is not
intended to provide you with any factual information about the Company or MSP. Such information can be found elsewhere in this proxy statement/prospectus.
Effects of the Business Combination
Pursuant to the MIPA, the Members will sell and assign all of
their membership interests of MSP to Opco in exchange for Up-C Units, which are exchangeable on a one-for-one basis for shares of Class A Common Stock. Following the Closing, the Company will own all of the voting economic Class A Units of Opco
and the Members will own all of the non-voting economic Class B Units of Opco.
Subject to the terms and conditions set forth in the MIPA, the
aggregate consideration to be paid to the Members will consist of (i) 3,250,000,000 Up-C Units and (ii) rights to receive payments under the Tax Receivable Agreement. Of the Up-C Units to be issued at Closing, 6,000,000 will be deposited into
an escrow account with Continental Stock Transfer and Trust Company, to satisfy any potential indemnification claims that may be brought pursuant to the MIPA during the Survival Period (as defined below). Notwithstanding the forgoing, no
fractional shares of Class A Common Stock or Class V Common Stock, or fractional Class B Units, will be issued pursuant to the Business Combination, and instead any such fractional share or unit that would otherwise be issued will be rounded to
the nearest whole share or unit (with 0.5 being rounded up).
Closing and Effective Time of the Business Combination
The Closing of the Business Combination will take place remotely
at 10:00 a.m. local time but shall be deemed to have occurred for all purposes as of 12:01 a.m. Eastern Time, no later than two business days after the last of the conditions to Closing have been satisfied or waived (other than conditions
which, by their nature, are to be satisfied on the Closing Date), unless the Company and the Members’ Representative agree to an alternate date and time in writing. See “— Conditions to the Business
Combination” beginning on page [219] for a more complete description of the conditions that must be satisfied prior to the Closing. The time at which the Business Combination becomes effective is sometimes referred
to in this proxy statement/prospectus as the “Effective Time.”
As of the date of this proxy statement/prospectus, the Members and
the Company expect that the Business Combination will be effective during the first quarter of 2022. However, there can be no assurance as to when or if the Business Combination will occur.
If the Business Combination is not completed by the Outside
Closing Date, the MIPA may be terminated by either the Company or the Members’ Representative. See “— Termination” beginning on page [220] for a more complete description of the
termination rights of the parties.
Conduct of MSP’s Business Prior to the Completion of the Business
Combination
MSP agreed from the date of the MIPA through the earlier of the
Closing Date and the termination of the MIPA in accordance with its terms, except as expressly contemplated by the MIPA or consented to by the Company (such consent not to be unreasonably withheld, conditioned, delayed or denied) to use
commercially reasonable efforts to conduct the business of MSP in the ordinary course, consistent with past practices, not to enter into any material transactions without the prior written consent of the Company, and to use commercially
reasonable efforts to preserve an keep intact MSP’s business relationships with employees, clients, suppliers and other third parties.
In addition to the general covenants above, except as set forth in
the MIPA, MSP agreed that from the date of the MIPA until the Closing or termination of the MIPA, MSP will not:
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•
|
amend, modify or supplement its certificate of formation, operating agreement or other organizational documents;
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211
|
•
|
amend, waive any material rights under or provision of, terminate prior to its scheduled expiration date, or otherwise
compromise in any material way, any material contract or enter into any contract that, if in effect of the date hereof, would constitute a material contract;
|
|
•
|
sell, lease, license or otherwise dispose of any material assets of MSP, taken as a whole, except pursuant to existing
contracts or commitments disclosed herein and for licenses granted in the ordinary course of business;
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|
•
|
pay, declare, or agree to pay any distributions with respect to the MSP membership interests, or pay, declare or agree to pay
any other payments to any Member;
|
|
•
|
except as otherwise required pursuant to any MSP Company Plan (as defined in the MIPA) in effect on the date of the MIPA,
grant any material increase in salary to any director or officer of MSP or change the bonus or profit-sharing policies of MSP, other than changes that do not result in a material increase in the cost of such benefits;
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|
•
|
obtain or incur any loan or other indebtedness, excluding drawings under existing lines of credit;
|
|
•
|
grant or incur any material lien, except for certain permitted liens, on the assets of MSP;
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|
•
|
delay, accelerate or cancel any receivables or indebtedness owed to MSP or write off or make further reserves against the
same, except, in each case, in the ordinary course of business consistent with past practice or as required by GAAP;
|
|
•
|
except as contemplated by the MIPA and the ancillary agreements, merge or consolidate with or acquire any other entity or be
acquired by any other entity or person;
|
|
•
|
voluntarily fail to maintain insurance policies covering the assets of MSP in a form and amount consistent with past
practices;
|
|
•
|
make any material change in its accounting principles or methods or write down the value of any inventory or assets of MSP,
in each case, except as required by GAAP;
|
|
•
|
change the principal place of business or jurisdiction of organization of MSP;
|
|
•
|
make any loans, other than travel or other expense advances to employees in the ordinary course of business not to exceed
$10,000 individually or $100,000 in the aggregate and prepayments and deposits paid to suppliers of MSP in the ordinary course of business; except as contemplated by the MIPA and certain ancillary agreements, issue, redeem or repurchase
any MSP membership interests or other securities in MSP or issue any securities exchangeable for or convertible into MSP membership interests;
|
|
•
|
except as otherwise required by applicable law, make or change any material tax election (other than with respect to MSP
Recovery of Puerto Rico, LLC), change any annual tax accounting periods, amend any material tax return, prepare or file any tax return materially inconsistent with past practice or, on any such tax return, take any position, make any
election, or adopt any method that is materially inconsistent with positions taken, elections made or methods used in preparing or filing similar tax returns in prior periods (including materially inconsistent positions, elections or
methods that would have the effect of deferring income to periods ending after the Closing Date or accelerating deductions to periods ending on or before the Closing Date); settle or otherwise compromise any material claim relating to
taxes, enter into any closing agreement or similar agreement relating to taxes, otherwise settle any material dispute relating to taxes, or request any ruling or similar guidance with respect to a material amount of taxes; provided,
that the Company’s prior consent is not required with respect to any of the foregoing actions where a person who is not a party to the MIPA is able to undertake such action with respect to MSP without the consent or any action on the
part of any party to the MIPA; or
|
|
•
|
agree to do any of the actions above.
|
Conduct of LCAP’s Business Prior to the Completion of the Business
Combination
The Company and Opco agreed, from the date of the MIPA through the
Closing, except as contemplated by the MIPA or as consented to by the Members’ Representative in writing, not to:
|
•
|
change, modify or amend the Investment Management Trust Agreement, the Sponsor Agreement, or their respective organizational
documents;
|
212
|
•
|
declare, set aside or pay any dividends on, or make any other distribution in respect of any outstanding capital stock of, or
other equity interests in, the Company or Opco, split, combine or reclassify any capital stock of, or other equity interests in, the Company or Opco; or other than (x) in connection with the stockholder redemption or (y) as otherwise
required by the organizational documents of the Company or Opco in order to consummate the transactions contemplated by the MIPA, repurchase, redeem or otherwise acquire, or offer to repurchase, redeem or otherwise acquire, any capital
stock of, or other equity interests in, the Company or Opco;
|
|
•
|
subject to certain exceptions, make, change or revoke any material tax election, adopt or change any material accounting
method with respect to taxes, file any amended material tax return, settle or compromise any material tax liability, enter into any material closing agreement with respect to any tax, surrender any right to claim a material refund of
taxes or consent to any extension or waiver of the limitations period applicable to any material tax claim or assessment or enter into any tax sharing or tax indemnification agreement (except, in each case, for such agreements that are
commercial contracts not primarily relating to taxes) or similar agreement or take any similar action relating to taxes, if such election, change, amendment, agreement, settlement, consent or other action would have the effect of
materially increasing the present or future tax liability or materially decreasing any present or future tax asset of the Company or Opco or MSP in a manner that will disproportionately affect the Members (as compared to the Company’s
stockholders) after the Closing;
|
|
•
|
enter into, renew or amend in any material respect, any transaction or contract with an affiliate of the Company (including,
for the avoidance of doubt, (x) the Sponsors or anyone related by blood, marriage or adoption to any Sponsor and (y) any Person in which any Sponsor has a direct or indirect legal, contractual or beneficial ownership interest of 5% or
greater);
|
|
•
|
waive, release, compromise, settle or satisfy any pending or threatened material claim (which shall include, but not be
limited to, any pending or threatened action) or compromise or settle any liability;
|
|
•
|
incur, guarantee or otherwise become liable for (whether directly, contingently or otherwise) any indebtedness;
|
|
•
|
offer, issue, deliver, grant or sell, or authorize or propose to offer, issue, deliver, grant or sell, any capital stock of,
or other equity interests, equity equivalents, stock appreciation rights, phantom stock ownership interests or similar rights in, the Company or Opco or any securities convertible into, or any rights, warrants or options to acquire, any
such capital stock or equity interests, other than issuance of Class A Common Stock in connection with the exercise of any warrants outstanding on the date hereof or amend, modify or waive any of the terms or rights set forth in, any
warrant or the warrant agreement relating thereto, including any amendment, modification or reduction of the warrant price set forth therein; or
|
|
•
|
except as contemplated by certain exceptions, prior to the Closing, (A) adopt or amend any Purchaser Plan (as defined in the
MIPA), enter into any employment contract or collective bargaining agreement or hire any employee.
|
The Company additionally agreed from the date of the MIPA through
the Closing, to comply with, and continue performing under, as applicable, the organizational documents of the Company, the Investment Management Trust Agreement, certain ancillary documents to the MIPA and all other agreements or contracts to
which the Company or Opco may be a party.
Trust Account Disbursement
Upon satisfaction or waiver of the conditions set forth under the
heading “— Conditions to the Business Combination” and provision of notice to the trustee of the Trust Account in accordance with and pursuant to the Investment Management Trust Agreement, at the
Closing, except for a portion of the interest earned on the amounts held in the Trust Account, the Company shall disburse monies from the Trust Account only: (a) to the Public Stockholders in the event they elect to redeem Public Shares in
connection with the consummation of Business Combination or an amendment to the Company’s certificate of incorporation in accordance with the terms set forth therein; (b) to the Public Stockholders if the Company fails to consummate a business
combination by August 18, 2022, subject to any extension upon approval of the Company’s stockholders to amend the certificate of
213
incorporation; (c) in connection with a business combination, expenses owed by the
Company to third parties to which they are owed; (d) in connection with a business combination, certain fees owed to the underwriters in the IPO; or (e) to, or on behalf of, the Company after or concurrently with the consummation of a business
combination.
HSR Act and Regulatory Approvals
The parties to the MIPA agreed to promptly make any required
filings or application under the HSR Act and similar antitrust laws (“Antitrust Laws”), as applicable, and with respect to the HSR Act make any required filings no later than fifteen business days after the date of the MIPA. The parties agreed
that the Company would pay all applicable filing fees with respect to any and all notifications required under the HSR Act in order to consummate the transactions contemplated by the MIPA when due. The parties additionally agreed to supply as
promptly as reasonably practicable any additional information and documentary material that may be requested pursuant to Antitrust Laws and to take all other actions reasonably necessary, proper or advisable to cause the expiration or
termination of the applicable waiting periods or obtain required approvals, as applicable under Antitrust Laws as soon as practicable, including by requesting early termination of the waiting period provided for under the HSR Act. Each party
agreed, in connection with its efforts to obtain all requisite approvals and authorizations for the Business Combination under any Antitrust Law, use its reasonable best efforts to: (i) cooperate in all respects with each other party or its
affiliates in connection with any filing or submission and in connection with any investigation or other inquiry, including any proceeding initiated by a private person; (ii) keep the other parties reasonably informed of any communication
received by such party or its representatives from, or given by such party or its representatives to, any governmental authority and of any communication received or given in connection with any proceeding by a private person, in each case
regarding the Business Combination; (iii) permit a representative of the other parties and their respective outside counsel to review any communication given by it to, and consult with each other in advance of any meeting or conference with,
any governmental authority or, in connection with any proceeding by a private person, with any other person, and to the extent permitted by such governmental authority or other person, give a representative or representatives of the other
parties the opportunity to attend and participate in such meetings and conferences; (iv) in the event a party’s representative is prohibited from participating in or attending any meetings or conferences, the other parties agreed to keep such
party promptly and reasonably apprised with respect thereto; and (v) cooperate in the filing of any memoranda, white papers, filings, correspondence or other written communications explaining or defending the transactions contemplated by the
MIPA, articulating any regulatory or competitive argument, and/or responding to requests or objections made by any governmental authority.
Proxy Solicitation
As promptly as practicable after the delivery of MSP’s financial
statements pursuant to the MIPA, the Company and MSP agreed to use their respective reasonable best efforts to prepare, and the Company to file with the SEC, the registration statement of which this proxy statement/prospectus forms a part, to
be used as a proxy statement for the Special Meeting with respect to, among other things, providing the Public Stockholders with the opportunity to redeem their shares of Class A Common Stock and soliciting proxies from holders of Class A
Common Stock to vote at the Special Meeting, as adjourned or postponed, in favor of the Proposals.
The Company agreed, prior to or as promptly as practicable
following the effectiveness of the registration statement of which this proxy statement/prospectus forms a part to take all action necessary under applicable law to, in consultation with the Members’ Representative, establish a record date for,
call, give notice of and hold the Special Meeting to consider and vote on the Proposals and cause the proxy statement/prospectus to be mailed to its stockholders of record, as of the record date to be established by the board of directors.
Pursuant to the MIPA, the Special Meeting is to be held as promptly as practicable, and in any event not more than 25 days after the date on which the Company commences the mailing of the proxy statement/prospectus to its stockholders.
The Company agreed, through the LCAP Board, to recommend that the
Company’s stockholders vote in favor of adopting and approving all Proposals, and to include such recommendation in this proxy statement/prospectus. The Company further agreed not to change, withdraw, withhold, qualify or modify, or publicly
propose to change, withdraw, withhold, qualify or modify, the aforementioned recommendations, except as necessary, based on an opinion of the Company’s outside legal counsel to comply with their fiduciary duties under Delaware law.
Exclusivity
MSP and the Members. From the date of the MIPA until the earlier of the Closing or the termination of the MIPA, neither MSP nor any of the Members will, and such persons will not permit any of their respective affiliates or representatives to, directly
or indirectly, (i) encourage, solicit, initiate, engage, participate, enter into discussions
214
or negotiations with any person concerning any merger, acquisition consolidation,
recapitalization, share exchange, business combination or other similar transaction, possible public investment or public offering with respect to MSP or any sale, lease, exchange, transfer or other disposition of a material portion of the
assets of MSP or any class or series of the capital stock, or membership interests of MSP in a single transaction or series of transactions, other than the transactions contemplated by the MIPA, (ii) take any other action intended or designed
to facilitate the efforts of any person relating to a possible Alternative Transaction; or (iii) approve, accept, recommend or enter into any Alternative Transaction or any contract related to any Alternative Transaction.
The Company.
