As filed with the United States Securities and Exchange Commission on April 8, 2022.
Registration No. 333-262570
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
L&F ACQUISITION CORP.
(Exact name of registrant as specified in its charter)
|
Cayman Islands*
|
| |
6770
|
| |
98-1557361
|
|
(State or other jurisdiction of
incorporation or organization)
|
| |
(Primary Standard Industrial
Classification Code Number)
|
| |
(I.R.S. Employer
Identification Number)
|
150 North Riverside Plaza, Suite 5200
Chicago, IL 60606
Telephone: (312) 701-1777
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)
JAR Sponsor, LLC
150 North Riverside Plaza, Suite 5200
Chicago, IL 60606
Telephone: (312) 701-1777
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent For Service)
Copies to:
|
Christian O. Nagler
Tamar Donikyan
Aslam A. Rawoof
Alla Digilova
Kirkland & Ellis LLP
601 Lexington Avenue
New York, NY 10022
Tel: (212) 446-4800
Fax: (212) 446-4900
|
| |
Jeffrey N. Ostrager
Wallace E. Christner
Anthony J. Rosso
Christopher M. Vaughn
Venable LLP
1270 Avenue of the Americas
New York, New York 10020
Tel: (212) 307-5500
Fax: (212) 307-5598
|
| |
Tony Jeffries
Jeana S. Kim
Todd Cleary
Julian Perlmutter
Wilson Sonsini Goodrich & Rosati P.C.
650 Page Mill Road
Palo Alto, CA 94304
Tel: (650) 493-9300
Fax: (650) 493-9301
|
Approximate date of commencement of proposed sale to
the public: As soon as practicable after this registration statement is declared effective.
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 an 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.
|
Large accelerated filer
|
| |
☐
|
| |
|
| |
Accelerated filer
|
| |
☐
|
|
Non-accelerated filer
|
| |
☒
|
| |
|
| |
Smaller reporting company
|
| |
☒
|
|
|
| |
|
| |
|
| |
Emerging growth company
|
| |
☒
|
If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
If applicable, place an X 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, as amended (“Securities Act”), or until the Registration Statement shall become effective on such date as the SEC, acting pursuant to Section 8(a), may determine.
The information in this proxy statement/prospectus is not complete and may be changed. L&F Acquisition Corp. may not issue the securities
offered by this proxy statement/prospectus until the registration statement filed with the Securities and Exchange Commission, of which this proxy statement/prospectus is a part, is declared effective. This proxy statement/prospectus does not
constitute an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale of these securities is not permitted.
PRELIMINARY — SUBJECT TO COMPLETION, DATED APRIL 8, 2022
PROXY STATEMENT FOR
EXTRAORDINARY GENERAL MEETING OF L&F ACQUISITION CORP.
PROSPECTUS FOR
69,958,227 SHARES OF COMMON STOCK AND 16,213,430 WARRANTS OF L&F ACQUISITION CORP.
(AFTER ITS DOMESTICATION AS A CORPORATION INCORPORATED IN THE STATE OF DELAWARE, WHICH
WILL BE RENAMED ZEROFOX HOLDINGS, INC. IN CONNECTION WITH THE DOMESTICATION DESCRIBED HEREIN)
The board of directors of L&F Acquisition Corp., a Cayman Islands
exempted company (which will migrate to and domesticate as a Delaware corporation (the “Domestication”) prior to the closing (the “Closing”)
of the Business Combination) (“L&F”), has unanimously approved the transactions (collectively, the “Business Combination”)
contemplated by that certain Business Combination Agreement, dated as of December 17, 2021 (as amended, supplemented or otherwise modified from time to time, the “Business Combination Agreement”),
by and among L&F, L&F Acquisition Holdings, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of L&F (“L&F Holdings”), ZF Merger Sub, Inc., a
Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings (“ZF Merger Sub”), IDX Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F
Holdings (“IDX Merger Sub”), IDX Forward Merger Sub, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of L&F Holdings (“IDX
Forward Merger Sub”), ZeroFox, Inc., a Delaware corporation (“ZeroFox”), and ID Experts Holdings, Inc., a Delaware corporation (“IDX,”
and together with ZeroFox, the “Target Companies”), a copy of which is attached to this proxy statement/prospectus as Annex A. As described in this proxy statement/prospectus, L&F’s
shareholders are being asked to consider and vote upon each of the Domestication and the Business Combination, among other items. As used in this proxy statement/prospectus, “New ZeroFox”
refers to L&F after giving effect to the consummation of the Domestication and the Business Combination.
In connection with the Domestication, prior to the ZF Effective Time and
the IDX Effective Time (as such terms are defined below), among other things, (i) each of the then-issued and outstanding Class A ordinary shares, par value $0.0001 per share, of L&F (the “Class A Ordinary
Shares”) will be converted, on a one-for-one basis, into a share of common stock of the post-Domestication Delaware corporation (“New ZeroFox Common Stock”), (ii) each of the then-issued and
outstanding Class B ordinary shares, par value $0.0001 per share, of L&F will be converted, on a one-for-one basis, into a share of New ZeroFox Common Stock, and (iii) each then-issued and outstanding whole warrant exercisable for one Class A
Ordinary Share will be converted into a warrant exercisable for one share of New ZeroFox Common Stock at an exercise price of $11.50 per share on the terms and conditions set forth in the Warrant Agreement, dated as of November 23, 2020, by and
between L&F and Continental Stock Transfer & Trust Company (as amended or amended and restated from time to time). In connection with clauses (i) and (iii) of this paragraph, each issued and outstanding unit of L&F that has not been
previously separated into the underlying Class A Ordinary Shares and the underlying L&F warrants will be cancelled and will entitle the holder thereof to one share of New ZeroFox Common Stock and one-half of one New ZeroFox warrant.
Concurrently with the Domestication, (i) the governing documents of
L&F will be replaced by governing documents for the Delaware corporation and (ii) L&F will change its name to “ZeroFox Holdings, Inc.”
On the date of Closing, following the Domestication, (i) ZF Merger Sub
will merge with and into ZeroFox (the “ZF Merger”), with ZeroFox being the surviving company in the ZF Merger and continuing (immediately following the ZF Merger) as a direct, wholly-owned subsidiary of
L&F Holdings (the time that the ZF Merger becomes effective being referred to as the “ZF Effective Time”), (ii) immediately following the ZF Merger, IDX Merger Sub will merge with and into IDX (the “IDX Merger”), with IDX being the surviving company in the IDX Merger (referred to herein as “Transitional IDX Entity”) and continuing (immediately following the IDX
Merger) as a direct, wholly-owned subsidiary of L&F Holdings (the time that the IDX Merger becomes effective being referred to as the “IDX Effective Time”), and (iii) immediately following the IDX
Merger, Transitional IDX Entity will merge with and into IDX Forward Merger Sub (the “IDX Forward Merger,” and together with the ZF Merger and IDX Merger, the “Mergers”),
with IDX Forward Merger Sub being the surviving company in the IDX Forward Merger and continuing (immediately following the IDX Forward Merger) as a direct, wholly-owned subsidiary of L&F Holdings (the time that the IDX Forward Merger becomes
effective being referred to as the “Effective Time”).
In accordance with the terms and subject to the conditions of the
Business Combination Agreement, (i) at the ZF Effective Time, (a) each share of ZeroFox common stock (including shares of ZeroFox restricted stock) issued and outstanding immediately prior to the ZF Effective Time (after giving effect to the ZF
Mandatory Conversion and other than ZF Dissenting Shares and ZF Cancelled Shares (each term as defined in this proxy statement/prospectus)) will be automatically cancelled, extinguished and converted into the right to receive a fraction of a
share of New ZeroFox Common Stock determined in accordance with the Business Combination Agreement on the basis of a pre-money enterprise value of ZeroFox of $866,250,000 on a fully-diluted basis and a price of $10.00 per share of New ZeroFox
Common Stock (as described in further detail in this proxy statement/prospectus, the “ZF Closing Stock Per Share Consideration”), (b) each issued, outstanding and unexercised warrant to purchase shares of
ZeroFox common stock or preferred stock as of immediately prior to the ZF Effective Time will be assumed and converted into a comparable warrant to purchase shares of New ZeroFox Common Stock determined in accordance with the Business Combination
Agreement based on the ZF Closing Stock Per Share Consideration, (c) each outstanding and unexercised option to purchase shares of ZeroFox common stock (whether vested or unvested) as of immediately prior to the ZF Effective Time will be assumed
and converted into a comparable option to purchase shares of New ZeroFox Common Stock determined in accordance with the Business Combination Agreement based on the ZF Closing Stock Per Share Consideration; and (ii) at the IDX Effective Time, (a)
each share of common stock and preferred stock of IDX issued and outstanding immediately prior to the IDX Effective Time (other than IDX Dissenting Shares and IDX Cancelled Shares (each term as defined in this proxy statement/prospectus)) will be
automatically cancelled, extinguished and converted into the right to receive (A) for common stock and series A-1 and series A-2 preferred stock, a fraction of a share of New ZeroFox Common Stock, (B) for common stock and series A-1 and series
A-2 preferred stock, a portion of $50,000,000 in cash consideration (subject to certain adjustments for cash, working capital, debt and transaction expenses, and net of liquidation preferences, as provided in the Business Combination Agreement),
and (C) for series A-1, series A-2 and series B preferred stock, a liquidation preference amount of $0.361 per share, in each case, in accordance with the Business Combination Agreement and on the basis of a pre-money enterprise value of IDX of
$338,750,000 on a fully-diluted basis and a price of $10.00 per share of New ZeroFox Common Stock (as described in further detail in this proxy statement/prospectus), (b) each issued, outstanding and unexercised warrant to purchase shares of IDX
common stock or preferred stock as of immediately prior to the IDX Effective Time will be assumed and converted into a comparable warrant to purchase shares of New ZeroFox Common Stock determined in accordance with the Business Combination
Agreement based on the IDX Total Per Share Consideration or IDX Total Preferred Per Share Consideration (each such term as defined in this proxy statement/prospectus), as applicable, and (c) each outstanding and unexercised option to purchase
shares of IDX common stock (whether vested or unvested) as of immediately prior to the IDX Effective Time will be assumed and converted into a comparable option to purchase shares of New ZeroFox Common Stock determined in accordance with the
Business Combination Agreement based on the IDX Total Per Share Consideration.
The Class A Ordinary Shares and the public warrants of L&F are
currently listed on the New York Stock Exchange (the “NYSE”) under the symbols “LNFA” and “LNFA WS,” respectively. L&F will apply for listing, to be effective at the time of the Closing of the Business
Combination, of New ZeroFox Common Stock and the warrants of New ZeroFox on the Nasdaq Stock Market LLC (“Nasdaq”) under the proposed symbols “ZFOX” and “ZFOXW,” respectively. It is a condition of the
consummation of the Business Combination that L&F receive confirmation from Nasdaq (or the NYSE if L&F’s listing with Nasdaq is not effected) that the shares of New ZeroFox to be issued in connection with the Business Combination have
been listed or approved for listing on Nasdaq (or the NYSE), subject only to official notice of issuance thereof, but there can be no assurance such listing condition will be met or that L&F will obtain such approval from Nasdaq or the NYSE.
If such listing condition is not met or if such approval is not obtained, the Business Combination will not be consummated unless the stock exchange approval condition set forth in the Business Combination Agreement is waived by the applicable
parties.
The proxy statement/prospectus provides
shareholders of L&F with detailed information about the Business Combination and other matters to be considered at the extraordinary general meeting of L&F. We encourage you to read the entire proxy statement/prospectus, including the
Annexes and other documents referred to therein, carefully and in their entirety. You should also carefully consider the risk factors described in the section titled “Risk Factors” beginning on page 59 of the proxy statement/prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES REGULATORY AGENCY HAS APPROVED OR DISAPPROVED THE TRANSACTIONS DESCRIBED IN THE PROXY STATEMENT/PROSPECTUS, PASSED UPON THE MERITS OR FAIRNESS OF THE BUSINESS COMBINATION OR RELATED TRANSACTIONS OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THE DISCLOSURE IN THE PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY CONSTITUTES A CRIMINAL OFFENSE.
The proxy statement/prospectus is dated , 2022, and is first
being mailed to L&F’s shareholders on or about , 2022.
L&F Acquisition Corp.
150 North Riverside Plaza, Suite 5200
Chicago, IL 60606
Dear L&F Acquisition Corp. Shareholders:
You are cordially invited to attend an Extraordinary General Meeting of
L&F Acquisition Corp., a Cayman Islands exempted company (“L&F”), which will be held on , 2022 at a.m., Eastern Time, at the offices of Kirkland & Ellis LLP located at 601 Lexington
Avenue, New York, New York 10022, and via a virtual meeting, or at such other time, on such other date and at such other place to which the meeting may be postponed or adjourned (the “Shareholder Meeting”).
Due to the current novel coronavirus (“COVID-19”)
global pandemic, there are restrictions in place in many jurisdictions relating to the ability to conduct in-person meetings. As part of our precautions regarding COVID-19, we are planning for the meeting to be held virtually over the Internet,
but the physical location of the meeting will remain at the location specified above for the purposes of our amended and restated memorandum and articles of association. If you wish to attend the Shareholder Meeting in person, you must reserve
your attendance at least two business days in advance of the Shareholder Meeting by contacting L&F’s investor relations department at by 9:00 a.m., Eastern Time, on (two business days prior to the meeting date).
On December 17, 2021, L&F, L&F Acquisition Holdings, LLC, a
Delaware limited liability company and direct, wholly-owned subsidiary of L&F (“L&F Holdings”), ZF Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings (“ZF Merger Sub”), IDX Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings (“IDX Merger Sub”), IDX Forward Merger Sub, LLC, a
Delaware limited liability company and direct, wholly-owned subsidiary of L&F Holdings (“IDX Forward Merger Sub”), ZeroFox, Inc., a Delaware corporation (“ZeroFox”),
and ID Experts Holdings, Inc., a Delaware corporation (“IDX,” and together with ZeroFox, the “Target Companies”), entered into a business combination agreement (as it
may be amended from time to time, the “Business Combination Agreement”), contemplating several transactions in connection with which L&F will become the parent company of the Target Companies.
As further described in the accompanying proxy statement/prospectus,
in connection with the Domestication (as such term is defined below), prior to the ZF Effective Time and the IDX Effective Time (as such terms are defined below), among other things, (i) each of the then-issued and outstanding Class A ordinary
shares, par value $0.0001 per share of L&F (the “Class A Ordinary Shares”), will be converted, on a one-for-one basis, into a share of common stock of the post-Domestication Delaware
corporation (“New ZeroFox Common Stock”), (ii) each of the then-issued and outstanding Class B ordinary shares, par value $0.0001 per share of L&F (the “Class B Ordinary Shares”), will be converted, on a one-for-one basis, into a share of New ZeroFox Common Stock, and (iii) each then-issued and outstanding whole warrant exercisable for one Class A
Ordinary Share will be converted into a warrant exercisable for one share of New ZeroFox Common Stock at an exercise price of $11.50 per share on the terms and conditions set forth in the Warrant Agreement, dated as of November 23, 2020, by and
between L&F and Continental Stock Transfer & Trust Company (as amended or amended and restated from time to time).
Concurrently with the Domestication, (i) the governing documents of
L&F will be replaced by governing documents for the Delaware corporation and (ii) L&F will change its name to “ZeroFox Holdings, Inc.”
At the Shareholder Meeting, L&F shareholders will be asked to
consider and vote upon a proposal, which is referred to herein as the “Business Combination Proposal” to approve and adopt the Business Combination Agreement, a copy of which is attached to the accompanying
proxy statement/prospectus as Annex A, including the transactions contemplated thereby (the “Business Combination”).
As further described in the accompanying proxy statement/prospectus,
subject to the terms and conditions of the Business Combination Agreement, the following transactions will occur:
|
(a)
|
On the Closing Date (as such term is defined in the accompanying proxy statement/prospectus), prior to the consummation of the
Mergers (as such term is defined below), (A) L&F will change its jurisdiction of incorporation by deregistering as a Cayman Islands exempted company and continuing and domesticating as a corporation incorporated under the laws of
the State of Delaware (the
|
“Domestication”), upon which L&F will
change its name to “ZeroFox Holdings, Inc.” (“New ZeroFox”) (for further details, see the section titled “Proposal No. 3 — The Domestication Proposal” in the
accompanying proxy statement/prospectus), (B) each outstanding Class A Ordinary Share and Class B Ordinary Share will be converted, on a one-for-one basis, into one share of New ZeroFox Common Stock, and (C) the governing documents of L&F
will be replaced by governing documents for the Delaware corporation.
|
(b)
|
On the Closing Date, following the Domestication, (i) ZF Merger Sub will merge with and into ZeroFox (the “ZF Merger”), with ZeroFox being the surviving company in the ZF Merger and continuing (immediately following the ZF Merger) as a direct, wholly-owned subsidiary of L&F Holdings (the time that the ZF
Merger becomes effective being referred to as the “ZF Effective Time”), (ii) immediately following the ZF Merger, IDX Merger Sub will merge with and into IDX (the “IDX
Merger”), with IDX being the surviving company in the IDX Merger (referred to herein as “Transitional IDX Entity”) and continuing (immediately following the IDX Merger) as a direct,
wholly-owned subsidiary of L&F Holdings (the time that the IDX Merger becomes effective being referred to as the “IDX Effective Time”), and (iii) immediately following the IDX Merger,
Transitional IDX Entity will merge with and into IDX Forward Merger Sub (the “IDX Forward Merger,” and together with the ZF Merger and IDX Merger, the “Mergers”),
with IDX Forward Merger Sub being the surviving company in the IDX Forward Merger and continuing (immediately following the IDX Forward Merger) as a direct, wholly-owned subsidiary of L&F Holdings (the time that the IDX Forward Merger
becomes effective being referred to as the “Effective Time”).
|
|
(c)
|
In accordance with the terms and subject to the conditions of the Business Combination Agreement, (i) at the ZF Effective Time,
(a) each share of ZeroFox common stock (including shares of ZeroFox restricted stock) issued and outstanding immediately prior to the ZF Effective Time (after giving effect to the ZF Mandatory Conversion and other than ZF Dissenting
Shares and ZF Cancelled Shares (each term as defined in the accompanying proxy statement/prospectus)) will be automatically cancelled, extinguished and converted into the right to receive a fraction of a share of New ZeroFox Common Stock
determined in accordance with the Business Combination Agreement on the basis of a pre-money enterprise value of ZeroFox of $866,250,000 on a fully-diluted basis and a price of $10.00 per share of New ZeroFox Common Stock (as described in
further detail in the accompanying proxy statement/prospectus, the “ZF Closing Stock Per Share Consideration”), (b) each issued, outstanding and unexercised warrant to purchase shares of ZeroFox
common stock or preferred stock as of immediately prior to the ZF Effective Time will be assumed and converted into a comparable warrant to purchase shares of New ZeroFox Common Stock determined in accordance with the Business Combination
Agreement based on the ZF Closing Stock Per Share Consideration, (c) each outstanding and unexercised option to purchase shares of ZeroFox common stock (whether vested or unvested) as of immediately prior to the ZF Effective Time will be
assumed and converted into a comparable option to purchase shares of New ZeroFox Common Stock determined in accordance with the Business Combination Agreement based on the ZF Closing Stock Per Share Consideration; and (ii) at the
IDX Effective Time, (a) each share of common stock and preferred stock of IDX issued and outstanding immediately prior to the IDX Effective Time (other than IDX Dissenting Shares and IDX Cancelled Shares (each term as defined in the
accompanying proxy statement/prospectus)) will be automatically cancelled, extinguished and converted into the right to receive (A) for common stock and series A-1 and series A-2 preferred stock, a fraction of a share of New ZeroFox
Common Stock, (B) for common stock and series A-1 and series A-2 preferred stock, a portion of $50,000,000 in cash consideration (subject to certain adjustments for cash, working capital, debt and transaction expenses, and net of
liquidation preferences, as provided in the Business Combination Agreement), and (C) for series A-1, series A-2 and series B preferred stock, a liquidation preference amount of $0.361 per share, in each case, in accordance with the
Business Combination Agreement and on the basis of a pre-money enterprise value of IDX of $338,750,000 on a fully-diluted basis and a price of $10.00 per share of New ZeroFox Common Stock (as described in further detail in the
accompanying proxy statement/prospectus), (b) each issued, outstanding and unexercised warrant to purchase shares of IDX common stock or preferred stock as of immediately prior to the IDX Effective Time will be assumed and converted into
a comparable warrant to purchase shares of New ZeroFox Common Stock determined in accordance with the Business Combination Agreement based on the IDX Total Per Share
|
Consideration or IDX Total Preferred Per Share Consideration (each such term as
defined in the accompanying proxy statement/prospectus), as applicable, and (c) each outstanding and unexercised option to purchase shares of IDX common stock (whether vested or unvested) as of immediately prior to the IDX Effective Time will be
assumed and converted into a comparable option to purchase shares of New ZeroFox Common Stock determined in accordance with the Business Combination Agreement based on the IDX Total Per Share Consideration.
In connection with the foregoing and concurrently with the execution of
the Business Combination Agreement, L&F entered into subscription agreements (the “Common Equity Subscription Agreements”) with certain investors (the “Common Equity
PIPE Investors”), including, among others, L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F), GCP-OI I, LLC (an entity affiliated
with Adam Gerchen, our chief executive officer and a director of L&F), JCH Investments LLC (an entity affiliated with Jeffrey C. Hammes, the chairman of our board of directors), certain existing shareholders of ZeroFox (including funds
affiliated with New Enterprise Associates and Highland Capital, and Alsop Louie Partners (the “ZeroFox Investors”)), and certain existing shareholders of IDX (including funds affiliated with Blue Venture
Fund, Peloton Equity and ForgePoint Capital (the “IDX Investors”)). Pursuant to the Common Equity Subscription Agreements, the Common Equity PIPE Investors agreed to subscribe for and purchase, and L&F
agreed to issue and sell to such investors, on the Closing Date, an aggregate of 2,000,000 shares of New ZeroFox Common Stock in exchange for an aggregate purchase price of $20,000,000 (the “Common Equity PIPE
Financing”). The New ZeroFox Common Stock to be issued pursuant to the Common Equity Subscription Agreements will be issued in a private placement not registered under the Securities Act of 1933, as amended (the “Securities Act”). L&F has agreed to grant the Common Equity PIPE Investors certain registration rights in connection with the Common Equity PIPE Financing. The Common Equity PIPE Financing is contingent
upon, among other things, the Closing of the Business Combination.
In addition, on December 16, 2021, the ZeroFox Investors purchased PIK
promissory notes issued by ZeroFox (the “ZeroFox PIK Promissory Notes”) for an aggregate purchase price of $5,000,000. Such ZeroFox PIK Promissory Notes accrue interest that will be paid-in-kind at a rate
of 5.0% per annum and mature upon the earlier of the Closing and the one-year anniversary of the date of issuance. If the Closing occurs, the repayment of the original principal amount of the ZeroFox PIK Promissory Notes may be offset against
amounts owed by the ZeroFox Investors under their Common Equity Subscription Agreements. In addition, if the Closing occurs, any portion of the Closing cash consideration to which the IDX Investors are entitled in connection with the consummation
of the Business Combination may be reduced to fund the subscription amounts the IDX Investors would otherwise be required to pay pursuant to the Common Equity Subscription Agreements.
In connection with the foregoing and concurrently with the execution
of the Business Combination Agreement, L&F entered into convertible notes subscription agreements (the “Convertible Notes Subscription Agreements”) with Monarch Alternative
Capital LP, L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F) and an affiliate of Corbin Capital Partners, LP (collectively, the “Convertible Notes Investors”), in respect of $150,000,000 aggregate principal amount of unsecured convertible notes due 2025 (the “Notes”) to be
issued in connection with the Closing of the Business Combination (the “Convertible Notes Financing”). The principal terms of the Notes are set forth in the form of indenture attached as an
exhibit to the Convertible Notes Subscription Agreements (Annex E in the accompanying proxy statement/prospectus), which indenture will be entered into by L&F, the guarantors party thereto and the indenture trustee (the “Indenture”), and the form of global note attached thereto. The Notes will bear interest at a rate of 7.00% per annum, payable quarterly in cash; provided, that the issuer may elect to pay interest in
kind at a rate of 8.75% per annum. The Notes will be convertible at an initial conversion price of $11.50 per share, subject to customary anti-dilution adjustments, including with respect to stock-splits and stock dividends, dividends and other
distributions, above-market tender offers, below-market rights offerings and spin-offs (the “Conversion Price”), and will mature on the date that is three years following the closing of the
Convertible Notes Financing. New ZeroFox may, at its election, force conversion of the Notes after the first anniversary of the issuance of the Notes (the “Conversion Trigger Date”),
subject to a holder’s prior right to convert, if the volume-weighted average trading price of the New ZeroFox Common Stock (x) for the first year after the Conversion Trigger Date, is greater than or equal to 150% of the Conversion Price for at
least 20 trading days during a period of 30 consecutive trading days and (y) for the second year after the Conversion Trigger Date, is greater than or equal to 130% of the Conversion Price for
at least 20 trading days during a period of 30 consecutive trading days. Upon
conversion of any Note, New ZeroFox shall have the option to settle the conversion in cash, shares of New ZeroFox Common Stock or a combination of both. Each holder of a Note will have the right to cause New ZeroFox to repurchase for cash all
or a portion of the Notes held by such holder at any time upon the occurrence of a “fundamental change”, a customary definition provided in the Indenture, at a price equal to par plus accrued and unpaid interest. In the event of a conversion in
connection with a “make-whole fundamental change,” as defined in the Indenture, the Conversion Price will be adjusted by a usual and customary make-whole fundamental change “make-whole table” provided in the Indenture. L&F has agreed to
grant the Convertible Notes Investors certain registration rights in connection with the Convertible Notes Financing. The Convertible Notes Financing is contingent upon, among other things, the Closing of the Business Combination.
Additionally, in connection with the foregoing and concurrently with
the execution of the Business Combination Agreement, (i) L&F, (ii) JAR Sponsor, LLC, a Delaware limited liability company (the “Sponsor”), Albert Goldstein and Joseph Lieberman,
(iii) ZeroFox, (iv) IDX, and (v) Jeffrey C. Hammes, Adam Gerchen, Tom Gazdziak and Richard Levy (solely for the limited purposes set forth therein), entered into an Amended and Restated Sponsor Support Letter Agreement. On January 31, 2022,
(i) L&F, (ii) the Sponsor, Albert Goldstein, Joseph Lieberman and Kurt Summers, Jr. (together with the Sponsor, the “Sponsor Holders”), (iii) ZeroFox, (iv) IDX, and (v) Jeffrey C.
Hammes, Adam Gerchen, Tom Gazdziak and Richard Levy (solely for the limited purposes set forth therein), entered into a Second Amended and Restated Sponsor Support Letter Agreement (the “Sponsor Support
Letter Agreement”). Pursuant to the Sponsor Support Letter Agreement, the Sponsor Holders have agreed to subject an aggregate of 1,293,750 shares of New ZeroFox Common Stock held by such Sponsor Holders to an earnout, whereby
such shares will be forfeited unless the following volume-weighted average share price thresholds are met in trading or are deemed to occur in connection with a Change of Control (as defined in the Business Combination Agreement) within five
years from the Closing: one-third vesting if the volume-weighted average share price equals or exceeds $12.50; one-third vesting if the volume-weighted average share price equals or exceeds $15.00; and one-third vesting if the volume-weighted
average share price equals or exceeds $17.50. In addition, the Sponsor Holders have agreed to (i) vote in favor of the Business Combination Agreement and the transactions contemplated thereby (including the Mergers), (ii) waive the
anti-dilution or similar protection with respect to the Founder Shares (as defined in the Sponsor Support Letter Agreement) (whether resulting from the transactions contemplated by the Common Equity PIPE Financing, the Convertible Notes
Financing, the Domestication, the Mergers or otherwise), (iii) be bound by certain other covenants and agreements related to the Business Combination, and (iv) not transfer (subject to customary exceptions) any Founder Shares until the earlier
of (a) one year after the Closing, (b) the share price equaling or exceeding $12.00 on a volume-weighted average price basis for any 20 trading days within any 30 trading day period commencing at least 150 days after the Closing, and (c) the
completion of a transaction that results in all shareholders having the right to exchange shares for cash, securities or other property.
In addition to the Business Combination Proposal, L&F
shareholders are being asked to consider and vote upon (a) a proposal to approve certain amendments to L&F's existing amended and restated memorandum and articles of association (the “Existing
Governing Documents”) (the “Articles Amendment Proposal”), (b) a proposal to approve the Domestication (the “Domestication Proposal”),
(c) a proposal to approve the proposed certificate of incorporation of New ZeroFox upon the Domestication, a copy of which is attached to the accompanying proxy statement/prospectus as Annex B (the “Proposed
Certificate of Incorporation”), and the proposed bylaws of New ZeroFox upon the Domestication, a copy of which is attached to the accompanying proxy statement/prospectus as Annex C (the “Proposed
Bylaws”) (the “Governing Documents Proposal”), (d) on a non-binding advisory basis, proposals related to material differences between the Existing Governing Documents and the
Proposed Certificate of Incorporation and Proposed Bylaws (the “Advisory Governing Documents Proposals”), (e) a proposal to approve, for purpose of complying with NYSE Listing Rule
312.03, the issuance of shares of New ZeroFox Common Stock in connection with the Business Combination, the Common Equity PIPE Financing and the Convertible Notes Financing (the “Listing Proposal”),
(f) a proposal to approve and adopt the ZeroFox Holdings, Inc. 2022 Incentive Equity Plan, a copy of which is attached to the accompanying proxy statement/prospectus as Annex H (the “Incentive Equity Plan
Proposal”) (g) a proposal to approve and adopt the ZeroFox Holdings Inc. 2022 Employee Stock Purchase Plan, a copy of which is attached to the accompanying proxy statement/prospectus as Annex I (the “Employee Stock Purchase Plan Proposal”), (h) a proposal to elect each of the eight (8) directors named in the proxy statement/prospectus to
serve on the board of directors of New ZeroFox until their respective successors are
duly elected and qualified (the “Director Election Proposal”), and (i) a proposal to adjourn the Shareholder Meeting to a later date or dates to the extent necessary (the “Adjournment
Proposal”).
The Business Combination Proposal, the Domestication Proposal, the
Governing Documents Proposal, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal and the Director Election Proposal (collectively, the “Condition Precedent
Proposals”) will be presented to the shareholders for a vote only if the Articles Amendment Proposal is approved. Each of the Condition Precedent Proposals is conditioned on the approval and adoption of each of the other Condition
Precedent Proposals, and the Business Combination will be consummated only if each of the Condition Precedent Proposals is approved by the shareholders. The Advisory Governing Documents Proposals will be presented to the shareholders for a vote
only if the Business Combination Proposal is approved. The Articles Amendment Proposal and the Adjournment Proposal are not conditioned upon the approval of any other proposal, though the special resolution contemplated by the Articles Amendment
Proposal will be adopted only if the Business Combination Proposal is approved. Each of these proposals is more fully described in the accompanying proxy statement/prospectus, which each shareholder is encouraged to read carefully and in its
entirety.
The Adjournment Proposal asks shareholders to approve an adjournment of
the Shareholder Meeting to a later date or dates if necessary to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Shareholder Meeting, there are insufficient L&F ordinary shares represented
(either in person or by proxy) to constitute a quorum necessary to conduct business at the Shareholder Meeting or to approve the Articles Amendment Proposal, the Business Combination Proposal, the Domestication Proposal, the Governing Documents
Proposal, the Advisory Governing Documents Proposals, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal or the Director Election Proposal.
In connection with the Business Combination, certain related agreements
have been entered into, or will be entered into on or prior to the Closing Date, including the Sponsor Support Letter Agreement, the Common Equity Subscription Agreements, the Convertible Notes Subscription Agreements and the Registration Rights
Agreement (as defined in the accompanying proxy statement/prospectus). See the section titled “Proposal No. 2 — The Business Combination Proposal — Related Agreements” in the accompanying proxy
statement/prospectus for more information.
Pursuant to the Existing Governing Documents, a holder of L&F’s
Class A Ordinary Shares (such holder, a “Public Shareholder” and such shares, the “Public Shares”) may request that L&F redeem all
or a portion of such Class A Ordinary Shares for cash if the Business Combination is consummated. The redemption rights include the requirement that a holder must identify itself in writing as a beneficial holder and provide its legal name,
phone number and address to Continental Stock Transfer & Trust Company (“Continental”) in order to validly redeem its shares. Public Shareholders
may elect to redeem their Class A Ordinary Shares even if they vote “For” the Business Combination Proposal. If the Business Combination is not consummated, the Class A Ordinary Shares will be returned to the respective
holder, broker or bank. If the Business Combination is consummated, and if a Public Shareholder properly exercises its right to redeem all or a portion of the Class A Ordinary Shares that it holds and timely delivers its shares to Continental,
L&F will redeem such Class A Ordinary Shares for a per-share price, payable in cash, equal to the pro rata portion of the trust account established at the consummation of the L&F IPO (as such term is defined in the accompanying proxy
statement/prospectus), calculated as of two business days prior to the consummation of the Business Combination. For illustrative purposes, as of , this would have amounted to approximately $ per issued and outstanding Public Share.