From the date of the MIPA until the earlier of the Closing, or the termination of the MIPA, the Company will not take, nor shall it permit any of its affiliates or representatives to take, whether directly or indirectly, any action to
solicit, initiate, continue or engage in discussions or negotiations with, or enter into any agreement with, or encourage, respond, provide information to or commence due diligence with respect to, any person (other than MSP, the Members
and/or any of their affiliates or representatives), concerning, relating to or which is intended or is reasonably likely to give rise to or result in, any offer, inquiry, proposal or indication of interest, written or oral relating to any
business combination other than with MSP, the Members, and their respective affiliates and representatives.
LCAP Nasdaq Listing
From the date of the MIPA through the Closing, the Company has
agreed to use reasonable best efforts to keep the Class A Common Stock listed for trading on Nasdaq. The Company additionally agreed to take all steps reasonably necessary or advisable to cause the shares of Class A Common Stock and the New
Warrants to trade under the symbols “MSPR” and “MSPRW” upon the Closing, or under such other symbols as the Members’ Representative and the Company may otherwise agree prior to the Closing. Finally, the Company agreed to take all steps
reasonably necessary or advisable to cause the shares of Class A Common Stock to be issued (x) pursuant to Business Combination, if any, and (y) on conversion of the Class B Units that are included in the Up-C Units, as provided for in the LLC
Agreement, in each case to be approved for listing on Nasdaq.
Directors’ and Officers’ Insurance
The Company and MSP have agreed that from and after the Closing,
that, with respect to any acts or omissions occurring on or prior to the Closing, all rights to indemnification, exculpation and advancement of expenses and all limitations on liability existing in favor of any manager, director, officer or
employee of MSP or the Company prior to the Closing (collectively, the “D&O Persons”), in each case, as provided in the organizational documents of MSP or the Company, as applicable, or any other similar indemnification arrangement in
effect as of the date of the MIPA, will survive the consummation of the Business Combination and continue in full force and effect and be honored by the Company, Opco and MSP in accordance with their terms and to the fullest extent of the law.
The parties further agreed that for a period of six years following the Closing, such rights may not be amended or otherwise modified in the organizational documents of MSP or the Company in any manner that would adversely affect the rights of
the D&O Persons, unless such amendment or modification is required by law.
The Company and MSP have further agreed that for a period of six
years from the Effective Time, the Company will, or will cause one or more of its subsidiaries to, maintain in effect directors’ and officers’ liability insurance covering the D&O Persons on terms not less favorable than the terms of such
insurance coverage in place at the time of signing the MIPA for any manager, director, officer or employee of MSP prior to the Closing; provided, however, that (i) the Company may cause coverage to be extended under such directors’ and
officers’ liability insurance by obtaining a six-year “tail” policy containing terms not materially less favorable than the terms of such insurance coverage with respect to claims existing or occurring at or prior to the Effective Time and
(ii) if any claim is asserted or made within such six-year period, any insurance required to be maintained under the MIPA shall be continued in respect of such claim until the final disposition thereof.
Other Covenants and Agreements
The MIPA contains other covenants and agreements, including covenants
related to:
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MSP delivering to the Company certain financial information and audited and unaudited financial statements specified in the
MIPA;
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MSP using commercially reasonable efforts to enter into the Employment and Restrictive Covenant Agreements with certain
employees prior to the Closing Date;
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certain tax matters;
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MSP using commercially reasonable efforts to obtain each third-party consent required in connection with the consummation of
Business Combination;
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the parties using their reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done,
all things reasonably necessary, proper or advisable or as another party may reasonably request to consummate and make effective as promptly as practicable the transactions contemplated by the MIPA (including the satisfaction, but not
waiver, of the closing conditions), (ii) execute and deliver, or cause to be executed and delivered, such other documents, certificates, agreements and other writings and take such other actions as may be reasonably necessary or
desirable in order to consummate or implement expeditiously each of the transactions contemplated by the MIPA, and (iii) obtain each material third-party consent and approval required to be obtained in order to consummate the Business
Combination;
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MSP, subject to certain limitation and restrictions, providing the Company, its legal counsel and other representatives
reasonable access, to the offices, properties and books and records and using commercially reasonable efforts to furnish to the Company, its legal counsel and other representatives such information relating to the business in the
possession of MSP as such persons may reasonably request, in each case solely for purposes of consummating the Business Combination;
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the disbursement of monies from the Trust Account;
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confidentiality and publicity relating to the MIPA and the transactions contemplated thereby;
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Members’ Representative and the Members, on the one hand, and the Company and Opco, on the other hand, promptly notifying the
other party of certain events; and
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each party, on the request of any other party, executing such further documents, and performing such further acts, as may be
reasonably necessary or appropriate to give full effect to the allocation of rights, benefits, obligations and liabilities contemplated by the MIPA.
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Representations and Warranties
The MIPA contains representations and warranties made by MSP to
the Company and Opco relating to a number of matters, including the following:
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company organization, good standing and power;
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requisite authority to enter into the MIPA and to complete the contemplated transactions;
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required governmental and regulatory consents necessary in connection with the Business Combination;
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absence of conflicts with organizational documents, applicable laws or certain agreements and instruments as a result of
entering into the MIPA or consummating the Business Combination;
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capitalization of MSP and valid issuance of all membership interests;
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organizational documents;
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control by and control of third parties;
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assumed names;
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contracts requiring consent as a result of entering into the MIPA or consummating the Business Combination;
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financial information and absence of undisclosed liabilities;
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accuracy, completeness and authenticity of the books and records;
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absence of a Material Adverse Effect with respect to MSP since December 31, 2020 and absence of certain other changes with
respect to MSP;
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title to assets of MSP;
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title to CCRAs;
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litigation;
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material contracts;
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insurance;
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licenses and permits;
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compliance with laws;
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intellectual property;
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privacy and data security;
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employees;
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employee benefits and compensation;
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real property;
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tax matters;
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environmental laws;
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HIPAA compliance;
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healthcare law compliance;
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healthcare laws proceedings;
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broker’s and finder’s fees related to the Business Combination;
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anti-corruption matters;
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compliance with laundering statutes;
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dealings with Office of Foreign Assets Control of the U.S. Treasury Department sanctioned countries;
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non-investment company; and
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lack of untrue statements of a material fact or omissions to state any material fact.
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Certain of these representations and warranties are qualified as
to “materiality” or “Material Adverse Effect.” For purposes of the MIPA, a “Material Adverse Effect” with respect to MSP means a material adverse change or a material adverse effect (i) upon the assets, liabilities, financial condition,
prospects, net worth, management, earnings, cash flows, business, operations or properties of MSP and the business, taken as a whole, whether or not arising from transactions in the ordinary course of business; (ii) that is reasonably likely to
prevent or materially delay the consummation of the Business Combination or any Member or MSP from performing its obligations under the MIPA or certain ancillary agreements to which it is a party or (iii) solely for purposes of measuring Losses
(as defined below) under the indemnification provisions, and not for purposes of any Closing condition, resulting in Losses indemnifiable hereunder pursuant to any third-party claims or direct claims that exceed $20,000,000; provided, however,
that Material Adverse Effect does not include any event, occurrence, fact, condition or change (or effect resulting from any of the foregoing), alone or in combination, arising out of or attributable to: (a) any change, effect or circumstance
resulting from an action required or permitted by the MIPA; (b) any change, effect or circumstance resulting from the announcement of the MIPA or the pendency of the transactions contemplated thereby; (c) any strike, embargo, labor disturbance,
riot, earthquake, hurricane, tsunami, flood, mudslide, wild fire, other weather-related or meteorological event, epidemic, pandemic, disease outbreak, or any other natural or man-made disaster or acts of God (including any governmental response
to any of the foregoing in this clause (c)); (d) factors generally affecting the industries or markets in which MSP operates; (e) changes in law or GAAP or the interpretation thereof; (f) any failure of MSP to achieve any projected revenue,
earnings, expense or other projections, forecasts, predictions or budgets prior to the Closing; (g) changes that are the result of economic factors affecting the national, regional or world economy or financial markets; (h) any change in the
financial, banking, or securities markets; (i) any acts of terrorism, war (whether or not declared), or cyber-attacks, including the engagement by the United States in hostilities or the escalation thereof, or the occurrence or the escalation
of any military or terrorist attack upon the United States, or any United States territories, possessions or diplomatic or consular offices or upon any United States military installation, equipment or personnel; or (j) any consequences arising
from any action required to be taken or not taken by MSP or any of the Members at the request of the Company.
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The MIPA also contains representations and warranties made by
the Members to the Company and Opco relating to a number of matters, including the following:
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ownership of the membership interests of MSP and authority to execute the MIPA and consummate the Business Combination;
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no consent, approval, waiver, authorization or novation or notice or filing required to be given or made by any Member in
connection with the execution of the MIPA and consummation of the Business Combination;
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rights or interests of the Members in any person relating to MSP’s business;
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absence of conflicts with organizational documents, applicable laws or certain agreements and instruments as a result of
entering into the MIPA or consummating the Business Combination;
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litigation; and
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each Member being an accredited investor.
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The MIPA additionally contains representations and warranties made
by the Company and Opco to MSP and the Members relating to a number of matters, including the following:
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company organization, good standing and power;
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requisite authority to enter into the MIPA and to complete the contemplated transactions;
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required governmental and regulatory consents necessary in connection with the Business Combination;
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absence of conflicts with organizational documents, applicable laws or certain agreements and instruments as a result of
entering into the MIPA or consummating the Business Combination;
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broker’s and finder’s fees related to the Business Combination;
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due authorization and valid issuance of securities issued as consideration in the Business Combination;
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capitalization of the Company and Opco and valid issuance of all securities;
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the Investment Management Trust Agreement and the Trust Account;
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employees and employee benefit plans;
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lack of untrue statements of a material fact or omissions to state any material fact;
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Nasdaq listing;
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reporting company and registration of Class A Common Stock pursuant to Section 12(b) of the Exchange Act;
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no undisclosed liabilities;
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proper filing of documents with the SEC, the accuracy of information contained in the documents filed with the SEC and SOX
certifications, and financial information;
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absence of a Parent Material Adverse Effect (as defined in the MIPA) since December 31, 2020 and conduct of business;
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Sponsor Agreement is in full force and effect;
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related party transactions;
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non-investment company;
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investigations and access to information of MSP; and
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no other representations and warranties.
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Certain of these representations and warranties are qualified as
to “materiality” or “Parent Material Adverse Effect.” For purposes of the MIPA, a “Parent Material Adverse Effect” means any change, effect, condition or development that, individually or in the aggregate, is or is reasonably likely to (i) be
materially adverse to the
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business, condition (financial or otherwise), assets, liabilities, business plans
or results of operations of the Company or Opco, taken as a whole or (ii) prevent or materially delay the consummation of any of the transactions contemplated by the MIPA, certain ancillary agreements or otherwise prevent or materially delay
the Company or Opco from performing its obligations under the MIPA or such ancillary agreements to which it is a party; provided, however, that in no event will any changes in general economic conditions or changes in securities markets in
general be taken into account in determining whether there has been or will be, a Parent Material Adverse Effect.
Indemnification
During the Survival Period, MSP (solely with respect to claims
made prior to the Closing) and the Members, severally but not jointly, have agreed to indemnify and hold harmless the Company and Opco against, among other things, and in respect of specified actual out-of-pocket losses, damages, liabilities,
costs or expenses, including reasonable attorneys’ fees (“Losses”), incurred or sustained by the Company and Opco as a result of (a) any breach of or inaccuracy in any of the representations or warranties of MSP or the Members or (b) any breach
or non-fulfillment of any covenant, agreement or obligation to be performed by MSP or the Members to be performed prior to or at the Closing. The total payments made by MSP and the Members to the Company and Opco with respect to Losses are not
to exceed the Escrow Units. The parties have agreed that any liability incurred by the Members pursuant to the terms of such indemnification will be paid by the return or cancellation of the Escrow Units. The parties have further agreed that
MSP and the Members shall not be liable to the Company or Opco for indemnification until the aggregate amount of all Losses exceeds $20 million, in which event the indemnifying parties shall be required to pay or be liable for all such Losses
from the first dollar.
Conditions to Each Party’s Obligations. The respective obligations of each of the parties to the MIPA to complete the Business Combination are subject to the satisfaction or waiver at or prior to the Closing of the following conditions:
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there not being in force any law, judgment, injunction, decree or order of any court, arbitrator or other governmental
authority enjoining, restraining or prohibiting the consummation of the Closing;
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the approval by the Company’s stockholders of the Business Combination Proposal, the Nasdaq Proposal, the Charter Approval
Proposal, the Director Election Proposal, and the Incentive Plan Proposal;
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the shares of Class A Common Stock to be issued (i) pursuant to the Business Combination, (ii) upon conversion of the Class B
Units that are included in the Up-C Units, or (iii) upon exercise of the New Warrants, in each case, being approved for listing on Nasdaq;
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the Company having net tangible assets of at least $5,000,001 upon the consummation of the Business Combination, after giving
effect to any Company stockholder redemptions;
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the expiration or termination of any applicable waiting period (including any extension thereof) under the HSR Act (which
waiting period expired on December 30, 2021);
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the registration statement of which this proxy statement/prospectus forms a part having become effective in accordance with
the provisions of the Securities Act, no stop order having been issued by the SEC which remains in effect with respect to the registration statement, and no proceeding seeking such a stop order having been threatened or initiated by the
SEC which remains pending; and
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the cash and cash equivalents of MSP and Opco (after giving effect to any redemptions and the payment of transaction costs,
including deferred underwriting fees) as of the Effective Time plus all amounts in the Trust Account, not being less than $30.0 million (such condition, the “Minimum Cash Condition”), provided, however, that Messrs. Ruiz and Quesada
have agreed to loan (or cause to be loaned) to MSP up to the aggregate amount then-remaining in the Service Fee Account, and the Minimum Cash Condition will be deemed to be satisfied if that amount is so loaned, irrespective of the
amount of cash actually held by MSP and Opco.
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Conditions to Obligations of the Company and
Opco. The obligation of the Company and Opco to complete the Business Combination are also subject to the satisfaction or waiver by Company and Opco of the following conditions:
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each of MSP and the Members having performed in all material respects their respective obligations required to be performed
under the MIPA at or prior to the Closing Date;
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the representations and warranties of MSP and the Members contained in the MIPA, disregarding all qualifications and
exceptions contained therein relating to materiality, being true, correct and complete at and as of the Closing Date, as if made at and as of such date (except to the extent expressly made as of an earlier date, in which case only as of
such date), except where the failure of such representations and warranties to be so true and correct, has not had, and would not have, a Material Adverse Effect (as defined in the MIPA);
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MSP, the Members and the Members’ Representative, as applicable, having executed and delivered to the Company a copy of
certain ancillary agreements to which it is a party;
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the Company having received a certificate signed by the Chief Executive Officer, Chief Financial Officer or other authorized
person of MSP stating that the conditions specified in Section 10.2(a) and Section 10.2(b) of the MIPA have been satisfied;
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no Material Adverse Effect having occurred since the date of the MIPA; and
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the Company having received the Tax Receivable Agreement duly executed by the Company, Opco and certain Members.
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Conditions to Obligations of MSP. The obligation of MSP and the Members to complete the Business Combination are also subject to the satisfaction or waiver by MSP and the Members of the following conditions:
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the Company and Opco having performed in all material respects their respective obligations under the MIPA required to be
performed at or prior to the Closing Date;
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the representations and warranties of the Company and Opco contained in the MIPA, disregarding all qualifications and
exceptions contained therein relating to materiality, being true and correct at and as of the Closing Date, as if made at and as of such date (except to the extent expressly made as of an earlier date, in which case only as of such
date), except where the failure of such representations and warranties to be so true and correct, has not had, and would not have, a Parent Material Adverse Effect (as defined in the MIPA);
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the Members’ Representative having received a certificate signed by an authorized officer of the Company stating that the
conditions specified in Section 10.3(a) and Section 10.3(b) of the MIPA have been satisfied;
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the Company having delivered to the Members’ Representative (i) certified copies of the resolutions duly adopted by each of
the Company’s and Opco’s Boards of Directors authorizing the execution, delivery and performance of the MIPA; and (ii) written resignations, in forms satisfactory to the Members’ Representative, dated as of the Closing Date and
effective as of the Closing, executed by (A) all officers of the Company and Opco; and (B) all persons serving as directors of the Company and Opco immediately prior to the Closing who are not selected as directors in accordance with
Section 9.8 of the MIPA;
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the Company and Opco having executed and delivered to the Members’ Representative a copy of certain ancillary agreements to
which each is a party;
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no Parent Material Adverse Effect having occurred since the date of the MIPA;
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the Board having been appointed as the board of directors of the Post-Combination Company;
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each of the covenants of the Sponsor required under the Sponsor Agreement to be performed as of or prior to the Closing
having been performed in all material respects, and none of the Sponsors having threatened (orally or in writing) (i) that the Sponsor Agreement is not valid, binding and in full force and effect, (ii) that the Company is in breach of
or default under the Sponsor Agreement or (iii) to terminate the Sponsor Agreement; and
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Opco having delivered the Tax Receivable Agreement, duly executed by the Company, Opco and certain Members.
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The MIPA may be terminated, and the transactions contemplated
thereby abandoned at any time prior to Closing by mutual written consent or by either the Company or the Members’ Representative, on behalf of MSP and the Members, in the event that the Closing does not occur by June 30, 2022 and no material
breach of the MIPA by the party seeking to terminate the MIPA has occurred. The Company or the Members’ Representative, on behalf of MSP
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and the Members, may also terminate the MIPA if the other party materially
breaches any representation, warranty, agreement or covenant contained in the MIPA or in any Additional Agreement (as defined in the MIPA) to be performed on or prior to the Closing Date and such breach is not cured by the earlier of (x) the
Outside Closing Date and (y) the expiration of 20 days following receipt by the breaching party of a notice describing in reasonable detail the nature of such breach.
The MIPA may also be terminated by the Members’ Representative on
behalf of MSP and the Members by written notice to the Company if (i) the LCAP Board withdraws (or modifies in any manner adverse to MSP or the Members), or proposes to withdraw (or modify in any manner adverse to MSP or the Members), the LCAP
Board’s recommendation in favor of the Proposals, or fails to reaffirm such recommendation as promptly as practicable (and in any event within five business days) after receipt of any written request to do so by the Members’ Representative;
(ii) the Condition Precedent Proposals shall not have been approved at the Special Meeting (or at any adjournment or postponement thereof); or (iii) following February 18, 2022 if, prior to such date, the Company is unable to obtain the
requisite approval from its stockholders to extend the deadline for the Company to consummate its initial business combination beyond February 18, 2022 to a date no earlier than 60 days following the Outside Closing Date.
Effect of Termination
In the event of the termination of the MIPA pursuant to Article
XIII thereof, all obligations of the parties thereunder (other than certain provisions relating to confidentiality, indemnification, the effects of termination other specified provisions, which will survive the termination of the MIPA) will
terminate without any liability of any party; provided, that no termination will relieve a party from any liability arising from or relating to any knowing and intentional breach of a representation, a warranty or a covenant by such party prior
to termination.
Amendments
No provision of the MIPA may be amended, except in writing signed
by each party, and the MIPA cannot be terminated orally or by course of conduct. No provision of the MIPA can be waived, except by a writing signed by the party against whom such waiver is to be enforced, and any such waiver shall apply only in
the particular instance in which such waiver shall have been given.
Specific Performance
The parties agreed that the parties shall be entitled to an
injunction, specific performance, or other equitable relief, to prevent breaches of the MIPA or certain ancillary agreements and to enforce specifically the terms and provisions thereof, without proof of damages, prior to the valid termination
of the MIPA in accordance with its terms, in addition to any other remedy to which they are entitled under the MIPA or any ancillary agreement, and that the right of specific enforcement is an integral part of the transactions contemplated by
the MIPA and without such right, none of the parties would have entered into the MIPA. Each party further agreed not to oppose the granting of specific performance and other equitable relief on the basis that the other parties have an adequate
remedy at law or that an award of specific performance is not an appropriate remedy for any reason at law or equity.
Fees and Expenses
Except as otherwise provided in the MIPA, each party bears its own
expenses incurred in connection with the MIPA and the transactions therein contemplated whether or not such transactions are consummated, including all fees of its legal counsel, financial advisers and accountants; provided that if the Closing
occurs, the parties have agreed that the Company shall bear and pay at or promptly after Closing, (x) all fees, costs and expenses of the Company incurred prior to and through the Closing Date in connection with the negotiation, preparation and
execution of the MIPA, the ancillary agreements to the MIPA, the performance and compliance with the MIPA and such ancillary agreements, and the conditions contained therein to be performed or complied with at or before Closing, and the
consummation of the Business Combination, including any (i) deferred underwriting fees, (ii) fees, costs and expenses relating to the D&O Policy and (iii) fees, costs, expenses and disbursements of counsel, accountants, advisors and
consultants of the Company, whether deferred, paid or unpaid prior to the Closing in an amount not to exceed $60,000,000 (unless any such excess is agreed to in writing by the Members’ Representative) and (y) all accrued fees, costs and
expenses of MSP incurred prior to and through the Closing Date in connection with the negotiation, preparation and execution of the MIPA and the ancillary agreements thereto, and the performance and compliance with the MIPA and such ancillary
agreements and the conditions contained therein to be performed or complied with at or before Closing, and the consummation of the Business Combination, including the fees, costs, expenses and disbursements of counsel, accountants, advisors and
consultants of MSP, whether paid or unpaid prior to the Closing.
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LLC Agreement
Concurrently with the Closing, Opco will adopt the LLC Agreement
whereby the Company will be named the sole manager of Opco. The LLC Agreement will authorize two classes of common units: voting, economic Class A Units held solely by the Company and non-voting economic Class B Units to be issued as part of
the Up-C Units in connection with the Business Combination. Holders of Class B Units will be able to exchange all or any portion of their Class B Units, together with the cancellation of an equal number of the paired shares of Class V Common
Stock, for a number of shares of Class A Common Stock equal to the number of exchanged Class B Units by delivering a written notice to the Company. Notwithstanding the foregoing, the Company will be permitted, at its sole discretion, in lieu of
delivering shares of Class A Common Stock for any Class B Units surrendered for exchange, to pay an amount in cash per Class B Unit equal to the arithmetic average of the volume weighted average prices for a share of Class A Common Stock as
reported by Bloomberg, L.P., or its successor, for the five consecutive full trading days ending on and including the last full trading day immediately prior to the date of exchange. Additionally, pursuant to the LLC Agreement, certain of the
Members are required on a bimonthly basis, to sell to Opco a number of Class B Units, and surrender a number of paired Class V Common Stock, equal to (x) the aggregate Exercise Price (as defined in the New Warrant Agreement) paid (including, as
applicable, the aggregate Exercise Price paid in cash and the value of any shares of Class A Common Stock utilized in connection with any Exercise Price paid on a “cashless basis”) by all warrantholders in respect of New Warrants that have been
exercised, divided by (y) the Exercise Price. The form of LLC Agreement is attached to this proxy statement/prospectus as Annex D.
Lock-up Agreement
In connection with the execution of the MIPA, certain key
employees of MSP who will receive Up-C Units pursuant to the Business Combination agreed to enter into lock-up agreements with the Company effective as of the Closing. Pursuant to the Lock-up Agreements, the MSP Holders will agree, among other
things, that their Up-C Units and any shares of Class A Common Stock received in lieu of Up-C Units, subject to certain exclusions and exceptions (including, among other things, that 10% of the Up-C Units or shares of Class A Common Stock
received by the MSP Holders are excluded from the lock-up restrictions), may not be transferred until the earlier to occur of (i) six months following Closing and (ii) the date after the Closing on which the Company completes a liquidation,
merger, capital stock exchange, reorganization or other similar transaction that results in all of the Company’s stockholders having the right to exchange their equity holdings in the Company for cash, securities or other property. The form of
Lock-up Agreement is attached to this proxy statement/prospectus as Annex K.
Sponsor Agreement
Concurrently with the execution of the MIPA, the Company entered
into the Sponsor Agreement with Opco and the Insiders pursuant to which the Sponsor and Insiders have agreed: (a) to vote the Covered Shares in favor of the Proposals at the Special Meeting or any other duly called special meeting of the
Company’s stockholders (or any adjournment or postponement thereof) called or requested for the purpose of soliciting the approval of the Company’s stockholders in connection with the consummation of the Business Combination; (b) not redeem,
elect to redeem or tender or submit any Covered Shares owned by it, him or her for redemption in connection with the transactions contemplated by the MIPA or any vote to amend the Existing Charter; and (c) subject to certain exceptions set
forth in the Sponsor Agreement, not to transfer any shares of Class A Common Stock or any Private Warrants until the earlier of (i) six months after the consummation of the Business Combination or (ii) subsequent to the Business Combination,
(x) if the closing price of the Class A Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period
commencing at least 150 days after the Business Combination or (y) the date on which the Company completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the Company’s
stockholders having the right to exchange their shares of Class A Common Stock for cash, securities or other property. The Sponsor Agreement is attached to this proxy statement/prospectus as Annex G.
Registration Rights Agreement
The MIPA contemplates that, at the Closing, the Company, the
Sponsor, certain Company stockholders, and certain Members will enter into the Registration Rights Agreement pursuant to which, among other things, the Company will agree to register for resale, pursuant to Rule 415 under the Securities Act,
the Registrable Securities
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that are held by and as appropriately requested by the parties thereto from time
to time. Pursuant to the Registration Rights Agreement, the Company will agree to use commercially reasonable efforts to file a registration statement registering the resale of the Registrable Securities within 45 days of receipt of a demand
for registration by certain holders of Registrable Securities that are party thereto. Certain holders of Registerable Securities may request to sell all or any portion of their Registrable Securities in an underwritten offering so long as a
majority-in-interest of such holders participate in and their Registrable Securities are included in the underwritten offering. The Company will agree to provide customary “piggyback” registration rights, subject to certain requirements and
customary conditions. The Registration Rights Agreement also provides that the Company will pay certain expenses relating to such registrations and indemnify the stockholders and underwriters against certain liabilities.
Tax Receivable Agreement
In connection with the MIPA and the reorganization of the
Post-Combination Company into an Up-C structure, the Company, Opco, and certain of the Members will enter into the Tax Receivable Agreement pursuant to which, among other things, the Company will pay to certain Members, 85% of the benefits, if
any, that the Company realizes from an increase in tax basis and certain other tax benefits. The form of Tax Receivable Agreement is attached to this proxy statement/prospectus as Annex F.
To the extent that VRM chooses to receive a portion of the Upfront
Consideration in Up-C Units, they will also become a party to the Tax Receivable Agreement. See the Section titled “Certain Relationships and Related Party Transactions—MSP and the Post-Combination Company –VRM”
beginning on page [244] for further details.
Escrow Agreement
In connection with the MIPA, the Company, Opco, the Members’
Representative and Continental Stock Transfer & Trust Company will enter into an Escrow Agreement, pursuant to which Continental Stock Transfer & Trust Company, as the escrow agent, will hold in escrow the 6,000,000 Up-C Units set aside
from the consideration and delivered by the Company to the escrow agent at the Closing and any earnings on such shares (other than ordinary income dividends) to satisfy each of MSP and the Members’ potential indemnification obligations under
the MIPA. All property in the escrow account, less any amounts reserved for pending indemnification claims, will be released for distribution to the Members on the first anniversary of the Closing. The form of Escrow Agreement is attached to
this proxy statement/prospectus as Annex I.
Legal Services Agreement
The MIPA contemplates that, at the Closing, Opco and the Law Firm,
an affiliate of certain Members, will enter into the Legal Services Agreement whereby Opco will engage the Law Firm to act as exclusive lead counsel to represent Opco and each of its subsidiaries as it pertains to CCRAs. Pursuant to the terms
of the Legal Services Agreement, among other things, Opco will pay Law Firm for its Costs in connection with the representation with respect to the recoveries ultimately obtained as well as 40% of the amount due to Opco, or its subsidiaries,
for its recovered CCRAs before deduction of costs and any attorneys’ fees that are awarded to the Law Firm pursuant to a fee shifting statute by agreement or court award. The form of Legal Services Agreement is attached to this proxy
statement/prospectus as Annex L. Please see the section entitled “Certain Relationships and Related Party Transactions” for additional information.
New Warrant Agreement
In connection with the Business Combination and to provide
additional consideration to holders of Class A Common Stock that do not redeem their shares of Class A Common Stock, the Company intends, subject to compliance with applicable law, to declare a dividend comprising an aggregate of
approximately 1,029,000,000 New Warrants, as further set forth herein. The New Warrants will be issued in registered form under the New Warrant Agreement between the Company and Continental Stock Transfer & Trust Company.
The form of New Warrant Agreement is attached to this proxy
statement/prospectus as Annex M.
Second Amended and Restated Charter
Pursuant to the terms of the MIPA, in connection with the
consummation of the Business Combination, the Company will amend the Existing Charter to (a) increase the number of authorized shares of the Company’s capital stock, par value $0.0001 per share, from 111,000,000 shares, consisting of (i)
100,000,000 shares of the Class A
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Common Stock and 10,000,000 shares of the Class B Common Stock, and (ii) 1,000,000
shares of preferred stock, to 8,760,000,000 shares, consisting of (i) 5,500,000,000 shares of Class A Common Stock and 3,250,000,000 shares of Class V Common Stock and (ii) 10,000,000 shares of preferred stock, (b) eliminate certain provisions
in the Existing Charter relating to the Class B Common Stock, the initial business combination and other matters relating to the Company’s status as a blank-check company that will no longer be applicable to us following the Closing, and
(c) approve and adopt any other changes contained in the Proposed Charter, a copy of which is attached as Annex B to this proxy statement/prospectus. In addition, we will amend the Existing Charter to
change the name of the corporation to “MSP Recovery, Inc.”