If a Public Shareholder exercises its redemption rights in full, then it will be electing to exchange its Class A Ordinary Shares for cash and will no longer own Class A Ordinary Shares. See “Shareholder
Meeting — Redemption Rights” in the proxy statement/prospectus for a detailed description of the procedures to be followed if you wish to redeem your Class A Ordinary Shares for cash.
Holders must complete the procedures for electing to redeem their Class A Ordinary Shares in the manner described in the accompanying proxy statement/prospectus prior to 5:00 p.m., Eastern Time, on , 2022 (two
business days before the Shareholder Meeting) in order for their shares to be redeemed.
Notwithstanding the foregoing, a Public Shareholder, together with any
affiliate of such Public Shareholder or any other person with whom such Public Shareholder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted
from redeeming its Class A Ordinary Shares with respect to more than an aggregate of
15% of the outstanding Class A Ordinary Shares, without our prior consent. Accordingly, if a Public Shareholder, alone or acting in concert or as a group, seeks to redeem more than 15% of the outstanding Class A Ordinary Shares, then any such
shares in excess of that 15% limit would not be redeemed for cash, without our prior consent.
The Sponsor Holders have, pursuant to the Sponsor Support Letter
Agreement, agreed to, among other things, vote all of their ordinary shares in favor of the proposals being presented at the Shareholder Meeting and waive their anti-dilution rights with respect to their Class B Ordinary Shares in connection
with the consummation of the Business Combination and the related transactions. Such shares will be excluded from the pro rata calculation used to determine the per-share redemption price. As of the date of the accompanying proxy
statement/prospectus, the Sponsor Holders own 20% of the issued and outstanding ordinary shares.
The Business Combination Agreement is subject to the satisfaction or
waiver of certain other closing conditions as described in the accompanying proxy statement/prospectus, including the condition that there will be not less than $170,000,000 of available closing acquiror cash, comprised of the aggregate cash
proceeds from L&F's trust account, together with the net cash proceeds from the Common Equity PIPE Financing and the Convertible Notes Financing, after deducting any amounts paid to Public Shareholders that exercise their redemption rights in
connection with the Business Combination. There can be no assurance that the parties to the Business Combination Agreement would waive any such provision of the Business Combination Agreement.
L&F is providing the accompanying proxy statement/prospectus and
accompanying proxy card to L&F’s shareholders in connection with the solicitation of proxies to be voted at the Shareholder Meeting and at any postponements or adjournments of the Shareholder Meeting. Information about the Shareholder
Meeting, the Business Combination and other related business to be considered by L&F’s shareholders at the Shareholder Meeting is included in the accompanying proxy statement/prospectus. Whether or not you
plan to attend the Shareholder Meeting, all of L&F’s shareholders are urged to read the accompanying proxy statement/prospectus, including the Annexes and other documents referred to therein, carefully and in their entirety. You should also
carefully consider the risk factors described in the section titled “Risk Factors” beginning on page 59 of the accompanying
proxy statement/prospectus.
After careful consideration, the board of directors
of L&F has unanimously approved the Business Combination Agreement and the transactions contemplated thereby, including the Mergers, and unanimously recommends that shareholders vote “FOR” the adoption of the Business Combination Agreement
and approval of the transactions contemplated thereby, including the Mergers, and “FOR” all other proposals presented to L&F’s shareholders in the accompanying proxy statement/prospectus. When you consider the recommendation of these
proposals by the board of directors of L&F, you should keep in mind that L&F’s directors and officers have interests in the Business Combination that may conflict with your interests as a shareholder. See the section titled “Proposal No. 2 — The Business Combination Proposal — Interests of Certain Persons in the Business Combination” in the accompanying proxy statement/prospectus for a further discussion of these considerations.
The approval of each of the Articles Amendment Proposal, the
Domestication Proposal and the Governing Documents Proposal requires a special resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued ordinary
shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting. The approval of each of the Business Combination Proposal, the Advisory Governing Documents Proposals, the Listing Proposal, the
Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal and the Adjournment Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders
of the issued ordinary shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting. The approval of the Director Election Proposal requires an ordinary resolution under Cayman Islands law,
being the affirmative vote of at least a majority of the votes cast by holders of the issued Class B Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting.
Your vote is very important. Whether or not you plan to attend the Shareholder Meeting, please vote as soon as possible by following the instructions in the accompanying proxy statement/prospectus to make sure that your shares are represented
at the Shareholder Meeting. If you hold your shares in “street name” through a bank, broker or other nominee, you will need to follow the instructions provided
to you by your bank, broker or other nominee to ensure that your
shares are represented and voted at the Shareholder Meeting. The Condition Precedent Proposals will be presented to the shareholders for a vote only if the Articles Amendment Proposal is approved. The Business Combination will be consummated only
if the Condition Precedent Proposals are approved at the Shareholder Meeting. Each of the Condition Precedent Proposals is conditioned on the approval and adoption of each of the other Condition Precedent Proposals. The Advisory Governing
Documents Proposals will be presented to the shareholders for a vote only if the Business Combination Proposal is approved. The Articles Amendment Proposal and the Adjournment Proposal are not conditioned on the approval of any other proposal set
forth in the accompanying proxy statement/prospectus, though the special resolution contemplated by the Articles Amendment Proposal will be adopted only if the Business Combination Proposal is approved.
If you sign, date and return your proxy card without indicating how you
wish to vote, your proxy will be voted FOR each of the proposals presented at the Shareholder Meeting. If you fail to return your proxy card or fail to instruct your bank, broker or other nominee how to vote, and do not attend the Shareholder
Meeting in person, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the Shareholder Meeting but will otherwise not have any effect on whether the proposals are approved. If you are
a shareholder of record and you attend the Shareholder Meeting and wish to vote in person, you may withdraw your proxy and vote in person.
TO EXERCISE YOUR REDEMPTION RIGHTS, YOU MUST DEMAND IN WRITING THAT
YOUR CLASS A ORDINARY SHARES ARE REDEEMED FOR A PRO RATA PORTION OF THE FUNDS HELD IN THE TRUST ACCOUNT AND TENDER YOUR SHARES TO L&F’S TRANSFER AGENT AT LEAST TWO BUSINESS DAYS PRIOR TO THE VOTE AT THE SHAREHOLDER MEETING. IN ORDER TO
EXERCISE YOUR REDEMPTION RIGHT, YOU NEED TO IDENTIFY YOURSELF AS A BENEFICIAL HOLDER AND PROVIDE YOUR LEGAL NAME, PHONE NUMBER AND ADDRESS IN YOUR WRITTEN DEMAND. 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 WITHDRAWAL AT CUSTODIAN) SYSTEM. IF THE BUSINESS COMBINATION IS NOT COMPLETED, THEN THESE SHARES WILL BE RETURNED TO YOU OR YOUR
ACCOUNT. IF YOU HOLD THE SHARES IN STREET NAME, YOU WILL NEED TO INSTRUCT THE ACCOUNT EXECUTIVE AT YOUR BANK OR BROKER TO WITHDRAW THE SHARES FROM YOUR ACCOUNT IN ORDER TO EXERCISE YOUR REDEMPTION RIGHTS. See “Shareholder Meeting—
Redemption Rights” in the accompanying proxy statement/prospectus for a detailed description of the procedures to be followed if you wish to redeem your Class A Ordinary Shares for cash.
On behalf of L&F’s board of directors, I would like to thank you
for your support and look forward to the successful completion of the Business Combination.
Sincerely,
Jeffrey C. Hammes
Chairman of the Board of Directors
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORY AGENCY HAS APPROVED OR DISAPPROVED THE TRANSACTIONS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS, PASSED UPON THE MERITS OR FAIRNESS OF THE BUSINESS COMBINATION OR RELATED TRANSACTIONS OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THE DISCLOSURE IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY CONSTITUTES A CRIMINAL OFFENSE.
The accompanying proxy statement/prospectus is dated , 2022 and is
first being mailed to the shareholders of L&F on or about , 2022.
L&F ACQUISITION CORP.
150 North Riverside Plaza, Suite 5200
Chicago, IL 60606
NOTICE OF EXTRAORDINARY GENERAL MEETING
TO BE HELD ON , 2022
To the Shareholders of L&F Acquisition Corp.:
NOTICE IS HEREBY GIVEN that an extraordinary general meeting of L&F
Acquisition Corp., a Cayman Islands exempted company (“L&F”), will be held on , 2022 at a.m., Eastern Time, at the offices of Kirkland & Ellis LLP located at 601 Lexington Avenue, New York,
New York 10022, and via a virtual meeting, or at such other time, on such other date and at such other place to which the meeting may be postponed or adjourned (the “Shareholder Meeting”).
Due to the current novel coronavirus (“COVID-19”)
global pandemic, there are restrictions in place in many jurisdictions relating to the ability to conduct in-person meetings. As part of our precautions regarding COVID-19, we are planning for the meeting to be held virtually over the Internet,
but the physical location of the meeting will remain at the location specified above for the purposes of our amended and restated memorandum and articles of association. If you wish to attend the Shareholder Meeting in person, you must reserve
your attendance at least two business days in advance of the Shareholder Meeting by contacting L&F’s investor relations department at by 9:00 a.m., Eastern Time, on (two business days prior to the meeting date).
You are cordially invited to attend the Shareholder Meeting to conduct
the following items of business and/or consider, and if thought fit, approve the following resolutions:
|
1.
|
Proposal No. 1 — The Articles Amendment Proposal — RESOLVED, as a special
resolution, that subject to the approval of Proposal No. 2 (the Business Combination Proposal);
|
|
(a)
|
Article 49.2(b) be deleted in its entirety and be replaced with the following new Article 49.2(b):
|
“provide Members with the opportunity to have their Shares repurchased by means of a
tender offer for a per-Share repurchase price payable in cash, equal to the aggregate amount then on deposit in the Trust Account, calculated as of two business days prior to the consummation of such Business Combination, including interest
earned on the Trust Account (which interest shall be net of taxes paid or payable, if any), divided by the number of then issued Public Shares. Such obligation to repurchase Shares is subject to the completion of the proposed Business Combination
to which it relates.”
|
(b)
|
Article 49.4 be deleted in its entirety and be replaced with the following new Article 49.4:
|
“At a general meeting called for the purposes of approving a Business Combination
pursuant to this Article, in the event that such Business Combination is approved by Ordinary Resolution, the Company shall be authorised to consummate such Business Combination.”
|
(c)
|
the following final sentence of Article 49.5 be deleted in its entirety from Article 49.5:
|
“The Company shall not redeem Public Shares that would cause the Company’s net tangible
assets to be less than US$5,000,001 following such redemptions (the “Redemption Limitation”).”
|
(d)
|
the final sentence of Article 49.8 be deleted in its entirety and be replaced with the following new final sentence of Article
49.8:
|
“The Company shall not provide such redemption in this Article if it would cause the
Company’s net tangible assets to be less than US$5,000,001 following such redemption.”
|
2.
|
Proposal No. 2 — The Business Combination Proposal — RESOLVED, as an ordinary resolution,
that L&F’s entry into the Business Combination Agreement, dated as of December 17, 2021 (as amended, supplemented or otherwise modified from time to time, the “Business Combination Agreement”),
by and among L&F, L&F Acquisition Holdings, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of L&F (“L&F Holdings”), ZF Merger Sub, Inc., a Delaware
corporation and direct, wholly-owned subsidiary of L&F Holdings (“ZF Merger Sub”), IDX
|
Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of
L&F Holdings (“IDX Merger Sub”), IDX Forward Merger Sub, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of L&F Holdings (“IDX Forward Merger Sub”), ZeroFox, Inc., a Delaware corporation (“ZeroFox”), and ID Experts Holdings, Inc., a Delaware corporation (“IDX”), a copy of which is attached to the proxy statement/prospectus as Annex A, pursuant to which, among other things, following the de-registration of L&F as an exempted company in the Cayman
Islands and the transfer by way of continuation and domestication of L&F as a corporation in the State of Delaware (i) ZF Merger Sub will merge with and into ZeroFox (the “ZF Merger”),
with ZeroFox being the surviving entity in the ZF Merger and continuing (immediately following the ZF Merger) as a direct, wholly-owned subsidiary of L&F Holdings, (ii) immediately following the ZF Merger, IDX Merger Sub will merge with and
into IDX (the “IDX Merger”), with IDX being the surviving entity in the IDX Merger (referred to herein as “Transitional IDX Entity”) and
continuing (immediately following the IDX Merger) as a direct, wholly-owned subsidiary of L&F Holdings, and (iii) immediately following the IDX Merger, Transitional IDX Entity will merge with and into IDX Forward Merger Sub (the “IDX Forward Merger”), with IDX Forward Merger Sub being the surviving entity in the IDX Forward Merger and continuing (immediately following the IDX Forward Merger) as a direct, wholly-owned
subsidiary of L&F Holdings, and the transactions contemplated thereby (collectively, the “Business Combination”), be approved, ratified and confirmed in all respects.
|
3.
|
Proposal No. 3 — The Domestication Proposal — RESOLVED, as a special resolution, that
L&F be transferred by way of continuation to Delaware pursuant to Part XII of the Companies Act (As Revised) of the Cayman Islands and Section 388 of the General Corporation Law of the State of Delaware and, immediately upon being
de-registered in the Cayman Islands, L&F be continued and domesticated as a corporation under the laws of the State of Delaware and, conditional upon, and with effect from, the registration of L&F as a corporation in the State of
Delaware, the name of L&F be changed from “L&F Acquisition Corp.” to “ZeroFox Holdings, Inc.”
|
|
4.
|
Proposal No. 4 — The Governing Documents Proposal — RESOLVED, as
a special resolution, that the amended and restated memorandum and articles of association of L&F currently in effect be amended and restated by the deletion in their entirety and the substitution in their place of the proposed new
certificate of incorporation and proposed new bylaws (copies of each of which are attached to the proxy statement/prospectus as Annex B and Annex C, respectively), including, without limitation, the authorization of the change in
authorized share capital as indicated therein and the change of name to “ZeroFox Holdings, Inc.”
|
|
5.
|
Proposal No. 5 — The Advisory Governing Documents Proposals
|
|
•
|
Advisory Governing Documents Proposal 5A — RESOLVED, as an
ordinary resolution, on an advisory non-binding basis, that the authorized share capital of L&F is increased from (i) 500,000,000 Class A Ordinary Shares, par value $0.0001 per share, 50,000,000 Class B Ordinary Shares, par value
$0.0001 per share, and 1,000,000 preference shares, par value $0.0001 per share, to (ii) 1,000,000,000 shares of ZeroFox Holdings, Inc. common stock, par value $0.0001 per share, and 100,000,000 shares of ZeroFox Holdings, Inc.
preferred stock, par value $0.0001 per share.
|
|
•
|
Advisory Governing Documents Proposal 5B — RESOLVED, as an
ordinary resolution, on an advisory non-binding basis, that the ZeroFox Holdings, Inc. board is authorized to issue any or all shares of ZeroFox Holdings, Inc. preferred stock in one or more classes or series, with such terms and
conditions as may be expressly determined by the ZeroFox Holdings, Inc. board and as may be permitted by the Delaware General Corporation Law.
|
|
•
|
Advisory Governing Documents Proposal 5C — RESOLVED, as an
ordinary resolution, on an advisory non-binding basis, that the Court of Chancery of the State of Delaware will be the exclusive forum for certain shareholder litigation and the federal district courts of the United States of America
will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of 1933, as amended, unless ZeroFox Holdings, Inc. consents in writing to the selection of an alternative forum.
|
|
•
|
Advisory Governing Documents Proposal 5D — RESOLVED, as an
ordinary resolution, on an advisory non-binding basis, that any action required or permitted to be taken by the shareholders of ZeroFox Holdings, Inc. must be effected at a duly called annual or special meeting of shareholders of
ZeroFox Holdings, Inc. and may not be effected by any consent by such shareholders.
|
|
•
|
Advisory Governing Documents Proposal 5E — RESOLVED, as an
ordinary resolution, on an advisory non-binding basis, that, subject to the rights of holders of preferred stock of ZeroFox Holdings, Inc., any director or the entire ZeroFox Holdings, Inc. board may be removed from office at any time,
but only for cause, and only by the affirmative vote of the holders of a majority of the issued and outstanding capital stock of ZeroFox Holdings, Inc. entitled to vote in the election of directors, voting together as a single class.
|
|
•
|
Advisory Governing Documents Proposal 5F — RESOLVED, as an
ordinary resolution, on an advisory non-binding basis, that the proposed new certificate of incorporation may be amended by shareholders in accordance with the voting standards set forth in Article XI, Section 1 of the proposed new
certificate of incorporation and the proposed new bylaws may be amended by shareholders in accordance with the voting standards set forth in Article X of the proposed new bylaws.
|
|
•
|
Advisory Governing Documents Proposal 5G — RESOLVED, as an
ordinary resolution, on an advisory non-binding basis, the removal of provisions in L&F’s existing amended and restated memorandum and articles of association related to its status as a blank check company that will no longer apply
upon the consummation of the Business Combination be approved.
|
|
6.
|
Proposal No. 6 — The Listing Proposal — RESOLVED, as an ordinary
resolution, that for the purposes of complying with the applicable provisions of NYSE Listing Rule 312.03, the issuance of shares of ZeroFox Holdings, Inc. common stock in connection with the Business Combination, the Common Equity PIPE
Financing and the Convertible Notes Financing (as such terms are defined in the proxy statement/prospectus) be approved.
|
|
7.
|
Proposal No. 7 — The Incentive Equity Plan Proposal — RESOLVED, as an ordinary resolution,
that L&F’s adoption of the ZeroFox Holdings, Inc. 2022 Incentive Equity Plan be approved, ratified and confirmed in all respects.
|
|
8.
|
Proposal No. 8 — The Employee Stock Purchase Plan Proposal — RESOLVED, as an ordinary
resolution, that L&F’s adoption of the ZeroFox Holdings, Inc. 2022 Employee Stock Purchase Plan be approved, ratified and confirmed in all respects.
|
|
9.
|
Proposal No. 9 — The Director Election Proposal — RESOLVED, as an
ordinary resolution, that the persons named below be elected to serve on the ZeroFox Holdings, Inc. board of directors upon the consummation of the Business Combination to serve initial terms as provided in the proposed new certificate
of incorporation.
|
|
Name of Director
|
| |
Class of Directorship
|
|
Peter Barris
|
| |
I
|
|
Corey M. Mulloy
|
| |
I
|
|
Sean Cunningham
|
| |
I
|
|
Samskriti King
|
| |
II
|
|
Thomas F. Kelly
|
| |
II
|
|
James C. Foster
|
| |
III
|
|
Todd Headley
|
| |
III
|
|
Adam Gerchen
|
| |
III
|
|
10.
|
Proposal No. 10 — The Adjournment Proposal — RESOLVED, as an
ordinary resolution, that the adjournment of the Shareholder Meeting to a later date or dates if necessary, to permit further solicitation and votes of proxies if, based upon the tabulated votes at the time of the Shareholder Meeting,
there are insufficient L&F ordinary shares represented (either in person or by proxy) to constitute a quorum necessary to conduct business at the Shareholder Meeting or to approve the
|
Articles Amendment Proposal, the Business Combination Proposal, the Domestication
Proposal, the Governing Documents Proposal, the Advisory Governing Documents Proposals, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal or the Director Election Proposal be approved, ratified
and confirmed in all respects.
Each of the Business Combination Proposal, the Domestication Proposal,
the Governing Documents Proposal, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal and the Director Election Proposal (collectively, the “Condition Precedent
Proposals”) is conditioned on the approval and adoption of each of the other Condition Precedent Proposals. The Condition Precedent Proposals will be presented to the shareholders for a vote only if the Articles Amendment Proposal is
approved. The Advisory Governing Documents Proposals will be presented to the shareholders for a vote only if the Business Combination Proposal is approved. The Articles Amendment Proposal and the Adjournment Proposal are not conditioned on any
other proposal, though the special resolution contemplated by the Articles Amendment Proposal will be adopted only if the Business Combination Proposal is approved.
The above matters are more fully described in the accompanying proxy
statement/prospectus, which also includes, as Annex A, a copy of the Business Combination Agreement. You are urged to read carefully and in its entirety the accompanying proxy
statement/prospectus, including the Annexes thereto and accompanying financial statements of L&F, ZeroFox and IDX.
The record date for the Shareholder Meeting for L&F shareholders is
, 2022. Only L&F shareholders at the close of business on that date may vote at the Shareholder Meeting or any postponement or adjournment thereof. L&F shareholders are entitled to one vote at the Shareholder Meeting for each L&F
Ordinary Share held of record as of the record date.
L&F is providing the accompanying proxy statement/prospectus and
accompanying proxy card to L&F’s shareholders in connection with the solicitation of proxies to be voted at the Shareholder Meeting and at any postponements or adjournments of the Shareholder Meeting. Information about the Shareholder
Meeting, the Business Combination and other related business to be considered by L&F’s shareholders at the Shareholder Meeting is included in the accompanying proxy statement/prospectus. Whether or not you
plan to attend the Shareholder Meeting, all of L&F’s shareholders are urged to read the accompanying proxy statement/prospectus, including the Annexes and other documents referred to therein, carefully and in their entirety. You should also
carefully consider the risk factors described in the section titled “Risk Factors” beginning on page 59 of the accompanying
proxy statement/prospectus.
After careful consideration, the board of directors
of L&F has unanimously approved the Business Combination Agreement and the transactions contemplated thereby, including the Mergers, and unanimously recommends that shareholders vote “FOR” the adoption of the Business Combination Agreement
and approval of the transactions contemplated thereby, including the Mergers, and “FOR” all other proposals presented to L&F’s shareholders in the accompanying proxy statement/prospectus. When you consider the recommendation of these
proposals by the board of directors of L&F, you should keep in mind that L&F’s directors and officers have interests in the Business Combination that may conflict with your interests as a shareholder. See the section entitled “Proposal No. 2 — The Business Combination Proposal — Interests of Certain Persons in the Business Combination” in the accompanying proxy statement/prospectus for a further discussion of these considerations.
Pursuant to the Existing Governing Documents, a holder of L&F’s
Class A Ordinary Shares (such holder, a “Public Shareholder” and such shares, the “Public Shares”) may request that L&F redeem all
or a portion of such Class A Ordinary Shares for cash if the Business Combination is consummated. The redemption rights include the requirement that a holder must identify itself in writing as a beneficial holder and provide its legal name,
phone number and address to Continental Stock Transfer & Trust Company (“Continental”) in order to validly redeem its shares. Public Shareholders
may elect to redeem their Class A Ordinary Shares even if they vote “For” the Business Combination Proposal. If the Business Combination is not consummated, the Class A Ordinary Shares will be returned to the respective
holder, broker or bank. If the Business Combination is consummated, and if a Public Shareholder properly exercises its right to redeem all or a portion of the Class A Ordinary Shares that it holds and timely delivers its shares to Continental,
L&F will redeem such Class A Ordinary Shares for a per-share price, payable in cash, equal to the pro rata portion of the trust account established at the consummation of the L&F IPO (as such term is defined in the proxy
statement/prospectus),
calculated as of two business days prior to the consummation of the Business
Combination. For illustrative purposes, as of , 2022, this would have amounted to approximately $ per issued and outstanding Public Share. If a Public Shareholder exercises its redemption rights in full, then it will be electing to
exchange its Class A Ordinary Shares for cash and will no longer own Class A Ordinary Shares. See “Shareholder Meeting— Redemption Rights” in the accompanying proxy statement/prospectus for a detailed
description of the procedures to be followed if you wish to redeem your Class A Ordinary Shares for cash. Holders must complete the procedures for electing to redeem their Class A Ordinary Shares in the manner
described in the accompanying proxy statement/prospectus prior to 5:00 p.m., Eastern Time, on , 2022 (two business days before the Shareholder Meeting) in order for their shares to be redeemed.
Notwithstanding the foregoing, a Public Shareholder, together with any
affiliate of such Public Shareholder or any other person with whom such Public Shareholder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (“Exchange
Act”)), will be restricted from redeeming its Class A Ordinary Shares with respect to more than an aggregate of 15% of the outstanding Class A Ordinary Shares, without our prior consent. Accordingly, if a Public Shareholder, alone or
acting in concert or as a group, seeks to redeem more than 15% of the outstanding Class A Ordinary Shares, then any such shares in excess of that 15% limit would not be redeemed for cash, without our prior consent.
JAR Sponsor, LLC, Albert Goldstein, Joseph Lieberman and Kurt Summers
(the “Sponsor Holders”) have, pursuant to the Sponsor Support Letter Agreement, agreed to, among other things, vote all of their ordinary shares in favor of the proposals being presented at the Shareholder
Meeting and waive their anti-dilution rights with respect to their Class B Ordinary Shares in connection with the consummation of the Business Combination. Such shares will be excluded from the pro rata calculation used to determine the per-share
redemption price. As of the date of the accompanying proxy statement/prospectus, the Sponsor Holders own 20% of the issued and outstanding ordinary shares. See “Proposal No. 2 — The Business Combination Proposal — Related Agreements — The Sponsor Support Letter Agreement” in the accompanying proxy statement/prospectus for more information related to the Sponsor Support Letter Agreement.
The Business Combination Agreement is subject to the satisfaction or
waiver of certain other closing conditions as described in the accompanying proxy statement/prospectus. There can be no assurance that the parties to the Business Combination Agreement would waive any such provision of the Business Combination
Agreement.
The approval of each of the Articles Amendment Proposal, the
Domestication Proposal and the Governing Documents Proposal requires a special resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued ordinary
shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting. The approval of each of the Business Combination Proposal, the Advisory Governing Documents Proposals, the Listing Proposal, the
Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal and the Adjournment Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders
of the issued ordinary shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting. The approval of the Director Election Proposal requires an ordinary resolution under Cayman Islands law,
being the affirmative vote of at least a majority of the votes cast by holders of the issued Class B Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting. The Advisory
Governing Documents Proposals are voted upon on a non-binding advisory basis only.
Your vote is very important. Whether or not you plan to attend the Shareholder Meeting, please vote as soon as possible by following the instructions in the accompanying proxy statement/prospectus to make sure that your shares are represented
at the Shareholder Meeting. If you hold your shares in “street name” through a bank, broker or other nominee, you will need to follow the instructions provided to you by your bank, broker or other nominee to ensure that your shares are
represented and voted at the Shareholder Meeting.
If you sign, date and return your proxy card without indicating how you
wish to vote, your proxy will be voted FOR each of the proposals presented at the Shareholder Meeting. If you fail to return your proxy card or
fail to instruct your bank, broker or other nominee how to vote, and do not attend the
Shareholder Meeting in person, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the Shareholder Meeting but will otherwise not have any effect on whether the proposals are
approved.
Your attention is directed to the accompanying proxy
statement/prospectus following this notice (including the Annexes and other documents referred to herein) for a more complete description of the proposed Business Combination and related transactions and each of the proposals. You are encouraged
to read the accompanying proxy statement/prospectus carefully and in its entirety, including the Annexes and other documents referred to herein. If you have any questions or need assistance voting your ordinary shares, please contact Morrow
Sodali LLC, our proxy solicitor, by calling (800) 662-5200 (toll-free), or banks and brokers can call (203) 658-9400, or by emailing LNFA.info@investor.morrowsodali.com.
Thank you for your participation. We look forward to your continued
support.
By Order of the Board of Directors of L&F Acquisition Corp.,
Jeffrey C. Hammes
Chairman of the Board of Directors
i
This document, which forms part of a registration statement on Form
S-4 filed with the U.S. Securities and Exchange Commission (the “SEC”) by L&F (File No. 333-262570), constitutes a prospectus of L&F under Section 5 of the U.S. Securities Act of
1933, as amended, with respect to certain securities of L&F to be issued in connection with the Business Combination described below. This document also constitutes a notice of meeting and a proxy statement of L&F under Section 14(a) of
the Securities Exchange Act of 1934, as amended, for the Shareholder Meeting of L&F to be held in connection with the Business Combination and related matters and at which L&F shareholders will be asked to consider and vote upon a
proposal to approve and adopt the Business Combination Agreement and the Business Combination, among other matters.
You may request copies of this proxy
statement/prospectus and any other publicly available information concerning L&F, without charge, by written request to L&F Acquisition Corp., 150 North Riverside Plaza, Suite 5200 Chicago, IL 60606, or by telephone request at (312)
701-1777; or Morrow Sodali, our proxy solicitor, by calling (800) 662-5200 (toll free), or banks and brokers can call (203) 658-9400, or by emailing LNFA.info@investor.morrowsodali.com, or from the SEC through the SEC website at
https://www.sec.gov.
In order for L&F’s shareholders to receive
timely delivery of the documents in advance of the Shareholder Meeting to be held on , 2022, you must request the information no later than , 2022 (five business days prior to the date of the Shareholder Meeting).
Unless otherwise stated or unless the context
otherwise requires, the terms “we,” “us,” “our,” and “L&F” refer to L&F Acquisition Corp. The terms “New ZeroFox,” “Company”, “combined company” and “post-Business Combination company” refer to ZeroFox Holdings, Inc. and its
subsidiaries following the consummation of the Business Combination. The term “ZeroFox” refers to ZeroFox, Inc., together with its subsidiaries, prior to the Business Combination. The term “IDX” refers to ID Experts Holdings, Inc. together with
its subsidiary, Identity Theft Guard Solutions, Inc. (“ITGS”) prior to the Business Combination.
In this proxy statement/prospectus, references to:
“Adjournment Proposal”
means the proposal as an ordinary resolution, to approve the adjournment of the Shareholder Meeting to a later date or dates if necessary to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the
Shareholder Meeting, there are insufficient L&F Ordinary Shares represented (either in person or by proxy) to constitute a quorum necessary to conduct business at the Shareholder Meeting or to approve the Articles Amendment Proposal, the
Business Combination Proposal, the Domestication Proposal, the Governing Documents Proposal, the Advisory Governing Documents Proposals, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal or the
Director Election Proposal.
“Advisory Governing Documents
Proposals” mean the proposals as ordinary resolutions and on a non-binding advisory basis, to approve certain material differences between the Existing Governing Documents and the Proposed Governing Documents.
“Articles Amendment Proposal”
means the proposal as a special resolution that the amendment of the Existing Governing Documents be approved.
“Available Closing Acquiror Cash”
means the aggregate cash proceeds from L&F’s Trust Account, together with the net cash proceeds from the Common Equity PIPE Financing and the Convertible Notes Financing, after deducting any amounts paid to Public Shareholders that exercise
their redemption rights in connection with the Business Combination.
“Available Closing Acquiror Cash
Condition” means the condition to the Closing, that the Available Closing Acquiror Cash shall not be less than $170,000,000.
“Business Combination” means
the transactions contemplated by the Business Combination Agreement.
iii
“Business Combination Agreement”
means the business combination agreement, dated as of December 17, 2021 by and among L&F, L&F Holdings, the Merger Subs, ZeroFox and IDX, as it may be amended and supplemented from time to time. A copy of the Business Combination
Agreement is attached to this proxy statement/prospectus as Annex A.
“Business Combination Proposal”
means the proposal as an ordinary resolution, that the Business Combination Agreement, and the consummation of the transactions contemplated thereby be approved, ratified and confirmed in all respects.
“Cayman Islands Companies Act”
means the Companies Act (As Revised) of the Cayman Islands as the same may be amended from time to time.
“Class A Ordinary Shares”
or “Public Shares” means the Class A ordinary shares, par value $0.0001 per share, of L&F.
“Class B Ordinary Shares”
means the Class B ordinary shares, par value $0.0001 per share, of L&F.
“Closing” means the closing
of the Business Combination.
“Closing Date” means the date
of the Closing.
“Code” means the Internal
Revenue Code of 1986, as amended.
“Common Equity PIPE Financing”
means the transactions contemplated by the Common Equity Subscription Agreements, pursuant to which the Common Equity PIPE Investors have collectively committed to subscribe for an aggregate of 2,000,000 shares of New ZeroFox Common Stock for
aggregate gross proceeds of $20,000,000 to be consummated in connection with Closing.
“Common Equity PIPE Investors”
means the investors in the Common Equity PIPE Financing pursuant to the Common Equity Subscription Agreements.
“Common Equity Subscription
Agreements” means the subscription agreements, dated December 17, 2021, entered into between L&F and each of the Common Equity PIPE Investors in connection with the Common Equity PIPE Financing, a form of which is attached
hereto as Annex D.
“Condition Precedent Proposals”
means the Business Combination Proposal, the Domestication Proposal, the Governing Documents Proposal, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal and the Director Election Proposal, each of
which is conditioned on the approval and adoption of each of the others.
“Continental” means Continental
Stock Transfer & Trust Company.
“Convertible Notes Financing”
means the transactions contemplated by the Convertible Notes Subscription Agreements, pursuant to which the Convertible Notes Investors have collectively committed to subscribe for an aggregate principal amount of $150,000,000 of 7.00%/8.75%
Convertible Senior Cash/PIK Toggle Notes with an initial conversion price of $11.50 per share of New ZeroFox Common Stock, on the terms and subject to the conditions set forth in the Convertible Notes Subscription Agreements and the Indenture,
to be consummated in connection with Closing.
“Convertible Notes Investors”
means investors in the Convertible Notes Financing pursuant to the Convertible Notes Subscription Agreements.
“Convertible Notes
Subscription Agreements” means the convertible notes subscription agreements, dated December 17, 2021, entered into between L&F and each of the Convertible Notes Investors in connection with the Convertible Notes Financing,
a form of which is attached hereto as Annex E.