Amended and Restated Bylaws
Pursuant to the terms of the MIPA, in connection with the
consummation of the Business Combination, the Company will amend and restate its bylaws. The form of Amended and Restated Bylaws is attached to this proxy statement/prospectus as Annex C.
In connection with the agreements relating to VRM, described
more fully in this proxy statement/prospectus under the heading “Certain Relationships and Related Party Transactions—MSP and the Post-Combination Company – VRM” beginning on page
[244], in connection with the Closing, the Company, Opco, Messrs. Ruiz and Quesada, MSP Recovery and VRM entered into the VRM Full Return Guaranty Agreement, pursuant to which, among other things, if the VRM
Full Return has not been paid by distribution of recovery proceeds from VRM MSP to VRM prior to such time, then Messrs. Ruiz and Quesada, along with Opco and the Post-Combination Company, will guarantee the payment to VRM of any amount of the
VRM Full Return that remains unpaid at such time, on or prior to the one-year anniversary of the Closing by any of the following means (or any combination thereof): (a) sale of the 65,000,000 Up-C Units that are to be delivered by Messrs.
Ruiz and Quesada at Closing and held in escrow (the “Reserved Shares”), and delivery of the resulting net cash proceeds thereof to VRM, or (b) sale of additional shares of Company Class A Common Stock and delivery of the net cash proceeds
thereof to VRM. Pursuant to the VRM Full Return Guaranty Agreement, Mr. Ruiz’s obligations will be limited to a value equal to 70% of the VRM Full Return, Mr. Quesada’s obligations will be limited to a value equal to 30% of the VRM Full
Return, and the Post-Combination Company and Opco’s obligations will be limited to a value equal to 100% of the VRM Full Return.
The foregoing summary of the VRM Full Return Guaranty Agreement
is not complete and is qualified in its entirety by reference to the complete text of the form of VRM Full Return Guaranty Agreement, which is filed as Annex P this proxy
statement/prospectus.
Virage Side Letter Agreement
In addition to the VRM Full Return Guaranty, also in connection
with the agreements relating to VRM, described more fully in this proxy statement/prospectus under the heading “Certain Relationships and Related Party Transactions—MSP and the Post- Combination Company –
Virage” beginning on page [244], Messrs. Ruiz and Quesada (the “MRCS Principals”) executed and delivered to the Company and Opco a side letter agreement, on July 11, 2021 (the “Virage Side Letter Agreement”).
Pursuant to the terms of the Virage Side Letter Agreement, among other things, the MRCS Principals guaranteed to the Company and Opco that, in the event that the VRM Full Return has not been paid in full on or prior to the one year anniversary
of the Closing by way of one of the enumerated methods of payment set forth in the VRM Full Return Guaranty, then the MRCS Principals will promptly pay the amount by which (x) the remaining amount of the VRM Full Return exceeds (y) the realized
cash proceeds from (i) payment of recovery proceeds to VRM and/or (ii) the sale of the Reserved Shares, and delivery of the resulting net cash proceeds thereof to VRM (such amount, the “Reserved Share Shortfall Amount”); provided that in no
case shall the Reserved Share Shortfall Amount exceed the then-current value of the Up-C Units (based upon the then-current market value of the equivalent number of shares of Company Class A Common Stock) received by the MRCS Principals and
their controlled affiliates pursuant to the terms of the MIPA.
The foregoing summary of the Virage Side Letter Agreement is not
complete and is qualified in its entirety by reference to the complete text of the Virage Side Letter Agreement, which is filed as Annex O to this proxy statement/prospectus.
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The following is a discussion of material U.S. federal income tax
considerations relating to (i) an election by holders of our shares of Class A Common Stock to have their Class A Common Stock redeemed for cash if the Business Combination is completed and (ii) the distribution of New Warrants to holders of
unredeemed shares of Class A Common Stock, including the effect thereof on holders of Public Warrants and Private Warrants (“Existing Warrants”). This discussion is based on the Code and administrative pronouncements, laws, judicial decisions
and final, temporary and proposed Treasury regulations thereunder (“Treasury Regulations”) as of the date hereof, all of which are subject to change, possibly on a retroactive basis, and changes to any of which subsequent to the date of this
proxy statement/prospectus may affect the tax considerations described herein. This discussion applies only to Class A Common Stock that is held as a “capital asset” (within the meaning of Section 1221 of the Code) for U.S. federal income tax
purposes (generally, property held for investment).
This discussion does not describe all of the U.S. federal income
tax considerations that may be relevant to any particular holder based on such holder’s particular circumstances, including the Medicare tax on certain investment income and the different consequences that may apply to holders that are subject
to special rules, such as:
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financial institutions or financial services entities;
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mutual funds;
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qualified plans, such as 401(k) plans, individual retirement accounts, etc.;
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broker-dealers in securities or currencies;
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governments or agencies or instrumentalities thereof;
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persons that directly, indirectly or constructively own 5% or more (by vote or value) of our shares;
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persons that acquired our Class A Common Stock or Existing Warrants pursuant to an exercise of employee share options, in
connection with employee share incentive plans or otherwise as compensation in connection with services provided;
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insurance companies;
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persons that are subject to mark-to-market accounting rules;
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persons holding Class A Common Stock or Existing Warrants as part of a “straddle,” constructive sale, hedge, conversion or
other integrated transaction or similar transaction;
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U.S. holders (as defined below) whose functional currency is not the U.S. dollar;
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U.S. expatriates or former long-term residents of the United States;
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regulated investment companies or real estate investment trusts;
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persons subject to the alternative minimum tax provisions of the Code;
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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 entities;
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“passive foreign investment companies,” referred to as “PFICs,” or “controlled foreign corporations,” and corporations that
accumulate earnings to avoid U.S. federal income tax; and
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tax-exempt entities.
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If you are a partnership (or other entity classified as a
partnership for U.S. federal income tax purposes), the U.S. federal income tax treatment of your partners (or persons treated as partners) generally will depend on the status of the partners (or other members), your and the partners’ activities
and certain determinations made at the partner level. Accordingly, if you are a partner (or other owner) in such an entity holding shares of Class A Common Stock or Existing Warrants, you are urged to consult your tax advisor regarding the tax
consequences of a redemption.
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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). This discussion also assumes that any distributions made (or deemed made) on Class A Common Stock or Existing Warrants and any consideration
received (or deemed received) by a holder in consideration for the sale or other disposition of Class A Common Stock or Existing Warrants will be in, or valued in, U.S. dollars.
We have not sought, and do not intend to seek, a ruling from the
IRS as to any U.S. federal income tax considerations 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 income tax laws to your particular situation, as well as any tax consequences arising under the laws of any state, local or non-U.S. jurisdiction.
THIS DISCUSSION IS ONLY A SUMMARY OF MATERIAL U.S. FEDERAL INCOME
TAX CONSIDERATIONS ASSOCIATED WITH THE REDEMPTION OF OUR CLASS A COMMON STOCK OR A DISTRIBUTION OF NEW WARRANTS. EACH INVESTOR IN OUR CLASS A COMMON STOCK, NEW WARRANTS, OR EXISTING WARRANTS IS URGED TO CONSULT ITS OWN TAX ADVISOR WITH RESPECT
TO THE PARTICULAR TAX CONSEQUENCES TO SUCH INVESTOR OF THE REDEMPTION OF OUR CLASS A COMMON STOCK OR RECEIPT OF NEW WARRANTS, INCLUDING THE APPLICABILITY AND EFFECT OF ANY U.S. FEDERAL NON-INCOME, STATE, LOCAL AND NON-U.S. TAX LAWS.
Redemption of Class A Common Stock
In the event that a holder’s shares of Class A Common Stock are
redeemed pursuant to the redemption provisions described in this proxy statement under the section entitled “Special Meeting of Stockholders — Redemption Rights,” the treatment of the redemption for U.S.
federal income tax purposes will depend on whether the redemption qualifies as a sale, taxable exchange or other taxable disposition (a “sale”) of Class A Common Stock under Section 302 of the Code. If the redemption qualifies as a sale of
shares of Class A Common Stock, a U.S. holder (as defined below) will be treated as described below under the section entitled “— U.S. holders — Gain or Loss on Sale, Taxable Exchange or Other Taxable
Disposition of Class A Common Stock,” and a Non-U.S. holder (as defined below) will be treated as described under the section entitled “— Non-U.S. holders — Gain or Loss on Sale, Taxable Exchange or
Other Taxable Disposition of Class A Common Stock.” If the redemption does not qualify as a sale of shares of Class A Common Stock, a holder will be treated as receiving a corporate distribution, with the tax consequences to a U.S.
holder described below under the section entitled “— U.S. holders — Taxation of Distributions,” and the tax consequences to a Non-U.S. holder described below under the section entitled “— Non-U.S. holders — Taxation of Distributions.”
Whether a redemption of shares of Class A Common Stock qualifies
for sale treatment will depend largely on the total number of shares of our stock treated as held by the redeemed holder before and after the redemption (including any stock constructively owned by the holder as a result of owning Existing
Warrants and any of our stock that a holder would directly or indirectly acquire pursuant to the Business Combination) relative to all of our shares outstanding both before and after the redemption. The redemption of Class A Common Stock
generally will be treated as a sale of Class A Common Stock (rather than as a corporate distribution) if the redemption (i) is “substantially disproportionate” with respect to the holder, (ii) results in a “complete termination” of the holder’s
interest in us or (iii) is “not essentially equivalent to a dividend” with respect to the holder. These tests are explained more fully below.
In determining whether any of the foregoing tests result in a
redemption qualifying for sale treatment, a holder takes into account not only shares of our stock actually owned by the holder, but also shares of our stock that are constructively owned by it. A holder may constructively own, in addition to
stock owned directly, stock owned by certain related individuals and entities in which the holder has an interest or that have an interest in such holder, as well as any stock that the holder has a right to acquire by exercise of an option,
which would generally include Class A Common Stock that could be acquired pursuant to the exercise of the Existing Warrants. Moreover, any of our stock that a holder directly or constructively acquires pursuant to the Business Combination
generally should be included in determining the U.S. federal income tax treatment of the redemption.
In order to meet the substantially disproportionate test, the
percentage of our outstanding voting stock actually and constructively owned by the holder immediately following the redemption of shares of Class A Common Stock
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must, among other requirements, be less than eighty percent (80%) of the
percentage of our outstanding voting stock actually and constructively owned by the holder immediately before the redemption (taking into account both redemptions by other holders of Class A Common Stock and our common stock to be issued
pursuant to the Business Combination). There will be a complete termination of a holder’s interest if either (i) all of the shares of our stock actually and constructively owned by the holder are redeemed or (ii) all of the shares of our stock
actually owned by the holder are redeemed and the holder is eligible to waive, and effectively waives in accordance with specific rules, the attribution of stock owned by certain family members and the holder does not constructively own any
other shares of our stock (including any stock constructively owned by the holder as a result of owning Existing Warrants). The redemption of Class A Common Stock will not be essentially equivalent to a dividend if the redemption results in a
“meaningful reduction” of the holder’s proportionate interest in us. Whether the redemption will result in a meaningful reduction in a 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 stockholder in a publicly held corporation who exercises no control over corporate affairs may constitute such a “meaningful
reduction.”
If none of the foregoing tests is satisfied, then the redemption
of shares of Class A Common Stock will be treated as a corporate distribution to the redeemed holder and the tax effects to such U.S. holders will be as described below under the section entitled “— U.S.
holders — Taxation of Distributions,” and the tax effects to Non-U.S. holders as described below under the section entitled “— Non-U.S. holders — Taxation of Distributions.” After the
application of those rules, any remaining tax basis of the holder in the redeemed Class A Common Stock will be added to the holder’s adjusted tax basis in its remaining stock, or, if it has none, to the holder’s adjusted tax basis in its
Existing Warrants or possibly in other stock constructively owned by it.
A HOLDER SHOULD CONSULT WITH ITS OWN TAX ADVISORS AS TO THE
TAX CONSEQUENCES OF A REDEMPTION.
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 shares of Class A Common Stock or Existing Warrants who or that is:
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an individual who is a citizen or resident of the United States for U.S. federal income tax purposes;
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a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized in or under the laws
of the United States, any state thereof or the District of Columbia;
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an estate, the income of which is includible in gross income for U.S. federal income taxation regardless of its source; or
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a trust, if (i) a U.S. court can exercise primary supervision over the trust’s administration and one or more “United States
persons” (within the meaning of Section 7701(a)(30) of the Code) have the 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
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The Business Combination. The Business Combination should qualify as a contribution of property by the Members under Section 721(a) of the Code, and MSP will receive an opinion from Weil (the “Weil Tax Opinion”) to that
effect. Receipt of the Weil Tax Opinion is not a condition to the obligations of the parties to consummate the transactions contemplated by the MIPA. The Weil Tax Opinion will be based upon representations, warranties and covenants
provided by, among others, the Company and Opco, and certain assumptions, all of which must continue to be true and accurate as of the effective time of the Business Combination. In addition, the Weil Tax Opinion is subject
to certain qualifications and limitations as set forth therein. If any of the assumptions, representations, warranties or covenants upon which the Weil Tax Opinion is based are inconsistent with the actual facts, the Weil Tax Opinion
could be invalid. The tax rules applicable to such transfer and the related transactions in the Business Combination are complex, and the Weil Tax Opinion is not binding on the IRS. Accordingly, there is a risk that the IRS
could take a position contrary to the conclusions described in the Weil Tax Opinion and that a court will agree with such contrary position in the event of litigation.
As a result of the Business Combination, (i) the aggregate tax
basis each Member has in the Up-C Units they receive should be equal to the tax basis in the property contributed by such Member, and (ii) a Member’s holding period in the Up-C Units they receive should include the holding period in the
property contributed.
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Taxation of Redemption as Distribution. If our redemption of a U.S. holder’s shares of Class A Common Stock is treated as a distribution, as discussed above under the section entitled “Redemption of Class A Common Stock,” such distributions generally will constitute a dividend 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 our 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 Class A Common Stock.
Any remaining excess will be treated as gain realized on the sale or other disposition of the Class A Common Stock and will be treated as described below under the section entitled “— U.S. holders — Gain or Loss on Sale, Taxable
Exchange or Other Taxable Disposition of Class A Common Stock.”
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, among other conditions, is satisfied. With certain exceptions (including, but not limited to, dividends treated as investment income for purposes of
investment interest deduction limitations), and provided certain holding period requirements are met, dividends we pay to a non-corporate U.S. holder (including individuals) generally will constitute “qualified dividend income” that will be
subject to reduced tax rates. It is unclear whether the redemption rights with respect to the Class A Common Stock described in this proxy statement may prevent a U.S. holder from satisfying the applicable holding period requirements with
respect to the dividends received deduction or the reduced tax rate on qualified dividend income, as the case may be. 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 tax rate that applies to
qualified dividend income.