“DGCL” means the Delaware
General Corporation Law, as amended.
“Director Election Proposal”
means the proposal as an ordinary resolution to elect eight (8) directors, effective upon the Closing, to serve staggered three-year terms on the New ZeroFox Board as set forth in the Proposed Certificate of Incorporation, and until such
directors’ successors have been duly elected and qualified, or until such directors’ earlier death, resignation, retirement or removal.
“DLLCA” means the Delaware
Limited Liability Company Act, as amended.
iv
“Domestication” means the
transfer by way of continuation and deregistration of L&F as an exempted company incorporated in the Cayman Islands and the continuation and domestication of L&F as a corporation incorporated in the State of Delaware.
“Domestication Proposal” means
the proposal as a special resolution, that the Domestication be approved, ratified and confirmed in all respects.
“DWAC” means The Depository
Trust Company’s deposit/withdrawal at custodian system.
“Effective Time” means the
time at which the IDX Forward Merger becomes effective.
“Employee Stock Purchase Plan Proposal”
means the proposal as an ordinary resolution to approve and adopt the ESPP.
“ESPP” means the ZeroFox
Holdings, Inc. 2022 Employee Stock Purchase Plan, a form of which is attached hereto as Annex I.
“Exchange Act” means the U.S.
Securities Exchange Act of 1934, as amended.
“Existing Governing
Documents” means the amended and restated memorandum and articles of association of L&F.
“Founder Shares” means the
aggregate 4,312,500 Class B Ordinary Shares that are currently owned by the L&F Initial Shareholders, of which 4,202,767 Class B Ordinary Shares are held by the Sponsor, 20,000 Class B Ordinary Shares are held by Albert Goldstein, 50,000
Class B Ordinary Shares are held by Joseph Lieberman and 39,733 Class B Ordinary Shares are held by Kurt Summers, and the New ZeroFox Common Stock that will be issued upon the automatic conversion of the Class B Ordinary Shares at the time of
L&F’s Domestication as described herein.
“GAAP” means U.S. generally
accepted accounting principles.
“Governing Documents Proposal”
means the proposal as a special resolution, that upon the Domestication, the Existing Governing Documents be amended and restated by the deletion in their entirety and the substitution in their place of the Proposed Certificate of Incorporation
and Proposed Bylaws.
“IDX” means ID Experts
Holdings, Inc., a Delaware corporation.
“IDX Capital Stock” means the
IDX Common Stock and the IDX Preferred Stock.
“IDX Cancelled Shares” means
all shares of IDX Capital Stock held in IDX’s treasury immediately prior to the IDX Effective Time or owned by L&F or IDX Merger Sub immediately prior to the IDX Effective Time, which automatically will be cancelled and will cease to exist at
the IDX Effective Time.
“IDX Common Stock” means the
common stock of IDX, par value $0.0001 per share.
“IDX Dissenting Shares” means
any shares of capital stock of IDX issued and outstanding immediately prior to the Closing and held by a holder who has not voted in favor of the IDX Merger or consented thereto in writing and who has properly exercised and perfected appraisal
rights for such shares in accordance with Section 262 of the DGCL, and has not effectively withdrawn or lost such appraisal rights.
“IDX Effective Time” means the
time of the filing of a certificate of merger with Secretary of State of the State of Delaware in order to effect the IDX Merger, or such later time as specified in such certificate of merger, upon which the IDX Merger is consummated.
“IDX Forward Merger Sub” means
IDX Forward Merger Sub, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of L&F Holdings.
“IDX Forward Merger” means the
merger of IDX Transitional Entity with and into IDX Forward Merger Sub.
“IDX Merger” means the merger
of IDX Merger Sub with and into IDX.
“IDX Merger Sub” means IDX
Merger Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings.
v
“IDX Preferred Stock”
means the preferred stock of IDX (series A-1 preferred stock, par value $0.0001 per share, series A-2 preferred stock, par value $0.0001 per share, and series B preferred stock, par value $0.0001 per share).
“Incentive Equity Plan” means
the ZeroFox Holdings, Inc. 2022 Incentive Equity Plan, a form of which is attached hereto as Annex H.
“Incentive Equity Plan Proposal”
means the proposal as an ordinary resolution to approve and adopt the Incentive Equity Plan.
“Indenture”
means the indenture to be entered into by L&F, the guarantors party thereto and the indenture trustee related to the issuance of an aggregate principal amount of $150,000,000 of 7.00%/8.75% Convertible Senior Cash/PIK Toggle Notes.
“Investment Amount”
means, collectively the amounts received in connection with the Common Equity PIPE Financing and the Convertible Notes Financing.
“Investment Company Act”
means the Investment Company Act of 1940, as amended.
“L&F” means L&F
Acquisition Corp., a Cayman Islands exempted company, prior to the consummation of the Domestication.
“L&F Board” means
L&F’s board of directors.
“L&F Closing Stock Price”
means an amount equal to the volume weighted average price per share rounded to four decimal places (with amounts 0.00005 and above rounded up) of the Class A Ordinary Shares on the NYSE or NASDAQ, as applicable, for the five consecutive trading
days ending with the complete trading day ending three Business Days prior to the Closing Date.
“L&F Holdings” means
L&F Acquisition Holdings, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of L&F.
“L&F Initial Shareholders”
or “Sponsor Holders” means the Sponsor, Albert Goldstein, Joseph Lieberman and Kurt Summers.
“L&F IPO” means L&F’s
initial public offering of its units, ordinary shares and warrants pursuant to its registration statement on Form S-1 declared effective by the SEC on November 18, 2020 (SEC File No. 333-249497).
“L&F Ordinary Shares” means
the Class A Ordinary Shares and the Class B Ordinary Shares.
“L&F Parties” means
L&F, L&F Holdings and the Merger Subs.
“L&F Private Placement Warrants”
means the 5,450,000 warrants held by the Sponsor and the 2,138,430 warrants held by Jefferies LLC that were issued in a private placement at the time of the L&F IPO, each of which is exercisable for one Class A Ordinary Share at an exercise
price of $11.50 per share.
“L&F Public Units” means
the units issued in the L&F IPO, consisting of one Class A Ordinary Share and one-half of one L&F Public Warrant.
“L&F Public Warrants”
means warrants to acquire Class A Ordinary Shares, issued as part of the L&F Public Units, at an initial exercise price of $11.50 per share.
“L&F Warrant Agreement”
means the warrant agreement, dated as of November 23, 2020, by and between L&F and Continental (as amended or amended and restated from time to time).
“L&F Warrants” means the
L&F Private Placement Warrants and the L&F Public Warrants.
“Listing Proposal”
means the proposal as an ordinary resolution to approve the issuance of more than 20% of L&F’s issued and outstanding ordinary shares in connection with the Business Combination, the Common Equity Financing and the Convertible Notes
Financing.
“Mergers” means following the
Domestication, (i) the merger of ZF Merger Sub with and into ZeroFox, with ZeroFox being the surviving entity and continuing as a direct, wholly-owned subsidiary of L&F Holdings, (ii) the merger of IDX Merger Sub with and into IDX, with IDX
being the surviving entity and continuing as a
vi
direct, wholly-owned subsidiary of L&F Holding (“IDX Transitional Entity”), and
(iii) the merger of IDX Transitional Entity with and into IDX Forward Merger Sub, with IDX Forward Merger Sub being the surviving entity and continuing as a direct, wholly-owned subsidiary of L&F Holdings.
“Merger Subs” means ZF Merger
Sub, IDX Merger Sub and IDX Forward Merger Sub.
“Morrow Sodali” means Morrow
Sodali LLC, L&F’s proxy solicitor.
“Nasdaq” means The Nasdaq
Stock Market LLC.
“New ZeroFox”
or “Company” means ZeroFox Holdings, Inc. (f.k.a. L&F Acquisition Corp.) after the Domestication and the Business Combination.
“New ZeroFox Board” means the
board of directors of New ZeroFox.
“New ZeroFox Common Stock”
means the common stock, par value $0.0001 per share, of New ZeroFox.
“New ZeroFox Preferred Stock”
means the preferred stock, par value $0.0001 per share, of New ZeroFox.
“New ZeroFox Private Placement
Warrants” means warrants representing the right to purchase shares of New ZeroFox Common Stock following the Domestication on the same contractual terms and conditions as the L&F Private Placement Warrants.
“New ZeroFox Public Warrants”
means the warrants representing the right to purchase shares of New ZeroFox Common Stock following the Domestication on the same contractual terms and conditions as the L&F Public Warrants.
“New ZeroFox Warrants” means
the New ZeroFox Private Placement Warrants and the New ZeroFox Public Warrants.
“Notes” means $150,000,000
aggregate principal amount of unsecured convertible notes due in 2025 to be issued in connection with the Convertible Notes Financing.
“NYSE” means the New York
Stock Exchange.
“OPM” means the U.S. Office
of Personnel Management.
“OPM Contract”
means the contract between OPM and IDX, a copy of which has been filed as an exhibit to the registration statement, of which this proxy statement/prospectus forms a part.
“Proposed Bylaws” means the
proposed bylaws of New ZeroFox, to be effective upon the Domestication, a form of which is attached to this proxy statement/prospectus as Annex C.
“Proposed Certificate of Incorporation”
means the proposed certificate of incorporation of New ZeroFox to be effective upon the Domestication, a form of which is attached to this proxy statement/prospectus as Annex B.
“Proposed Governing Documents”
means the Proposed Certificate of Incorporation and the Proposed Bylaws.
“Public Shareholders” means the
holders of Class A Ordinary Shares that were sold in the L&F IPO (whether they were purchased in the L&F IPO or thereafter in the open market).
“Record Date” means ,
2022.
“Redemption” means the
redemption of Class A Ordinary Shares for the Redemption Price.
“Redemption Deadline” means
5:00 p.m., Eastern Time, on , 2022 (two business days before the Shareholder Meeting).
“Redemption Price” means the
per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of the Business Combination, including interest earned on the funds held in the
Trust Account and not previously released to L&F to pay L&F’s taxes, divided by the number of then outstanding Class A Ordinary Shares.
“SEC” means the United States
Securities and Exchange Commission.
vii
“Securities Act” means the
Securities Act of 1933, as amended.
“Shareholder Meeting”
means the extraordinary general meeting of shareholders of L&F at a.m., Eastern Time, on , 2022, at the offices of Kirkland & Ellis LLP located at 601 Lexington Avenue, 50th Floor, New York, New York
10022, and via a virtual meeting, or at such other time, on such other date and at such other place to which the meeting may be postponed or adjourned.
“Sponsor” means JAR Sponsor,
LLC, a Delaware limited liability company.
“Sponsor Group” means the
Sponsor, the L&F directors and officers and entities affiliated with the L&F directors and officers.
“Target Companies” means
ZeroFox and IDX.
“Transfer Agent” means
Continental.
“Trust Account” means the trust
account established at the consummation of the L&F IPO that holds the proceeds of the L&F IPO and is maintained by Continental, acting as trustee.
“ZeroFox” means ZeroFox,
Inc., a Delaware corporation.
“ZeroFox Board” means the
board of directors of ZeroFox.
“ZeroFox Common Stock” means
the common stock of ZeroFox, par value $0.00001 per share.
“ZeroFox Preferred Stock”
means the preferred stock of ZeroFox (series Seed preferred stock, par value $0.00001 per share, series A preferred stock, par value $0.00001 per share, series B preferred stock, par value $0.00001 per share, series C preferred stock, par value
$0.00001 per share, series C-1 preferred stock, par value $0.00001 per share, series D preferred stock, par value $0.00001 per share, series D-1 preferred stock, par value $0.00001 per share, series D-2 preferred stock, par value $0.00001 per
share, and series E preferred stock, par value $0.00001 per share).
“ZF Cancelled Shares” means all
shares of ZeroFox Common Stock held in ZeroFox’s treasury immediately prior to the ZF Effective Time or owned by L&F or ZF Merger Sub immediately prior to the ZF Effective Time, which automatically will be cancelled and will cease to exist at
the ZF Effective Time.
“ZF Dissenting Shares” means
any shares of capital stock of ZeroFox issued and outstanding immediately prior to the Closing and held by a holder who has not voted in favor of the ZF Merger or consented thereto in writing and who has properly exercised and perfected appraisal
rights for such shares in accordance with Section 262 of the DGCL, and has not effectively withdrawn or lost such appraisal rights.
“ZF Effective Time” means the
time of the filing of a certificate of merger with Secretary of State of the State of Delaware in order to effect the ZF Merger, or such later time as specified in such certificate of merger, upon which the ZF Merger is consummated.
“ZF Mandatory Conversion” means
the conversion of the ZeroFox Preferred Stock into shares of ZeroFox Common Stock immediately prior to the Closing.
“ZF Merger” means the merger
of ZF Merger Sub with and into ZeroFox.
“ZF Merger Sub” means ZF Merger
Sub, Inc., a Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings.
This proxy statement/prospectus includes references to the trademarks,
trade names and service marks belonging to other entities. Solely for convenience, trademarks, trade names and service marks referred to in this proxy statement/prospectus may appear without the ® or TM symbols, but such references are not
intended to indicate, in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks, trade names and service marks. L&F does not intend its use or display of other
companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of it by, any other companies.
viii
Information contained in this proxy statement/prospectus concerning the
market and the industry in which ZeroFox and IDX compete, including their market positions, general expectations of market opportunities and market sizes, are based on information from various third-party sources, publicly available information,
various industry publications, internal data and estimates, and assumptions made by ZeroFox and IDX based on such sources and ZeroFox’s and IDX’s knowledge of the external cybersecurity market and data breach response market. Internal data and
estimates are based upon information obtained from trade and business organizations and other contacts in the markets in which ZeroFox and IDX operate and ZeroFox’s and IDX’s respective management’s understanding of industry conditions. This
information and any estimates provided herein involve numerous assumptions and limitations, and you are cautioned not to give undue weight to such information. Third-party sources generally state that the information contained in such sources
have been obtained from sources believed to be reliable. Although we believe that such information is reliable, there can be no assurance as to the accuracy or completeness of such information. Industry and market data could be wrong because of
the method by which sources obtained their data and because information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and
other limitations and uncertainties. We have not independently verified any third-party information and each publication speaks as of its original publication date (and not as of the date of this proxy statement/prospectus). In addition, we do
not know all of the assumptions regarding general economic conditions or growth that were used in preparing the forecasts from the sources relied upon or cited herein. The industry in which ZeroFox and IDX operates is subject to a high degree of
uncertainty and risk. As a result, the estimates and market and industry information provided in this proxy statement/prospectus are subject to change.
The statements contained in this proxy statement/prospectus that are
not purely historical are forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding L&F’s expectations, hopes, beliefs, intentions or strategies regarding the future. The information included
in this proxy statement/prospectus in relation to the Target Companies has been provided by the Target Companies and their respective management teams, and forward-looking statements include statements relating to the expectations of the Target
Companies’ management teams, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying
assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions
may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this proxy statement/prospectus may include, for example, statements about:
|
•
|
L&F’s ability to complete the Business Combination, or, if L&F does not consummate the Business Combination, any other
initial business combination;
|
|
•
|
L&F’s ability to obtain financing to complete the Business Combination;
|
|
•
|
the expected benefits of the Business Combination;
|
|
•
|
New ZeroFox’s expansion plans and opportunities; and
|
|
•
|
New ZeroFox’s future financial and operating performance after the Business Combination.
|
The forward-looking statements contained in this proxy
statement/prospectus are based on current expectations and beliefs of L&F’s and the Target Companies’ managements concerning future developments and their potential effects on the Business Combination and the Target Companies. There can be no
assurance that future developments affecting L&F and the Target Companies will be those that have been anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond L&F’s and the Target
Companies’ control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to,
the items in the following list, which summarizes some of the principal risks relating to the Business Combination and L&F’s and the Target Companies’ businesses:
|
•
|
the occurrence of any event, change or other circumstance that could delay, impede or prevent the Business Combination or give
rise to the termination of the Business Combination Agreement;
|
ix
|
•
|
defects, errors, or vulnerabilities in ZeroFox’s platform, the failure of ZeroFox’s platform to block malware or prevent a
security breach, misuse of ZeroFox’s platform, or risks of product liability claims would harm ZeroFox’s reputation and adversely impact the combined company’s business, operating results, and financial condition;
|
|
•
|
if ZeroFox’s enterprise platform offerings do not interoperate with its customers’ network and security infrastructure, or with
third-party products, websites or services, the combined company’s results of operations may be harmed;
|
|
•
|
ZeroFox may not timely and cost-effectively scale and adapt its existing technology to meet its customers’ performance and other
requirements;
|
|
•
|
ZeroFox’s success depends, in part, on the integrity and scalability of its systems and infrastructure. System interruption and
the lack of integration, redundancy and scalability in these systems and infrastructure may adversely affect the combined company’s business, financial condition, and results of operations;
|
|
•
|
ZeroFox has a history of losses, and the combined company may not be able to achieve or sustain profitability in the future;
|
|
•
|
adverse general and industry-specific economic and market conditions and reductions in customer spending, in either the private or
public sector, may reduce demand for ZeroFox’s platform or products and solutions, which could harm the combined company’s business, financial condition and results of operations;
|
|
•
|
the COVID-19 pandemic could adversely affect the combined company’s business, operating results, and financial condition;
|
|
•
|
ZeroFox faces intense competition and could lose market share to its competitors, which could adversely affect the combined
company’s business, financial condition, and results of operations;
|
|
•
|
if organizations do not adopt cloud, and/or SaaS-delivered external cybersecurity solutions that may be based on new and untested
security concepts, the combined company’s ability to grow its business and results of operations may be adversely affected;
|
|
•
|
if ZeroFox fails to adapt to rapid technological change, evolving industry standards and changing customer needs, requirements or
preferences, the combined company’s ability to remain competitive could be impaired;
|
|
•
|
the combined company may need to raise additional capital to maintain and expand its operations and invest in new solutions, which
capital may not be available on acceptable terms, or at all;
|
|
•
|
one U.S. government customer has accounted for a substantial portion of IDX’s revenues and is expected to account for a
substantial portion of the combined company’s revenues following the Business Combination. If IDX’s largest customer does not renew its contract with IDX (or renews at reduced spending levels), or if IDX’s relationship with its largest
customer is impaired or terminated, IDX’s revenues could decline, and the combined company’s business, financial condition, and results of operations would be adversely affected; and
|
|
•
|
other risks and uncertainties discussed elsewhere in this proxy statement/prospectus, including in the section entitled “Risk
Factors.”
|
Should one or more of these risks or uncertainties materialize, or
should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, except as may be required under applicable securities laws. Before a shareholder grants its proxy or instructs how its votes should be cast or voted on the proposals set forth in this proxy
statement/prospectus, it should be aware that the occurrence of the events described in the section titled “Risk Factors” and elsewhere in this proxy statement/prospectus may adversely affect L&F or the Target Companies.
x
This summary highlights selected information from
this proxy statement/prospectus and does not contain all of the information that is important to you. To better understand the proposals to be submitted for a vote at the Shareholder Meeting, including the Business Combination Proposal, you
should read this entire document carefully and in its entirety, including the Annexes and accompanying financial statements of L&F, ZeroFox and IDX. The Business Combination Agreement is the legal document that governs the Business
Combination and the other transactions that will be undertaken in connection therewith. The Business Combination Agreement is attached hereto as Annex A and is also described in detail in this proxy statement/prospectus in the section entitled
“The Business Combination Proposal — The Business Combination Agreement.” This proxy statement/prospectus also includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.”
Parties to the Business Combination
L&F
L&F is a blank check company organized as a Cayman Islands
exempted company on November 18, 2020 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses or entities.
Our Class A Ordinary Shares and the L&F Public Warrants are
currently listed on the NYSE under the symbols “LNFA” and “LNFA WS,” respectively. Certain of our Class A Ordinary Shares and L&F Public Warrants currently trade as units consisting of one Class A Ordinary Share and one-half of one
redeemable L&F Public Warrant, and are listed on the NYSE under the symbol “LNFA.U.” In connection with the Domestication, the units will automatically separate into their component securities and, as a result, will no longer trade as an
independent security. Upon the Domestication, our name will change from “L&F Acquisition Corp.” to “ZeroFox Holdings, Inc.” We intend to list the New ZeroFox Common Stock and New ZeroFox Warrants on Nasdaq under the symbols “ZFOX” and
“ZFOXW,” respectively, upon the Closing.
L&F’s principal executive offices are located at 150 North
Riverside Plaza, Suite 5200, Chicago, Illinois 60606 and its phone number is (312) 705-2786.
L&F Holdings
L&F Holdings is a Delaware limited liability company and a
direct, wholly-owned subsidiary of L&F formed on November 23, 2021. In connection with the Business Combination, L&F Holdings is operating as the holding company and wholly owns each of the Merger Subs. L&F Holdings’ principal
executive offices are located at 150 North Riverside Plaza, Suite 5200, Chicago, Illinois 60606 and its phone number is (312) 705-2786.
ZF Merger Sub
ZF Merger Sub is a Delaware corporation and a direct, wholly-owned
subsidiary of L&F Holdings formed on November 23, 2021. In connection with the Business Combination, ZF Merger Sub will merge with and into ZeroFox, with ZeroFox continuing as the surviving company. ZF Merger Sub’s principal executive
offices are located at 150 North Riverside Plaza, Suite 5200, Chicago, Illinois 60606 and its phone number is (312) 705-2786.
IDX Merger Sub
IDX Merger Sub is a Delaware corporation and a direct, wholly-owned
subsidiary of L&F Holdings formed on November 23, 2021. In connection with the Business Combination, IDX Merger Sub will merge with and into IDX, with IDX continuing as the surviving company and referred to in this proxy
statement/prospectus as “Transitional IDX Entity.” IDX Merger Sub’s principal executive offices are located at 150 North Riverside Plaza, Suite 5200, Chicago, Illinois 60606 and its phone number is (312)
705-2786.
IDX Forward Merger Sub
IDX Forward Merger Sub is a Delaware limited liability company and a
direct, wholly-owned subsidiary of L&F Holdings formed on November 23, 2021. In connection with the Business Combination, Transitional IDX Entity will merge with and into IDX Forward Merger Sub immediately after the IDX Merger, with IDX
Forward Merger Sub continuing as the surviving company. IDX Forward Merger Sub’s principal executive offices are located at 150 North Riverside Plaza, Suite 5200, Chicago, Illinois 60606, and its phone number is (312) 705-2786.
1
ZeroFox
ZeroFox, Inc., a Delaware corporation, is an enterprise
cybersecurity software-as-a-service provider of digital attack detection and protection services. ZeroFox’s patented technology collects and processes content, rich media, electronic posts, messages, global intelligence and threat actor
activity across the digital landscape, including social media sites, public, deep and dark web forums, mobile app stores and other digital platforms and discrete content sources. Using artificial intelligence-based analysis and threat
intelligence capabilities, the ZeroFox platform identifies and remediates targeted phishing attacks, credential and account compromise, data exfiltration and brand hijacking threats. ZeroFox offers its services on a subscription basis.
ZeroFox’s principal executive offices are located at 1834 S. Charles
Street, Baltimore, Maryland 21230 and its phone number is (855) 936-9369.
For more information about ZeroFox, see the sections entitled “Business of ZeroFox” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of ZeroFox.”
IDX
ID Experts Holdings, Inc., a Delaware corporation, is a data security
company that provides data breach response services and identity and privacy protection services to its customers.
IDX’s principal executive offices are located at 10300 SW Greenburg
Road, Suite 570, Portland, Oregon 97223, and its phone number is (800) 298-7558.
For more information about IDX, see the sections entitled “Business of ZeroFox—IDX History and Business Overview” and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations of IDX.”
Summary of the Business Combination Agreement
Upon the terms and subject to the conditions of the Business
Combination Agreement, in accordance with the DGCL, the DLLCA, and other applicable laws, (i) ZF Merger Sub will be merged with and into ZeroFox, with ZeroFox being the surviving entity in the ZF Merger and continuing (immediately following the
ZF Merger) as a direct, wholly-owned subsidiary of L&F Holdings, (ii) IDX Merger Sub will be merged with and into IDX, with IDX being the surviving entity in the IDX Merger as the Transitional IDX Entity and continuing (immediately
following the IDX Merger) as a direct, wholly-owned subsidiary of L&F Holdings (the “Transitional IDX Entity”), and (iii) Transitional IDX Entity will be merged with and into IDX Forward Merger Sub,
with IDX Forward Merger Sub being the surviving entity in the IDX Forward Merger and continuing (immediately following the IDX Forward Merger) as a direct, wholly-owned Subsidiary of L&F Holdings.
Consideration Received under the Business Combination Agreement
In accordance with the terms and subject to the conditions of the
Business Combination Agreement, (i) at the ZF Effective Time, (a) each share of ZeroFox Common Stock (including shares of ZeroFox restricted stock) issued and outstanding immediately prior to the ZF Effective Time (after giving effect to the ZF
Mandatory Conversion and other than ZF Dissenting Shares and ZF Cancelled Shares) will be automatically cancelled and extinguished and converted into the right to receive a fraction of a share of New ZeroFox Common Stock determined in
accordance with the Business Combination Agreement on the basis of a pre-money enterprise value of ZeroFox of $866,250,000 on a fully-diluted basis and a price of $10.00 per share of New ZeroFox Common Stock (as described in further detail in
this proxy statement/prospectus, the “ZF Closing Stock Per Share Consideration”), (b) each issued, outstanding and unexercised warrant to purchase shares of ZeroFox Common Stock or ZeroFox Preferred Stock
as of immediately prior to the ZF Effective Time will be assumed and converted into a comparable warrant to purchase shares of New ZeroFox Common Stock determined in accordance with the Business Combination Agreement based on the ZF Closing
Stock Per Share Consideration, (c) each outstanding and unexercised option to purchase shares of ZeroFox Common Stock (whether vested or unvested) as of immediately prior to the ZF Effective Time will be assumed and converted into a comparable
option to purchase shares of New ZeroFox Common Stock determined in accordance with the Business Combination Agreement based on the ZF Closing Stock Per Share Consideration; and (ii) at the IDX Effective Time, (a) each share of IDX Common Stock
and IDX Preferred Stock issued and outstanding immediately prior
2
to the IDX Effective Time (other than IDX Dissenting Shares and IDX Cancelled Shares)
will be automatically cancelled and extinguished and converted into the right to receive (A) for IDX Common Stock and series A-1 and series A-2 IDX Preferred Stock, a fraction of a share of New ZeroFox Common Stock, (B) for IDX Common Stock and
series A-1 and series A-2 IDX Preferred Stock, a portion of $50,000,000 in cash consideration (subject to certain adjustments for cash, working capital, debt and transaction expenses, and net of liquidation preferences, as provided in the
Business Combination Agreement), and (C) for series A-1, series A-2 and series B IDX Preferred Stock, a liquidation preference amount of $0.361 per share, in each case, in accordance with the Business Combination Agreement and on the basis of a
pre-money enterprise value of IDX of $338,750,000 on a fully-diluted basis and a price of $10.00 per share of New ZeroFox Common Stock (as described in further detail in this proxy statement/prospectus), (b) each issued, outstanding and
unexercised warrant to purchase shares of IDX Common Stock or IDX Preferred Stock as of immediately prior to the IDX Effective Time will be assumed and converted into a comparable warrant to purchase shares of New ZeroFox Common Stock
determined in accordance with the Business Combination Agreement based on the IDX Total Per Share Consideration or IDX Total Preferred Per Share Consideration (each such term as defined in this proxy statement/prospectus), as applicable, and
(c) each outstanding and unexercised option (as of immediately prior to the IDX Effective Time) to purchase shares of IDX Common Stock (whether vested or unvested) will be assumed and converted into a comparable option to purchase shares of New
ZeroFox Common Stock determined in accordance with the Business Combination Agreement based on the IDX Total Per Share Consideration.
For additional information regarding the consideration payable under
the Business Combination Agreement, see the section in this proxy statement/prospectus entitled “The Business Combination Proposal — Consideration to be Received in the Business Combination.”
Organizational Structure
The diagram below depicts a simplified version of our organizational
structure immediately before and immediately following the completion of the Domestication, the Mergers and the Business Combination.
L&F before the Business
Combination
3
Simplified Organizational
Structure after giving effect to the Domestication, Mergers and Business Combination
Following the completion of the Domestication, the Mergers and the
Business Combination, as described above, our organizational structure will be what is commonly referred to as a holding and operational company structure. This organizational structure will allow New ZeroFox to retain an indirect equity
ownership in each of ZeroFox and IDX through units that it holds in L&F Holdings (to be renamed ZeroFox Holdings, LLC in connection with the Closing), an entity that is disregarded for U.S. federal income tax purposes. The parties agreed
to structure the Business Combination in this manner for tax and other business purposes, and we do not believe that our organizational structure will give rise to any significant business or strategic benefit or detriment. See the section
entitled “Risk Factors — Risks Related to L&F, the Business Combination and the Company” for additional information on our organizational structure.
Equity Ownership Upon Closing
As of the date of this proxy statement/prospectus, there are (i)
17,250,000 Class A Ordinary Shares issued and outstanding and (ii) 4,312,500 Class B Ordinary Shares issued and outstanding. In addition, as of the date of this proxy statement/prospectus, there are outstanding 5,450,000 L&F Private
Placement Warrants held by the Sponsor, 2,138,430 L&F Private Placement Warrants held by Jefferies and 8,625,000 L&F Public Warrants. Each whole warrant entitles the holder thereof to purchase one Class A Ordinary Share and, following
the
5
Domestication, will entitle the holder thereof to purchase one share of New
ZeroFox Common Stock. Therefore, as of the date of this proxy statement/prospectus (without giving effect to the Business Combination and assuming that none of the Class A Ordinary Shares are redeemed in connection with the Business
Combination), L&F’s fully-diluted share capital (after giving effect to the exercise of all of the L&F Private Placement Warrants and all of the L&F Public Warrants) would be 37,775,930 L&F Ordinary Shares.
The following table illustrates varying ownership levels in New
ZeroFox Common Stock immediately following the consummation of the Business Combination based on the varying levels of redemptions by the Public Shareholders and the following additional assumptions: (i) 83,371,892 shares of New ZeroFox
Common Stock are issued to the ZeroFox shareholders at Closing in both a no redemption scenario and a maximum redemption scenario; (ii) 27,815,924 shares of New ZeroFox Common Stock are issued to the IDX shareholders at Closing in both a no
redemption scenario and a maximum redemption scenario; (iii) all outstanding ZeroFox warrants and IDX warrants will be exercised on a cash basis immediately prior to the Closing; (iv) 2,000,000 shares of New ZeroFox Common Stock are issued in
the Common Equity PIPE Financing; (v) no New ZeroFox Public Warrants and New ZeroFox Private Placement Warrants issued in connection with the Business Combination to purchase New ZeroFox Common Stock that will be outstanding immediately
following Closing have been exercised; (vi) no Notes issued in the Convertible Notes Financing have been converted; and (vii) all outstanding vested and unvested ZeroFox options and IDX options are converted into New ZeroFox Options (as
defined in this proxy statement/prospectus) exercisable for shares of New ZeroFox Common Stock.
Based on these assumptions, and assuming that no outstanding
Class A Ordinary Shares are redeemed in connection with the Business Combination, there would be approximately 134,750,316 shares of New ZeroFox Common Stock outstanding immediately following the consummation of the Business Combination. If
the actual facts are different than these assumptions, the ownership percentages in New ZeroFox will be different.
For example, there are currently outstanding an aggregate of
16,213,430 L&F Warrants to acquire our Class A Ordinary Shares, which are comprised of 7,588,430 L&F Private Placement Warrants and 8,625,000 L&F Public Warrants sold as part of the L&F Public Units sold in the L&F IPO.
Each outstanding L&F Warrant would be exercisable as a New ZeroFox Warrant commencing 30 days following the Closing for one share of New ZeroFox Common Stock. If we assume that each outstanding warrant is exercised and one share of New
ZeroFox Common Stock is issued as a result of such exercise, with payment to New ZeroFox of the exercise price of $11.50 per warrant for one share, our fully-diluted share capital would increase by a total of 16,213,430 shares, with
$186,454,445 paid to New ZeroFox to exercise the warrants. In addition, an aggregate principal amount of $150,000,000 of Notes will be issued in the Convertible Notes Financing. The Notes may be converted at a conversion price of $11.50 per
share of New ZeroFox Common Stock. If we assume that the Notes (excluding any paid-in-kind interest) are converted in full and settled fully in shares, our fully-diluted share capital would increase by a total of 13,043,475 shares.
|
|
| |
Share Ownership in New ZeroFox
|
|||
|
|
| |
No redemptions
|
| |
Maximum
redemptions(1)
|
|
|
| |
Percentage of
Outstanding Shares
|
| |
Percentage of
Outstanding Shares
|
|
L&F Public Shareholders(2)
|
| |
12.8%
|
| |
—
|
|
L&F Initial Shareholders(3)
|
| |
3.2%
|
| |
3.7%
|
|
Common Equity PIPE Investors(4)
|
| |
1.5%
|
| |
1.7%
|
|
ZeroFox Shareholders(5)
|
| |
61.9%
|
| |
71.0%
|
|
IDX Shareholders(6)
|
| |
20.6%
|
| |
23.7%
|
|
(1)
|
Assumes that all 17,250,000 Class A Ordinary Shares outstanding are redeemed for an aggregate payment of approximately
$175,100,000 (based on the estimated per share redemption price of approximately $10.15 per share) from the Trust Account. As the proceeds (without taking into account offering expenses) from the Common Equity PIPE Financing and the
Convertible Notes Financing are expected to satisfy the Available Closing Acquiror Cash Condition, the maximum redemption scenario reflects the redemption of 100% of the Class A Ordinary Shares held by the Public Shareholders; amounts
do not sum due to rounding.
|
|
(2)
|
Represents shares of New ZeroFox Common Stock to be issued upon conversion of 17,250,000 Class A Ordinary Shares issued in
connection with the L&F IPO.
|
|
(3)
|
Represents shares of New ZeroFox Common Stock to be issued upon conversion of 4,312,500 Class B Ordinary Shares acquired by
the L&F Initial Shareholders prior to or in connection with the L&F IPO (including 20,000 shares held by Albert Goldstein, 50,000 shares held by Joseph Lieberman and 39,733 shares held by Kurt Summers). Includes 1,293,750
shares of New ZeroFox Common Stock held
|
6
by the L&F Initial Shareholders under both scenarios that are subject to
forfeiture if certain earnout conditions are not satisfied, as the shares are issued and outstanding as of the closing date of the Business Combination.
|
(4)
|
Consists of 2,000,000 shares of New ZeroFox Common Stock to be issued in the Common Equity PIPE Financing.
|
|
(5)
|
Includes 1,698,148 shares of New ZeroFox Common Stock to be issued in exchange for shares of ZeroFox Common Stock assumed to
be issued upon the cash exercise of ZeroFox warrants prior to the Closing.
|
|
(6)
|
Includes 91,751 shares of New ZeroFox Common Stock to be issued in exchange for shares of IDX Common Stock assumed to be
issued upon the cash exercise of IDX warrants prior to the Closing.
|
The numbers of shares and percentage interests set forth above
have been presented for illustrative purposes only and do not necessarily reflect what New ZeroFox’s share ownership will be after the Closing. For more information about the consideration to be received in the Business Combination, these
scenarios and the underlying assumptions, see “Unaudited Pro Forma Condensed Combined Financial Information” and “Business Combination
Proposal — The Business Combination Agreement — Consideration to be Received in the Business Combination.”
Conditions to Completion of the Business Combination Agreement
The Business Combination Agreement is subject to the satisfaction or
waiver of certain customary closing conditions, including, among others:
|
•
|
all applicable waiting periods (and any extensions) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the
rules and regulations promulgated thereunder (the “HSR Act”) in respect of the Business Combination will have expired or been terminated (which expired on January 31, 2022);
|
|
•
|
the absence of laws or governmental orders prohibiting the Domestication or the Business Combination;
|
|
•
|
required shareholder approvals of L&F (the requisite shareholder approvals of ZeroFox and IDX having been obtained);
|
|
•
|
the Common Equity PIPE Financing and the Convertible Notes Financing (and the funding of the Investment Amount) will have been
consummated or will be consummated substantially concurrently with the Closing in accordance with the terms of the applicable subscription agreements;
|
|
•
|
the effectiveness of the registration statement, of which this proxy statement/prospectus is a part;
|
|
•
|
the listing or approval for listing on Nasdaq or the NYSE of the New ZeroFox Common Stock to be issued or reserved for issuance
in connection with the Business Combination;
|
|
•
|
(i) the aggregate net cash proceeds from the Trust Account (after deducting any amounts paid to Public Shareholders that
exercise their redemption rights in connection with the Business Combination), together with the net cash proceeds from the Common Equity PIPE Financing and the Convertible Notes Financing, equaling no less than $170,000,000; and (ii)
L&F will have at least $5,000,001 in tangible net assets (as determined in accordance with Rule 3a51-1(g)(1) under the Exchange Act) (the “Tangible Net Assets Condition”). The
parties to the Business Combination Agreement have waived the Tangible Net Assets Condition, subject to the approval of the Articles Amendment Proposal and the Business Combination Proposal.
|
|
•
|
the accuracy of the representations and warranties of ZeroFox, IDX and L&F as of the date of the Business Combination
Agreement and as of the Closing (subject to customary materiality qualifiers);
|
|
•
|
each of the covenants and agreements of IDX, ZeroFox and L&F to be performed or complied with under the Business Combination
Agreement prior to or at Closing having been performed or complied with in all material respects;
|
|
•
|
no Company Material Adverse Effect (as such term is defined in this proxy statement/prospectus) on the part of ZeroFox or IDX or
Acquiror Material Adverse Effect (as such term is defined in this proxy statement/prospectus) on the part of L&F occurring after the date of the Business Combination Agreement and continuing at the Effective Time; and
|
|
•
|
other customary de-SPAC deal conditions.
|
7
Other conditions to the obligation of ZeroFox and IDX to
consummate the Business Combination include, among others, the condition that the Domestication will have been completed as provided for in the Business Combination Agreement.
For additional information regarding the conditions to the completion
of the Business Combination Agreement, see the section in this Proxy Statement entitled “The Business Combination Proposal – Conditions to the Closing of the Business Combination.”
Effect of the Domestication on Existing L&F Equity
The Domestication will result in, among other things, the following,
each of which will occur prior to the Effective Time on the Closing Date:
|
•
|
each issued and outstanding Class A Ordinary Share will be converted, on a one-for-one basis, into one share of New ZeroFox
Common Stock;
|
|
•
|
each issued and outstanding L&F Class B Ordinary Share will be converted, on a one-for-one basis, into one share of New
ZeroFox Common Stock;
|
|
•
|
each issued and outstanding L&F Public Warrant and L&F Private Placement Warrant exercisable for one Class A Ordinary
Share will be converted, on a one-for-one basis, into one warrant exercisable for one share of New ZeroFox Common Stock; and
|
|
•
|
the governing documents of L&F will be replaced by the Proposed Certificate of Incorporation and the Proposed Bylaws as
described in this proxy statement/prospectus and L&F’s name will change to “ZeroFox Holdings, Inc.”
|
Related Agreements
Sponsor Support Letter Agreement
Concurrently with the execution of the Business Combination
Agreement, (i) L&F, (ii) the Sponsor, Albert Goldstein and Joseph Lieberman, (iii) ZeroFox, (iv) IDX, and (v) Jeffrey C. Hammes, Adam Gerchen, Tom Gazdziak and Richard Levy (solely for the limited purposes set forth therein) entered into
an Amended and Restated Sponsor Support Letter Agreement. On January 31, 2022, (i) L&F, (ii) the Sponsor Holders, (iii) ZeroFox, (iv) IDX, and (v) Jeffrey C. Hammes, Adam Gerchen, Tom Gazdziak and Richard Levy (solely for the limited
purposes set forth therein), entered into a Second Amended and Restated Sponsor Support Letter Agreement, a copy of which is attached hereto as Annex F (the “Sponsor Support Letter Agreement”).
Pursuant to the Sponsor Support Letter Agreement, the Sponsor Holders have agreed to subject an aggregate of 1,293,750 shares of New ZeroFox Common Stock held by such Sponsor Holders to an earnout, whereby such shares will be forfeited unless
the following volume-weighted average share price thresholds are met in trading or are deemed to occur in connection with a Change of Control (as defined in the Business Combination Agreement) within five years from the Closing: one-third
vesting if the volume-weighted average share price equals or exceeds $12.50; one-third vesting if the volume-weighted average share price equals or exceeds $15.00; and one-third vesting if the volume-weighted average share price equals or
exceeds $17.50. In addition, the Sponsor Holders have agreed to (i) vote in favor of the Business Combination Agreement and the transactions contemplated thereby (including the Mergers), (ii) waive the anti-dilution or similar protection with
respect to the Founder Shares (whether resulting from the transactions contemplated by the Common Equity PIPE Financing, the Convertible Notes Financing, the Domestication, the Mergers or otherwise), (iii) be bound by certain other covenants
and agreements related to the Business Combination, and (iv) not transfer (subject to customary exceptions) any Founder Shares until the earlier of (a) one year after the Closing, (b) the share price equaling or exceeding $12.00 on a
volume-weighted average price basis for any 20 trading days within any 30 trading day period commencing at least 150 days after the Closing, and (c) the completion of a transaction that results in all shareholders having the right to exchange
shares for cash, securities or other property.
Common Equity PIPE Financing
Concurrently with the execution of the Business Combination
Agreement, L&F entered into subscription agreements (the “Common Equity Subscription Agreements”) with certain investors, including, among others, L&F Acquisition Holdings Fund, LLC (an affiliate
of Victory Park Capital Advisors, LLC, an entity affiliated
8
with Richard Levy, a director of L&F), GCP-OI I, LLC (an entity affiliated with
Adam Gerchen, L&F’s chief executive officer and a director of L&F), JCH Investments LLC (an entity affiliated with Jeffrey C. Hammes, the chairman of the L&F Board), certain existing shareholders of ZeroFox (including funds
affiliated with New Enterprise Associates and Highland Capital, and Alsop Louie Partners (the “ZeroFox Investors”)), and certain existing shareholders of IDX (including funds affiliated with Blue Venture
Fund, Peloton Equity and ForgePoint Capital (the “IDX Investors”)). Pursuant to the Common Equity Subscription Agreements, the Common Equity PIPE Investors agreed to subscribe for and purchase, and
L&F agreed to issue and sell to such investors, on the Closing Date, an aggregate of 2,000,000 shares of New ZeroFox Common Stock in exchange for an aggregate purchase price of $20,000,000.
In addition, on December 16, 2021, the ZeroFox Investors purchased
PIK promissory notes issued by ZeroFox (the “ZeroFox PIK Promissory Notes”) for an aggregate purchase price of $5,000,000. Such ZeroFox PIK Promissory Notes accrue interest that will be paid-in-kind at a
rate of 5.0% per annum and mature upon the earlier of the Closing and the one-year anniversary of the date of issuance. If the Closing occurs, the repayment of the original principal amount of the ZeroFox PIK Promissory Notes may be offset
against amounts owed by the ZeroFox Investors under their Common Equity Subscription Agreements.
In addition, if the Closing occurs, any portion of Closing cash
consideration to which the IDX Investors are entitled in connection with the consummation of the Business Combination may be reduced to fund the subscription amount the IDX Investors would otherwise be required to pay pursuant to the Common
Equity Subscription Agreements.
The closing of the Common Equity PIPE Financing is contingent upon,
among other things, the substantially concurrent consummation of the Business Combination. The Common Equity Subscription Agreements provide that L&F will grant the investors in the Common Equity PIPE Financing certain customary
registration rights.
Convertible Notes Financing
In connection with signing the Business Combination Agreement,
L&F entered into Convertible Notes Subscription Agreements with the Convertible Notes Investors, in respect of $150,000,000 aggregate principal amount of unsecured convertible notes due in 2025 (the “Notes”)
to be issued in connection with the Convertible Notes Financing. The principal terms of the Notes are set forth in the form of indenture attached as an exhibit to the Convertible Notes Subscription Agreements, which indenture will be entered
into by L&F, the guarantors party thereto and the indenture trustee (the “Indenture”), and the form of global note attached thereto. The Notes will bear interest at a rate of 7.00% per
annum, payable quarterly in cash; provided, that the issuer may elect to pay interest in kind at a rate of 8.75% per annum. The Notes will be convertible at an initial conversion price of $11.50 per share, subject to customary anti-dilution
adjustments, including with respect to stock-splits and stock dividends, dividends and other distributions, above-market tender offers, below-market rights offerings and spin-offs (the “Conversion Price”),
and will mature on the date that is three years following the closing of the Convertible Notes Financing. New ZeroFox may, at its election, force conversion of the Notes after the first anniversary of the issuance of the Notes (the “Conversion Trigger Date”), subject to a holder’s prior right to convert, if the volume-weighted average trading price of the New ZeroFox Common Stock (x) for the first year after the Conversion
Trigger Date, is greater than or equal to 150% of the Conversion Price for at least 20 trading days during a period of 30 consecutive trading days and (y) for the second year after the Conversion Trigger Date, is greater than or equal to 130%
of the Conversion Price for at least 20 trading days during a period of 30 consecutive trading days. Upon conversion of any Note, New ZeroFox shall have the option to settle the conversion in cash, shares of New ZeroFox Common Stock or a
combination of both. Each holder of a Note will have the right to cause New ZeroFox to repurchase for cash all or a portion of the Notes held by such holder at any time upon the occurrence of a “fundamental change”, a customary definition
provided in the Indenture (a “Fundamental Change”), at a price equal to par plus accrued and unpaid interest. In the event of a conversion in connection with a make-whole fundamental
change, as defined in the Indenture, the Conversion Price will be adjusted by a usual and customary make-whole Fundamental Change “make-whole table” provided in the Indenture. The Indenture includes restrictive covenants that, among other
things, will limit the ability of New ZeroFox to incur senior debt in excess of $50,000,000, subject to certain qualifications and exceptions set forth in the Indenture. The Indenture also will include customary events of default. The closing
of the Convertible Notes Financing is contingent upon, among other things, the substantially concurrent consummation of the Business Combination. L&F has agreed to execute a registration rights agreement for the
9
benefit of the Convertible Notes Investors, providing for customary demand, shelf and
piggyback registration rights and otherwise in form and substance acceptable to the Convertible Notes Investors and L&F.
Registration Rights Agreement
At the Closing, New ZeroFox, the Sponsor, Jefferies LLC (“Jefferies”) and certain shareholders of ZeroFox and IDX will enter into an Amended and Restated Registration Rights Agreement, substantially in the form attached hereto as Annex G (the “Registration Rights Agreement”) pursuant to which, among other things, New ZeroFox will grant the other parties customary registration rights with respect to shares of New ZeroFox, and former
shareholders of ZeroFox and IDX will be subject to a 180-day lock-up period following execution of the Registration Rights Agreement during which period such shareholders may not transfer their shares (subject to customary exceptions). The
lock-up period described above will not apply to any shares acquired in the Common Equity PIPE Financing or shares issuable upon conversion of the Notes.
Proposed Certificate of Incorporation and
Proposed Bylaws of New ZeroFox
Prior to the Closing, L&F will amend and restate, subject to
receipt of L&F shareholder approval, the Existing Governing Documents by the deletion in their entirety and the substitution in their place of the Proposed Certificate of Incorporation and Proposed Bylaws.
Proposals to be Submitted at the Shareholder Meeting
The following is a summary of the proposals to be presented to
shareholders at the Shareholder Meeting of L&F and certain transactions contemplated by the Business Combination Agreement. The transactions contemplated by the Business Combination Agreement will be consummated only if the Condition
Precedent Proposals are approved at the Shareholder Meeting. Each of the Condition Precedent Proposals is conditioned on the approval and adoption of each of the other Condition Precedent Proposals. The Condition Precedent Proposals will be
presented to the shareholders for a vote only if the Articles Amendment Proposal is approved. The Advisory Governing Documents Proposals will be presented to the shareholders for a vote only if the Business Combination Proposal is approved. The
Articles Amendment Proposal and the Adjournment Proposal are not conditioned upon the approval of any other proposal set forth in this proxy statement/prospectus, though the special resolution contemplated by the Articles Amendment Proposal
will be adopted only if the Business Combination Proposal is approved.
The Articles Amendment Proposal
As discussed in this proxy statement/prospectus, L&F is asking
its shareholders to approve by special resolution the Articles Amendment Proposal. Prior to presenting any other proposals to shareholders, including the Condition Precedent Proposals, L&F will ask its shareholders to approve the Articles
Amendment Proposal, under Cayman Islands law to delete (i) the limitation on share repurchases prior to the consummation of a business combination that would cause L&F's net tangible assets to be less than $5,000,001 following such
repurchases, (ii) the limitation that L&F shall not consummate a business combination if it would cause L&F's net tangible assets to be less than $5,000,001 and (iii) the limitation that L&F shall not redeem Public Shares that
would cause L&F's net tangible assets to be less than $5,000,001 following such redemptions. The approval of the Articles Amendment Proposal requires a special resolution under Cayman Islands law, being the affirmative vote of at least a
two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting.
We encourage shareholders to carefully consider the information
set forth below under “Proposal No. 1– The Articles Amendment Proposal.”
The Business Combination Proposal
L&F is asking its shareholders to approve by ordinary resolution
the Business Combination Agreement, pursuant to which, among other things, on the date of the Closing, following the consummation of the Domestication and the Mergers, the Target Companies shall become wholly-owned subsidiaries of New ZeroFox.
10
For more information about the transactions contemplated by the
Business Combination Agreement, we encourage shareholders to carefully consider the information set forth below under “Proposal No. 2 – The Business Combination Proposal”
and the Business Combination Agreement, which is attached as Annex A to this proxy statement/prospectus.
The Domestication Proposal
L&F is asking its shareholders to approve by special resolution
the Domestication Proposal. The consummation of the Domestication is a condition to closing the Business Combination pursuant to the terms of the Business Combination Agreement. The Domestication Proposal, if approved, will authorize a change
of L&F’s jurisdiction of incorporation from the Cayman Islands to the State of Delaware. Accordingly, while L&F is currently incorporated as an exempted company under the Cayman Islands Companies Act, upon the Domestication, New ZeroFox
will be governed by the DGCL.
For more information about the Domestication Proposal, we
encourage shareholders to carefully consider the information set forth below under “Proposal No. 3 – The Domestication Proposal.”
The Governing Documents Proposal
L&F is asking its shareholders to approve by special resolution
the Governing Documents Proposal. L&F will ask its shareholders to approve the replacement of the Existing Governing Documents, under Cayman Islands law, with the Proposed Certificate of Incorporation and Proposed Bylaws, under the DGCL,
including the authorization of the change in authorized share capital as indicated therein and the change of name of L&F to “ZeroFox Holdings, Inc.”
For more information about the Governing Documents Proposal, we
encourage shareholders to carefully consider the information set forth below under “Proposal No. 4 – The Governing Documents Proposal” and the full
text of the Proposed Certificate of Incorporation and Proposed Bylaws of New ZeroFox attached hereto as Annex B and Annex C, respectively.
The Advisory Governing Documents Proposals
L&F is asking its shareholders to approve, by ordinary
resolutions and on a non-binding advisory basis, the following governance proposals in connection with the replacement of the Existing Governing Documents, under Cayman Islands law, with the Proposed Governing Documents, under the DGCL.
|
•
|
Advisory Governing Documents Proposal A — A proposal to increase the authorized share capital of L&F from (i) 500,000,000
Class A Ordinary Shares, 50,000,000 Class B Ordinary Shares and 1,000,000 preference shares, par value $0.0001 per share, to (ii) 1,000,000,000 shares of New ZeroFox Common Stock and 100,000,000 shares of New ZeroFox Preferred Stock.
|
|
•
|
Advisory Governing Documents Proposal B — A proposal to authorize the New ZeroFox Board to issue any or all shares of New
ZeroFox Preferred Stock in one or more classes or series, with such terms and conditions as may be expressly determined by the New ZeroFox Board and as may be permitted by the DGCL.
|
|
•
|
Advisory Governing Documents Proposal C — A proposal to adopt Delaware as the exclusive forum for certain shareholder litigation
and the federal district courts of the United States of America as the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, unless New ZeroFox consents in writing to the selection of
an alternative forum.
|
|
•
|
Advisory Governing Documents Proposal D — A proposal to require that any action required or permitted to be taken by the
shareholders of New ZeroFox must be effected at a duly called annual or special meeting of shareholders of New ZeroFox and may not be effected by any consent in writing by such shareholders.
|
|
•
|
Advisory Governing Documents Proposal E — A proposal to require that, subject to the rights of holders of preferred stock of New
ZeroFox, any director or the entire New ZeroFox Board may be removed from office at any time, but only for cause, and only by the affirmative vote of the holders of a majority of the issued and outstanding capital stock of New ZeroFox
entitled to vote in the election of directors, voting together as a single class.
|
11
|
•
|
Advisory Governing Documents Proposal F — A proposal to approve the amendment provisions in the Proposed Certificate of
Incorporation and Proposed Bylaws, which set forth the voting standards by which shareholders of New ZeroFox may approve certain amendments to the Proposed Certificate of Incorporation and Proposed Bylaws, respectively.
|
|
•
|
Advisory Governing Documents Proposal G — A proposal to remove provisions in L&F’s current Existing Governing Documents
related to L&F’s status as a blank check company that will no longer apply upon the consummation of the Business Combination.
|
For more information about the Advisory Governing Documents
Proposals, we encourage shareholders to carefully consider the information set forth below under “Proposal No. 5 - The Advisory Governing Documents Proposals” and the full text of the Proposed
Certificate of Incorporation and Proposed Bylaws of New ZeroFox attached hereto as Annex B and Annex C, respectively.
The Listing Proposal
L&F is asking its shareholders to approve by ordinary resolution
the Listing Proposal. We are seeking shareholder approval for the issuance of New ZeroFox Common Stock in connection with the Business Combination, the Common Equity PIPE Financing and the Convertible Notes Financing pursuant to NYSE Listing
Rule 312.03.
For more information about the Listing Proposal, we encourage
shareholders to carefully consider the information set out below under “Proposal No. 6 - The Listing Proposal.”
The Incentive Equity Plan Proposal
L&F is asking its shareholders to approve by ordinary
resolution the Incentive Equity Plan Proposal. Pursuant to the Incentive Equity Plan, a number of shares of New ZeroFox Common Stock equal to ten per cent (10%) of the shares of New ZeroFox Common Stock that are issued and outstanding as of
the Effective Time will be reserved for issuance under the Incentive Equity Plan, subject to annual increase and recycling provisions described in more detail in the Incentive Equity Plan Proposal and in the Incentive Equity Plan.
For more information about the Incentive Equity Plan Proposal, we
encourage shareholders to carefully consider the information set out under “Proposal No. 7 - The Incentive Equity Plan Proposal” and the full text of the Incentive Equity Plan attached hereto as Annex H.
The Employee Stock Purchase Plan Proposal
L&F is asking its shareholders to approve by ordinary
resolution the Employee Stock Purchase Plan Proposal. Pursuant to the ESPP, a number of shares of New ZeroFox Common Stock equal to two percent (2%) of the number of shares of New ZeroFox Common Stock that are issued and outstanding as of the
Effective Time will be reserved for issuance under the ESPP, subject to annual increase and recycling provisions described in more detail in the Employee Stock Purchase Plan Proposal and in the ESPP.
For more information about the Employee Stock Purchase Plan
Proposal, we encourage shareholders to carefully consider the information set out in the section entitled “Proposal No. 8 - The Employee Stock Purchase Plan Proposal”
and the full text of the ESPP attached hereto as Annex I.
The Director Election Proposal
L&F is asking its shareholders to approve by ordinary resolution
the Director Election Proposal.
For more information about the Director Election Proposal, we
encourage shareholders to carefully consider the information set out in the section under “Proposal No. 9 - The Director Election Proposal.”
The Adjournment Proposal
L&F is asking its shareholders to approve by ordinary
resolution the Adjournment Proposal to adjourn the Shareholder Meeting to a later date or dates, if necessary, to permit further solicitation and votes of proxies if, based upon the tabulated L&F Ordinary Shares voted at the time of the
Shareholder Meeting, there are insufficient L&F Ordinary Shares represented (either in person or by proxy) to constitute a quorum or to approve
12
the Articles Amendment Proposal, the Business Combination Proposal, the
Domestication Proposal, the Governing Documents Proposal, the Advisory Governing Documents Proposals, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal or the Director Election Proposal.
For more information about the Adjournment Proposal, we encourage
shareholders to carefully consider the information set out under “Proposal No. 10 - The Adjournment Proposal.”
The Shareholder Meeting
Date, Time and Place of the Shareholder Meeting
The Shareholder Meeting of L&F will be held on , 2022 at
a.m., Eastern Time, at the offices of Kirkland & Ellis LLP (“K&E”) located at 601 Lexington Avenue, New York, New York 10022, and via a virtual meeting, or at such other time,
on such other date and at such other place to which the meeting may be postponed or adjourned.
Due to the COVID-19 global pandemic, there may be restrictions in
place in many jurisdictions relating to the ability to conduct in-person meetings. As part of our precautions regarding COVID-19, we are planning for the meeting to be held virtually over the Internet, but the physical location of the meeting
will remain at the location specified above for the purposes of our Existing Governing Documents. If you wish to attend the Shareholder Meeting in person, you must reserve your attendance at least two business days in advance of the
Shareholder Meeting by contacting L&F’s investor relations department at by 9:00 a.m., Eastern Time, on (two business days prior to the meeting date).
Registering for the Shareholder Meeting
If you are a registered shareholder, you will receive a proxy card
from the Transfer Agent. The form contains instructions on how to attend the virtual Shareholder Meeting including the URL address, along with your control number. You will need your control number for access. If you do not have your control
number, contact the Transfer Agent at 917-262-2373, or email proxy@continentalstock.com.
You can pre-register to attend the virtual Shareholder Meeting
starting , 2022 at 9:00 a.m., Eastern Time (five business days prior to the meeting date). Enter the URL address into your browser https://www.cstproxy.com/ , and enter your control number, name and email address. Once you pre-register
you can vote or enter questions in the chat box. At the start of the Shareholder Meeting you will need to log in again using your control number and will also be prompted to enter your control number if you vote during the Shareholder
Meeting.
Shareholders who hold their investments through a bank or broker,
will need to contact the Transfer Agent to receive a control number. If you plan to vote at the Shareholder Meeting you will need to have a legal proxy from your bank or broker or if you would like to join and not vote, the Transfer Agent will
issue you a guest control number with proof of ownership. Either way you must contact the Transfer Agent for specific instructions on how to receive the control number. The Transfer Agent can be contacted at the number or email address above.
Please allow up to 72 hours prior to the meeting for processing your control number.
If you do not have access to the Internet, you can listen only to
the meeting by dialing (or if you are located outside the United States and Canada (standard rates apply)) and when prompted enter the pin number . Please note that you will not be able to vote or ask questions at the Shareholder
Meeting if you choose to participate telephonically.
Voting Power; Record Date
L&F shareholders will be entitled to vote or direct votes to be
cast at the Shareholder Meeting if they owned L&F Ordinary Shares at the close of business on , 2022, which is the “record date” for the Shareholder Meeting. Shareholders will have one vote for each L&F Ordinary Share owned at the
close of business on the record date. 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. The
L&F Warrants do not have voting rights. As of the close of business on the record date, there were 21,562,500 L&F Ordinary Shares issued and outstanding, of which 17,250,000 were issued and outstanding Class A Ordinary Shares.
13
Quorum and Vote of L&F Shareholders
A quorum of L&F shareholders is necessary to hold a valid
meeting. A quorum will be present at the Shareholder Meeting if the holders of a majority of the issued and outstanding L&F Ordinary Shares are present (in person or by proxy) or, being a non-natural person, duly represented in person or by
proxy at the Shareholder Meeting. Abstentions will be counted as present for purposes of determining a quorum. As of the record date for the Shareholder Meeting, 10,781,251 L&F Ordinary Shares would be required to achieve a quorum.
The L&F Initial Shareholders have, pursuant to the Sponsor
Support Letter Agreement, agreed to, among other things, vote all of their L&F Ordinary Shares in favor of the proposals being presented at the Shareholder Meeting. As of the date of this proxy statement/prospectus, the L&F Initial
Shareholders own 20% of the issued and outstanding L&F Ordinary Shares. The following table reflects the number of L&F Ordinary Shares required to approve each proposal voted upon by Public Shareholders.
|
Proposal
|
| |
Approval
Standard
|
| |
Number of Additional Public Shares Required To
Approve Proposal
|
|||
| |
If Only Quorum is
Present and All Present
Shares Cast Votes
|
| |
If All Shares Are
Present and All Present
Shares Cast Votes
|
|||||
|
Articles Amendment Proposal
|
| |
Special
Resolution 1
|
| |
2,875,001
|
| |
10,062,500
|
|
Business Combination Proposal
|
| |
Ordinary
Resolution 2
|
| |
1,078,126
|
| |
6,468,751
|
|
Domestication Proposal
|
| |
Special
Resolution1
|
| |
2,875,001
|
| |
10,062,500
|
|
Governing Documents Proposal
|
| |
Special
Resolution1
|
| |
2,875,001
|
| |
10,062,500
|
|
Each Advisory Governing Documents Proposal
|
| |
Ordinary
Resolution2
|
| |
1,078,126
|
| |
6,468,751
|
|
Listing Proposal
|
| |
Ordinary
Resolution2
|
| |
1,078,126
|
| |
6,468,751
|
|
Incentive Equity Plan Proposal
|
| |
Ordinary
Resolution2
|
| |
1,078,126
|
| |
6,468,751
|
|
Employee Stock Purchase Plan Proposal
|
| |
Ordinary
Resolution2
|
| |
1,078,126
|
| |
6,468,751
|
|
Adjournment Proposal
|
| |
Ordinary
Resolution2
|
| |
1,078,126
|
| |
6,468,751
|
|
1
|
Under Cayman law, a special resolution requires the affirmative vote of at least a two-thirds (2/3) majority of the votes cast
by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting.
|
|
2
|
Under Cayman law, an ordinary resolution requires the affirmative vote of at least a majority of the votes cast by the holders
of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting.
|
See “Proposal No. 2 — The Business
Combination Proposal — Related Agreements — The Sponsor Support Letter Agreement” for more information related to the Sponsor Support Letter Agreement.
The proposals presented at the Shareholder Meeting require the
following votes:
|
(i)
|
Articles Amendment Proposal: The approval of the Articles
Amendment Proposal requires a special resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in
person or represented by proxy and entitled to vote thereon at the Shareholder Meeting.
|
|
(ii)
|
Business Combination Proposal: The approval of the
Business Combination Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person
or represented by proxy and entitled to vote thereon at the Shareholder Meeting.
|
14
|
(iii)
|
Domestication Proposal: The approval of the Domestication
Proposal requires a special resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or
represented by proxy and entitled to vote thereon at the Shareholder Meeting.
|
|
(iv)
|
Governing Documents Proposal: The approval of the
Governing Documents Proposal requires a special resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are
present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting.
|
|
(v)
|
Advisory Governing Documents Proposal: The approval of
each of the Advisory Governing Documents Proposals, on a non-binding advisory basis, requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the
issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting.
|
|
(vi)
|
Listing Proposal: The approval of the Listing Proposal
requires an ordinary resolution under Cayman Islands laws, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and
entitled to vote thereon at the Shareholder Meeting.
|
|
(vii)
|
Director Election Proposal: The approval of the Director
Election Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued Class B Ordinary Shares who are present in person or
represented by proxy and entitled to vote thereon at the Shareholder Meeting. Pursuant to the Sponsor Support Letter Agreement, the L&F Initial Shareholders have agreed to vote their Class B Ordinary Shares in favor of the
Director Election Proposal and the election of the director nominees is therefore assured.
|
|
(viii)
|
Incentive Equity Plan Proposal: The approval of the
Incentive Equity Plan Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in
person or represented by proxy and entitled to vote thereon at the Shareholder Meeting.
|
|
(ix)
|
Employee Stock Purchase Plan Proposal: The approval of the
Employee Stock Purchase Plan Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present
in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting.
|
|
(x)
|
Adjournment Proposal: The approval of the Adjournment
Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by
proxy and entitled to vote thereon at the Shareholder Meeting.
|
Redemption Rights
Holders of Class A Ordinary Shares may seek to redeem their shares
for cash, regardless of whether they vote for or against, or whether they abstain from voting on, the Business Combination Proposal. Any shareholder holding Class A Ordinary Shares may demand that L&F redeem such shares for a full pro rata
portion of the Trust Account (which, for illustrative purposes, was $ per share as of , 2022, the record date for the meeting), calculated as of two business days prior to the Shareholder Meeting. If a holder properly seeks redemption as
described in this proxy statement/prospectus and the Business Combination is consummated, L&F 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. Additional terms and conditions apply. See the section entitled “Shareholder Meeting — Redemption Rights” of this proxy statement/prospectus for additional information.
Appraisal Rights
L&F Shareholders have no appraisal rights in connection with the
Business Combination or the Domestication under the Cayman Islands Companies Act or under the DGCL.
15
Proxy Solicitation
Proxies may be solicited by mail, telephone or in person. L&F
has engaged Morrow Sodali to assist in the solicitation of proxies.
If a shareholder grants a proxy, it may still vote its shares in
person if it revokes its proxy before the Shareholder Meeting. A shareholder also may change its vote by submitting a later-dated proxy as described in the section entitled “Shareholder Meeting — Revoking Your
Proxy.”
Recommendation of the Board
The L&F Board believes that the Business Combination Proposal and
the other proposals to be presented at the Shareholder Meeting are in the best interests of L&F and its shareholders and unanimously recommends that its shareholders vote “FOR” the Articles Amendment Proposal, “FOR” the Business Combination
Proposal, “FOR” the Domestication Proposal, “FOR” the Governing Documents Proposal, “FOR” each of the Advisory Governing Documents Proposals, “FOR” the Listing Proposal, “FOR” the Incentive Equity Plan Proposal, “FOR” the Employee Stock
Purchase Plan Proposal, “FOR” the Director Election Proposal and “FOR” the Adjournment Proposal, in each case, if presented to the Shareholder Meeting.
The existence of financial and personal interests of one or more of
L&F’s directors may result in a conflict of interest on the part of such director(s) between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for himself or
themselves in determining to recommend that shareholders vote for the proposals. See the section titled “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the Business
Combination” for a further discussion of these considerations.