Gain or Loss on Sale, Taxable Exchange or
Other Taxable Disposition of Class A Common Stock. If our redemption of a U.S. holder’s shares of Class A Common Stock is treated as a sale, as discussed above under the section entitled “Redemption of
Class A 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 shares of
Class A Common Stock redeemed. Generally, the amount of gain or loss recognized by a U.S. holder is an amount 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 and (ii) the U.S. holder’s adjusted tax basis in its Class A Common Stock so disposed of. A U.S. holder’s adjusted tax basis in its Class A Common Stock generally will equal the U.S. holder’s acquisition cost less any prior
distributions paid to the U.S. holder with respect to its shares of Class A Common Stock that were treated as a return of capital.
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 Class A Common Stock so disposed of exceeds one year. It is unclear, however, whether the redemption rights with respect to the Class A Common Stock described in this proxy
statement/prospectus may suspend the running of the applicable holding period for this purpose. If the running of the holding period for the Class A Common Stock 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 taxable disposition of the shares would be subject to short-term capital gain treatment and would be taxed at regular ordinary income
tax rates. 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.
U.S. holders who hold different blocks of Class A Common Stock
(shares of Class A Common Stock purchased or acquired on different dates or at different prices) should consult their tax advisors to determine how the above rules apply to them.
Distribution of New Warrants. The distribution of the New Warrants to holders of our Class A Common Stock should be treated as a distribution in an amount equal to the fair market value of the New Warrants distributed to a U.S. holder. A U.S.
holder’s basis in the New Warrants received will equal the fair market value of the New Warrants distributed. Such distribution generally will constitute a dividend 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 our 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 Class A Common Stock. Any remaining excess will be treated as gain realized on the sale or other disposition of the Class A Common Stock and will be treated as described above
under the section entitled “— U.S. holders — Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Class A Common Stock.” Dividends we pay to a U.S. holder that is a
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taxable corporation generally will qualify for the dividends received deduction if
the requisite holding period, among other conditions, is satisfied. With certain exceptions (including, but not limited to, dividends treated as investment income for purposes of investment interest deduction limitations), and provided certain
holding period requirements are met, dividends we pay to a non-corporate U.S. holder (including individuals) generally will constitute “qualified dividend income” that will be subject to reduced tax rates.
Constructive Dividend on Existing Warrants. Under Section 305 of the Code, the adjustment to the exercise price of the Existing Warrants made in connection with the distribution of New Warrants, may be treated as a constructive distribution to a U.S.
holder of Existing Warrants if, and to the extent that, such adjustment has the effect of increasing such U.S. holder’s proportionate interest in our earnings and profits or our assets, depending on the circumstances of such adjustment (for
example, if such adjustment is to compensate for a distribution of cash or property to our shareholders). Adjustments to the exercise price of the Existing Warrants made pursuant to a bona fide reasonable adjustment formula that has the
effect of preventing dilution of the interest of the holders of the Existing Warrants should generally not be considered to result in a constructive distribution. Any such constructive distribution would be taxable whether or not there is an
actual distribution of cash or other property, and generally would be subject to the rules applicable to distributions as described above under the section entitled “— U.S. holders — Distribution of New Warrants”.
Information Reporting and Backup Withholding.
In general, information reporting requirements may apply to dividends paid to a U.S. holder (including the distribution of the New Warrants) and to the proceeds on the sale of shares of Class A Common Stock
unless the U.S. holder is an exempt recipient. Backup withholding (currently at a rate of 24%) 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). Any amounts treated as dividend payments with respect to the Class A Common Stock (including any portion of the distribution of the
New Warrants treated as a dividend payment) and proceeds from the sale, exchange, redemption or other disposition of Class A Common Stock may be subject to information reporting to the IRS and possible U.S. backup withholding. U.S. holders
should consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
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.” A
Non-U.S. holder is a beneficial owner of our Class A Common Stock that, for U.S. federal income tax purposes, is an individual, corporation, estate or trust that is not a U.S. holder.
Taxation of Redemption as Distribution. If our redemption of a Non-U.S. holder’s shares of Class A Common Stock is treated as a distribution, as discussed above under the section entitled “Redemption of Class A Common Stock,” such distribution (including the distribution of the New Warrants) will both constitute a dividend for U.S. federal income tax purposes to the extent paid out of our current or accumulated earnings and profits
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 thirty
percent (30%), unless such Non-U.S. holder is eligible for a reduced rate of withholding tax under an applicable income tax treaty and timely provides proper certification of its eligibility for such reduced rate (usually on an IRS Form
W-8BEN or W-8BEN-E, with appropriate attachments). Withholding agents may retain or sell a portion of the New Warrants, or otherwise withhold from any other payment to be made to the relevant non-U.S. holder, to fund the required withholding
tax payment. 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 Class A 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 Class A Common Stock, which will be treated as described below under the section entitled “— Non-U.S. holders — Gain on Sale, Taxable
Exchange or Other Taxable Disposition of Class A Common Stock.”
Because it may not be certain at the time a Non-U.S. holder is
redeemed whether such Non-U.S. holder’s redemption will be treated as a sale of shares or a distribution constituting a dividend, and because such determination will depend in part on a Non-U.S. holder’s particular circumstances, we or the
applicable withholding agent may not be able to determine whether (or to what extent) a Non-U.S. holder is treated as receiving a dividend for U.S. federal
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income tax purposes. Therefore, we or the applicable withholding agent may
withhold tax at a rate of 30% on the gross amount of any consideration paid to a Non-U.S. holder in redemption of such Non-U.S. holder’s Class A Common Stock, unless (i) we or the applicable withholding agent have established special procedures
allowing Non-U.S. holders to certify that they are exempt from such withholding tax and (ii) such Non-U.S. holders are able to certify that they meet the requirements of such exemption (e.g., because such Non-U.S. holders are not treated as
receiving a dividend under the Section 302(b) tests described above under the section entitled “— Redemption of Class A Common Stock”). There can be no assurance, however, that we or any applicable
withholding agent will establish such special certification procedures. If we or an applicable withholding agent withhold excess amounts from the amount payable to a Non-U.S. holder, such Non-U.S. holder generally may obtain a refund of any
such excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. holders should consult their own tax advisors regarding the application of the foregoing rules in light of their particular facts and
circumstances.
The withholding tax described above generally does not apply to
dividends paid to a Non-U.S. holder who provides an IRS Form W-8ECI, certifying that the dividends are effectively connected with the Non-U.S. holder’s conduct of a trade or business within the United States. Instead, any such effectively
connected dividends will be subject to regular U.S. federal income tax as if the Non-U.S. holder were a U.S. resident, subject to an applicable income tax treaty providing otherwise. A Non-U.S. holder that is a corporation for U.S. federal
income tax purposes and is receiving effectively connected dividends may also be subject to an additional “branch profits tax” imposed at a rate of 30% (or a lower applicable treaty rate). Any amounts withheld shall be considered as if
distributed to the non-U.S. holder for U.S. federal income tax purposes.
Gain on Sale, Taxable Exchange or Other
Taxable Disposition of Class A Common Stock. If our redemption of a Non-U.S. holder’s shares of Class A Common Stock is treated as a sale, taxable exchange or other taxable disposition, as discussed above under
the section entitled “Redemption of Class A 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 (“sale”) of our Class A Common Stock, unless:
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the gain is effectively connected with the conduct of a trade or business by the Non-U.S. holder within the U.S. (and, under
certain income tax treaties, is attributable to a U.S. permanent establishment or fixed base maintained by the Non-U.S. holder); or
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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 Class A Common Stock, and, in the case where shares of our Class A Common Stock are regularly traded on an
established securities market, the Non-U.S. holder has owned, directly or constructively, more than 5% of our Class A Common Stock at any time within the shorter of the five-year period preceding the disposition or such Non-U.S.
holder’s holding period for the shares of our Class A Common Stock.
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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 a U.S. resident. Any gains described in the first bullet point above of a corporate Non-U.S. holder may
also be subject to an additional “branch profits tax” imposed at a 30% rate (or lower applicable treaty rate).
If the second bullet point above applies to a Non-U.S. holder,
gain recognized by such holder on the sale, of shares of our Class A Common Stock will be subject to tax at generally applicable U.S. federal income tax rates. In addition, a buyer of our Class A Common Stock (we would be treated as a buyer in
respect to a redemption of Class A Common Stock) may be required to withhold U.S. federal income tax at a rate of 15% of the amount realized upon such disposition. We believe that we are not and have not been at any time since our formation a
United States real property holding corporation and we do not expect to be a United States real property holding corporation immediately after the Business Combination is completed.
Distribution of New Warrants. The distribution of the New Warrants to holders of our Class A Common Stock should be treated as a distribution in an amount equal to the fair market value of the New Warrants distributed to a Non-U.S. holder.
Such distribution generally will both constitute a dividend for U.S. federal income tax purposes to the extent paid out of our current or accumulated earnings and profits 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 thirty percent (30%), unless such Non-U.S. holder
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is eligible for a reduced rate of withholding tax under an applicable income tax
treaty and timely provides proper certification of its eligibility for such reduced rate (usually on an IRS Form W-8BEN or W-8BEN-E, with appropriate attachments). Withholding agents may retain or sell a portion of the New Warrants, or
otherwise withhold from any other payment to be made to the relevant Non-U.S. holder, to fund the required withholding tax payment. 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 Class A 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 Class A Common Stock, which
will be treated as described below under the section entitled “— Non-U.S. holders — Gain on Sale, Taxable Exchange or Other Taxable Disposition of Class A Common Stock.”
The withholding tax described above generally does not apply to
dividends paid to a Non-U.S. holder who provides an IRS Form W-8ECI, certifying that the dividends are effectively connected with the Non-U.S. holder’s conduct of a trade or business within the U.S. Instead, any such effectively connected
dividends will be subject to regular U.S. federal income tax as if the Non-U.S. holder were a U.S. resident, subject to an applicable income tax treaty providing otherwise. A Non-U.S. holder that is a corporation for U.S. federal income tax
purposes and is receiving effectively connected dividends may also be subject to an additional “branch profits tax” imposed at a rate of 30% (or a lower applicable treaty rate). Any amounts withheld shall be considered as if distributed to the
non-U.S. holder for U.S. federal income tax purposes.
Constructive Dividend on Existing Warrants. Under Section 305 of the Code, the adjustment to the exercise price of the Existing Warrants made in connection with the distribution of New Warrants, may be treated as a constructive distribution to a Non-U.S.
holder of Existing Warrants if, and to the extent that, such adjustment has the effect of increasing such Non-U.S. holder’s proportionate interest in our earnings and profits or our assets, depending on the circumstances of such adjustment
(for example, if such adjustment is to compensate for a distribution of cash or property to our shareholders). Adjustments to the exercise price of the Existing Warrants made pursuant to a bona fide reasonable adjustment formula that has the
effect of preventing dilution of the interest of the holders of the Existing Warrants should generally not be considered to result in a constructive distribution. Any such constructive distribution would be taxable whether or not there is an
actual distribution of cash or other property, and generally would be subject to the rules applicable to distributions as described above under the section entitled “— Non-U.S. holders — Distribution of New Warrants”. In the case of any such constructive dividend, it is possible that the U.S. federal tax on the constructive dividend would be withheld from shares of our Class A common stock, sales proceeds subsequently paid or
credited, or other amounts payable or distributable to a Non-U.S. holder. Non-U.S. holders who are subject to withholding tax under such circumstances should consult their tax advisers as to whether it can obtain a refund for all or a portion
of the withholding tax.
Information Reporting and Backup Withholding
We generally must report annually to the IRS and each Non-U.S.
holder the amount of dividends paid to such holder and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. holder resides under the provisions of an applicable income tax treaty.
A Non-U.S. Holder generally will be subject to backup withholding
for dividends paid to such holder unless such holder certifies under penalties of perjury that it is a Non-U.S. holder (and the payor does not have actual knowledge or reason to know that such holder is a U.S. person as defined under the Code),
or such holder otherwise establishes an exemption.
Information reporting and, depending on the circumstances, backup
withholding generally will apply to the proceeds of a sale of Class A Common Stock within the U.S. or conducted through certain U.S.-related financial intermediaries, unless the beneficial owner certifies under penalty of perjury that it is a
Non-U.S. holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a U.S. person as defined under the Code), or such owner otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S. holder’s U.S. federal income tax liability provided that the required information is timely furnished to the IRS.
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FATCA Withholding Taxes
Sections 1471 through 1474 of the Code and Treasury Regulations
and administrative guidance promulgated thereunder (commonly referred to as the “Foreign Account Tax Compliance Act” or “FATCA”) generally impose withholding at a rate of 30% in certain circumstances on dividends in respect of, and (subject to
the proposed Treasury Regulations discussed below) gross proceeds from the sale or other disposition of securities (including Class A Common Stock) which are held by or through certain foreign financial institutions (including investment
funds), unless any such institution (i) enters into, and complies with, an agreement with the IRS to report, on an annual basis, information with respect to interests in, and accounts maintained by, the institution that are owned by certain
U.S. persons and by certain non-U.S. entities that are wholly or partially owned by U.S. persons and withhold on certain payments, or (ii) if required under an intergovernmental agreement between the U.S. and an applicable foreign country,
reports such information to its local tax authority, which will exchange such information with the U.S. authorities. An intergovernmental agreement between the U.S. and an applicable foreign country may modify these requirements. Accordingly,
the entity through which the Class A Common Stock is held will affect the determination of whether such withholding is required. Similarly, dividends in respect of, and (subject to the proposed Treasury Regulations discussed below) gross
proceeds from the sale or other disposition of, Class A Common Stock held by an investor that is a non-financial non-U.S. entity that does not qualify under certain exceptions will generally be subject to withholding at a rate of 30%, unless
such entity either (i) certifies to the applicable withholding agent that such entity does not have any “substantial U.S. owners” or (ii) provides certain information regarding the entity’s “substantial U.S. owners” which will in turn be
provided to the U.S. Department of Treasury.
Under the applicable Treasury Regulations and administrative
guidance, withholding under FATCA generally applies to payments of dividends in respect of Class A Common Stock. While withholding under FATCA generally would also apply to payments of gross proceeds from the sale or other disposition of
securities (including Class A Common Stock), proposed Treasury Regulations eliminate FATCA withholding on payments of gross proceeds entirely. Such proposed Treasury 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. Taxpayers generally may rely on these
proposed Treasury Regulations until final Treasury Regulations are issued. All holders should consult their tax advisors regarding the possible implications of FATCA on their investment in Class A Common Stock and the redemption of such Class A
Common Stock.
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The following summary of the material terms of the
Post-Combination Company’s securities following the Business Combination is not intended to be a complete summary of the rights and preferences of such securities. The full text of the Proposed Charter is attached as Annex B to this proxy statement/prospectus. We urge you to read our Proposed Charter in its entirety for a complete description of the rights and preferences of the Post-Combination Company’s securities following the Business
Combination.
Authorized and Outstanding Stock
Upon the consummation of the Business Combination, the
Post-Combination Company’s authorized capital stock will consist of:
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5,500,000,000 shares of Class A Common Stock, par value $0.0001 per share;
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3,250,000,000 shares of Class V Common Stock, par value $0.0001 per share; and
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10,000,000 shares of Preferred Stock, par value $0.0001 per share.