The L&F Board’s Reasons for the Approval of the Business
Combination
The L&F Board, in evaluating the transaction with the Target
Companies, consulted with L&F’s management, K&E and Jefferies. In reaching its unanimous resolution (a) that the terms and conditions of the Business Combination Agreement and the transactions contemplated thereby, including the
Business Combination and Domestication, are advisable, fair to and in the best interests of L&F and its shareholders and (b) to recommend that the shareholders approve the transactions contemplated by the Business Combination Agreement,
the L&F Board considered a wide variety of factors in connection with its evaluation of the Business Combination. In light of the complexity of those factors, the L&F Board, as a whole, did not consider it practicable to, nor did it
attempt to, quantify or otherwise assign relative weights to the specific factors it took into account in reaching its decision. The L&F Board viewed its decision as being based on all of the information available and the factors
presented to and considered by it. Individual members of the L&F Board may have given different weight to different factors. This explanation of the reasons for the L&F Board’s approval of the Business Combination, and all other
information presented in this section, is forward-looking in nature and, therefore, should be read in light of the factors discussed under “Cautionary Note Regarding Forward-Looking Statements.”
Before reaching its decision, the L&F Board reviewed the results
of the due diligence conducted by L&F’s management and advisors, which included:
|
•
|
extensive meetings and calls with ZeroFox and IDX management to understand and analyze ZeroFox’s and IDX’s respective
businesses;
|
|
•
|
review of diligence materials and interviews conducted by K&E and L&F’s other advisors and, with respect to IDX,
Venable LLP and ZeroFox’s other advisors;
|
|
•
|
review of contracts, material liabilities and other material matters;
|
|
•
|
consultation with L&F’s management and legal counsel and financial advisor;
|
|
•
|
review of ZeroFox’s and IDX’s respective consolidated financial statements;
|
|
•
|
research on industry trends;
|
|
•
|
research on comparable companies;
|
|
•
|
research on comparable transactions; and
|
|
•
|
reviews of certain projections provided by the Target Companies.
|
16
The factors considered by the L&F Board included, but were not
limited to, the following:
|
•
|
the consideration to be offered in connection with the Business Combination, including the amount and type thereof;
|
|
•
|
the Target Companies’ management teams and experience running cybersecurity businesses with a track record of success in
driving growth;
|
|
•
|
the Target Companies’ ability to scale their combined platform and provide unique solutions that create barriers to entry with
defensible, market-leading positions;
|
|
•
|
the Target Companies’ industry, being a large and expanding market with significant whitespace opportunities, where unmet market
needs may be uncovered to create opportunities for innovation;
|
|
•
|
industry tailwinds that drive accelerated growth and further adoption of the Target Companies’ products and solutions;
|
|
•
|
the Target Companies’ financial characteristics, including consistent organic revenue growth with recurring subscription
revenue bases and the ability to generate attractive unit economics and returns on capital as New ZeroFox; and
|
|
•
|
the Target Companies’ ability to capitalize on operating leverage and improve margins while executing on numerous, tangible
growth initiatives.
|
In the course of its deliberations, the L&F Board considered a
variety of uncertainties, risks and other potentially negative reasons relevant to the Business Combination including, but not limited to the following:
|
•
|
the risk that the potential benefits of the Business Combination and Domestication may not be fully achieved, or may not be
achieved within the expected timeframe and the significant fees, expenses and time and effort of management associated with completing the Business Combination and Domestication;
|
|
•
|
the risk that the Business Combination and transactions contemplated thereby might not be consummated or completed in a timely
manner or that the closing might not occur despite our best efforts, including by reason of a failure to obtain the approval of our shareholders, litigation challenging the Business Combination or that an adverse judgment granting
permanent injunctive relief could indefinitely enjoin the consummation of the Business Combination;
|
|
•
|
the risk that the cost savings and growth initiatives of each Target Company’s long-term growth strategy may not be fully
achieved or may not be achieved within the expected timeframe;
|
|
•
|
the risk that changes in the regulatory and legislative landscape or new industry developments may adversely affect the business
benefits anticipated to result from the Business Combination;
|
|
•
|
the potential that a significant number of L&F shareholders elect to redeem their Class A Ordinary Shares prior to the
consummation of the Business Combination and pursuant to the Existing Governing Documents, which would potentially make the Business Combination more difficult or impossible to complete;
|
|
•
|
the risks and costs to L&F 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 L&F being unable to effect an initial business combination by May 23, 2022 (or such later date as may be approved by L&F's shareholders);
|
|
•
|
competition in the cybersecurity software-as-a-service industry is intense and, as a result, ZeroFox may fail to attract and
retain users, which may negatively impact ZeroFox’s operations and growth prospects;
|
|
•
|
economic downturns and market conditions beyond the Target Companies’ control, including a reduction in spending which could
adversely affect each Target Company’s business, financial condition, results of operations and prospects;
|
|
•
|
the requirements of being a public company, including compliance with the SEC’s requirements regarding internal controls over
financial reporting, may strain New ZeroFox’s resources and divert management’s attention, and the increases in legal, accounting and compliance expenses that will result from the Business Combination may be greater than each Target
Company anticipates;
|
17
|
•
|
ZeroFox’s cybersecurity software-as-a-service business may be subject to regulatory scrutiny;
|
|
•
|
New ZeroFox may invest in or acquire other businesses, or may invest or spend the proceeds of the Business Combination in
ways with which the investors may not agree or which may not yield a return, and New ZeroFox’s business may suffer if it is unable to successfully integrate acquired businesses into its company or otherwise manage the growth
associated with multiple acquisitions; and
|
|
•
|
ZeroFox's history of net losses in combination with the fact that the pro forma expectation that New ZeroFox would be cash
flow positive.
|
In addition to considering the factors described above, the L&F Board also
considered other factors including, without limitation:
|
•
|
the Sponsor, members of the L&F Board and other executive officers of L&F and the Sponsor have interests in the Business
Combination Proposal, the other Proposals described in this proxy statement/prospectus and the Business Combination that are different from, or in addition to, those of L&F shareholders generally.
|
|
•
|
The various risks associated with the Business Combination, the business of ZeroFox and IDX and the business of L&F, as
described in the section entitled “Risk Factors” of this proxy statement/prospectus.
|
After considering the foregoing potentially negative and potentially positive reasons,
the L&F Board concluded, in its business judgment, that the potentially positive reasons relating to the Business Combination, Domestication and the other related transactions outweighed the potentially negative reasons.
Interests of Certain Persons in the Business Combination
In considering the recommendation of the L&F Board to vote in
favor of the Business Combination, shareholders should be aware that, aside from their interests as shareholders, our Sponsor and our directors, officers and advisors and the Target Companies’ current owners have interests in the Business
Combination that are different from, or in addition to, those of our other shareholders generally. Our directors were aware of and considered these interests, among other matters, in evaluating the Business Combination, and in recommending to
our shareholders that they approve the Business Combination. Shareholders should take these interests into account in deciding whether to approve the Business Combination. These interests include, among other things:
|
•
|
the fact that the Sponsor and L&F’s directors and officers have agreed not to redeem any Class A Ordinary Shares held by
them in connection with a shareholder vote to approve the Business Combination;
|
|
•
|
the fact that the Sponsor Holders are obligated to vote in favor of the Business Combination;
|
|
•
|
the fact that the Sponsor has irrevocably waived the anti-dilution adjustments set forth in L&F’s organizational documents,
or any other anti-dilution or similar adjustment rights to which the Sponsor may otherwise be entitled related to or arising from the Business Combination;
|
|
•
|
the fact that the Sponsor Holders paid an aggregate amount of $25,000 for the Founder Shares, which will convert into 4,312,500
shares of New ZeroFox Common Stock in accordance with the terms of L&F’s organizational documents and such securities will have a significantly higher value at the time of the Business Combination;
|
|
•
|
the fact that the Sponsor paid $5,450,000 for 5,450,000 L&F Private Placement Warrants, each of which is exercisable
commencing on the later of 12 months from the closing of the L&F IPO and 30 days following the Closing for one Class A Ordinary Share at $11.50 per share; if we do not consummate an initial business combination by May 23, 2022 (or
such later date as may be approved by L&F's shareholders), then the proceeds from the sale of the L&F Private Placement Warrants will be part of the liquidating distribution to the Public Shareholders and the warrants held by
our Sponsor will be worthless;
|
|
•
|
the fact that the L&F Initial Shareholders, including the Sponsor (and certain of L&F’s officers and directors who are
members of the Sponsor), have invested in L&F an aggregate of $5,475,000, comprised of the $25,000 purchase price for 4,312,500 Founder Shares and the $5,450,000 purchase price for 5,450,000 L&F Private Placement Warrants.
Subsequent to the initial purchase of the Founder Shares by the Sponsor, the Sponsor transferred 20,000 Founder Shares to Mr. Albert Goldstein and 50,000 Founder Shares to Senator Joseph Lieberman at a nominal purchase price of $0.004
per
|
18
Founder Share prior to the closing of the L&F IPO and 39,733 Founder Shares to
Mr. Kurt Summers shortly after his being appointed to the L&F Board in December 2021 for no cash consideration. Assuming a trading price of $10.11 per Class A Ordinary Share and $0.3612 per L&F Public Warrant (based upon the
respective closing prices of the Class A Ordinary Shares and the L&F Public Warrants on the NYSE on April 4, 2022), the 4,312,500 Founder Shares and 5,450,000 Private Placement Warrants would have an implied aggregate market value of
$45,567,915. Even if the trading price of the shares of New ZeroFox Common Stock were as low as $1.27 per share, the aggregate market value of the Founder Shares alone (without taking into account the value of the L&F Private Placement
Warrants) would be approximately equal to the initial investment in L&F by the L&F Initial Shareholders. As a result, the L&F Initial Shareholders are likely to be able to make a substantial profit on their investment in L&F
at a time when shares of New ZeroFox Common Stock have lost significant value. On the other hand, if L&F liquidates without completing a business combination before May 23, 2022 (or such later date as may be approved by L&F’s
shareholders), the L&F Initial Shareholders will likely lose their entire investment in L&F;
|
•
|
the fact that the Sponsor and L&F’s officers and directors will benefit from the completion of a business combination and
may be incentivized to complete an acquisition of a less favorable target company or on terms less favorable to shareholders rather than liquidate;
|
|
•
|
the fact that the L&F Initial Shareholders including the Sponsor (and the L&F’s officers and directors who are members
of the Sponsor) can earn a positive rate of return on their investment, even if other L&F shareholders experience a negative rate of return in New ZeroFox;
|
|
•
|
the fact that the L&F Initial Shareholders and L&F’s other current officers and directors have agreed to waive their
rights to liquidating distributions from the Trust Account with respect to any L&F Ordinary Shares (other than Public Shares) held by them if L&F fails to complete an initial business combination by May 23, 2022 (or such later
date as may be approved by L&F shareholders);
|
|
•
|
the fact that, at the option of the Sponsor, any amounts outstanding under any loan made by the Sponsor or any of its
affiliates to L&F in an aggregate amount of up to $1,500,000 may be converted into L&F Private Placement Warrants in connection with the consummation of the Business Combination;
|
|
•
|
the fact that the Sponsor and L&F’s officers and directors will lose their entire investment in L&F and will not be
reimbursed for any loans extended, fees due or out-of-pocket expenses if an initial business combination is not consummated by May 23, 2022 (or such later date as may be approved by L&F shareholders). As of the date of this proxy
statement/prospectus there are no loans extended, fees due or outstanding out-of-pocket expenses for which the Sponsor and L&F’s officers and directors are awaiting reimbursement;
|
|
•
|
the fact that if the Trust Account is liquidated, including in the event L&F is unable to complete an initial business
combination within the required time period, the Sponsor has agreed to indemnify L&F to ensure that the proceeds in the Trust Account are not reduced below $10.15 per L&F Public Shares, or such lesser per Public Shares amount
as is in the Trust Account on the liquidation date, by the claims of prospective target businesses with which L&F has entered into an acquisition agreement or claims of any third party for services rendered or products sold to
L&F, 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 fact that L&F may be entitled to distribute or pay over funds held by L&F outside the Trust Account to the
Sponsor or any of its affiliates prior to the Closing;
|
|
•
|
the fact that (i) L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity
affiliated with Richard Levy, a director of L&F), GCP-OI I, LLC (an entity affiliated with Adam Gerchen, our chief executive officer and a director of L&F), JCH Investments LLC (an entity affiliated with Jeffrey C. Hammes, the
chairman of the L&F Board) and an affiliate of Corbin Capital Partners, LP, a significant security holders of L&F, have executed and delivered Common Equity Subscription Agreements for an aggregate amount of $10,000,000,
(ii) L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F) and an affiliate of Corbin Capital Partners, LP, a significant security
holder of L&F, have executed and delivered Convertible Notes Subscription Agreements for an
|
19
aggregate principal amount of $30,000,000, and (iii) Adam Gerchen (our chief
executive officer and director of L&F) is a limited partner in funds managed by Monarch Capital, and that Monarch Capital has executed and delivered a Convertible Notes Subscription Agreement for an aggregate principal amount of
$120,000,000;
|
•
|
L&F has agreed to pay Jefferies, L&F’s co-PIPE placement agent and financial advisor, and sole underwriter in the
L&F IPO: (i) a cash fee for their services in connection with the L&F IPO in an aggregate amount equal to 5.5% of the gross proceeds of the L&F IPO, with 2.0% of the gross proceeds being paid to the underwriters at the
time the L&F IPO was completed and 3.5% of the gross proceeds (i.e., the deferred underwriting fee) being payable, and conditioned, upon consummating an initial business combination; the aggregate underwriting fee is fixed at 5.5%
of the gross proceeds from the L&F IPO and will not be adjusted based on the number of shares that are redeemed in connection with the Business Combination; the aggregate underwriting fee of $6,037,500 represents approximately
3.5%, 4.7%, 7.0% and 14.0% of the aggregate proceeds from the L&F IPO, net of redemptions, in the no redemption, 25% redemption, 50% redemption and 75% redemption scenarios, respectively; (ii) a placement agency fee as a
percentage of the aggregate gross proceeds received or to be received from the sale of L&F’s equity securities and split with Stifel (defined below); and (iii) financial advisory fees as a fixed amount related to capital markets
financial advice and assistance in connection with the Business Combination, as applicable, upon completion of the Business Combination;
|
|
•
|
the fact that, Stifel, Nicolaus & Company, Incorporated (“Stifel”),
co-PIPE placement agent for the Common Equity PIPE Financing and a creditor of ZeroFox, will be entitled to receive a placement agency fee as a percentage of the aggregate gross proceeds received or to be received from the one or more
commitments for financing the Business Combination from sources other than any affiliates of ZeroFox, IDX or L&F, and split with Jefferies, upon completion of the Business Combination;
|
|
•
|
the fact that (i) James C. Foster, Peter Barris, Corey Mulloy, Samskriti King, and Todd Headley, current directors of
ZeroFox, (ii) Thomas F. Kelly and Sean Cunningham, current directors of IDX and (iii) Adam Gerchen, current chief executive officer of the Sponsor, are each expected to be directors, and James C. Foster is expected to be the chief
executive officer, of New ZeroFox after the consummation of the Business Combination. As such, in the future each of the aforementioned will receive any cash fees, stock options, stock awards or other remuneration that New ZeroFox’s
board of directors determines to pay them and any applicable compensation as described under the section titled “Executive and Director Compensation”; and
|
|
•
|
the fact that the Sponsor Group will have paid an aggregate of approximately $15,475,000 for its investment in New ZeroFox,
including the investment of L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F), GCP-OI I, LLC (an entity affiliated with Adam
Gerchen, our chief executive officer and a director of L&F), JCH Investments LLC (an entity affiliated with Jeffrey C. Hammes, the chairman of the L&F Board) in the Common Equity PIPE Financing, and the investment of L&F
Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F) in the Convertible Notes Financing), as summarized in the table below, and, following
the consummation of the Business Combination, the aggregate value of the Sponsor Group’s investment will be $48,095,415, based upon the respective closing prices of the Class A Ordinary Shares and the L&F Public Warrants on the
NYSE on April 4, 2022.
|
Sponsor Group Beneficial Ownership of L&F Prior to Closing
|
|
| |
Securities held by
Sponsor Group
|
| |
Sponsor Cost at L&F’s
Initial Public Offering ($)
|
|
Class A Ordinary Shares
|
| |
—
|
| |
—
|
|
Founder Shares
|
| |
4,312,500
|
| |
$25,000
|
|
L&F Private Placement Warrants
|
| |
5,450,000
|
| |
$5,450,000
|
|
Total
|
| |
|
| |
$5,475,000
|
20
Sponsor Group Ownership of New ZeroFox Following the Closing(1)
|
|
| |
Securities held by
Sponsor Group at Closing
|
| |
Value per
Security ($)
|
| |
Sponsor Group
Cost at Closing ($)
|
| |
Total
Value ($)
|
|
New ZeroFox Common Stock Issued Pursuant to the Common
Equity PIPE Financing
|
| |
250,000
|
| |
$10.11
|
| |
$2,500,000
|
| |
$2,527,500
|
|
New ZeroFox Common Stock Issued to Holders of Founder
Shares
|
| |
4,312,500(1)
|
| |
$10.11
|
| |
—
|
| |
$43,599,375
|
|
New ZeroFox Private Placement Warrants
|
| |
5,450,000
|
| |
$0.3612
|
| |
—
|
| |
$1,968,540
|
|
Total
|
| |
|
| |
|
| |
$2,500,000
|
| |
$48,095,415
|
|
(1)
|
Does not include New ZeroFox Common Stock issuable upon conversion of the Notes that are convertible at an initial conversion
price of $11.50 per share.
|
|
(2)
|
Includes 1,293,750 shares of New ZeroFox Common Stock which will be subject to an earnout, whereby such shares will be
forfeited unless certain volume-weighted average share price thresholds are met in trading or are deemed to occur in connection with a Change of Control (as defined in the Business Combination Agreement) within five years from the
Closing. See “Proposal No. 2 — Business Combination Proposal — Related Agreements — The Sponsor Support Letter Agreement” for more information related to the Sponsor
Support Letter Agreement.
|
At any time prior to the Shareholder Meeting, during a period when
they are not then aware of any material non-public information regarding L&F or our securities, the L&F Initial Shareholders, the Target Companies and/or their respective affiliates may purchase shares and/or warrants from investors,
or they may enter into transactions with such investors and others to provide them with incentives to acquire Class A Ordinary Shares 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 that the proposals presented to shareholders for approval at the Shareholder Meeting are approved or to provide additional equity financing. Any such share purchases and other
transactions may thereby increase the likelihood of obtaining shareholder approval of the Business Combination. This may result in the completion of the Business Combination that may not otherwise have been possible. 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.
Entering into any such incentive arrangements may have a depressive
effect on Class A Ordinary Shares. 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 it
owns, either prior to or immediately after the Shareholder 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 proposals to be
presented at the Shareholder Meeting and would likely increase the chances that such proposals would be approved. As of the date of this proxy statement/prospectus, there have been no such discussions and no agreements to such effect have been
entered into with any such investor or holder. L&F will file a Current Report on Form 8-K to disclose any arrangements entered into or significant purchases made by any of the aforementioned persons that would affect the vote on the
proposals to be voted on at the Shareholder Meeting. Any such report will include descriptions of any arrangements entered into or significant purchases by any of the aforementioned persons.
The existence of financial and personal interests of our directors
and officers may result in conflicts of interest, including a conflict between what may be in the best interests of L&F and its shareholders and what may be best for a director’s personal interests when determining to recommend that
shareholders vote for the proposals. See the sections titled “Risk Factors”, “Proposal No. 2 - The Business Combination
Proposal — Interests of Certain Persons in the Business Combination” and “Beneficial Ownership of Securities” for more information and other risks.
21
Conflicts of Interest and Waiver of Corporate Opportunity
Doctrine
Under Cayman Islands law, directors and officers of a Cayman
Islands company owe certain duties to the company, including, but not limited to, the following fiduciary duties:
|
•
|
duty to act in good faith in what the director or officer believes to be in the best interests of the company as a whole;
|
|
•
|
duty to exercise powers for the purposes for which those powers were conferred and not for a collateral purpose;
|
|
•
|
directors should not improperly fetter the exercise of future discretion;
|
|
•
|
duty to exercise powers fairly as between different classes of shareholders;
|
|
•
|
duty not to put themselves in a position in which there is a conflict between their duty to the company and their personal
interests; and
|
|
•
|
duty to exercise independent judgment.
|
In addition to the above, directors also owe a duty of care which
is not fiduciary in nature. This duty has been defined as a requirement to act as a reasonably diligent person having both the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions
as are carried out by that director in relation to the company and the general knowledge skill and experience of that director.
As set out above, directors have a duty not to put themselves in a
position of conflict and this includes a duty not to engage in self-dealing, or to otherwise benefit as a result of their position. However, in some instances what would otherwise be a breach of this duty can be forgiven or authorized in
advance by the shareholders provided that there is full disclosure by the directors. This can be done by way of permission granted in the Existing Governing Documents or alternatively by shareholder approval at general meetings. As detailed
below, our Existing Governing Documents provide such permission through a waiver of the corporate opportunities doctrine. The Existing Governing Documents provide that (a) we renounce any interest or expectancy in, or in being offered an
opportunity to participate in, any potential transaction or matter which may be a corporate opportunity for our directors and officers, on the one hand, and us, on the other and (b) our directors and officers shall have no duty to communicate
or offer any such corporate opportunity to us and shall not be liable to us for breach of any fiduciary duty as a member, director and/or officer solely by reason of the fact that such party pursues or acquires such corporate opportunity for
itself, himself or herself, directs such corporate opportunity to another person, or does not communicate information regarding such corporate opportunity to us. We do not believe that the fiduciary duties or contractual obligations of our
officers or directors will materially affect our ability to complete the Business Combination.
While the Existing Governing Documents included the waiver of
corporate opportunities as described in the preceding sentence, our compliance with such provision did not affect or otherwise limit L&F’s search for an acquisition target. Given the large target universe considered by L&F’s
management team, which included initial contact with more than 120 companies and non-disclosure agreements with approximately 15 companies, the L&F Board does not believe that the other fiduciary duties or contractual obligations of
L&F’s officers and directors materially affected L&F’s ability to source a potential business combination. Please see “Proposal No. 2 — Business Combination Proposal — Background
to the Business Combination” for more information about L&F’s search for targets in the potential business combination.
22
In addition to those interests of certain persons in the
Business Combination listed above, investors should also be aware of the following other conflicts of interest:
|
•
|
Our Sponsor, 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 (including Victory Park Capital Advisors, LLC) or any of our officers or directors to finance transaction costs in connection with the
Business Combination. In particular, affiliate funds associated with Victory Park Capital Advisors, LLC, including (a) L&F Acquisition Holdings Fund, LLC, (b) Corbin ERISA Opportunity Fund, (c) JCH Investments LLC, and (d) GCP-OI
I, LLC are participants in the Common Equity PIPE Financing and Convertible Notes Financing. L&F Acquisition Holdings Fund, LLC is affiliated with Richard Levy, a director of L&F. Corbin ERISA Opportunity Fund is an affiliate
of Corbin Capital Partners, LP and such entity is an equityholder of our Sponsor. JCH Investments LLC is an entity affiliated with Jeffrey C. Hammes, chairman of the L&F Board. GCP-OI I, LLC is an entity affiliated with L&F’s
CEO, Adam Gerchen.
|
|
•
|
Additionally, L&F’s CEO, Adam Gerchen, has a passive and immaterial interest in funds affiliate with Monarch Alternative
Capital LP, a participant in the Convertible Notes Financing. For more information on the affiliate financing arrangements in connection with the Business Combination please see “Certain
Relationships and Related Party Transactions - L&F Related Party Transactions.”
|
None of us, our Sponsor, nor any of our officers or directors are
affiliated with either ZeroFox or IDX prior to the consummation of the Business Combination. We cannot assure you that any of the above-mentioned conflicts will be resolved in our favor.
Certain Other Interests in the Business Combination
In addition to the interests of L&F’s directors and officers in
the Business Combination, shareholders should be aware that Jefferies has financial interests that are different from, or in addition to, the interests of our shareholders.
Jefferies was the sole underwriter in the L&F IPO, and, upon
consummation of the Business Combination, Jefferies is entitled to $6,037,500 of deferred underwriting commissions. Jefferies agreed to waive its rights to the deferred underwriting commissions held in the Trust Account in the event L&F
does not complete an initial business combination within 18 months of the closing of the L&F IPO (as such date may be extended by approval of the L&F shareholders). Accordingly, if the Business Combination, or any other initial
business combination, is not consummated by that time and L&F is therefore required to be liquidated, the underwriter of the L&F IPO, will not receive any of the deferred underwriting commissions and such funds will be returned to
L&F’s Public Shareholders upon its liquidation.
As described further below, Jefferies is also providing certain
services in connection with the Business Combination and will receive compensation in connection therewith. Jefferies’ receipt of the deferred underwriting commission of $6,037,500 is not dependent on its provision of such services but
instead is only conditioned on the completion of an initial business combination within 18 months of the closing of the L&F IPO (as such date may be extended by approval of the L&F shareholders).
Furthermore, Jefferies and Stifel were engaged by L&F as
co-placement agents with respect to the Common Equity PIPE Financing and Convertible Notes Financing and solely as relating to Jefferies, as L&F’s financial advisor. L&F decided to retain each of Jefferies and Stifel as co-placement
agents for the Common Equity PIPE Financing and Convertible Notes Financing based primarily on each of Jefferies’ and Stifel’s extensive knowledge, strong market position and positive reputation in equity capital and convertible notes markets
and their respective experienced and capable investment banking teams. Similarly, L&F decided to retain Jefferies as its financial advisor based primarily on its leading investment banking franchise with a strong track record of advising
on complex, transformational transactions.
In addition, under the terms of each of Jefferies’ engagements,
L&F agreed to reimburse Jefferies for its reasonable out-of-pocket expenses, including the fees and disbursements of its outside attorneys, and to indemnify Jefferies and certain related parties against liabilities, including liabilities
under federal securities laws, in each case, in connection with, as a result of, or relating to its respective engagements. In connection with Jefferies’ and Stifel’s services as co-placement agents, Jefferies and Stifel’s collective
placement fee is equal to 3.0% of the aggregate proceeds received or to be received from the sale of securities through the Common Equity PIPE Financing or the Convertible Notes Financing. The sale of an aggregate of $50,000,000 of securities
23
pursuant to the Common Equity Subscription Agreements and Convertible Notes
Subscription Agreements to affiliates of L&F, the ZeroFox Investors and the IDX Investors is not subject to the 3.0% placement fee.
Jefferies therefore has an interest in L&F completing a
business combination that will result in the payment of the deferred underwriting commissions to Jefferies as the underwriter of the L&F IPO and the payment of financial advisory and placement agent fees. In considering approval of the
Business Combination, our shareholders should consider the different roles of Jefferies in light of the deferred underwriting commissions Jefferies is entitled to receive if the Business Combination is consummated within 18 months of the
closing of the L&F IPO (or such later date as may be approved by L&F’s shareholders).
Sources and Uses of Funds for the Business Combination
The following table summarizes the sources and uses for funding
the Business Combination, assuming (i) none of the Class A Ordinary Shares held by the Public Shareholders are redeemed in connection with the Business Combination and (ii) all of the outstanding Class A Ordinary Shares are redeemed in
connection with the Business Combination. Where actual amounts are not known or knowable, the figures below represent L&F’s good faith estimate of such amounts. For more information, see “Unaudited
Pro Forma Condensed Combined Financial Information.”
(U.S. dollars in millions)
|
|
| |
Assuming
No
Redemptions(1)
|
| |
Assuming
Maximum
Redemptions(2)
|
|
Sources
|
| |
|
| |
|
|
Cash and investments held in Trust Account(3)
|
| |
$175
|
| |
$175
|
|
Issuance to ZeroFox and IDX Shareholders(4)
|
| |
$1,112
|
| |
$1,112
|
|
Convertible Notes
|
| |
$150
|
| |
$150
|
|
PIPE Investment
|
| |
$20
|
| |
$20
|
|
Total Sources
|
| |
$1,457
|
| |
$1,457
|
|
Uses
|
| |
|
| |
|
|
ZeroFox and IDX Shareholders equity consideration(4)
|
| |
$1,112
|
| |
$1,112
|
|
Cash Consideration to IDX Shareholders(5)
|
| |
$50
|
| |
$50
|
|
Fees and Expenses
|
| |
$32
|
| |
$32
|
|
Redemptions by Public Shareholders
|
| |
$—
|
| |
$175
|
|
Cash to Balance Sheet
|
| |
$263
|
| |
$88
|
|
Total Uses
|
| |
$1,457
|
| |
$1,457
|
|
(1)
|
Assumes that no Public Shareholder exercises redemption rights with respect to its Class A Ordinary Shares for a pro rata portion
of the Trust Account.
|
|
(2)
|
Assumes that all 17,250,000 Class A Ordinary Shares held by the Public Shareholders are redeemed for an aggregate payment of
approximately $175,100,000 (based on the estimated per share redemption price of approximately $10.15 per share) from the Trust Account. As the proceeds (without taking into account offering expenses) from the Common Equity PIPE
Financing and the Convertible Notes Financing are expected to satisfy the Available Closing Acquiror Cash Condition, the maximum redemption scenario reflects the redemption of 100% of the Class A Ordinary Shares held by the Public
Shareholders.
|
|
(3)
|
Cash held in the Trust Account as of December 31, 2021.
|
|
(4)
|
Assumes that (A) 83,371,892 shares of New ZeroFox Common Stock are issued to the holders of ZeroFox Common Stock in connection
with the Business Combination based on a per share consideration of 0.2872 of a share of New ZeroFox Common Stock, (B) 27,815,924 shares of New ZeroFox Common Stock are issued to the holders of IDX Capital Stock in connection with the
Business Combination based on a per share consideration of 0.6174 of a share of New ZeroFox Common Stock, (C) all outstanding ZeroFox warrants and IDX warrants will be exercised immediately prior to the Closing, and (D) all
outstanding vested and unvested ZeroFox options and IDX options are converted into New ZeroFox Options exercisable for shares of New ZeroFox Common Stock.
|
|
(5)
|
This amount is subject to a working capital adjustment. Includes amounts to be used to discharge certain IDX indebtedness and
transaction expenses (which otherwise would reduce cash consideration).
|
Certain Material United States Federal Income Tax Considerations
As discussed more fully under “Certain Material United States Federal Income Tax Considerations,” the Domestication generally should qualify as an F Reorganization. However, L&F has not requested, and does not intend to request,
a ruling from the IRS as to the U.S. federal income tax consequences of the Domestication.
24
Consequently, no assurance can be given that the IRS will not assert, or that a
court would not sustain, a contrary position. Accordingly, each U.S. Holder of our securities is urged to consult its tax advisor with respect to the particular tax consequences of the Domestication to such U.S. Holder. If the Domestication
qualifies as a reorganization within the meaning of Section 368(a)(1)(F) of the Code, U.S. Holders (as defined in “Certain Material United States Federal Income Tax
Considerations — U.S. Holders” below) will be subject to Section 367(b) of the Code and, as a result of the Domestication:
|
•
|
a U.S. Holder that holds Public Shares that have a fair market value of less than $50,000 on the date of the Domestication
and that is not a U.S. Shareholder (as defined herein) on the date of the Domestication generally will not recognize any gain or loss and will not be required to include any part of L&F’s earnings in income;
|
|
•
|
a U.S. Holder that holds Public Shares that have a fair market value of $50,000 or more on the date of the Domestication and
that is not a U.S. Shareholder (as defined herein) on the date of the Domestication generally will recognize gain (but not loss) on the exchange of L&F Public Shares for ZeroFox Holdings, Inc.’s Common Stock pursuant to the
Domestication. As an alternative to recognizing gain, such U.S. Holder may file an election to include in income as a deemed dividend the “all earnings and profits amount,” as defined in the U.S. Department of the Treasury Regulations
under Section 367(b) of the Code, attributable to its Public Shares provided certain other requirements are satisfied; and
|
|
•
|
a U.S. Holder that, on the date of the Domestication, owns (directly or constructively) 10% or more of the total combined
voting power of all classes of our stock entitled to vote or 10% or more of the total value of all classes of our stock (a “U.S. Shareholder”) generally will be required to include
in income as a deemed dividend the “all earnings and profits amount” attributable to its Public Shares provided certain other requirements are satisfied. Any such U.S. Holder that is a corporation may, under certain circumstances,
effectively be exempt from taxation on a portion or all of the deemed dividend pursuant to Section 245A of the Code (commonly referred to as the participation exemption).
|
L&F does not expect to have significant cumulative earnings and
profits through the date of the Domestication.