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As of the Record Date, there were [•] shares of common stock
outstanding, held of record by approximately [•] holders, no shares of Preferred Stock outstanding and 11,500,000 Public Warrants outstanding. The number of stockholders of record does not include DTC participants or beneficial owners holding
shares through nominee names. The Post-Combination Company will be authorized, without stockholder approval except as required by the listing standards of Nasdaq, to issue additional shares of its capital stock as well as rights, warrants and
options entitling the holders thereof to purchase shares of any class or series of the Post-Combination Company’s capital stock or other securities of the Post-Combination Company.
Voting Rights
The Proposed Charter will provide that, subject to applicable law
and the rights, if any, of the holders of any outstanding series of Preferred Stock, the holders of outstanding shares of common stock (including, without limitation, Class A Common Stock and Class V Common Stock) of the Post-Combination
Company will vote together as a single class on all matters with respect to which stockholders of the Post-Combination Company are entitled to vote under applicable law, the Proposed Charter or the Amended and Restated Bylaws, or upon which a
vote of stockholders generally entitled to vote is otherwise duly called for by the Post Combination Company, provided, however, that except as may otherwise be required by applicable law, each holder of common stock (including, without
limitation, Class A Common Stock and Class V Common Stock) will not be entitled to vote on any amendment to the Proposed Charter that relates solely to the terms of one or more outstanding series of Preferred Stock (including, without
limitation, the powers (including voting powers), if any, preferences and relative, participating, optional, special or other rights, if any, and the qualifications, limitations and restrictions, if any, of such series of Preferred Stock) if
the holders of such affected series are entitled, either voting separately as a single class or together as a class with the holders of any other outstanding series of Preferred Stock, to vote thereon pursuant to the Proposed Charter or the
DGCL.
The Proposed Charter will provide that at each annual or special
meeting of stockholders (or action by consent in lieu of a meeting), each holder of record of Class A Common Stock and Class V Common Stock on the relevant record date will be entitled to cast one vote for each share of Class A Common Stock or
Class V Common Stock, respectively.
The Proposed Charter will establish a classified board of
directors that is divided into three classes with staggered three-year terms. Class I directors will initially serve for a term expiring immediately following the Post-Combination Company’s first annual meeting of stockholders held following
the effective date of the Proposed Charter (the “First Annual Meeting”). Class II directors will initially serve for a term expiring immediately following the Post-Combination Company’s second annual meeting of stockholders held following the
effective date of the Proposed Charter. Class III directors will initially serve for a term expiring immediately following the Post-Combination Company’s third annual meeting of stockholders following the effective date of the Proposed Charter.
Except for any directors elected by the holders of any outstanding series of Preferred Stock of the Post-Combination Company then outstanding as provided for or fixed pursuant to the provisions of the Proposed Charter, and with respect to newly
created directorships resulting from an increase in the authorized number of directors or any vacancies on the Board resulting from death, disqualification, removal or other cause, each director of the
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Post-Combination Company will be elected by a plurality of the votes cast at any
meeting of stockholders at which directors are to be elected by the stockholders generally entitled to vote and a quorum is present. The Proposed Charter will not provide for cumulative voting for the election of directors.
Exchange / Cancellation of Shares
The Proposed Charter will provide that upon the occurrence of
certain events, each share of Class V Common Stock may be exchanged, together with its corresponding Class B Unit, for one share of Class A Common Stock, in which case each such exchanged share of Class V Common Stock will be automatically
cancelled for no consideration.
Dividends
The Proposed Charter will provide that, subject to applicable law
and the rights, if any, of the holders of any outstanding series of Preferred Stock, the holders of Class A Common Stock are entitled to receive dividends when, as and if declared by the Board out of legally available funds. The Proposed
Charter will provide that the holders of Class V Common Stock will not have any right to receive dividends (including cash, stock or property).
No Preemptive Rights
The Proposed Charter will not provide the holders of Class A
Common Stock and Class V Stock with preemptive rights.
Liquidation, Dissolution or Winding Up
The Proposed Charter will provide that upon the liquidation,
dissolution or winding up of the Post-Combination Company (either voluntary or involuntary), the holders of Class A Common Stock will be entitled to share ratably in the assets and funds of the Post-Combination Company that are available for
distribution to stockholders of the Post-Combination Company. The holders of Class V Common Stock will not have any right to receive a distribution upon a liquidation, dissolution or winding up of the Post-Combination Company.
Preferred Stock
Our Proposed Charter will provide that shares of preferred stock
may be issued from time to time in one or more series. The Board is authorized to fix the voting rights, if any, designations, powers, preferences and relative, participating, optional, special and other rights, if any, and any qualifications,
limitations and restrictions thereof, applicable to the shares of each series. The Board is able, without stockholder approval, to issue preferred stock with voting and other rights that could adversely affect the voting power and other rights
of the holders of the common stock and could have anti-takeover effects. The ability of the Board to issue preferred stock without stockholder 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 preferred stock outstanding at the date hereof. Although we do not currently intend to issue any shares of preferred stock, we cannot assure you that we will not do so in the future.
Capital Stock of the Company Prior to the Business
Combination
The Company’s authorized capital stock consists of 100,000,000
shares of Class A Common Stock, $0.0001 par value, 10,000,000 shares of Class B Common Stock, $0.0001 par value, and 1,000,000 shares of undesignated preferred stock, $0.0001 par value. The following description summarizes the material terms of
the Company’s capital stock.
Units
Each unit consists of one whole share of Class A Common Stock and
one-half of one redeemable warrant. Each whole warrant entitles the holder thereof to purchase one share of the Company’s Class A Common Stock at a price of $11.50 per share, subject to adjustment. Pursuant to the warrant agreement, no
fractional warrants will be issued upon separation of the units and only whole warrants will trade. The Class A Common Stock and warrants comprising the units began separate trading on October 8, 2020. Because the shares of Class A Common Stock
and warrants have commenced separate trading, holders have the option to continue to hold units or separate their units into the component securities.
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Common Stock
Common stockholders of record are entitled to one vote for each
share held on all matters to be voted on by stockholders. Holders of the Class A Common Stock and holders of the Class B Common Stock will vote together as a single class on all matters submitted to a vote of our stockholders, except as
required by law. Unless specified in the Existing Charter or bylaws, or as required by applicable provisions of the DGCL or Nasdaq rules, the affirmative vote of a majority of shares of common stock that are voted is required to approve any
such matter voted on by the Company’s stockholders. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted for the election of directors can elect all of
the directors. The Company’s stockholders are entitled to receive ratable dividends when, as and if declared by the board of directors out of funds legally available therefor.
The Founder Shares and Private Shares are identical to the Public
Shares, and holders of Founder Shares and Private Shares have the same stockholder rights as Public Stockholders, except that (i) the Founder Shares and Private Shares are subject to certain transfer restrictions, as described in more detail
below, (ii) the Sponsor, and the Company’s 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, Private Shares and any
Public Shares held by them in connection with the completion of our initial business combination, (B) to waive their redemption rights with respect to their Founder Shares, Private Shares and Public Shares in connection with a stockholder vote
to approve an amendment to our amended and restated certificate of incorporation (x) to modify the substance or timing of the ability of holders of our Public Shares to seek redemption in connection with the Company’s initial business
combination or its obligation to redeem 100% of our Public Shares if it does not complete an initial business combination within 18 months from the closing of the IPO or (y) with respect to any other provision relating to stockholders’ rights
or pre-initial business combination activity and (C) to waive their rights to liquidating distributions from the Trust Account with respect to any Founder Shares and Private Shares held by them if the Company fails to complete an initial
business combination within 18 months from the closing of the IPO, 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 an initial
business combination within such time period, (iii) the Founder Shares are shares of the Company’s Class B Common Stock that will automatically convert into shares of Class A Common Stock at the time of an initial business combination on a
one-for-one basis, subject to adjustment and (iv) are entitled to registration rights. The Sponsor and the Company’s officers and directors have agreed to vote any Founder Shares and Private Shares held by them and any Public Shares purchased
during or after the IPO (including in open market and privately negotiated transactions) (other than shares of Class A Common Stock held directly or indirectly by it on behalf of a third-party client) in favor of the Company’s initial business
combination. Nomura has agreed to vote any Founder Shares and Private Shares held by it in favor of the Company’s initial business combination. Permitted transferees of the founder shares held by the Sponsor, the Company’s officers and
directors and Nomura would be subject to the same restrictions applicable to the Sponsor, the Company’s officers and directors and Nomura, respectively.
With certain limited exceptions, the Founder Shares are not
transferable, assignable or salable until the earlier of (A) six months after the completion of the Company’s initial business combination or (B) subsequent to the Company’s initial business combination, (x) if the last reported sale price of
the Class A Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 30 days
after the initial business combination, or (y) the date on which the Company completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the Company’s stockholders having the right
to exchange their shares of common stock for cash, securities or other property.
Warrants
Public Warrants
Each whole warrant entitles the registered holder to purchase one
share of Class A Common Stock at a price of $11.50 per share, subject to adjustment, at any time commencing on the later of 12 months from the closing of the IPO or 30 days after the completion of an initial business combination. The warrants
will expire five years after the completion of an initial business combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation. No fractional warrants will be issued upon separation of the units and only whole
warrants will trade.
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The Company will not be obligated to deliver any shares of
Class A Common Stock 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 shares of Class A common stock underlying the
warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. No warrant will be exercisable and the Company will not be obligated to issue any shares of
Class A Common Stock upon exercise of a warrant unless Class A Common Stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder
of the warrants.
The Company has agreed that as soon as practicable, but in no
event later than 30 days, after the closing of an initial business combination, it will use its best efforts to file with the SEC a registration statement for the registration under the Securities Act of the shares of Class A Common Stock
issuable upon exercise of the warrants and thereafter will use its reasonable best efforts to cause the same to become effective within 60 business days following the business combination and to maintain a current prospectus relating to the
Class A Common Stock 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 shares of Class A common stock issuable upon
exercise of the warrants is not effective by the 60th business day after the closing of an initial business combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company
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. If that exemption, or another exemption, is not available,
holders will not be able to exercise their warrants on a cashless basis.
Once the warrants become exercisable, the Company may redeem the
Public Warrants:
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in whole and not in part;
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at a price of $0.01 per warrant;
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upon not less than 30 days’ prior written notice of redemption to each warrant holder; and
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if, and only if, the reported last reported sale price of the Company’s Class A Common Stock equals or exceeds $18.00 per
share for any 20 trading days within a 30-trading day period ending the third trading day prior to the date on which the Company sends the notice of redemption to each warrant holder.
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If the Company calls the Public Warrants for redemption for cash,
management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A common stock issuable
upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, except as described below, the warrants will not be
adjusted for issuance of Class A Common Stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete an initial business combination
within the 18 months following the closing of the IPO and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution
from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
In addition, if the Company issues additional shares of common
stock or equity-linked securities for capital raising purposes in connection with the closing of an initial business combination at an issue price or effective issue price of less than $9.20 per share of common stock (with such issue price or
effective issue price to be determined in good faith by the Company’s board of directors, and in the case of any such issuance to the initial stockholders or their affiliates, without taking into account any Founder’s Shares or private
placement securities held by them, as applicable, prior to such issuance) (the “Newly Issued Price”), the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the Newly Issued Price.
Private Warrants
The Private Warrants are identical to the Public Warrants, except
that the Private Warrants and the Class A Common Stock issuable upon the exercise of the Private Warrants will not be transferable, assignable or salable until 30 days after the completion of an initial business combination, subject to certain
limited exceptions. Additionally, the Private Warrants will be exercisable on a cashless basis and be non-redeemable so long as they are held by the
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initial purchasers of the Private Units or their permitted transferees. If the
Private Warrants are held by someone other than the initial purchasers of the Private Units or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public
Warrants.
New Warrants
The terms of the New Warrants are identical to the Public
Warrants, except that the New Warrants do not form a part of a unit, the New Warrants may be exercised after 30 days of the Closing Date, the underlying Class A Common Stock is being registered hereunder and the New Warrants are not subject to
certain terms applicable to special purpose acquisition companies including, without limitation, adjustments relating to redemptions rights of stockholders. For more information on the New Warrants, please see the section entitled “Other Agreements—New Warrant Agreement.”
Dividends
The Company has not paid any cash dividends on its common stock to
date and does not intend to pay cash dividends prior to the completion of the Business Combination. The payment of cash dividends in the future will be dependent upon the Post-Combination Company’s revenues and earnings, if any, capital
requirements and its general financial condition subsequent to completion of the Business Combination. The payment of any cash dividends subsequent to the Business Combination will be within the discretion of the Board at such time. The
Post-Combination Company’s ability to declare dividends may also be limited by restrictive covenants pursuant to any debt financing agreements.
In connection with the Business Combination and to provide
additional consideration to holders of Class A Common Stock that do not redeem their shares of Class A Common Stock, the Company intends, subject to compliance with applicable law, to declare a dividend comprising an aggregate of
approximately 1,029,000,000 new Warrants, conditioned upon the consummation of any redemptions by the holders of Class A Common Stock and the Closing, to the holders of record of the Class A Common Stock as of the Closing Date, after giving
effect to the waiver of the right, title and interest in, to or under, participation in any such dividend by the Members, on behalf of themselves and any of their designees.
The Company intends to establish the close of business of the
anticipated Closing Date as the Warrant Record Date for stockholders entitled to receive their pro rata portion of the approximately 1,029,000,000 New Warrants. The Warrant Record Date is expected to be determined at least 10 days prior to the
Closing Date. The Company expects that a dividend of the New Warrants will be distributed following the Closing Date to stockholders of record as of the close of business on the Warrant Record Date, and after giving effect to the waiver of the
right, title and interest in, to or under, participation in any such dividend by the Members, on behalf of themselves and any of their designees.
The number of New Warrants to be distributed in respect of each
share of unredeemed Class A Common Stock is contingent upon, and will vary with, the aggregate number of shares of Class A Common Stock that are redeemed in connection with the Business Combination. Holders who choose to redeem their shares
of Class A Common Stock will not receive any New Warrants. Public Stockholders who choose not to redeem their shares of Class A Common Stock will share in this fixed pool of New Warrants with other non-redeeming holders (on a pro-rata basis,
based on the number of shares of Class A Common Stock held at the end of business on the Closing Date, which is expected to include the 5,750,000 shares of Class A Common Stock into which Founder Shares will convert in connection with the
Business Combination). As a result, assuming the no redemption scenario and that the distribution is made, Public Stockholders who do not redeem their shares would receive at least 56 New Warrants per share of Class A Common Stock they hold,
which would proportionally increase if other holders elect to redeem their shares of Class A Common Stock. We believe this structure will likely lead to a lower level of redemptions, and therefore, we will likely have more funds available for
our Business Combination. Pursuant to the terms of the Existing Warrant Agreement, the exercise price of the Public Warrants and Private Warrants could decrease to $0.0001 after giving effect to the issuance of the New Warrants. Pursuant to
the terms of the LLC Agreement, at least twice a month, to the extent any New Warrants have been exercised in accordance with their terms, the Post-Combination Company is required to purchase from the MSP Principals, proportionately, the
number of Up-C Units or shares of Class A Common Stock owned by such MSP Principal equal to the Aggregate Exercise Price divided by the Warrant Exercise Price in exchange for the Aggregate Exercise Price. For more information, see the LLC
Agreement attached hereto as Annex D.