Furthermore, even if the Domestication qualifies as an F
Reorganization, a U.S. Holder of L&F Public Shares or L&F Public Warrants may, in certain circumstances, still recognize gain (but not loss) upon the exchange of its L&F Public Shares or L&F Public Warrants for the common
stock or warrants of ZeroFox Holdings, Inc. pursuant to the Domestication under the “passive foreign investment company,” or PFIC, rules of the Code. Proposed Treasury Regulations with a retroactive effective date have been promulgated under
Section 1291(f) of the Code which generally require that a U.S. person who disposes of stock of a PFIC (including for this purpose exchanging public warrants for newly issued warrants in the Domestication) must recognize gain equal to the
excess, if any, of the fair market value of the common stock or warrants of ZeroFox Holdings, Inc. received in the Domestication and the U.S. Holder’s adjusted tax basis in the corresponding L&F Public Shares or L&F Public Warrants
surrendered in exchange therefor, notwithstanding any other provision of the Code. Because L&F is a blank check company with no current active business, we believe that L&F likely is classified as a PFIC for U.S. federal income tax
purposes. As a result, these proposed Treasury Regulations, if finalized in their current form, would generally require a U.S. Holder of L&F Public Shares or L&F Public Warrants to recognize gain on the exchange of such shares or
warrants for common stock or warrants of ZeroFox Holdings, Inc. pursuant to the Domestication, unless, in the case of only common stock, such U.S. Holder has made certain tax elections with respect to such U.S. Holder’s Public Shares. A U.S.
Holder cannot currently make the aforementioned elections with respect to such U.S. Holder’s public warrants. The tax on any such gain so recognized would be imposed at the rate applicable to ordinary income and an interest charge would apply
based on complex rules designed to offset the tax deferral to such U.S. Holder on the undistributed earnings, if any, of L&F. It is not possible to determine at this time whether, in what form, and with what effective date, final Treasury
Regulations under Section 1291(f) of the Code will be adopted. For a more complete discussion of the potential application of the PFIC rules to U.S. Holders as a result of the Domestication, see the discussion in the section entitled “Certain Material United States Federal Income Tax Considerations — U.S. Holders — PFIC Considerations.”
25
Additionally, the Domestication may cause non-U.S. Holders (as
defined in “Certain Material United States Federal Income Tax Considerations — Non-U.S. Holders”) to become subject to U.S. federal income withholding taxes on any
dividends paid in respect of such non-U.S. Holder’s ZeroFox Holdings, Inc.’s public shares after the Domestication.
The tax consequences of the Domestication are complex and will
depend on a holder’s particular circumstances. All holders are urged to consult their tax advisor on the tax consequences to them of the Domestication, including the applicability and effect of U.S. federal, state, local and foreign income
and other tax laws. For a more complete discussion of the U.S. federal income tax considerations of the Domestication, see “Certain Material United States Federal Income Tax
Considerations.”
For a description of the tax consequences for shareholders
exercising redemption rights in connection with the Business Combination, see the sections entitled “Certain Material United States Federal Income Tax Considerations — U.S.
Holders — Effects to U.S. Holders of Exercising Redemption Rights” and “Certain Material United States Federal Income Tax Considerations — Non- U.S. Holders —
Effects of Exercising Redemption Rights to Non-U.S. Holders.”
Anticipated Accounting Treatment of the Business Combination
The anticipated accounting treatment for the Business Combination may
be different under the varying redemption assumptions with a combining entity being an accounting acquirer in one scenario and an accounting acquiree in another scenario.
Scenario 1, No Redemption Scenario
With respect to the Business Combination, under a no redemption
scenario, ZeroFox will be treated as the accounting acquirer and L&F and IDX will be treated as acquired companies for accounting purposes. This determination is primarily based on the facts that subsequent to the Business Combination:
|
•
|
ZeroFox shareholders will have a majority of the voting power of New ZeroFox;
|
|
•
|
ZeroFox will designate a majority of the governing body of New ZeroFox;
|
|
•
|
ZeroFox’s senior management will comprise all of the senior management of New ZeroFox; and
|
|
•
|
the largest single shareholder of the combined company will be a legacy owner of ZeroFox.
|
As a result of ZeroFox being considered the accounting acquirer in
the Business Combination, the business combination between ZeroFox and L&F represents a reverse merger and will be accounted for as a reverse capitalization in accordance with U.S. GAAP. Accordingly, for accounting purposes, the business
combination between ZeroFox and L&F will be treated as the equivalent of ZeroFox issuing shares for the net assets of L&F, accompanied by a recapitalization. The net assets of ZeroFox will be stated at historical cost. No goodwill or
other intangible assets will be recorded.
As ZeroFox is determined to be the accounting acquirer in the
Business Combination, the acquisition of IDX will be considered a business combination under ASC 805, Business Combinations, and will be accounted for using the acquisition method of accounting. The
consideration transferred to effect the acquisition will be allocated to the assets acquired and liabilities assumed based on their estimated acquisition-date fair values. The excess of consideration transferred over the fair values of assets
acquired and liabilities assumed will be recorded as goodwill.
Scenario 2, Maximum Redemption Scenario
With respect to the Business Combination, under a maximum
redemption scenario, L&F will be treated as the accounting acquirer and ZeroFox and IDX as acquired companies for accounting purposes.
Upon consummation of the Business Combination, ZeroFox is
considered a variable interest entity as the equity at risk is not sufficient to fund expected future cash flow needs, including funding future projected losses and servicing existing debt obligations. L&F will be considered the primary
beneficiary as its ownership will provide the power to direct the activities that most significantly impact ZeroFox’s performance and the obligation to absorb the losses and/or receive the benefits of ZeroFox that could potentially be
significant to ZeroFox.
26
We assessed the possibility that IDX could be the accounting
acquirer upon consummation of the Business Combination. IDX is considered a business under ASC 805, Business Combinations. IDX is not considered the accounting acquirer in the Business Combination based
on evaluation of the following factors:
|
•
|
IDX shareholders will not have the largest voting interest in New ZeroFox;
|
|
•
|
IDX will not comprise all of the ongoing operations of New ZeroFox;
|
|
•
|
IDX will not designate a majority of the governing body of New ZeroFox;
|
|
•
|
IDX senior management will not have a substantive role in the senior management of New ZeroFox; and
|
|
•
|
the largest single owner of the combined company will not be a legacy owner of IDX.
|
L&F’s acquisitions of ZeroFox and IDX will be considered business
combinations under ASC 805, Business Combinations and will be accounted for using the acquisition method of accounting. The consideration transferred will be allocated to the assets acquired and
liabilities assumed based on their estimated acquisition-date fair values. The excess of consideration transferred to effect the acquisitions over the fair values of assets acquired and liabilities assumed will be recorded as goodwill.
Regulatory Matters
Under the HSR Act and the rules that have been promulgated thereunder
by the U.S. Federal Trade Commission (“FTC”), certain transactions may not be consummated unless certain specified information has been furnished to the Antitrust Division of the Department of Justice (“Antitrust Division”) and the FTC and certain waiting period requirements have been satisfied. The Business Combination is subject to these requirements and may not be completed until the expiration of a
30-day waiting period following the filing of the required Notification and Report Forms with the Antitrust Division and the FTC or until early termination of the waiting period is granted. On December 30, 2021, L&F, ZeroFox and IDX filed
the required forms under the HSR Act with the Antitrust Division and the FTC. The waiting period expired on January 31, 2022.
At any time before or after consummation of the Business Combination,
notwithstanding termination of the waiting period under the HSR Act, the applicable competition authorities in the United States or any other applicable jurisdiction could take such action under applicable antitrust laws as such authority deems
necessary or desirable in the public interest, including seeking to enjoin the consummation of the Business Combination, seeking to unwind the Business Combination, conditionally approving the Business Combination upon divestiture of certain
New ZeroFox assets, subjecting the completion of the Business Combination to regulatory conditions or seeking other remedies. Private parties may also seek to take legal action under the antitrust laws under certain circumstances. L&F
cannot assure you that the Antitrust Division, the FTC, any state attorney general, or any other government authority will not attempt to challenge the Business Combination on antitrust grounds, and, if such a challenge is made, L&F cannot
assure you as to its result.
None of L&F, ZeroFox and IDX are aware of any material regulatory
approvals or actions that are required for completion of the Business Combination other than the expiration or early termination of the waiting period under the HSR Act. It is presently contemplated that if any such additional regulatory
approvals or actions are required, those approvals or actions will be sought. There can be no assurance, however, that any additional approvals or actions will be obtained.
Summary Risk Factors
In evaluating the Business Combination and the proposals to be
considered and voted on at the Shareholder Meeting, you should carefully review and consider the risk factors set forth under the section titled “Risk Factors” beginning on page 59 of
this proxy statement/prospectus. Some of these risks are summarized below.
|
•
|
Defects, errors, or vulnerabilities in ZeroFox’s platform, the failure of ZeroFox’s platform to block malware or prevent a
security breach, misuse of ZeroFox’s platform, or risks of product liability claims would harm ZeroFox’s reputation and adversely impact the combined company’s business, operating results, and financial condition.
|
|
•
|
If ZeroFox’s enterprise platform offerings do not interoperate with its customers’ network and security infrastructure, or with
third-party products, websites or services, the combined company’s results of operations may be harmed.
|
27
|
•
|
ZeroFox may not timely and cost-effectively scale and adapt its existing technology to meet its customers’ performance and other
requirements.
|
|
•
|
ZeroFox’s success depends, in part, on the integrity and scalability of its systems and infrastructure. System interruption and
the lack of integration, redundancy and scalability in these systems and infrastructure may adversely affect the combined company’s business, financial condition, and results of operations.
|
|
•
|
ZeroFox has a history of losses, and the combined company may not be able to achieve or sustain profitability in the future.
|
|
•
|
If organizations do not adopt cloud, and/or SaaS-delivered external cybersecurity solutions that may be based on new and
untested security concepts, the combined company’s ability to grow its business and results of operations may be adversely affected.
|
|
•
|
ZeroFox faces intense competition and could lose market share to its competitors, which could adversely affect the combined
company’s business, financial condition, and results of operations.
|
|
•
|
Adverse general and industry-specific economic and market conditions and reductions in customer spending, in either the private
or public sector, may reduce demand for ZeroFox’s platform or products and solutions, which could harm the combined company’s business, financial condition and results of operations.
|
|
•
|
The COVID-19 pandemic could adversely affect the combined company’s business, operating results, and financial condition.
|
|
•
|
If ZeroFox fails to adapt to rapid technological change, evolving industry standards and changing customer needs, requirements
or preferences, the combined company’s ability to remain competitive could be impaired.
|
|
•
|
Historically, one U.S. government customer has accounted for a substantial portion of IDX’s revenues and is expected to account
for a substantial portion of the combined company’s revenues following the Business Combination. If IDX’s largest customer does not renew its contract with IDX (or renews at reduced spending levels), or if IDX’s relationship with its
largest customer is impaired or terminated, IDX’s revenues could decline, and the combined company’s business, financial condition, and results of operations would be adversely affected.
|
|
•
|
We may need to raise additional capital to maintain and expand our operations and invest in new solutions, which capital may not
be available on terms acceptable to us, or at all, and which could reduce our ability to compete and could harm our business.
|
|
•
|
There may not be an active trading market for the New ZeroFox Common Stock, which may make it difficult to sell shares of New
ZeroFox Common Stock.
|
|
•
|
L&F’s shareholders will experience dilution due to the issuance of shares of New ZeroFox Common Stock, and securities
that are exercisable for shares of New ZeroFox Common Stock to the Target Companies’ security holders as consideration in the Business Combination, and the issuance of shares of New ZeroFox Common Stock to the Common Equity PIPE
Investors in the Common Equity PIPE Financing or upon the conversion of the Notes.
|
|
•
|
Since the L&F Initial Shareholders, including L&F’s officers and directors, have interests that are different, or in
addition to (and which may conflict with), the interests of the Public Shareholders, a conflict of interest may have existed in determining whether the Business Combination with the Target Companies is appropriate as our initial
business combination. Such interests include that the Sponsor, as well as our officers and directors, will lose their entire investment in us if our business combination is not completed.
|
|
•
|
L&F has not obtained an opinion from an independent investment banking firm or another independent firm, and
consequently, you have no assurance from an independent source that the terms of the Business Combination are fair to L&F from a financial point of view.
|
28
|
•
|
The level of due diligence conducted in connection with the Business Combination may not be as high as would be the case if
the Target Companies became a public company through an underwritten public offering, which could result in defects with the Target Companies’ business or problems with the Target Companies’ management being overlooked.
|
|
•
|
The process of taking a company public by means of a business combination with a special purpose acquisition company (“SPAC”) is different from taking a company public through an underwritten offering and may create risks for our unaffiliated investors.
|
|
•
|
The unaudited pro forma financial information included in the section entitled “Unaudited Pro Forma Condensed Combined Financial
Information” may not be representative of the Company’s results if the Business Combination is completed.
|
|
•
|
The Notes to be issued and outstanding after consummation of the Business Combination may impact our financial results,
result in the dilution of our shareholders, create downward pressure on the price of New ZeroFox Common Stock, and restrict our ability to raise additional capital or take advantage of future opportunities.
|
|
•
|
We may not have the ability to raise the funds necessary to settle in cash conversions of the Notes, repurchase the Notes
upon a fundamental change or repay the Notes in cash at their maturity, and our future debt may contain limitations on our ability to pay cash upon conversion, redemption or repurchase of the Notes.
|
|
•
|
We may still incur substantially more debt or take other actions that would diminish our ability to make payments on the Notes
when due.
|
|
•
|
L&F does not have a specified maximum redemption threshold. The absence of such a redemption threshold may make it possible
for L&F to complete the Business Combination with which a substantial majority of its shareholders does not agree.
|
|
•
|
ZeroFox management has limited experience in operating a public company.
|
29
The questions and answers below highlight selected
information from this proxy statement/prospectus and only briefly address some commonly asked questions about the Shareholder Meeting and the proposals to be presented at the Shareholder Meeting, including with respect to the proposed Business
Combination. The following questions and answers do not include all the information that may be important to L&F shareholders. Shareholders are urged to read carefully this entire proxy statement/prospectus, including the Annexes and the
other documents referred to herein.
|
Q:
|
Why am I receiving this proxy statement?
|
|
A:
|
L&F is proposing to consummate a business combination with the Target Companies. L&F, L&F Holdings, ZF Merger Sub, IDX
Merger Sub, IDX Forward Merger Sub, ZeroFox, and IDX have entered into the Business Combination Agreement, the terms of which are described in this proxy statement/prospectus. You are being asked to consider and vote on the Business
Combination. The Business Combination Agreement, among other things, provides for (i) the Domestication, (ii) the merger of ZF Merger Sub with and into ZeroFox, with ZeroFox being the surviving company in the ZF Merger and continuing
(immediately following the ZF Merger) as a direct, wholly-owned subsidiary of L&F Holdings, (iii) the merger of IDX Merger Sub with and into IDX, with Transitional IDX Entity being the surviving company in the IDX Merger and
continuing (immediately following the IDX Merger) as a direct, wholly-owned subsidiary of L&F Holdings, and (iv) the merger of Transitional IDX Entity with and into IDX Forward Merger Sub, with IDX Forward Merger Sub being the
surviving company in the IDX Forward Merger and continuing (immediately following the IDX Forward Merger) as a direct, wholly-owned subsidiary of L&F Holdings.
|
L&F will hold the Shareholder Meeting to, among other things, obtain the
approvals required for the Business Combination and the other transactions contemplated by the Business Combination Agreement and you are receiving this proxy statement/prospectus in connection with such meeting. See the section entitled “Proposal No. 2 — The Business Combination Proposal” of this proxy statement/prospectus for additional information. A copy of the Business Combination Agreement is attached to this
proxy statement/prospectus as Annex A. We urge you to carefully read this proxy statement/prospectus and the Business Combination Agreement in their entirety.
L&F is sending this proxy statement/prospectus to its shareholders to help them
decide how to vote their L&F Ordinary Shares with respect to the matters to be considered at the Shareholder Meeting. The Business Combination cannot be completed unless L&F’s shareholders approve the Articles Amendment Proposal and the
Condition Precedent Proposals set forth in this proxy statement/prospectus. Information about the Shareholder Meeting, the Business Combination and the other business to be considered by shareholders at the Shareholder Meeting is contained in
this proxy statement/prospectus.
This document constitutes a proxy statement and a prospectus of L&F. It is a proxy
statement because the L&F Board is soliciting proxies using this proxy statement/prospectus from its shareholders. It is a prospectus because L&F, in connection with the Business Combination, is offering shares of New ZeroFox Common Stock
in exchange for the L&F Ordinary Shares and certain of the shares of ZeroFox Common Stock and IDX Common Stock outstanding as of the relevant times as described in this proxy statement/prospectus. See the section entitled “Proposal No. 2 — The Business Combination Proposal — The Business Combination Agreement — Consideration to be Received in the Business Combination” of this proxy statement/prospectus for additional
information.
YOUR VOTE IS IMPORTANT. SHAREHOLDERS ARE URGED TO SUBMIT THEIR
PROXIES AS SOON AS POSSIBLE AFTER CAREFULLY REVIEWING THIS PROXY STATEMENT/PROSPECTUS.
|
Q:
|
Why is L&F proposing the Business Combination?
|
|
A:
|
L&F is a blank check company incorporated as a Cayman Islands exempted company on August 20, 2020. L&F was incorporated
for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or other similar business combination with one or more businesses or entities.
|
The L&F IPO was completed on November 23, 2020. A total of $175,087,500 was placed
in the Trust Account. Since the L&F IPO, L&F’s activity has been limited to the evaluation of business combination candidates.
30
ZeroFox is an enterprise cybersecurity software-as-a-service provider of digital
attack detection and protection services. ZeroFox's patented technology collects and processes content, rich media, electronic posts, messages, global intelligence and threat actor activity across the digital landscape, including social media
sites, public, deep and dark web forums, mobile app stores and other digital platforms and discrete content sources. Using artificial intelligence-based analysis and threat intelligence capabilities, the ZeroFox platform identifies and
remediates targeted phishing attacks, credential and account compromise, data exfiltration and brand hijacking threats. ZeroFox offers its services on a subscription basis.
IDX is a data security company that provides data breach response services to its
customers.
Based on its due diligence investigations of the Target Companies and the industry in
which they operate, including the financial and other information provided by the Target Companies in the course of their negotiations in connection with the Business Combination Agreement, L&F believes that the Target Companies align well
with the objectives laid out in its investment thesis.
See “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the Business Combination” and “Proposal No. 2 - The Business Combination Proposal —
The L&F Board’s Reasons for the Approval of the Business Combination.”
|
Q:
|
What will the Target Companies’ equity holders receive in return for the acquisition of the Target Companies by
L&F?
|
|
A:
|
Pursuant to the Business Combination Agreement, the aggregate consideration payable or issuable by L&F in exchange for the
outstanding equity interests of ZeroFox and IDX is comprised of: (a) with regard to the holders of ZeroFox Common Stock, the right to receive, in the aggregate, a number of shares of New ZeroFox Common Stock that is approximately equal to
the quotient obtained by dividing (x) $866,250,000 by (y) $10.00, and (b) with regard to the holders of IDX Common Stock and Preferred Stock, the right to receive, in the aggregate, (i) a number of shares of New ZeroFox Common Stock that
is approximately equal to the quotient obtained by dividing (x) $288,750,000 by (y) $10.00, and (ii) $50,000,000 in cash consideration (subject to certain adjustments for cash, working capital, debt and transaction expenses, as provided
in the Business Combination Agreement). Outstanding options and warrants of ZeroFox and IDX will convert to options and warrants of New ZeroFox. For further details, see the section titled “Proposal No. 2
– The Business Combination Proposal – The Business Combination Agreement – Consideration to be Received in the Business Combination.”
|
|
Q:
|
Did the L&F Board obtain a third-party valuation or fairness opinion in determining whether or not to
proceed with the Business Combination?
|
|
A:
|
The L&F Board did not obtain a third-party valuation or fairness opinion in connection with its determination to approve
the Business Combination. L&F is not required to obtain an opinion from an independent investment banking firm that is a member of FINRA or from another independent firm that the price it is paying is fair to L&F from a
financial point of view. In analyzing the Business Combination, the L&F Board and L&F’s management conducted due diligence on the Target Companies and researched the industry in which the Target Companies operate and concluded
that the Business Combination was in the best interest of its shareholders. Accordingly, L&F’s shareholders will be relying solely on the judgment of the L&F Board in determining the value of the Business Combination, and the
L&F Board may not have properly valued such business. The lack of third-party valuation or fairness opinion may also lead an increased number of shareholders to vote against the Business Combination or demand redemption of their
shares, which could potentially impact our ability to consummate the Business Combination. For more information about our decision-making process, see the section entitled “The Business
Combination Proposal – The L&F Board’s Reasons for the Approval of the Business Combination.”
|
|
Q:
|
Will L&F obtain new financing in connection with the Business Combination?
|
|
A:
|
Yes. In connection with the execution of the Business Combination Agreement, L&F and certain investors including, among
others, L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F), GCP-OI I, LLC (an entity affiliated with Adam Gerchen, L&F’s chief
executive officer and a director of L&F), JCH Investments LLC (an entity affiliated with Jeffrey C. Hammes, the chairman of the L&F Board) entered into the Common Equity Subscription Agreements pursuant to which such investors
have agreed to purchase an aggregate of
|
31
2,000,000 shares of New ZeroFox Common Stock, for a purchase price of $10.00 per
share, for an aggregate purchase price of $20,000,000. The obligations of each party to consummate the Common Equity PIPE Financing are conditioned upon, among other things, customary closing conditions and the consummation of the transactions
contemplated by the Business Combination Agreement. New ZeroFox Common Stock issued pursuant to the Common Equity PIPE Financing will be identical to the Public Shares (which will be converted into shares of New ZeroFox Common Stock as part of
the Domestication) except that the shares issued in the Common Equity PIPE Financing will have registration rights granted pursuant to the Common Equity Subscription Agreements and the Public Shares were issued as part of the of the L&F
Public Units in the L&F IPO at a price per L&F Public Unit of $10.00.
Additionally, in connection with the execution of the Business Combination Agreement,
L&F and certain investors including, among others, L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F) entered into the Convertible Notes
Subscription Agreements, pursuant to which the Convertible Notes Investors have collectively committed to subscribe for an aggregate principal amount of $150,000,000 unsecured convertible notes due 2025 bearing interest at a rate of 7.00% per
annum, payable quarterly in cash (provided, that the issuer may elect to pay interest in kind at a rate of 8.75% per annum) with an initial conversion price of $11.50 per share of New ZeroFox Common Stock, and will mature on the date that is
three years following the closing of the Convertible Notes Financing. New ZeroFox may, at its election, force conversion of the Notes on the Conversion Trigger Date, subject to a holder’s prior right to convert, if the volume-weighted average
trading price of the New ZeroFox Common Stock (x) for the first year after the Conversion Trigger Date, is greater than or equal to 150% of the Conversion Price for at least 20 trading days during a period of 30 consecutive trading days and
(y) for the second year after the Conversion Trigger Date, is greater than or equal to 130% of the Conversion Price for at least 20 trading days during a period of 30 consecutive trading days. Upon conversion of any Note, New ZeroFox shall have
the option to settle the conversion in cash, shares of New ZeroFox Common Stock or a combination of both. Each holder of a Note will have the right to cause New ZeroFox to repurchase for cash all or a portion of the Notes held by such holder at
any time upon the occurrence of a “fundamental change”, as such term is defined in the Indenture, at a price equal to par plus accrued and unpaid interest. In the event of a conversion in connection with a “make-whole fundamental change,” as
defined in the Indenture, the Conversion Price will be adjusted in accordance with in the Indenture. L&F has agreed to grant the Convertible Notes Investors certain registration rights in connection with the Convertible Notes Financing.
Once issued, New ZeroFox Common Stock issued pursuant to the Convertible Notes Subscription Agreements will be identical to the New ZeroFox Common Stock except the shares issuable upon conversion of the Notes will have registration rights
granted pursuant to the Registration Rights Agreement.
The existence of financial and personal interests of one or more of L&F’s
directors may result in a conflict of interest on the part of such director(s) between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for himself or themselves in
determining to recommend that shareholders vote for the proposals. See the section titled “Proposal No. 2 — The Business Combination Proposal — Interests of Certain Persons in the Business
Combination” for a further discussion of these considerations.
|
Q:
|
What equity stake will current L&F shareholders, ZeroFox shareholders and IDX shareholders hold in New
ZeroFox immediately after the consummation of the Business Combination?
|
|
A:
|
As of the date of this proxy statement/prospectus, there are (i) 17,250,000 Class A Ordinary Shares issued and outstanding and
(ii) 4,312,500 Class B Ordinary Shares issued and outstanding. In addition, as of the date of this proxy statement/prospectus, there are outstanding 5,450,000 L&F Private Placement Warrants held by the Sponsor, 2,138,430 L&F
Private Placement Warrants held by Jefferies and 8,625,000 L&F Public Warrants. Each whole warrant entitles the holder thereof to purchase one Class A Ordinary Share and, following the Domestication, will entitle the holder thereof to
purchase one share of New ZeroFox Common Stock. Therefore, as of the date of this proxy statement/prospectus (without giving effect to the Business Combination and assuming that none of the Class A Ordinary Shares are redeemed in
connection with the Business Combination), L&F’s fully-diluted share capital (after giving effect to the exercise of all of the L&F Private Placement Warrants and all of the L&F Public Warrants) would be 37,775,930
L&F Ordinary Shares.
|
32
The following table illustrates varying ownership levels in New ZeroFox Common
Stock immediately following the consummation of the Business Combination based on the varying levels of redemptions by the Public Shareholders and the following additional assumptions: (i) 83,371,892 shares of New ZeroFox Common Stock are
issued to the ZeroFox shareholders at Closing in both a no redemption scenario and a maximum redemption scenario; (ii) 27,815,924 shares of New ZeroFox Common Stock are issued to the IDX shareholders at Closing in both a no redemption scenario
and a maximum redemption scenario; (iii) all outstanding ZeroFox warrants and IDX warrants will be exercised on a cash basis immediately prior to the Closing; (iv) 2,000,000 shares of New ZeroFox Common Stock are issued in the Common Equity
PIPE Financing; (v) no New ZeroFox Public Warrants and New ZeroFox Private Placement Warrants issued in connection with the Business Combination to purchase New ZeroFox Common Stock that will be outstanding immediately following Closing have
been exercised; (vi) no Notes issued in the Convertible Notes Financing have been converted; and (vii) all outstanding vested and unvested ZeroFox options and IDX options are converted into New ZeroFox Options exercisable for shares of New
ZeroFox Common Stock.
Based on these assumptions, and assuming that no outstanding Class A Ordinary Shares
are redeemed in connection with the Business Combination, there would be approximately 134,750,316 shares of New ZeroFox Common Stock outstanding immediately following the consummation of the Business Combination. If the actual facts are
different than these assumptions, the ownership percentages in New ZeroFox will be different.
For example, there are currently outstanding an aggregate of 16,213,430 L&F Warrants
to acquire our Class A Ordinary Shares, which are comprised of 7,588,430 L&F Private Placement Warrants and 8,625,000 L&F Public Warrants sold as part of the L&F Public Units sold in the L&F IPO. Each outstanding L&F Warrant
would be exercisable as a New ZeroFox Warrant commencing 30 days following the Closing for one share of New ZeroFox Common Stock. If we assume that each outstanding warrant is exercised and one share of New ZeroFox Common Stock is issued as a
result of such exercise, with payment to New ZeroFox of the exercise price of $11.50 per warrant for one share, our fully-diluted share capital would increase by a total of 16,213,430 shares, with $186,454,445 paid to New ZeroFox to exercise the
warrants. In addition, an aggregate principal amount of $150,000,000 of Notes will be issued in the Convertible Notes Financing. The Notes may be converted at a conversion price of $11.50 per share of New ZeroFox Common Stock. If we assume that
the Notes (excluding any paid-in-kind interest) are converted in full and settled fully in shares, our fully-diluted share capital would increase by a total of 13,043,475 shares.
|
|
| |
Share Ownership in New ZeroFox
|
|||
|
|
| |
No Redemptions
|
| |
Maximum
Redemptions(1)
|
|
|
| |
Percentage of
Outstanding Shares
|
| |
Percentage of
Outstanding Shares
|
|
L&F Public Shareholders(2)
|
| |
12.8%
|
| |
—
|
|
L&F Initial Shareholders(3)
|
| |
3.2%
|
| |
3.7%
|
|
Common Equity PIPE Investors(4)
|
| |
1.5%
|
| |
1.7%
|
|
ZeroFox Shareholders(5)
|
| |
61.9%
|
| |
71.0%
|
|
IDX Shareholders(6)
|
| |
20.6%
|
| |
23.7%
|
|
(1)
|
Assumes that all 17,250,000 Class A Ordinary Shares outstanding are redeemed for an aggregate payment of approximately
$175,100,000 (based on the estimated per share redemption price of approximately $10.15 per share) from the Trust Account. As the proceeds (without taking into account offering expenses) from the Common Equity PIPE Financing and the
Convertible Notes Financing are expected to satisfy the Available Closing Acquiror Cash Condition, the maximum redemption scenario reflects the redemption of 100% of the Class A Ordinary Shares held by the Public Shareholders; amounts
do not sum due to rounding.
|
|
(2)
|
Represents shares of New ZeroFox Common Stock to be issued upon conversion of 17,250,000 Class A Ordinary Shares issued in
connection with the L&F IPO.
|
|
(3)
|
Represents shares of New ZeroFox Common Stock to be issued upon conversion of 4,312,500 Class B Ordinary Shares acquired by the
L&F Initial Shareholders prior to or in connection with the L&F IPO (including 20,000 shares held by Albert Goldstein, 50,000 shares held by Joseph Lieberman and 39,733 shares held by Kurt Summers). Includes 1,293,750 shares of
New ZeroFox Common Stock held by the L&F Initial Shareholders under both scenarios that are subject to forfeiture if certain earnout conditions are not satisfied, as the shares are issued and outstanding as of the closing date of the
Business Combination.
|
|
(4)
|
Consists of 2,000,000 shares of New ZeroFox Common Stock to be issued in the Common Equity PIPE Financing.
|
33
|
(5)
|
Includes 1,698,148 shares of New ZeroFox Common Stock to be issued in exchange for shares of ZeroFox Common Stock assumed to be
issued upon the cash exercise of ZeroFox warrants prior to the Closing.
|
|
(6)
|
Includes 91,751 shares of New ZeroFox Common Stock to be issued in exchange for shares of IDX Common Stock assumed to be issued
upon the cash exercise of IDX warrants prior to the Closing.
|
The numbers of shares and percentage interests set forth above have been presented for
illustrative purposes only and do not necessarily reflect what New ZeroFox’s share ownership will be after the Closing. For more information about the consideration to be received in the Business Combination, these scenarios and the underlying
assumptions, see “Unaudited Pro Forma Condensed Combined Financial Information” and “Proposal No.2—The Business Combination Proposal—The Business Combination
Agreement—Consideration to be Received in the Business Combination.”
|
Q.
|
What happens if a substantial number of the Public Shareholders vote in favor of the Business Combination
Proposal and exercise their redemption rights?
|
|
A.
|
Our Public Shareholders are not required to vote “FOR” the Business Combination in order to exercise their redemption rights.
Accordingly, the Business Combination may be consummated even though the funds available from the Trust Account and the number of Public Shareholders are reduced as a result of redemptions by Public Shareholders.
|
If a Public Shareholder exercises its redemption rights, such exercise will not
result in the loss of any warrants that it may hold. Assuming that all 17,250,000 Class A Ordinary Shares held by Public Shareholders were redeemed, the public warrantholders will retain the 8,625,000 L&F Public Warrants. The outstanding
L&F Public Warrants (which will become New ZeroFox Public Warrants following the Closing) would have a value of approximately $0.3612 per warrant based on the closing price of the L&F Public Warrants on the NYSE on April 4, 2022. If a
substantial number of, but not all, Public Shareholders exercise their redemption rights, and the holders of the 8,625,000 New ZeroFox Public Warrants choose to exercise their warrants, any non-redeeming shareholders would experience dilution
to the extent such warrants are exercised.
Additionally, as a result of redemptions, the trading market for the New ZeroFox
Common Stock may be less liquid than the market for the Class A Ordinary Shares was prior to consummation of the Business Combination and we may not be able to meet the listing standards for the NYSE, Nasdaq or another national securities
exchange. In addition, with less funds available from the Trust Account, the working capital infusion from the Trust Account into New ZeroFox’s business will be reduced.
The below sensitivity table shows the potential impact of redemptions on the pro forma
book value per share of the shares owned by non-redeeming shareholders in a no redemption scenario, three illustrative redemption scenarios, and a maximum redemption scenario. The sensitivity table below also sets forth (x) the potential
additional dilutive impact of each of the below additional dilution sources in each redemption scenario, and (y) the effective underwriting fee percentage incurred in connection with the L&F IPO in each redemption scenario.
|
|
| |
Assuming No
Redemption(1)
|
| |
Assuming 25%
Redemption(2)
|
| |
Assuming 50%
Redemption(3)
|
| |
Assuming 75%
Redemption(4)
|
| |
Assuming
Maximum
Redemption(5)
|
|||||||||||||||
|
Shareholders
|
| |
Ownership
in shares
|
| |
Equity
%
|
| |
Ownership
in shares
|
| |
Equity
%
|
| |
Ownership
in shares
|
| |
Equity
%
|
| |
Ownership
in shares
|
| |
Equity
%
|
| |
Ownership
in shares
|
| |
Equity
%
|
|
ZeroFox Shareholders(6)
|
| |
83,371,892
|
| |
61.9%
|
| |
83,371,892
|
| |
63.9%
|
| |
83,371,892
|
| |
66.1%
|
| |
83,371,892
|
| |
68.4%
|
| |
83,371,892
|
| |
71.0%
|
|
IDX Shareholders(7)
|
| |
27,815,924
|
| |
20.6%
|
| |
27,815,924
|
| |
21.3%
|
| |
27,815,924
|
| |
22.1%
|
| |
27,815,924
|
| |
22.8%
|
| |
27,815,924
|
| |
23.7%
|
|
L&F Public Shareholders
|
| |
17,250,000
|
| |
12.8%
|
| |
12,937,500
|
| |
9.9%
|
| |
8,625,000
|
| |
6.8%
|
| |
4,312,500
|
| |
3.5%
|
| |
—
|
| |
0.0%
|
|
L&F Initial Shareholders(8)
|
| |
4,312,500
|
| |
3.2%
|
| |
4,312,500
|
| |
3.3%
|
| |
4,312,500
|
| |
3.4%
|
| |
4,312,500
|
| |
3.5%
|
| |
4,312,500
|
| |
3.7%
|
|
Common Equity PIPE Investors
|
| |
2,000,000
|
| |
1.5%
|
| |
2,000,000
|
| |
1.5%
|
| |
2,000,000
|
| |
1.6%
|
| |
2,000,000
|
| |
1.6%
|
| |
2,000,000
|
| |
1.7%
|
|
Total Shares Outstanding Excluding
“Additional Dilution Sources”
|
| |
134,750,316
|
| |
100%
|
| |
130,437,816
|
| |
100%
|
| |
126,125,316
|
| |
100%
|
| |
121,812,816
|
| |
100%
|
| |
117,500,316
|
| |
100%
|
|
Total Pro Forma Equity Value
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Post-Redemptions(9)
|
| |
$1,347,503,160
|
| |
|
| |
$1,304,378,160
|
| |
|
| |
$1,261,253,160
|
| |
|
| |
$1,218,128,160
|
| |
|
| |
$1,175,003,160
|
| |
|
|
Total Pro Forma Book Value
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Post-Redemptions(10)
|
| |
$414,499
|
| |
|
| |
$371,374
|
| |
|
| |
$328,249
|
| |
|
| |
$285,124
|
| |
|
| |
$1,050,380
|
| |
|
|
Pro Forma Book Value Per Share
|
| |
$3.08
|
| |
|
| |
$2.85
|
| |
|
| |
$2.60
|
| |
|
| |
$2.34
|
| |
|
| |
$8.94
|
| |
|
34
|
|
| |
Assuming No
Redemption(1)
|
| |
Assuming 25%
Redemption(2)
|
| |
Assuming 50%
Redemption(3)
|
| |
Assuming 75%
Redemption(4)
|
| |
Assuming
Maximum
Redemption(5)
|
|||||||||||||||
|
Additional Dilution Sources(11)
|
| |
Ownership
in Shares
|
| |
Equity
%(12)
|
| |
Ownership
in Shares
|
| |
Equity
%(12)
|
| |
Ownership
in shares
|
| |
Equity
%(12)
|
| |
Ownership
in shares
|
| |
Equity
%(12)
|
| |
Ownership
in shares
|
| |
Equity
%(12)
|
|
New ZeroFox Warrants
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
New ZeroFox Public Warrants
|
| |
8,625,000
|
| |
5.7%
|
| |
8,625,000
|
| |
5.9%
|
| |
8,625,000
|
| |
6.1%
|
| |
8,625,000
|
| |
6.2%
|
| |
8,625,000
|
| |
6.5%
|
|
New ZeroFox Private Placement Warrants(13)
|
| |
7,588,430
|
| |
5.0%
|
| |
7,588,430
|
| |
5.2%
|
| |
7,588,430
|
| |
5.3%
|
| |
7,588,430
|
| |
5.5%
|
| |
7,588,430
|
| |
5.7%
|
|
Total Additional Dilution Sources
|
| |
16,213,430
|
| |
10.7%
|
| |
16,213,430
|
| |
11.1%
|
| |
16,213,430
|
| |
11.4%
|
| |
16,213,430
|
| |
11.7%
|
| |
16,213,430
|
| |
12.1%
|
|
|
| |
Assuming No
Redemption(1)
|
| |
Assuming 25%
Redemption(2)
|
| |
Assuming 50%
Redemption(3)
|
| |
Assuming 75%
Redemption(4)
|
| |
Assuming
Maximum
Redemption(5)
|
|||||||||||||||
|
Deferred Discount
|
| |
Amount ($)
|
| |
% of
Gross IPO
Proceeds
|
| |
Amount ($)
|
| |
% of
Gross IPO
Proceeds
|
| |
Amount ($)
|
| |
% of
Gross IPO
Proceeds
|
| |
Amount ($)
|
| |
% of
Gross IPO
Proceeds
|
| |
Amount ($)
|
| |
% of
Gross IPO
Proceeds
|
|
Effective Deferred Discount
|
| |
$6,037,500
|
| |
3.5%
|
| |
$6,037,500
|
| |
4.7%
|
| |
6,037,500
|
| |
7.0%
|
| |
6,037,500
|
| |
14.0%
|
| |
6,037,500
|
| |
N/A
|
|
(1)
|
This scenario assumes that ZeroFox is the accounting acquiror with respect to the Business Combination and that no Class A
Ordinary Shares are redeemed by the Public Shareholders.
|
|
(2)
|
This scenario assumes that ZeroFox is the accounting acquiror with respect to the Business Combination and that 4,312,500
Class A Ordinary Shares are redeemed by the Public Shareholders; amounts do not sum due to rounding.
|
|
(3)
|
This scenario assumes that ZeroFox is the accounting acquiror with respect to the Business Combination and that 8,625,000
Class A Ordinary Shares are redeemed by the Public Shareholders.
|
|
(4)
|
This scenario assumes that ZeroFox is the accounting acquiror with respect to the Business Combination and that 12,937,500
Class A Ordinary Shares are redeemed by the Public Shareholders; amounts do not sum due to rounding.
|
|
(5)
|
This scenario assumes that L&F is the accounting acquiror with respect to the Business Combination and that 17,250,000
Class A Ordinary Shares are redeemed by the Public Shareholders; amounts do not sum due to rounding.
|
|
(6)
|
Excludes shares acquired by the ZeroFox Investors in the Common Equity PIPE Financing. Includes 1,698,148 shares of New ZeroFox
Common Stock to be issued in exchange for shares of ZeroFox Common Stock upon the assumed cash exercise of ZeroFox warrants prior to the Closing.
|
|
(7)
|
Excludes shares acquired by the IDX Investors in the Common Equity PIPE Financing. Includes 91,751 shares of New ZeroFox Common
Stock to be issued in exchange for shares of IDX Common Stock upon the assumed cash exercise of IDX warrants prior to the Closing.
|
|
(8)
|
Includes 4,312,500 shares held by the L&F Initial Shareholders originally acquired prior to or in connection with the L&F
IPO (including 20,000 shares held by Albert Goldstein, 50,000 shares held by Joseph Lieberman and 39,733 shares held by Kurt Summers). Includes 1,293,750 shares of New ZeroFox Common Stock held by the L&F Initial Shareholders that are
subject to forfeiture if certain earnout conditions are not satisfied, as the shares are issued and outstanding as of the closing date of the Business Combination.
|
|
(9)
|
Pro forma equity value shown at $10.00 per share in the no redemption scenario, the 25% redemption scenario, the 50% redemption
scenario, the 75% redemption scenario and the maximum redemption scenario.
|
|
(10)
|
See “Unaudited Pro Forma Condensed Combined Financial Information” for pro forma book
value in the no redemption scenario and the maximum redemption scenario. The pro forma book value for the no redemption scenario, the 25% redemption scenario, the 50% redemption scenario and the 75% redemption scenario assumes ZeroFox is
the accounting acquirer under Scenario 1. The pro forma book value for the maximum redemption scenario assumes L&F is the accounting acquirer under Scenario 2.
|
|
(11)
|
Additional Dilution Sources does not reflect the potential conversion of the Notes. An aggregate principal amount of $150,000,000
of Notes will be issued in the Convertible Notes Financing. The Notes may be converted at a conversion price of $11.50 per share of New ZeroFox Common Stock. If we assume that the Notes (excluding any paid-in-kind interest) are converted
in full and settled fully in shares, our fully-diluted share capital would increase by a total of 13,043,475 shares.
|
|
(12)
|
The Equity % with respect to each Additional Dilution Source set forth below, including the Total Additional Dilution Sources,
includes the full amount of shares issued with respect to the applicable Additional Dilution Source in the numerator and the full amount of shares issued with respect to the Total Additional Dilution Sources in the denominator. For
example, in the 50% Redemption Scenario, the Equity % with respect to the New ZeroFox Public Warrants would be calculated as follows: (a) 8,625,000 shares issued pursuant to the New ZeroFox Public Warrants; divided by (b) (i)
126,125,316 shares (the number of shares outstanding excluding the Additional Dilution Sources) plus (ii) 16,213,430 shares included in the Additional Dilution Sources.
|
|
(13)
|
Includes 5,450,000 warrants held by the Sponsor and the 2,138,430 warrants held by Jefferies that were issued in a private
placement at the time of the L&F IPO.
|
|
Q:
|
Why is L&F proposing the Domestication?
|
The approval of the Domestication Proposal requires a special resolution under Cayman
Islands law, being the affirmative vote of the holders of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote
35
thereon at the Shareholder Meeting. Abstentions will be considered present for the
purpose of establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no effect on the approval of the Domestication Proposal as a matter of Cayman Islands law.
|
Q:
|
How will the Domestication affect my ordinary shares, warrants and units?
|
|
A:
|
In connection with the Domestication, on the Closing Date and prior to the ZF Effective Time and IDX Effective Time, (i) all of
the L&F Ordinary Shares will be converted into shares of New ZeroFox Common Stock on a one-for-one basis, (ii) each issued and outstanding whole warrant exercisable for one Class A Ordinary Share will be converted into a warrant
exercisable for one share of New ZeroFox Common Stock at an exercise price of $11.50 per share on the terms and conditions set forth in the Warrant Agreement, and (iii) each issued and outstanding L&F Public Unit that has not been
previously separated into the underlying Class A Ordinary Share and underlying one-half of one L&F Public Warrant upon the request of the holder thereof will be cancelled and will entitle the holder thereof to one share of New ZeroFox
Common Stock and one-half of one New ZeroFox Public Warrant. See “Proposal No. 3 - Domestication Proposal.”
|
|
Q:
|
What interests do the L&F Initial Shareholders, our current officers, directors and advisors, and the
Target Companies’ current owners have in the Business Combination?
|
|
A:
|
In considering the recommendation of our board to vote in favor of the Business Combination, shareholders should be aware that,
aside from their interests as shareholders, our Sponsor and our directors and officers, our advisers, and the Target Companies’ current owners have interests in the Business Combination that are different from, or in addition to, those
of our other shareholders generally. Our directors were aware of and considered these interests, among other matters, in evaluating the Business Combination, and in recommending to our shareholders that they approve the Business
Combination. Shareholders should take these interests into account in deciding whether to approve the Business Combination.
|
These interests include, among other things:
|
•
|
the fact that the Sponsor and L&F’s directors and officers have agreed not to redeem any Class A Ordinary Shares held by them
in connection with a shareholder vote to approve the Business Combination and the Sponsor Holders are obligated to vote in favor of the Business Combination;
|
|
•
|
the fact that the Sponsor has irrevocably waived the anti-dilution adjustments set forth in L&F’s organizational documents, or
any other anti-dilution or similar adjustment rights to which the Sponsor may otherwise be entitled related to or arising from the Business Combination;
|
|
•
|
the fact that the Sponsor Holders paid an aggregate amount of $25,000 for the Founder Shares, which will convert into
4,312,500 shares of New ZeroFox Common Stock in accordance with the terms of L&F’s organizational documents and such securities will have a significantly higher value at the time of the Business Combination;
|
|
•
|
the fact that the Sponsor paid $5,450,000 for 5,450,000 L&F Private Placement Warrants, each of which is exercisable
commencing on the later of 12 months from the closing of the L&F IPO and 30 days following the Closing for one Class A Ordinary Share at $11.50 per share; if we do not consummate an initial business combination by May 23, 2022 (or
such later date as may be approved by L&F's shareholders), then the proceeds from the sale of the L&F Private Placement Warrants will be part of the liquidating distribution to the Public Shareholders and the warrants held by
our Sponsor will be worthless;
|
|
•
|
the fact that the L&F Initial Shareholders, including the Sponsor (and certain of L&F’s officers and directors who are
members of the Sponsor), have invested in L&F an aggregate of $5,475,000, comprised of the $25,000 purchase price for 4,312,500 Founder Shares and the $5,450,000 purchase price for 5,450,000 L&F Private Placement Warrants.
Subsequent to the initial purchase of the Founder Shares by the Sponsor, the Sponsor transferred 20,000 Founder Shares to Mr. Albert Goldstein and 50,000 Founder Shares to Senator Joseph Lieberman at a nominal purchase price of $0.004
per Founder Share prior to the closing of the L&F IPO and 39,733 Founder Shares to Mr. Kurt Summers shortly after his being appointed to the L&F Board in December 2021 for no cash consideration. Assuming a trading price of
$10.11 per Class A Ordinary Share and $0.3612 per L&F Public Warrant
|
36
(based upon the respective closing prices of the Class A Ordinary Shares and the
L&F Public Warrants on the NYSE on April 4, 2022), the 4,312,500 Founder Shares and 5,450,000 Private Placement Warrants would have an implied aggregate market value of $45,567,915. Even if the trading price of the shares of New ZeroFox
Common Stock were as low as $1.27 per share, the aggregate market value of the Founder Shares alone (without taking into account the value of the L&F Private Placement Warrants) would be approximately equal to the initial investment in
L&F by the L&F Initial Shareholders. As a result, the L&F Initial Shareholders are likely to be able to make a substantial profit on their investment in L&F at a time when shares of New ZeroFox Common Stock have lost significant
value. On the other hand, if L&F liquidates without completing a business combination before May 23, 2022 (or such later date as may be approved by L&F's shareholders), the L&F Initial Shareholders will lose their entire investment
in L&F;
|
•
|
the fact that the Sponsor and L&F’s officers and directors will benefit from the completion of a business combination and may
be incentivized to complete an acquisition of a less favorable target company or on terms less favorable to shareholders rather than liquidate;
|
|
•
|
the fact that the L&F Initial Shareholders including the Sponsor (and the L&F’s officers and directors who are members of
the Sponsor) can earn a positive rate of return on their investment, even if other L&F shareholders experience a negative rate of return in New ZeroFox;
|
|
•
|
the fact that the L&F Initial Shareholders and L&F’s other current officers and directors have agreed to waive their
rights to liquidating distributions from the Trust Account with respect to any L&F Ordinary Shares (other than Public Shares) held by them if L&F fails to complete an initial business combination by May 23, 2022 (or such later
date as may be approved by L&F shareholders);
|
|
•
|
the fact that, at the option of the Sponsor, any amounts outstanding under any loan made by the Sponsor or any of its
affiliates to L&F in an aggregate amount of up to $1,500,000 may be converted into L&F Private Placement Warrants in connection with the consummation of the Business Combination;
|
|
•
|
the fact that the Sponsor and L&F’s officers and directors will lose their entire investment in L&F and will not be
reimbursed for any loans extended, fees due or out-of-pocket expenses if an initial business combination is not consummated by May 23, 2022 (or such later date as may be approved by L&F shareholders). As of the date of this proxy
statement/prospectus there are no loans extended, fees due or outstanding out-of-pocket expenses for which the Sponsor and L&F’s officers and directors are awaiting reimbursement;
|
|
•
|
the fact that if the Trust Account is liquidated, including in the event L&F is unable to complete an initial business
combination within the required time period, the Sponsor has agreed to indemnify L&F to ensure that the proceeds in the Trust Account are not reduced below $10.15 per L&F 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 L&F has entered into an acquisition agreement or claims of any third party for services rendered or products sold to L&F,
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 fact that L&F may be entitled to distribute or pay over funds held by L&F outside the Trust Account to the Sponsor
or any of its affiliates prior to the Closing;
|
|
•
|
the fact that L&F has agreed to pay Jefferies, L&F’s co-PIPE placement agent and financial advisor, and sole
underwriter in the L&F IPO: (i) a cash fee for their services in connection with the L&F IPO in an aggregate amount equal to 5.5% of the gross proceeds of the L&F IPO, with 2.0% of the gross proceeds being paid to the
underwriters at the time the L&F IPO was completed and 3.5% of the gross proceeds (i.e., the deferred underwriting fee) being payable, and conditioned, upon consummating an initial business combination; the aggregate underwriting
fee is fixed at 5.5% of the gross proceeds from the L&F IPO and will not be adjusted based on the number of shares that are redeemed in connection with the Business Combination; the aggregate underwriting fee of $6,037,500
represents approximately 3.5%, 4.7%, 7.0% and 14.0% of the aggregate proceeds from the L&F IPO, net of redemptions, in the no redemption, 25% redemption, 50% redemption and 75% redemption scenarios, respectively; (ii) a placement
agency fee as a percentage of the aggregate gross proceeds received or to be received from
|
37
the sale of L&F’s equity securities and split with Stifel (defined below); and
(iii) financial advisory fees as a fixed amount related to capital markets financial advice and assistance in connection with the Business Combination, as applicable, upon completion of the Business Combination;
|
•
|
the fact that, Stifel, co-PIPE placement agent for the Common Equity PIPE Financing and a creditor of ZeroFox, will be entitled to
receive a placement agency fee as a percentage of the aggregate gross proceeds received or to be received from the one or more commitments for financing the Business Combination from sources other than any affiliates of ZeroFox, IDX or
L&F, and split with Jefferies, upon completion of the Business Combination;
|
|
•
|
the fact that (i) James C. Foster, Peter Barris, Corey Mulloy, Samskriti King, and Todd Headley, current directors of ZeroFox,
(ii) Thomas F. Kelly and Sean Cunningham, current directors of IDX and (iii) Adam Gerchen, current chief executive officer of the Sponsor, are each expected to be directors, and James C. Foster is expected to be chief executive officer,
of New ZeroFox after the consummation of the Business Combination. As such, in the future each of the aforementioned will receive any cash fees, stock options, stock awards or other remuneration that New ZeroFox’s board of directors
determines to pay them and any applicable compensation as described under the section titled Executive and Director Compensation; and
|
|
•
|
the fact that the Sponsor Group will have paid an aggregate of approximately $15,475,000 for its investment in New ZeroFox,
including the investment of L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F), GCP-OI I, LLC (an entity affiliated with Adam
Gerchen, our chief executive officer and a director of L&F), JCH Investments LLC (an entity affiliated with Jeffrey C. Hammes, the chairman of the L&F Board) in the Common Equity PIPE Financing, and the investment of L&F
Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F) in the Convertible Notes Financing), as summarized in the table below, and, following the
consummation of the Business Combination, the aggregate value of the Sponsor Group’s investment will be $48,095,415, based upon the respective closing prices of the Class A Ordinary Shares and the L&F Public Warrants on the NYSE on
April 4, 2022.
|
Sponsor Group Beneficial Ownership of L&F Prior
to Closing
|
|
| |
Securities held by
Sponsor Group
|
| |
Sponsor Cost at L&F’s
Initial Public Offering ($)
|
|
Class A Ordinary Shares
|
| |
—
|
| |
—
|
|
Founder Shares
|
| |
4,312,500
|
| |
$25,000
|
|
L&F Private Placement Warrants
|
| |
5,450,000
|
| |
$5,450,000
|
|
Total
|
| |
|
| |
$5,475,000
|
Sponsor Group Beneficial Ownership
of New ZeroFox Following the Closing(1)
|
|
| |
Securities held
by Sponsor
Group at Closing
|
| |
Value per
Security ($)
|
| |
Sponsor Group
Cost at Closing ($)
|
| |
Total
Value ($)
|
|
New ZeroFox Common Stock Issued Pursuant to the Common
Equity PIPE Financing
|
| |
250,000
|
| |
$10.11
|
| |
$2,500,000
|
| |
$2,527,500
|
|
New ZeroFox Common Stock Issued to Holders of Founder
Shares
|
| |
4,312,500(2)
|
| |
$10.11
|
| |
—
|
| |
$43,599,375
|
|
New ZeroFox Private Placement Warrants
|
| |
5,450,000
|
| |
$0.3612
|
| |
—
|
| |
$1,968,540
|
|
Total
|
| |
|
| |
|
| |
$2,500,000
|
| |
$48,095,415
|
|
(1)
|
Does not include New ZeroFox Common Stock issuable upon conversion of the Notes that are convertible at an initial conversion
price of $11.50 per share.
|
|
(2)
|
Includes 1,293,750 shares of New ZeroFox Common Stock which will be subject to an earnout, whereby such shares will be forfeited
unless certain volume-weighted average share price thresholds are met in trading or are deemed to occur in connection with a Change of Control (as defined in the Business Combination Agreement) within five years from the Closing. See “Proposal No. 2 -- Business Combination Proposal — Related Agreements — The Sponsor Support Letter Agreement” for more information related to the Sponsor Support Letter
Agreement.
|
38
In addition, the Sponsor, L&F’s executive officers and directors, and any of
their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on L&F’s behalf such as identifying potential target businesses and performing due diligence on suitable business
combinations. L&F’s audit committee reviews on a quarterly basis all payments that were made to the Sponsor, L&F’s executive officers or directors, or L&F’s or their affiliates. Any such payments prior to an initial business
combination are made using funds held outside the Trust Account. Other than quarterly audit committee review of such reimbursements, L&F does not have any additional controls in place governing L&F’s reimbursement payments to L&F’s
directors and executive officers for their out-of-pocket expenses incurred in connection with L&F’s activities on L&F’s behalf in connection with identifying and consummating an initial business combination. Other than these payments and
reimbursements, no compensation of any kind, including finder’s and consulting fees, is paid by L&F to the Sponsor, L&F’s executive officers and directors, or any of their respective affiliates, prior to completion of its initial business
combination. As of the date of this proxy statement/prospectus, no out-of-pocket expenses have been incurred and remain outstanding by L&F’s executive officers and directors.
See “Proposal No. 2 - The Business Combination—Interests of Certain Persons in the Business Combination” for a more detailed discussion of how the L&F Initial Shareholders and L&F’s other current officers and directors have interests in the
Business Combination that are different from, or in addition to, the interests of the Public Shareholders generally.
Such interests may influence the L&F Board in making its recommendation that you
vote in favor of the approval of the Business Combination.
|
Q:
|
What happens to the funds deposited in the Trust Account after consummation of the Business Combination?
|
|
A:
|
As of December 31, 2021, there were investments and cash held in the Trust Account of approximately $175,100,000. These funds
will not be released until the earlier of the completion of our initial business combination and the redemption of our Class A Ordinary Shares if we are unable to complete an initial business combination by May 23, 2022 (or such later
date as may be approved by L&F's shareholders), although we may withdraw the interest earned on the funds held in the Trust Account to pay taxes.
|
|
Q:
|
What conditions must be satisfied to complete the Business Combination?
|
|
A:
|
Unless waived by the parties to the Business Combination Agreement, and subject to applicable law, the consummation of the
Business Combination is subject to a number of conditions set forth in the Business Combination Agreement including, among other things, (i) expiration or termination of the waiting period under the HSR Act (which expired on January 31,
2022), (ii) the absence of any law or governmental order by a governmental authority of competent jurisdiction and having jurisdiction over the parties with respect to the Business Combination enjoining, prohibiting, or making illegal
the consummation of the Business Combination, (iii) approval of the Business Combination and related agreements and transactions by the shareholders of L&F, (iv) that the Common Equity PIPE Financing (and the funding of the proceeds
of the Common Equity PIPE Financing) shall have been consummated or will be consummated substantially concurrently with the Closing in accordance with the terms of the applicable Common Equity PIPE Subscription Agreements, (v) that the
Convertible Notes Financing (and the funding of the proceeds of the Convertible Notes Financing) shall have been consummated or will be consummated substantially concurrently with the Closing in accordance with the terms of the
applicable Convertible Notes Subscription Agreements, (vi) effectiveness of the registration statement of which this proxy statement/prospectus is a part, (vii) receipt of approval for listing on the NYSE or Nasdaq of the shares of New
ZeroFox Common Stock to be issued or reserved for issuance in connection with the Business Combination, and (viii) that after giving effect to the Business Combination, the Available Closing Acquiror Cash shall not be less than
$170,000,000.
|
39
|
Q:
|
What happens if the Business Combination is not consummated?
|
|
A:
|
L&F will not complete the Business Combination unless all other conditions to the consummation of the Business Combination
have been satisfied or waived by the parties in accordance with the terms of the Business Combination Agreement. If we are not able to complete the Business Combination or another initial business combination by May 23, 2022 (or such
later date as may be approved by L&F's shareholders), we will cease all operations except for the purpose of winding up and redeeming our Class A Ordinary Shares and liquidating the Trust Account, in which case our Public
Shareholders may only receive approximately $10.15 per share and the L&F Warrants will expire worthless. In addition, the underwriter of the L&F IPO, Jefferies, agreed to waive its rights to its deferred underwriting commission
held in the Trust Account in the event we do not complete our initial business combination within the required time period.
|
|
Q:
|
When do you expect the Business Combination to be completed?
|
|
A:
|
It is currently anticipated that the Business Combination will be consummated as soon as practicable following the Shareholder
Meeting, which is set for , 2022; however, (i) such meeting could be adjourned if the Adjournment Proposal is adopted by our shareholders at the Shareholder Meeting and we elect to adjourn the Shareholder Meeting to a later date or
dates to permit further solicitation and votes of proxies if, based upon the tabulated vote at the time of the Shareholder Meeting, there are insufficient L&F Ordinary Shares represented (either in person or by proxy) to constitute
a quorum necessary to conduct business at the Shareholder Meeting or to approve any of the Proposals, and (ii) the Closing will not occur until all conditions set forth in the Business Combination Agreement are satisfied or waived. For
a description of the conditions for the completion of the Business Combination, see “Proposal No. 2 - The Business
Combination Proposal — The Business Combination Agreement — Conditions to the Closing of the Business Combination.”
|
|
Q:
|
What proposals are shareholders being asked to vote upon?
|
|
A:
|
At the Shareholder Meeting, L&F shareholders will be asked to consider and vote upon the following proposals:
|
|
1.
|
the Articles Amendment Proposal;
|
|
2.
|
the Business Combination Proposal;
|
|
3.
|
the Domestication Proposal;
|
|
4.
|
the Governing Documents Proposal;
|
|
5.
|
the Advisory Governing Documents Proposals;
|
|
6.
|
the Listing Proposal;
|
|
7.
|
the Incentive Equity Plan Proposal;
|
|
8.
|
the Employee Stock Purchase Plan Proposal;
|
|
9.
|
the Director Election Proposal; and
|
|
10.
|
the Adjournment Proposal.
|
L&F will hold the Shareholder Meeting to consider and vote upon these proposals.
This proxy statement/prospectus contains important information about the Business Combination and the other matters to be acted upon at the Shareholder Meeting. Shareholders should read it carefully.
If our shareholders do not approve each of the Condition Precedent Proposals, then
unless certain conditions in the Business Combination Agreement are waived by the applicable parties to the Business Combination Agreement, the Business Combination Agreement could terminate and the Business Combination will not be consummated.
The Condition Precedent Proposals will be presented to the shareholders for a vote only if the Articles Amendment Proposal is approved.
For more information, please see “Proposal No. 1 — The
Articles Amendment Proposal,” “Proposal No. 2 - The Business Combination Proposal,” “Proposal No. 3 - The Domestication Proposal,” “Proposal No. 4 - The
Governing Documents Proposal,” “Proposal No. 5 - The Advisory Governing Documents Proposals,”
40
“Proposal No. 6 - The Listing Proposal,” “Proposal No. 7 - The Incentive Equity Plan Proposal,” “Proposal No. 8 - The Employee Stock Purchase Plan Proposal,” “Proposal No. 9 - The Director Election Proposal” and “Proposal No. 10 - The Adjournment Proposal.”
After careful consideration, the L&F Board has unanimously
approved the Business Combination Agreement and the transactions contemplated thereby and determined that the Articles Amendment Proposal, the Business Combination Proposal, the Domestication Proposal, the Governing Documents Proposal, each of
the Advisory Governing Documents Proposals, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal, the Director Election Proposal and the Adjournment Proposal are in the best interests of L&F and
its shareholders and unanimously recommends that you vote “FOR” or give instruction to vote “FOR” each of these proposals.
The existence of financial and personal interests of our directors and officers may
result in conflicts of interest, including a conflict between what may be in the best interests of L&F and its shareholders and what may be best for a director’s personal interests when determining to recommend that shareholders vote for
the proposals. See the sections titled “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the
Business Combination,” “Certain Relationships and Related Person Transactions,” “Executive and Director Compensation
- Director Compensation” and “Beneficial Ownership of Securities” for a further discussion of these considerations.
THE VOTE OF SHAREHOLDERS IS IMPORTANT. SHAREHOLDERS ARE URGED TO
SUBMIT THEIR PROXIES AS SOON AS POSSIBLE AFTER CAREFULLY REVIEWING THIS PROXY STATEMENT/PROSPECTUS.
|
Q:
|
Why is L&F proposing the Articles Amendment Proposal?
|
|
A:
|
In the judgment of the L&F Board, the adoption of the proposed amendments to the Existing Governing Documents, prior to the
Domestication is necessary to facilitate the Business Combination. For more information, see “Proposal No. 1 — The Articles Amendment Proposal — Reasons for the Amendments.”
|
|
Q:
|
Are the proposals conditioned on one another?
|
|
A:
|
The Closing is conditioned upon the approval of the Condition Precedent Proposals. The Condition Precedent Proposals will be
presented to the shareholders for a vote only if the Articles Amendment Proposal is approved. Each of the Condition Precedent Proposals is conditioned on the approval and adoption of each of the other Condition Precedent Proposals. The
Advisory Governing Documents Proposals will be presented to the shareholders for a vote only if the Business Combination Proposal is approved. The Articles Amendment Proposal and the Adjournment Proposal are not conditioned upon the
approval of any other proposal, though the special resolution contemplated by the Articles Amendment Proposal will be adopted only if the Business Combination Proposal is approved.
|
It is important for you to note that in the event that any of the Articles Amendment
Proposal or the Condition Precedent Proposals do not receive the requisite vote for approval, then L&F will not consummate the Business Combination.
If L&F does not consummate the Business Combination and fails to complete an
initial business combination by May 23, 2022 (or such later date as may be approved by L&F's shareholders), L&F will be required to dissolve and liquidate the Trust Account by returning the then-remaining funds in such Trust Account to
its Public Shareholders.
|
Q:
|
Do I have redemption rights?
|
|
A:
|
If you are a holder of Class A Ordinary Shares, you have the right to request that L&F redeem all or a portion of your
Class A Ordinary Shares for cash provided that you follow the procedures and deadlines described elsewhere in this proxy statement/prospectus. Public Shareholders may elect to redeem all or a portion of such Public Shareholder’s Class A
Ordinary Shares even if they vote for the Business Combination Proposal. We sometimes refer to these rights to elect to redeem all or a portion of the Class A Ordinary Shares into a pro rata portion of the cash held in the Trust Account
as “redemption rights.” If you wish to exercise your redemption rights, please see the answer to the next question, “How do I exercise my redemption rights?”
|
41
Notwithstanding the foregoing, a holder of Class A Ordinary Shares, together with any
affiliate of such Public Shareholder or any other person with whom such Public Shareholder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from redeeming its Class A Ordinary Shares
with respect to more than an aggregate of 15% of the outstanding Class A Ordinary Shares, without our prior consent. Accordingly, if a Public Shareholder, alone or acting in concert or as a group, seeks to redeem more than 15% of the outstanding
Class A Ordinary Shares, then any such shares in excess of that 15% limit would not be redeemed for cash, without our prior consent.
The L&F Initial Shareholders entered into the Sponsor Support Letter Agreement,
pursuant to which they have agreed, for no consideration, to waive their redemption rights with respect to their Founder Shares and Class A Ordinary Shares in connection with the completion of a business combination.
The consummation of the Business Combination is conditioned upon, among other things,
approval by L&F’s shareholders of the Condition Precedent Proposals. Unless waived, if any of these conditions are not satisfied, the Business Combination may not be consummated.
|
Q:
|
How do I exercise my redemption rights?
|
|
A:
|
If you are a holder of Class A Ordinary Shares and wish to exercise your right to redeem your Class A Ordinary Shares, you must:
|
|
(i)
|
(a) hold Class A Ordinary Shares or (b) hold Class A Ordinary Shares through L&F Public Units and elect to separate your units
into the underlying Class A Ordinary Shares and L&F Public Warrants prior to exercising your redemption rights with respect to the Class A Ordinary Shares; and
|
|
(ii)
|
prior to 5:00 p.m., Eastern Time, on , 2022 (two business days prior to the vote at the Shareholder Meeting) (a) submit a
written request to the Transfer Agent that L&F redeem your Class A Ordinary Shares for cash and (b) deliver your Class A Ordinary Shares to the Transfer Agent, physically or electronically through DTC.
|
The address of the Transfer Agent is listed under the question “Who can help answer my questions?” below.
Holders of L&F Public Units must elect to separate the underlying Class A Ordinary
Shares and L&F Public Warrants prior to exercising redemption rights with respect to the Class A Ordinary Shares. If holders hold their L&F Public Units in an account at a brokerage firm or bank, holders must notify their broker or bank
that they elect to separate the L&F Public Units into the underlying Class A Ordinary Shares and L&F Public Warrants, or if a holder holds L&F Public Units registered in its own name, the holder must contact the Transfer Agent
directly and instruct it to do so.