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Transfer Agent and Warrant Agent
The transfer agent for our common stock 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 stockholders, 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, willful misconduct or bad faith of the indemnified
person or entity.
Certain Anti-Takeover Provisions of Delaware Law, the Proposed Charter
and the Amended and Restated Bylaws
Some provisions of the Proposed Charter and the Amended and
Restated Bylaws contain or will contain provisions that could make the following transactions more difficult: (i) an acquisition of the Post-Combination Company by means of a tender offer; (ii) an acquisition of the Post-Combination Company by
means of a proxy contest or otherwise; or (iii) the removal of incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise
consider to be in their best interest or in the Post-Combination Company’s best interests, including transactions that provide for payment of a premium over the market price for the Post-Combination Company’s shares.
These provisions, summarized below, are intended to discourage
coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of the Post-Combination Company to first negotiate with the Board. We believe that the benefits of the
increased protection of the Post-Combination Company’s potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure the Post-Combination Company outweigh the disadvantages of discouraging
these proposals because negotiation of these proposals could result in an improvement of their terms.
Delaware Law
The Proposed Charter will provide that the Post-Combination
Company expressly elects not to be governed by Section 203 of the DGCL. Notwithstanding this election, the Post-Combination Company will be restricted from engaging in any “business combination” (as defined below) at any point in time at which
the Post-Combination Company’s common stock is registered under Section 12(b) or 12(g) of the Exchange Act, with any interested stockholder (as defined below) for a period of three (3) years following the time that such stockholder became an
interested stockholder, unless:
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prior to such time, the Board approved either the business combination or the transaction that resulted in the stockholder
becoming an interested stockholder;
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upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock (as defined below) of the Post-Combination Company 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 by (i) 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;
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at or subsequent to such time, the business combination is approved by the Board and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of at least 662∕3% of the outstanding voting stock of the Post-Combination Company that is not owned by the
interested stockholder; or
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the stockholder became an interested stockholder inadvertently and (i) as soon as practicable divested itself of ownership of
sufficient shares so that the stockholder ceased to be an interested stockholder and (ii) was not, at any time within the three-year period immediately prior to a business combination between the Post-Combination Company and such
stockholder, an interested stockholder but for the inadvertent acquisition of ownership.
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Generally, a business combination includes a merger, asset or
stock sale, or other transaction or series of transactions together resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years
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stockholder status, did own 15% or more of a corporation’s outstanding voting
stock. We expect the existence of this provision to have an anti-takeover effect with respect to transactions the Board does not approve in advance.
Proposed Charter and Amended and Restated Bylaws
In addition, our Proposed Charter and Amended and Restated Bylaws
provide for certain other provisions that may have an anti-takeover effect:
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No Cumulative Voting. The DGCL provides
that stockholders are not entitled to the right to cumulate votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise. The Proposed Charter will not provide for cumulative voting.
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Classified Board. The Proposed Charter and the Amended and Restated Bylaws will
provide that the Board (other than those directors, if any, elected by the holders of any outstanding series of Preferred Stock) is divided into three classes of directors. For more information on the classified board, see the section
entitled “Management of the Post-Combination Company.” The existence of a classified board of directors could discourage a third-party from making a
tender offer or otherwise attempting to obtain control of the Post-Combination Company as the classification of the Board makes it more time consuming for stockholders to replace a majority of the directors.
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Director Removal. The Proposed Charter will provide that, any director or the entire
Board may be removed (i) at any time prior to the date on which the voting power of John H. Ruiz and his affiliates (the “Founder Holder”) represent less than 50% of the voting power of all of the then outstanding shares of the
Post-Combination Company generally entitled to vote (the “Voting Rights Threshold Date”) by a simple majority voting together as a single class, with or without cause, notwithstanding the classification of the Board, and (ii) at any
time from and after the Voting Rights Threshold Date, solely for cause and only by the affirmative vote of the holders of at least 662∕3% of the voting power of all of the then outstanding
shares of the Post-Combination Company generally entitled to vote thereon, voting together as a single class.
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Board of Director Vacancies. The Proposed Charter will provide that, with respect to
directors elected by the stockholders generally entitled to vote, (i) newly created directorships resulting from an increase in the authorized number of directors or any vacancies on the Board resulting from death, resignation,
disqualification, removal or other cause will be filled solely and exclusively by a majority of the directors then in office, even if less than a quorum, or by the sole remaining director, and (ii) any director so elected will hold
office until the expiration of the term of office of the director whom he or she has replaced and until his or her successor is elected and qualified, subject to such director’s earlier death, resignation, disqualification or removal,
which prevents stockholders from being able to fill vacancies on the Board.
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Action by Written Consent. The Proposed Charter will provide that, from and after
the Voting Rights Threshold Date, stockholder action can be taken only at an annual or special meeting of stockholders and cannot be taken by consent in lieu of a meeting.
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Supermajority Requirements for Certain Amendments of the Proposed Charter and Amendments of
the Amended and Restated Bylaws. The DGCL generally provides that the affirmative vote of the holders of a majority of the total voting power of the shares entitled to vote is required to amend a corporation’s certificate of
incorporation, unless the corporation’s certificate of incorporation requires a greater percentage. The Proposed Charter and the Amended and Restated Bylaws provide that, from and after the Voting Rights Threshold Date, the affirmative
vote of the holders of at least 662∕3% in voting power of the then outstanding shares of the Post-Combination Company generally entitled to vote, voting together as a single class, will be
required to amend, alter, change or repeal the Amended and Restated Bylaws and certain provisions of the Proposed Charter, including those related to management of the Post-Combination Company and actions by written consent. Such
requirement for a super-majority vote to approve certain amendments to the Proposed Charter and amendments to the Amended and Restated Bylaws could enable a minority of stockholders of the Post-Combination Company to exercise veto power
over such amendments.
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Issuance of Common Stock and Undesignated Preferred Stock. The Board will have the
authority, without further action by the stockholders, to issue (i) authorized but unissued shares of common stock and (ii) up to 10,000,000 shares of undesignated Preferred Stock, in the case of a series of Preferred Stock, with rights
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and preferences, including voting rights, designated from time to time by the
Board. The existence of authorized but unissued shares of common stock and Preferred Stock will enable the Board to render more difficult or to discourage an attempt to obtain control of the Post-Combination Company by means of a merger, tender
offer, proxy contest, or other means.
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Notice Requirements for Stockholder Proposals and Director Nominations. The Amended
and Restated Bylaws will provide advance notice procedures for stockholders seeking to bring business before the annual meeting of stockholders or to nominate candidates for election as directors at the annual meeting of stockholders.
The Amended and Restated Bylaws will also specify certain requirements regarding the form and content of a stockholder’s notice. These provisions might make it more difficult for stockholders to bring matters before the annual meeting.
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Exclusive Forum. The Proposed Charter will provide that, unless the Post-Combination
Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery lacks jurisdiction, a state court located within the State of Delaware or the federal
district court for the District of Delaware) will, to the fullest extent permitted by law, be the sole and exclusive forum for any (i) derivative action or proceeding brought on behalf of the Post-Combination Company, (ii) action
asserting a claim of breach of a fiduciary duty owed by any director, officer, or employee of the Post-Combination Company to the Post-Combination Company or the Post-Combination Company’s stockholders, (iii) action asserting a claim
arising pursuant to any provision of the DGCL, the Proposed Charter or the Amended and Restated Bylaws, or (iv) action asserting a claim governed by the internal affairs doctrine of the State of Delaware. The federal district courts of
the United States of America shall be the sole and exclusive forum for the resolution of any action asserting a claim arising under the Securities Act, or the rules and regulations promulgated thereunder. The Proposed Charter will not
preclude or contract the scope of exclusive federal jurisdiction for suits brought under the Exchange Act or the rules and regulations promulgated thereunder. If a stockholder nevertheless seeks to bring a claim (the nature of which is
covered by the exclusive forum provisions of the Proposed Charter) in a venue other than those designated in such provisions, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of the
Proposed Charter. This may require significant additional costs associated with challenging venue in such other jurisdictions and there can be no assurance that the exclusive forum provisions of the Proposed Charter will be enforced by
a court in those other jurisdictions.
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Amendments. The Proposed Charter will provide that both the Proposed Charter and
the Amended and Restated Bylaws may be amended at any time (i) prior to the Voting Rights Threshold Date, by the affirmative vote of the holders of at least a majority in voting power of the then outstanding shares of the Company
generally entitled to vote, voting together as a single class, and (ii) from and after the Voting Rights Threshold Date, the affirmative vote of the holders of at least 662∕3% in voting
power of the then outstanding shares of stock of the Company generally entitled to vote, voting together as a single class.
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Rule 144 and Restrictions on the Use of Rule 144 by Shell Companies
or Former Shell Companies
In general, Rule 144 of the Securities Act (“Rule 144”) permits
the resale of restricted securities without registration under the Securities Act if certain conditions are met. Rule 144 is not available for the resale of restricted 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, including us. However, Rule 144 also includes an important exception to this prohibition if the following conditions are met at the time of
such resale:
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the issuer of the securities that was formerly a shell company has ceased to be a shell company;
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the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
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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 Form 8-K reports; and
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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.
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We anticipate that following the consummation of the Business
Combination, we will no longer be a shell company, and as long as the conditions set forth in the exceptions listed above are satisfied, Rule 144 will become available for the resale of our restricted securities.
If the above conditions have been met and Rule 144 is available, a
person who has beneficially owned restricted shares of our common stock or warrants for at least one year would be entitled to sell their securities pursuant to Rule 144, provided that 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. If such persons are our affiliates at the time of, or at any time during the three months preceding, a sale, such persons
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:
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1% of the total number of shares of common stock or warrants, as applicable, then outstanding; or
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the average weekly reported trading volume of the common stock or warrants, as applicable, during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to the sale.
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Sales by affiliates under Rule 144, when available, will also be
limited by manner of sale provisions and notice requirements.
As of the date of this proxy statement/prospectus, we had
18,453,631 shares of common stock outstanding. Of these shares, 12,703,631 shares outstanding from the 23,650,000 shares sold in our IPO (after giving effect to the redemption of 10,946,369 shares of Class A Common Stock in connection with
the Company stockholder vote to approve the Extension Amendment) are freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by one of our affiliates within the meaning of Rule 144
under the Securities Act. All of the 5,750,000 Founder Shares owned by our Initial Stockholders are restricted securities under Rule 144, in that they were issued in private transactions not involving a public offering.
As of the date of this proxy statement/prospectus, there are
11,825,000 warrants of the Company outstanding, consisting of 11,500,000 Public Warrants and 325,000 Private Warrants. Each warrant is exercisable for one share of our Class A Common Stock, in accordance with the terms of the Existing Warrant
Agreement governing the Public Warrants and Private Warrants. The Public Warrants and are freely tradable, except for any warrants purchased by one of our affiliates within the meaning of Rule 144 under the Securities Act. In addition, pursuant
to the Registration Rights Agreement, the Company will agree to file a shelf registration statement registering the resale of the Registrable Securities within 45 days of receipt of a demand for registration by certain holders of Registrable
Securities that are party thereto (such Registrable Securities cover 11,500,000 shares of our Class A Common Stock that may be issued upon the exercise of the Public Warrants), and cause such registration statement to become effective and
maintain the effectiveness of such registration statement until the expiration of the warrants.
We expect Rule 144 to be available for the resale of the above
noted restricted securities as long as the conditions set forth in the exceptions listed above are satisfied following the Business Combination.
Registration Rights
At the closing of the Business Combination, the Post-Combination
Company will enter into the Registration Rights Agreement with the Holders (as defined therein). Pursuant to the terms of the Amended and Restated Registration Rights Agreement, (i) the Founder Shares and the shares of Class A common stock
issued or issuable upon the conversion of any Founder Shares, (ii) the Units (as defined therein), (iii) the shares of Class A common stock included in such Units, (iv) the Original Warrants included in such Units (including any shares of
Class A common stock issued or issuable upon the exercise of any such Original Warrants), (v) the New Warrants (including any shares of Class A common stock issued or issuable upon the exercise of any such New Warrants), (vi) the equity
securities that Nomura may purchase from the Company pursuant to that certain Forward Purchase Agreement described in the section entitled “Information About the Company—Company History.” (the “Forward
Purchase Shares”), (vii) any outstanding share of the Class A common stock or any other equity security (including the shares of Class A common stock issued or issuable upon the exercise or conversion of any other equity security) of the
Company held by a Holder as of the date of the Registration Rights Agreement, (viii) any shares of the Post-Combination Company issued or to be issued to any Additional Holders (as defined in the Registration Rights Agreement) in connection
with the Business Combination and (ix) any other equity security of the Post-Combination
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Company issued or issuable with respect to any of the securities described in the
foregoing clauses (i) – (ix) by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or reorganization will be entitled to certain registration rights, subject to the
terms and conditions set forth in the Registration Rights Agreement.
The foregoing summary of the Registration Rights Agreement is not
complete and is qualified in its entirety by reference to the complete text of the Registration Rights Agreement as set forth in Annex E.
Listing of Securities
We intend to apply to list our Class A Common Stock and New
Warrants on the Nasdaq under the symbols “MSPR” and “MSPRW,” respectively, upon the closing of the Business Combination.
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Certain Relationships and Related Party Transactions—MSP and the
Post-Combination Company
Legal Services – MSP Recovery Law Firm
Various MSP subsidiaries previously entered into legal services
agreements (the “Existing LSAs”) with the Law Firm for the recovery of claims. Pursuant to the terms of the Existing LSAs, the Law Firm provides MSP with investigation, case management, research and legal services in the pursuit of recovery
of claims in exchange for a portion of the recovered proceeds relating to such claims. The Existing LSAs also provide that the Law Firm serve as exclusive lead counsel for any litigation relating to such claims. During the fiscal years-ended
December 31, 2021 and December 31, 2020, MSP made payments to the Law Firm of $58,000 and $0, respectively, and had accrued an additional $2,000 and $0, respectively, for legal services under the Existing LSAs for claims recoveries for which
the Law Firm had a right to receive payment from MSP. During these periods, the Law Firm also received legal services payments awarded pursuant to court orders as a result of fee shifting statutes in respect of claims recoveries in which MSP
had an interest. These payments were made directly by third parties to the Law Firm as required by the applicable court orders, and not by MSP. Effective as of the Closing, most of the Existing LSAs will be replaced by the Legal Services
Agreement as further described in the following paragraph. A small number of the Existing LSAs will continue to operate in accordance with their existing terms.
The MIPA contemplates that, at the Closing, the Company and the
Law Firm will enter into the Legal Services Agreement. The Law Firm is an affiliate of John H. Ruiz and Frank C. Quesada. Pursuant to the terms of the Legal Services Agreement, among other things, the Post-Combination Company will engage the
Law Firm to act as its exclusive lead counsel to represent the Post-Combination Company and each of its subsidiaries as it pertains to CCRAs (as defined in the MIPA). In exchange, the Post-Combination Company will pay the Law Firm (i) all
documented costs of the Law Firm related to representation of the Post-Combination Company and its subsidiaries and approved in accordance with a budget agreed between the Law Firm and the Post-Combination Company (including but not limited
to filing fees, expert witness fees, deposition fees, witness fees, court reporter fees, long distance telephone charges, photocopy charges and mailing fees, collectively the “Costs”), (ii) any attorneys’ fees that are awarded to the Law Firm
pursuant to a fee shifting statute by agreement or court award in such case, and (iii) an amount, if greater than zero, equal to the difference between 40% of the recovery proceeds due to the Post-Combination Company or its subsidiaries for
recovered claims less any amount due to the Law Firm under the foregoing clauses (ii) ((ii) and (iii) together, the “Compensation”). The Legal Services Agreement further provides that
the Post-Combination Company will advance to the Law Firm an amount (the “Advance”) equal to (x) $1,000,000 plus (y) overhead costs (i.e. salaries rent, utilities, and similar expenses;
provided that any compensation paid to John H. Ruiz or Frank C. Quesada by the Law Firm shall not be included in such overhead costs) to operate the Law Firm in an amount necessary to pay such overhead costs reasonably anticipated by the Law
Firm to become due in such month. The Advance shall be offset from the Compensation. In the event that the Legal Services Agreement is terminated, certain additional fees may become payable to the Law Firm pursuant to the terms of the Legal
Services Agreement.
The foregoing summary of the Legal Services Agreement is not
complete and is qualified in its entirety by reference to the complete text of the Legal Services Agreement as set forth in Annex C.
Aviation Services – MSP Recovery Aviation, LLC
Historically, MSP has been provided with aviation services
pursuant to an Air Transportation Services Agreement, dated June 3, 2019, by and between MSP Recovery Aviation, LLC (“MSP Aviation”) and Series MRCS, a designated series of MDA Series, LLC, pursuant to which MSP Aviation agreed to provide
Series MRCS and its affiliates with air transportation services via its private, non-commercial plane. In exchange for such services, Series MRCS agreed to reimburse MSP Aviation for aircraft rental and flight time along with related fees,
expenses and taxes in accordance with a lease agreement for each flight. MSP Aviation is owned by John H. Ruiz.
During the years ended December 31, 2021 and December 31, 2020,
MSP Aviation was paid $179,000 and $705,000 for aviation services provided to the MSP Purchased Companies. During the years ended December 31, 2021 and December 31, 2020, MSP Aviation was paid $0 and $1.1 million, respectively, for aviation
services provided to Series MRCS. Management of MSP intends to continue its relationship with MSP Aviation under an informal arrangement that provides MSP and its representatives with economic terms that are at least no less favorable than
the terms it would receive if it were to engage an unrelated third party to provide substantially similar services.
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Service Fee Account Loan
The Closing is conditioned upon the satisfaction of the Minimum
Cash Condition. In connection with Closing, John H. Ruiz and Frank C. Quesada have agreed to loan (or cause to be loaned) to MSP up to the aggregate amount then-remaining in the Service Fee Account, and the Minimum Cash Condition will be
deemed to be satisfied if that amount is so loaned, irrespective of the amount of cash actually held by MSP and Opco. As of December 31, 2021, VRM had $30.7 million reserved in the Service Fee Account. Pursuant to the MIPA, the loan shall be
made on terms no less favorable to the MSP Purchased Companies than: (i) bearing interest (computed on the basis of a year of 365 or 366 days, as applicable, and the actual days elapsed) at a rate per annum equal to 4.0%, payable in arrears
on the last business day of each quarter and at maturity, (ii) maturing on the day that is six months from the Closing Date (or, if such day is not a business day, the next succeeding business day); provided that such date may be extended, at
the option of the borrower, for up to three successive six month periods (for a total of 24 months) and (iii) being prepayable by the borrower at any time, without prepayment penalties, fees or other expenses.
Transaction Bonus Pool – MSP
In connection with the Closing, John H. Ruiz, Frank C. Quesada
and/or their respective affiliates who are Members intend to designate to Opco (and forfeit any and all rights with respect thereto) the Forfeited Units from the consideration that otherwise would have been paid to them pursuant to the MIPA. In
addition, following the Closing, the Post-Combination Company will establish the Bonus Pool. Any allocations from such Forfeited Units or Bonus Pool (which may be paid to certain individuals, including executive officers and other employees of
MSP, or may be made under the terms of the Incentive Plan) will be determined by Mr. Ruiz and Mr. Quesada in their discretion. In addition, the number of Forfeited Units and the number of securities comprising the Bonus Pool may be increased,
and greater bonuses may be paid, in order to gross up recipients thereof for any applicable withholding taxes.
RC Lakehouse, LLC
Ophir Sternberg and an affiliate of John Ruiz, 4701 Meridian
Lakehouse, LLC, are partners in an entity, RC Lakehouse, LLC (“RC”), that purchased a condominium unit located at The Ritz-Carlton Residences Miami Beach on or about May 31, 2021. Ophir Sternberg retained a 1% non-voting, non-economic interest
in RC Lakehouse, LLC. In connection with the purchase, the affiliate of John Ruiz incurred acquisition financing in favor of the affiliate of Ophir Sternberg, in the amount of $20,000,000 (the “Unit Loan”). In connection with the Closing, the
outstanding balance of the Unit Loan as of the Closing shall be paid to the affiliate of Ophir Sternberg in shares of the Post-Combination Company.
On February 1, 2017, VRM entered into an arrangement with
Series MRCS, an affiliate of MSP, pursuant to which, among other things, VRM and Series MRCS formed VRM MSP to acquire and pursue recoveries of claims. In connection with the formation of VRM MSP, VRM committed to make capital contributions
in an aggregate amount equal to its capital commitment, and Series MRCS contributed all the membership interests in certain legal entities which, at the time, owned $2,672,154,108.35 of paid claims. As of December 31, 2021, VRM has
contributed $410.9 million to VRM MSP.
Pursuant to the organizational documents of VRM MSP,
distributable amounts of recovery proceeds received by VRM MSP and its subsidiaries (which represent recovery proceeds received by such entities, net of costs incurred in pursuing the applicable claims and receiving such recovery proceeds,
expenses of VRM MSP, certain reserves established by VRM MSP and the amount of any such recovery proceeds owed to the applicable Assignor in respect of its Assignor Interest) would be distributed (i) first, 100% to VRM until VRM received, in
the aggregate, the VRM Full Return and (ii) thereafter, pursuant to an agreed upon allocation between VRM and Series MRCS. If paid on December 31, 2021, the VRM Full Return would have equaled approximately $656.6 million.
In connection with the entry into the MIPA, and in contemplation
of MSP’s desire to receive the distributable net proceeds of a portfolio of claims owned by VRM MSP and its subsidiaries (the “Proceeds”), VRM, Series MRCS, Messrs. Ruiz and Quesada and certain other parties agreed that, upon the payment to VRM
of (i) $1.2 billion of Class A Common Stock or Up-C Units (in each case valued at $10.00 per share or unit, as applicable) in connection with the Closing (the “Upfront Consideration”) and (ii) the VRM Full Return on or prior to the one-year
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of Closing, and the satisfaction of other customary conditions, then VRM and
Series MRCS would assign and transfer to MSP their respective rights to receive all future Proceeds (such assignment and transfer the “Assignment”, and the time of the Assignment, the “Trigger”).
In support of the receipt by VRM of the VRM Full Return (x) the
parties agreed that VRM would continue to receive 100% of any distributable amounts of recovery proceeds until the VRM Full Return was paid, (y) Messrs. Ruiz and Quesada agreed (1) to cause 65,000,000 Up-C Units to be held in escrow (either by
a third party or by the Post-Combination Company), which such Up-C Units could be converted into shares of Class A Common Stock and sold to satisfy the VRM Full Return, subject to compliance with applicable law and (2) that if, at any time
following the Closing but prior to the payment of the VRM Full Return, MSP, the Post-Combination Company or any of their controlled affiliates raises debt or equity capital, that neither of Messrs. Ruiz or Quesada (nor any of their affiliates)
would receive any cash consideration, directly or indirectly, for personal use until the VRM Full Return has been paid and (z) the parties thereto entered into the VRM Full Return Guaranty (See the section titled “The Business Combination — Other Agreements — VRM Full Return Guaranty” beginning on page 224 for additional details on the VRM Full Return Guaranty).
Upon the occurrence of the Trigger and subject to approval under
the HSR Act and other customary closing conditions, the Assignment will take effect for no further consideration and in satisfaction of the prior payments comprising the Upfront Consideration and the VRM Full Return.
In addition, pursuant to a termination letter (the “Virage
Exclusivity Termination”) by and among MSP, Virage and MRCS, MSP has agreed to deliver, or cause to be delivered, to Virage $200 million in Up-C Units or shares of Class A Common Stock (valued at $10 per Up-C Unit or share), from the
aggregate consideration being paid to the Members (or their designees) pursuant to the MIPA at Closing. Pursuant to the Virage Exclusivity Termination, certain arrangements, pursuant to which MSP agreed to provide Virage with the exclusive
right to acquire certain new claims acquired by MSP, will terminate upon Virage’s receipt of such Up-C Units or shares.
The financial statements of MSP Recovery, LLC as of
December 31, 2021 and 2020 and for each of the two years in the period ended December 31, 2021, included in this Prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their
report. Such financial statements have been so included in reliance upon the report of such firm given their authority as experts in auditing and accounting.
The consolidated financial statements of Lionheart Acquisition
Corporation II as of December 31, 2021 and 2020, and for each of the two years in the period ended December 31, 2021, appearing in this Registration Statement on Form S-4 have been audited by Marcum LLP, an independent registered public
accounting firm, as stated in their report thereon (which contains an explanatory paragraph relating to substantial doubt about the ability of Lionheart Acquisition Corporation II to continue as going concern as described in Note 1 to the
consolidated financial statements) and included in this proxy statement/prospectus, in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.
The validity of the securities of the Company offered under this
proxy statement/prospectus will be passed upon by DLA Piper LLP (US), Phoenix, Arizona.
As of the date of this proxy statement/prospectus, the LCAP Board
does not know of any matters that will be presented for consideration at the Special Meeting other than as described in this proxy statement/prospectus. Under Delaware law, only business that is specified in the notice of Special Meeting to
stockholders may be transacted at the Special Meeting. If any other matters properly come before the Special Meeting, or any adjournment or postponement thereof, and are voted upon, the enclosed proxy will be deemed to confer discretionary
authority on the individuals that it names as proxies to vote the shares represented by the proxy as to any of these matters.
Holders of our shares of common stock are not entitled to
appraisal rights in connection with the Business Combination under Delaware law.
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FUTURE STOCKHOLDER PROPOSALS
We anticipate that the 2023 annual meeting of stockholders will be
held no later than [•] 2023. For any proposal to be considered for inclusion in our proxy statement and form of proxy for submission to the stockholders at our 2023 annual meeting of stockholders, it must be submitted in writing and comply with
the requirements of Rule 14a-8 of the Exchange Act and the Amended and Restated Bylaws. Such proposals must be received by the Company at its executive offices no later than [•], in order to be considered for inclusion in the Company’s proxy
materials for the 2023 annual meeting; provided, however, if the 2023 annual meeting will be held more than 30 days after the anniversary of the date of the Special Meeting, the Company will announce the date by which such proposals must be
received by the Company in a current report on Form 8-K or in a quarterly report on Form 10-Q.
In addition, the Amended and Restated Bylaws provide notice
procedures for stockholders to nominate a person as a director and to propose business to be considered by stockholders at a meeting. To be timely, a stockholder’s notice must be delivered to us at the principal executive offices of the Company
not later than the close of business on the 90th nor earlier than the opening of business on the 120th day before the anniversary date of the immediately preceding annual meeting of stockholders; provided,
however, that in the event that the annual meeting is called for a date that is not within 45 days before or after such anniversary date, notice by the stockholder to be timely must be so received no
earlier than the opening of business on the 120th day before the meeting and not later than the later of (i) the close of business on the 90th day before the meeting or (ii) the close of business on the 10th day following the day on which
public announcement of the date of the annual meeting was first made by the Company. Nominations and proposals also must satisfy other requirements set forth in the Amended and Restated Bylaws. The chairman of our Board may refuse to
acknowledge the introduction of any stockholder proposal not made in compliance with the foregoing procedures.
246
WHERE YOU CAN FIND MORE INFORMATION
The Company has filed a registration statement on Form S-4 to
register the issuance of securities described elsewhere in this proxy statement/prospectus. This proxy statement/prospectus is a part of that registration statement.
The Company files reports, proxy statements, and other information
with the SEC as required by the Exchange Act. You may access information on the Company at the SEC website containing reports, proxy statements and other information at: http://www.sec.gov. Those filings are also available free of charge to the
public on, or accessible through, the Company’s corporate website at https://www.lionheartacquisitioncorp.com. The Company’s website and the information contained on, or that can be accessed through, the website is not deemed to be incorporated
by reference in, and is not considered part of, this proxy statement/prospectus.
Information and statements contained in this proxy
statement/prospectus or any annex to this proxy statement/prospectus are qualified in all respects by reference to the copy of the relevant contract or other annex filed as an exhibit to the registration statement of which this proxy
statement/prospectus forms a part, which includes exhibits incorporated by reference from other filings made with the SEC.
All information contained in this proxy statement/prospectus
relating to the Company has been supplied by the Company, and all such information relating to MSP has been supplied by MSP. Information provided by one another does not constitute any representation, estimate or projection of the other.
If you would like additional copies of this proxy
statement/prospectus or if you have questions about the Business Combination, you should contact via phone or in writing:
MacKenzie Partners, Inc.
1407 Broadway
New York, New York 10018
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885
Email:proxy@mackenziepartners.com
To obtain timely delivery of the documents, you must request them
by , 202[•] (five business days before the date of the Special Meeting).
247
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Financial Statements of Lionheart Acquisition Corporation
II
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Audited Financial Statements of MSP Recovery LLC:
INDEX TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
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F-1
LIONHEART ACQUISITION CORPORATION II
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Consolidated Financial Statements:
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F-2
To the Stockholders and Board of Directors of
Lionheart Acquisition Corporation II
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balances sheets
of Lionheart Acquisition Corporation II (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the each of the two years in the period ended
December 31, 2021, 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,
2021 and 2020, and the results of its operations and its cash flows for the each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As more fully described in Note 1 to the consolidated financial statements, the Company’s business plan is dependent on the completion of a business combination and the
Company’s cash and working capital as of December 31, 2021 and 2020 are not sufficient to complete its planned activities. These conditions 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 financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on the Company’s 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 audits 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 Company’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 consolidated 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 consolidated financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/S/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2020.
Houston, Texas
March 7, 2022
F-3