Any holder of Class A Ordinary Shares will be entitled to request that their Class A
Ordinary Shares be redeemed for a per share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of the Business Combination, including interest
earned on the funds held in the Trust Account (net of taxes payable), divided by the number of then-outstanding Class A Ordinary Shares. As of December 31, 2021, this would have amounted to approximately $10.15 per public share. However, the
proceeds deposited in the Trust Account could become subject to the claims of our creditors, if any, which could have priority over the claims of our Public Shareholders, regardless of whether such Public Shareholders vote for or against the
Business Combination Proposal. Therefore, the per share distribution from the Trust Account in such a situation may be less than originally anticipated due to such claims. Your vote on any proposal other than the Business Combination Proposal
will have no impact on the amount you will receive upon exercise of your redemption rights. We anticipate that the funds to be distributed to Public Shareholders electing to redeem their Class A Ordinary Shares will be distributed promptly
after the consummation of the Business Combination.
Any request for redemption, once made by a holder of Class A Ordinary Shares, may be
withdrawn at any time until the deadline for exercising redemption requests and thereafter, with our consent, until the Closing. If you deliver your shares for redemption to the Transfer Agent and later decide prior to Closing not to elect
redemption, you may request that L&F instruct the Transfer Agent to return the shares (physically or electronically). You may make such request by contacting the Transfer Agent at the phone number or address listed at the end of this section.
We will be required to honor such request only if made prior to the deadline for exercising redemption requests.
42
Any corrected or changed written exercise of redemption rights must be received by
the Transfer Agent prior to the deadline for exercising redemption requests and, thereafter, with our consent, prior to Closing. No request for redemption will be honored unless the holder’s stock has been delivered (either physically or
electronically) to the Transfer Agent by 5:00 p.m., Eastern Time, on , 2022 (two business days prior to the date of the Shareholder Meeting).
If a holder of Class A Ordinary Shares properly makes a request for redemption and the
Class A Ordinary Shares are delivered as described above, then, if the Business Combination is consummated, New ZeroFox will redeem Class A Ordinary Shares for a pro rata portion of funds deposited in the Trust Account, calculated as of two
business days prior to the consummation of the Business Combination. If you are a holder of Class A Ordinary Shares and you exercise your redemption rights, it will not result in the loss of any L&F Public Warrants that you may hold.
|
Q:
|
Will how I vote on the Business Combination proposal affect my ability to exercise redemption rights?
|
|
A:
|
No. You may exercise your redemption rights irrespective of whether you vote your Class A Ordinary Shares for or against the
Business Combination Proposal or any other proposal described in this proxy statement/prospectus. As a result, the Business Combination Agreement can be approved by shareholders who will redeem their Class A Ordinary Shares and no longer
remain shareholders, leaving shareholders who choose not to redeem their shares holding shares in a company with a less liquid trading market, fewer shareholders, less cash and the potential inability to meet the listing standards of the
NYSE or Nasdaq.
|
|
Q:
|
If I am a holder of units, can I exercise redemption rights with respect to my units?
|
|
A:
|
No. Holders of outstanding L&F Public Units must elect to separate the units into the underlying Class A Ordinary Shares and
L&F Public Warrants prior to exercising redemption rights with respect to the Class A Ordinary Shares. If you hold your L&F Public Units in an account at a brokerage firm or bank, you must notify your broker or bank that you elect
to separate the units into the underlying Class A Ordinary Shares and L&F Public Warrants, or if you hold L&F Public Units registered in your own name, you must contact the Transfer Agent directly and instruct them to do so. If
you fail to cause your Class A Ordinary Shares to be separated and delivered to the Transfer Agent by 5:00 p.m., Eastern Time, on (two business days prior to the date of the Shareholder Meeting), you will not be able to exercise your
redemption rights with respect to your Class A Ordinary Shares.
|
|
Q:
|
What are the U.S. federal income tax consequences of the Domestication?
|
|
A:
|
As discussed more fully under “Certain Material United States Federal
Income Tax Considerations,” the Domestication generally should qualify as an F Reorganization. However, L&F has not requested, and does not intend to request, a ruling from the IRS as to the U.S. federal income tax
consequences of the Domestication. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a contrary position. Accordingly, each U.S. Holder of our securities is urged to consult its tax
advisor with respect to the particular tax consequences of the Domestication to such U.S. Holder. If the Domestication qualifies as a reorganization within the meaning of Section 368(a)(1)(F) of the Code, U.S. Holders (as defined in “Certain Material United States Federal Income Tax Considerations — U.S. Holders” below) will be subject to Section 367(b) of the Code and, as a result of the
Domestication:
|
|
•
|
a U.S. Holder that holds Public Shares that have a fair market value of less than $50,000 on the date of the Domestication and
that is not a U.S. Shareholder (as defined herein) on the date of the Domestication generally will not recognize any gain or loss and will not be required to include any part of L&F’s earnings in income;
|
|
•
|
a U.S. Holder that holds Public Shares that have a fair market value of $50,000 or more on the date of the Domestication, and
that is not a U.S. Shareholder (as defined herein) on the date of the Domestication generally will recognize gain (but not loss) on the exchange of L&F Public Shares for ZeroFox Holdings, Inc.’s Common Stock pursuant to the
Domestication. As an alternative to recognizing gain, such U.S. Holder may file an election to include in income as a deemed dividend the “all earnings and profits amount,” as defined in the U.S. Department of the Treasury Regulations
under Section 367(b) of the Code, attributable to its Public Shares provided certain other requirements are satisfied; and
|
43
|
•
|
a U.S. Holder that, on the date of the Domestication, owns (directly or constructively) 10% or more of the total combined
voting power of all classes of our stock entitled to vote or 10% or more of the total value of all classes of our stock (a “U.S. Shareholder”) generally will be required to include in income as a deemed dividend the “all earnings and
profits amount” attributable to its Public Shares provided certain other requirements are satisfied. Any such U.S. Holder that is a corporation may, under certain circumstances, effectively be exempt from taxation on a portion or all of
the deemed dividend pursuant to Section 245A of the Code (commonly referred to as the participation exemption).
|
L&F does not expect to have significant cumulative earnings and profits through
the date of the Domestication.
Furthermore, even if the Domestication qualifies as an F Reorganization, a U.S.
Holder of L&F Public Shares or L&F Public Warrants may, in certain circumstances, still recognize gain (but not loss) upon the exchange of its L&F Public Shares or L&F Public Warrants for the common stock or warrants of ZeroFox
Holdings, Inc. pursuant to the Domestication under the “passive foreign investment company,” or PFIC, rules of the Code. Proposed Treasury Regulations with a retroactive effective date have been promulgated under Section 1291(f) of the Code
which generally require that a U.S. person who disposes of stock of a PFIC (including for this purpose exchanging public warrants for newly issued warrants in the Domestication) must recognize gain equal to the excess, if any, of the fair
market value of the common stock or warrants of ZeroFox Holdings, Inc. received in the Domestication and the U.S. Holder’s adjusted tax basis in the corresponding L&F Public Shares or L&F Public Warrants surrendered in exchange
therefor, notwithstanding any other provision of the Code. Because L&F is a blank check company with no current active business, we believe that L&F likely is classified as a PFIC for U.S. federal income tax purposes. As a result, these
proposed Treasury Regulations, if finalized in their current form, would generally require a U.S. Holder of L&F Public Shares or L&F Public Warrants to recognize gain on the exchange of such shares or warrants for common stock or
warrants of ZeroFox Holdings, Inc. pursuant to the Domestication, unless, in the case of only common stock, such U.S. Holder has made certain tax elections with respect to such U.S. Holder’s Public Shares. A U.S. Holder cannot currently make
the aforementioned elections with respect to such U.S. Holder’s public warrants. The tax on any such gain so recognized would be imposed at the rate applicable to ordinary income and an interest charge would apply based on complex rules
designed to offset the tax deferral to such U.S. Holder on the undistributed earnings, if any, of L&F. It is not possible to determine at this time whether, in what form, and with what effective date, final Treasury Regulations under
Section 1291(f) of the Code will be adopted. For a more complete discussion of the potential application of the PFIC rules to U.S. Holders as a result of the Domestication, see the discussion in the section entitled “Certain Material United States Federal Income Tax Considerations — U.S. Holders — PFIC Considerations.”
Additionally, the Domestication may cause non-U.S. Holders (as defined in “Certain Material United States Federal Income Tax Considerations — Non-U.S. Holders”) to become subject to U.S. federal income withholding taxes on any dividends paid in respect of
such non-U.S. Holder’s ZeroFox Holdings, Inc.’s public shares after the Domestication.
The tax consequences of the Domestication are complex and will depend on a holder’s
particular circumstances. All holders are urged to consult their tax advisor on the tax consequences to them of the Domestication, including the applicability and effect of U.S. federal, state, local and foreign income and other tax laws. For a
more complete discussion of the U.S. federal income tax considerations of the Domestication, see “Certain Material United States Federal Income Tax Considerations.”
|
Q:
|
What are the U.S. federal income tax consequences of exercising my redemption rights?
|
|
A:
|
We expect that a U.S. Holder that exercises its redemption rights to receive cash from the Trust Account in exchange for its
Public Shares will generally be treated as selling such Public Shares, which would result in the recognition of capital gain or loss, which will generally be long-term capital gain or loss if the U.S. Holder’s holding period for such
redeemed Public Shares exceeds one year at the time of the redemption. There may be certain circumstances in which the redemption may be treated as a distribution for U.S. federal income tax purposes depending on the amount of Public
Shares that such U.S. Holder owns or is deemed to own (including through the ownership of L&F Public Warrants) prior to and following the redemption.
|
44
|
Q:
|
Do I have appraisal rights in connection with the proposed Business Combination?
|
|
A:
|
No. Neither our shareholders nor our warrant holders have appraisal rights in connection with the Domestication under the Cayman
Islands Companies Act or in connection with the Business Combination under the DGCL.
|
|
Q:
|
What do I need to do now?
|
|
A:
|
L&F urges you to read carefully and consider the information contained in this proxy statement/prospectus, including the
annexes, and to consider how the Business Combination will affect you as a shareholder and/or warrant holder of L&F. Shareholders 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:
|
How do I vote?
|
|
A:
|
If you were a holder of record of L&F Ordinary Shares on , 2022, the record date for the Shareholder Meeting, you may vote
with respect to the proposals in person or virtually at the Shareholder Meeting, or by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided.
|
Voting by Mail. By signing the
proxy card and returning it in the enclosed prepaid and addressed envelope, you are authorizing the individuals named on the proxy card to vote your shares at the Shareholder Meeting in the manner you indicate. You are encouraged to sign and
return the proxy card even if you plan to attend the Shareholder Meeting so that your shares will be voted if you are unable to attend the Shareholder Meeting. If you receive more than one proxy card, it is an indication that your shares are
held in multiple accounts. Please sign and return all proxy cards to ensure that all of your shares are voted. Votes submitted by mail must be received by 5:00 p.m., Eastern Time, on , 2022.
Voting in Person at the Meeting.
If you attend the Shareholder Meeting and plan to vote in person, you will be provided with a ballot at the Shareholder Meeting. If your shares are registered directly in your name, you are considered the shareholder of record and you have the
right to vote in person at the Shareholder Meeting. If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or other nominee, you should follow the instructions provided by your broker, bank or
nominee to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the record holder of your shares with instructions on how to vote your shares or, if you wish to attend the
Shareholder Meeting and vote in person, you will need to bring to the Shareholder Meeting a legal proxy from your broker, bank or nominee authorizing you to vote these shares. For additional information, please see the section titled “Shareholder Meeting.”
Voting Electronically. You may
attend, vote and examine the list of shareholders entitled to vote at the Shareholder Meeting by visiting https://www.cstproxy.com/ and entering the control number found on your proxy card, voting instruction form or notice included in the
proxy materials.
|
Q:
|
If my shares are held in “street name,” will my broker, bank or nominee automatically 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 L&F or by voting online at the Shareholder Meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or other nominee.
|
Under the rules of the NYSE, 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 the NYSE determines to be “non-routine” without specific instructions from the beneficial owner. It is expected that all proposals to be voted on at the Shareholder Meeting are “non-routine” matters and
therefore, L&F does not expect there to be any broker non-votes at the Shareholder Meeting.
45
If you are an L&F shareholder 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 Articles Amendment Proposal, the Business Combination Proposal, the Domestication Proposal, the Governing
Documents Proposal, the Advisory Governing Documents Proposals, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal, the Director Election Proposal or the Adjournment Proposal. Accordingly, your
bank, broker, or other nominee can vote your shares at the Shareholder Meeting only if you provide instructions on how to vote. You should instruct your broker to vote your shares as soon as possible in accordance with directions you provide.
Abstentions will be considered present for the purposes of establishing a quorum but, as
a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no effect on the approval of each of the proposals as a matter of Cayman Islands law.
|
Q:
|
When and where will the Shareholder Meeting be held?
|
|
A:
|
The Shareholder Meeting will be held on , 2022 at a.m., Eastern Time, at the offices of Kirkland & Ellis LLP located
at 601 Lexington Avenue, New York, New York 10022, and via a virtual meeting, or at such other time, on such other date and at such other place to which the meeting may be postponed or adjourned.
|
Shareholders may attend the Shareholder Meeting in person. However, in view of the
ongoing COVID-19 pandemic, we are taking precautionary measures and therefore encourage you to attend the Shareholder Meeting virtually. If you wish to attend the Shareholder Meeting in person, you must reserve your attendance at least two
business days in advance of the Shareholder Meeting by contacting L&F’s investor relations department at by 9:00 a.m., Eastern Time, on , 2022 (two business days prior to the meeting date).
|
Q:
|
How do I attend the virtual Shareholder Meeting?
|
|
A:
|
If you are a registered shareholder, you will receive a proxy card from the Transfer Agent. The form contains instructions on how
to attend the virtual Shareholder Meeting including the URL address, along with your control number. You will need your control number for access. If you do not have your control number, contact the Transfer Agent at 917-262-2373, or
email proxy@continentalstock.com.
|
You can pre-register to attend the virtual Shareholder Meeting starting , 2022 at
a.m., Eastern Time (five business days prior to the meeting date). Enter the URL address into your browser https://www.cstproxy.com/ , enter your control number, name and email address. Once you pre-register you can vote or enter
questions in the chat box. At the start of the Shareholder Meeting you will need to log in again using your control number and will also be prompted to enter your control number if you vote during the Shareholder Meeting.
Shareholders who hold their investments through a bank or broker, will need to contact
the Transfer Agent to receive a control number. If you plan to vote at the Shareholder Meeting you will need to have a legal proxy from your bank or broker or if you would like to join and not vote, the Transfer Agent will issue you a guest
control number with proof of ownership. In either case you must contact the Transfer Agent for specific instructions on how to receive the control number. The Transfer Agent can be contacted at the number or email address above. Please allow up
to 72 hours prior to the meeting for processing your control number.
If you do not have access to Internet, you can listen only to the meeting by dialing
(or if you are located outside the United States and Canada (standard rates apply)) and when prompted enter the pin number . Please note that you will not be able to vote or ask questions at the Shareholder Meeting if you choose to
participate telephonically.
|
Q:
|
Who is entitled to vote at the Shareholder Meeting?
|
|
A:
|
L&F has fixed as the record date. If you were a shareholder of L&F at the close of business on the record date, you
are entitled to vote on matters that come before the Shareholder Meeting. However, a shareholder may only vote his or her shares if he or she is present in person (which would include presence at the virtual Shareholder Meeting) or is
represented by proxy at the Shareholder Meeting.
|
46
|
Q:
|
How many votes do I have?
|
|
A:
|
Our shareholders are entitled to one vote at the Shareholder Meeting for each L&F Ordinary Share held of record as of the
record date. As of the close of business on the record date, there were outstanding 21,562,500 L&F Ordinary Shares, of which 17,250,000 were Class A Ordinary Shares. Under the terms of the Existing Governing Documents, only the
holders of Class B Ordinary Shares are entitled to vote on the election of directors to the L&F Board.
|
|
Q:
|
What constitutes a quorum?
|
|
A:
|
A quorum of our shareholders is necessary to hold a valid meeting. The presence (which would include presence at the virtual
Shareholder Meeting), in person or by proxy, of shareholders holding a majority of the L&F Ordinary Shares entitled to vote at the Shareholder Meeting constitutes a quorum at the Shareholder Meeting. Abstentions will be considered
present for the purposes of establishing a quorum. The L&F Initial Shareholders, who own 20% of the issued and outstanding L&F Ordinary Shares as of the record date, will count towards this quorum. As a result, as of the record
date, in addition to the shares of the L&F Initial Shareholders, an additional 6,468,751 L&F Ordinary Shares, held by Public Shareholders would be required to be present at the Shareholder Meeting to achieve a quorum. Because
all of the proposals to be voted on at the Shareholder Meeting are “non-routine” matters, banks, brokers and other nominees will not have authority to vote on any proposals unless instructed, so L&F does not expect there to be any
broker non-votes at the Shareholder Meeting. In the absence of a quorum, the chairman of the Shareholder Meeting has power to adjourn the Shareholder Meeting.
|
|
Q:
|
What vote is required to approve each proposal at the Shareholder Meeting?
|
|
A:
|
The following votes are required for each proposal at the Shareholder Meeting:
|
|
•
|
Articles Amendment Proposal: The approval of the Articles Amendment Proposal
requires a special resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented
by proxy and entitled to vote thereon at the Shareholder Meeting.
|
|
•
|
Business Combination Proposal: The approval of the Business Combination Proposal
requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and
entitled to vote thereon at the Shareholder Meeting.
|
|
•
|
Domestication Proposal: The approval of the Domestication Proposal requires a
special resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and
entitled to vote thereon at the Shareholder Meeting.
|
|
•
|
Governing Documents Proposal: The approval of the Governing Documents Proposal
requires a special resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented
by proxy and entitled to vote thereon at the Shareholder Meeting.
|
|
•
|
Advisory Governing Documents Proposals: The approval of each of the Advisory
Governing Documents Proposals requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person
or represented by proxy and entitled to vote thereon at the Shareholder Meeting. Each of the Advisory Governing Documents Proposals will be voted upon on a non-binding advisory basis only.
|
|
•
|
Listing Proposal: The approval of the Listing Proposal requires an ordinary
resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon
at the Shareholder Meeting.
|
|
•
|
Incentive Equity Plan Proposal: The approval of the Incentive Equity Plan
Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by
proxy and entitled to vote thereon at the Shareholder Meeting.
|
47
|
•
|
The Employee Stock Purchase Plan Proposal: The approval of the Employee Stock
Purchase Plan Proposal requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or
represented by proxy and entitled to vote thereon at the Shareholder Meeting.
|
|
•
|
Director Election Proposal: The approval of the Director Election Proposal
requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued Class B Ordinary Shares who are present in person or represented by proxy and
entitled to vote thereon at the Shareholder Meeting. Pursuant to the Sponsor Support Letter Agreement, the L&F Initial Shareholders have agreed to vote their Class B Ordinary Shares in favor of the Director Election Proposal and the
election of the director nominees is therefore assured.
|
|
•
|
Adjournment Proposal: The approval of the Adjournment Proposal requires an
ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to
vote thereon at the Shareholder Meeting.
|
|
Q:
|
What are the recommendations of the Board?
|
|
A:
|
The Board believes that the Business Combination Proposal and the other proposals to be presented at the Shareholder Meeting are
in the best interests of L&F’s shareholders and unanimously recommends that our shareholders vote “FOR” the Articles Amendment Proposal, “FOR” the Business Combination Proposal, “FOR” the Domestication Proposal, “FOR” the Governing
Documents Proposal, “FOR” each of the Advisory Governing Documents Proposals, “FOR” the Listing Proposal, “FOR” the Incentive Equity Plan Proposal, “FOR” the Employee Stock Purchase Plan Proposal, “FOR” each of the director nominees set
forth in the Director Election Proposal, and “FOR” the Adjournment Proposal, in each case, if presented to the Shareholder Meeting.
|
The existence of financial and personal interests of L&F’s directors and officers
may result in conflicts of interest, including a conflict between what may be in the best interests of L&F and its shareholders and what may be best for a director’s personal interests when determining to recommend that shareholders vote
for the proposals. These conflicts of interest include, among other things, that if we do not consummate an initial business combination by May 23, 2022 (or such later date as may be approved by L&F's shareholders), we may be forced to
liquidate, and the 4,312,500 Founder Shares owned by the Sponsor Holders and 5,450,000 Private Placement Warrants owned by our Sponsor, of which our directors and officers are members, would be worthless. See the sections titled “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the Business Combination,” “Certain Relationships and Related Person Transactions,” “Executive and Director Compensation - Director Compensation”
and “Beneficial Ownership of Securities” for more information.
|
Q:
|
How do the L&F Initial Shareholders intend to vote their shares?
|
|
A:
|
Pursuant to the terms of the Sponsor Support Letter Agreement, the L&F Initial Shareholders have agreed to vote their
Founder Shares and any Class A Ordinary Shares purchased by them, in favor of the Business Combination Proposal and all of the other proposals. As of the date of this proxy statement/prospectus, the L&F Initial Shareholders own an
aggregate of 4,312,500 L&F Ordinary Shares, which in the aggregate represent 20% of our total outstanding shares on the date of this proxy statement/prospectus.
|
|
Q:
|
May our Sponsor and the other L&F Initial Shareholders purchase Class A Ordinary Shares or L&F Public
Warrants prior to the Shareholder Meeting?
|
|
A:
|
At any time prior to the Shareholder Meeting, during a period when they are not then aware of any material non-public information
regarding L&F or our securities, and otherwise subject to applicable law, rules and regulations, the L&F Initial Shareholders, including the Sponsor, the Target Companies and/or their respective affiliates may purchase Class A
Ordinary Shares and/or L&F Public Warrants from investors, or they may enter into transactions with such investors and others to provide them with incentives to acquire Class A Ordinary Shares 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 that the proposals presented to shareholders for approval at the Shareholder Meeting are approved or to provide
additional equity financing. In the event that the L&F Initial Shareholders, including the Sponsor, the Target Companies and/or their respective affiliates purchase
|
48
shares in privately negotiated transactions from Public Shareholders who have already
elected to exercise their redemption rights or submitted a proxy to vote against the Business Combination (or any other proposal), such selling shareholders would be required to revoke their prior elections to redeem their shares and any proxy to
vote against the Business Combination (or any other proposal).
Any such share purchases and other transactions may thereby increase the likelihood of
obtaining shareholder approval of the Business Combination. This may result in the completion of our Business Combination that may not otherwise have been possible. 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.
Entering into any such incentive arrangements may have a depressive effect on the
Class A Ordinary Shares. 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 it owns, either
prior to or immediately after the Shareholder 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 proposals to be presented at the
Shareholder Meeting and would likely increase the chances that such proposals would be approved. As of the date of this proxy statement/prospectus, there have been no such discussions and no agreements to such effect have been entered into with
any such investor or holder. L&F will file a Current Report on Form 8-K to disclose any arrangements entered into or significant purchases made by any of the aforementioned persons that would affect the vote on the proposals to be voted on at
the Shareholder Meeting. Any such report will include descriptions of any arrangements entered into or significant purchases by any of the aforementioned persons.
|
Q:
|
What happens if I sell my Class A Ordinary Shares before the Shareholder Meeting?
|
|
A:
|
The record date for the Shareholder Meeting is earlier than the date of the Shareholder Meeting and earlier than the date that the
Business Combination is expected to be completed. If you transfer your Class A Ordinary Shares after the applicable record date, but before the Shareholder Meeting, unless you grant a proxy to the transferee, you will retain your right to
vote at the Shareholder Meeting with respect to such shares, but the transferee, and not you, will have the ability to redeem such shares (if time permits).
|
|
Q:
|
How has the announcement of the Business Combination affected the trading price of L&F’s Class A Ordinary
Shares, L&F Public Units and L&F Public Warrants?
|
|
A:
|
On December 17, 2021, the last trading date before the public announcement of the Business Combination, the Class A Ordinary
Shares, L&F Public Warrants and L&F Public Units closed at $10.08, $0.6601 and $10.3778, respectively. On , the trading date immediately prior to the date of this proxy statement/prospectus, the Class A Ordinary Shares, L&F
Public Warrants and L&F Public Units closed at $ , $ and $ , respectively.
|
|
Q:
|
May I change my vote after I have mailed my signed proxy card?
|
|
A:
|
Yes. Shareholders may send a later-dated, signed proxy card to L&F at 150 North Riverside Plaza, Suite 5200 Chicago, IL
60606 so that it is received by L&F prior to the vote at the Shareholder Meeting (which is scheduled to take place on ) or attend the Shareholder Meeting in person (which would include presence at the virtual Shareholder Meeting)
and vote. Shareholders also may revoke their proxy by sending a notice of revocation to L&F’s Secretary, which must be received by L&F’s Secretary prior to the vote at the Shareholder Meeting. However, if your shares are held in
“street name” by your broker, bank or another nominee, you must contact your broker, bank or other nominee to change your vote.
|
|
Q:
|
What happens if I fail to take any action with respect to the Shareholder Meeting?
|
|
A:
|
If you fail to take any action with respect to the Shareholder Meeting and the Business Combination is approved by shareholders
and consummated, you will become a shareholder and/or warrant holder of New ZeroFox. If you fail to take any action with respect to the Shareholder Meeting and the Business
|
49
Combination is not approved, you will remain a shareholder and/or warrant holder of
L&F. However, if you fail to take any action with respect to the Shareholder Meeting, you will nonetheless be able to elect to redeem your Class A Ordinary Shares in connection with the Business Combination, provided you follow the
instructions in this proxy statement for redeeming your shares.
|
Q:
|
What should I do with my stock certificates, warrant certificates and/or unit certificates?
|
|
A:
|
Shareholders who exercise their redemption rights must deliver their stock certificates to the Transfer Agent (either physically
or electronically) prior to 5:00 p.m., Eastern Time, on , 2022 (two business days prior to the date of the Shareholder Meeting).
|
L&F warrant holders should not submit the certificates relating to their L&F
Warrants. Public Shareholders who do not elect to have their Class A Ordinary Shares redeemed for the pro rata share of the Trust Account should not submit the certificates relating to their Class A Ordinary Shares.
Upon effectiveness of the Business Combination, holders of L&F Ordinary Shares and
L&F Public Warrants will receive New ZeroFox Common Stock and New ZeroFox Public Warrants without needing to take any action and accordingly such holders do not need to submit the certificates relating to their L&F Ordinary Shares and
warrants. In addition, before the Closing, each outstanding L&F Public Unit will be separated into its component Class A Ordinary Share and one-half of one L&F Public Warrant.
|
Q:
|
What should I do if I receive more than one set of voting materials?
|
|
A:
|
Shareholders may receive more than one set of voting materials, including multiple copies of this proxy statement 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 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 L&F Ordinary 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:
|
Morrow Sodali LLC
333 Ludlow Street, 5th Floor, South Tower
Stamford, CT 06902
Individuals call toll-free (800) 662-5200
Banks and brokers call (203) 658-9400
Email: LNFA.info@investor.morrowsodali.com
You also may obtain additional information about L&F from documents filed with the
SEC by following the instructions in the section titled “Where You Can Find More Information.” If you are a holder of Class A Ordinary Shares and you intend to seek redemption of your shares, you will need
to deliver your Class A Ordinary Shares (either physically or electronically) to the Transfer Agent at the address below prior to 5:00 p.m., Eastern Time, on (two business days prior to the date of the Shareholder Meeting). If you have
questions regarding the certification of your position or delivery of your stock, please contact:
Continental Stock Transfer & Trust Company
One State Street Plaza, 30th Floor
New York, New York 10004
E-mail:
50
The following tables contain summary historical financial data for
L&F. Such data as of December 31, 2021 and December 31, 2020, and for the year ended December 31, 2021 and for the period from August 20, 2020 (inception) through December 31, 2020 has been derived from the audited consolidated financial
statements of L&F included elsewhere in this proxy statement/prospectus.
The information below is only a summary and should be read in
conjunction with L&F’s audited consolidated financial statements, and the notes and schedules related thereto, which are included elsewhere in this proxy statement/prospectus and the section titled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations of L&F.” L&F’s historical results are not necessarily indicative of future results.
|
|
| |
Year Ended
December 31, 2021
|
| |
For the period from
August 20, 2020
(Inception) through
December 31, 2020
|
|
Statement of Operations Data
|
| |
|
| |
|
|
General and administrative expenses
|
| |
$3,847,916
|
| |
$164,192
|
|
Loss from operations
|
| |
(3,847,916)
|
| |
(164,192)
|
|
Other income (expense)
|
| |
|
| |
|
|
Change in fair value of warrant liabilities
|
| |
9,425,504
|
| |
(6,829,174)
|
|
Interest earned on marketable investments held in Trust Account
|
| |
20,498
|
| |
2,030
|
|
Net income (loss)
|
| |
$5,598,086
|
| |
$(7,798,760)
|
|
Weighted average shares outstanding of Class A Ordinary Shares
|
| |
17,250,000
|
| |
5,303,571
|
|
Basic and diluted net income (loss)
per ordinary share, Class A Ordinary Shares
|
| |
$0.26
|
| |
$(0.85)
|
|
Weighted average shares outstanding of Class B ordinary shares
|
| |
4,312,500
|
| |
3,915,179
|
|
Basic and diluted net income (loss)
per ordinary share, Class B Ordinary Shares
|
| |
0.26
|
| |
(0.85)
|
|
|
| |
December 31, 2021
|
| |
December 31, 2020
|
|
Condensed Balance Sheet Data (At Period End)
|
| |
|
| |
|
|
Total assets
|
| |
$175,694,935
|
| |
$176,864,117
|
|
Total liabilities
|
| |
$27,810,100
|
| |
$34,577,368
|
|
Class A Ordinary Shares subject to possible redemption,
17,250,000 shares at $10.15 per share at December 31, 2021 and December 31, 2020
|
| |
$175,087,500
|
| |
$175,087,500
|
|
Class A Ordinary Shares, $0.0001 par value; 500,000,000
shares authorized; no shares issued and outstanding at December 31, 2021 and December 31, 2020 (not including 17,250,000 shares subject to redemption)
|
| |
—
|
| |
—
|
|
Class B Ordinary Shares, $0.0001 par value; 50,000,000
shares authorized; 4,312,500 shares issued and outstanding at December 31, 2021 and December 31, 2020
|
| |
431
|
| |
431
|
|
Total shareholders’ deficit
|
| |
$(27,202,665)
|
| |
$(32,800,751)
|
51
The following table shows summary historical information of ZeroFox for
the periods and as of the dates indicated.
The summary historical financial information of ZeroFox for the
years ended January 31, 2022, 2021 and 2020 and the condensed balance sheet data as of January 31, 2022 and 2021 are derived from ZeroFox’s audited financial statements included elsewhere in this proxy statement/prospectus.
The following summary historical financial information should be read
together with the consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of ZeroFox” appearing elsewhere in this
proxy statement/prospectus. The summary historical financial information in this section is not intended to replace ZeroFox’s consolidated financial statements and the related notes. ZeroFox’s historical results are not necessarily indicative of
ZeroFox’s future results.
As explained elsewhere in this proxy statement/prospectus, the
financial information contained in this section relates to ZeroFox, prior to and without giving pro forma effect to the impact of the Business Combination and, as a result, the results reflected in this section may not be indicative of the
results of New ZeroFox going forward. See the section “Unaudited Pro Forma Condensed Combined Financial Information” included elsewhere in this proxy statement/prospectus.
|
|
| |
Year Ended January 31,
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
|
| |
(in thousands, except share and per share data)
|
||||||
|
|
| |
|
| |
|
| |
|
|
Revenue
|
| |
$47,433
|
| |
$28,538
|
| |
$16,390
|
|
Cost of revenue(1)
|
| |
16,357
|
| |
9,646
|
| |
5,765
|
|
Gross profit
|
| |
31,076
|
| |
18,892
|
| |
10,625
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
|
Research and development(1)
|
| |
12,810
|
| |
5,942
|
| |
5,582
|
|
Sales and marketing(1)
|
| |
29,873
|
| |
21,466
|
| |
18,852
|
|
General and administrative(1)
|
| |
16,408
|
| |
9,681
|
| |
5,629
|
|
Total operating expenses
|
| |
59,091
|
| |
37,089
|
| |
30,063
|
|
Loss from operations
|
| |
(28,015)
|
| |
(18,197)
|
| |
(19,438)
|
|
Interest expense, net
|
| |
(3,585)
|
| |
(2,233)
|
| |
(1,854)
|
|
Loss on extinguishment of debt
|
| |
—
|
| |
(1,418)
|
| |
(1,274)
|
|
Change in fair value of warrant liability
|
| |
(7,375)
|
| |
(806)
|
| |
(75)
|
|
Total other expense
|
| |
(10,960)
|
| |
(4,457)
|
| |
(3,203)
|
|
Loss before provision for income taxes
|
| |
(38,975)
|
| |
(22,654)
|
| |
(22,641)
|
|
(Benefit from) provision for income taxes
|
| |
(536)
|
| |
86
|
| |
98
|
|
Net Loss
|
| |
$(38,439)
|
| |
$(22,740)
|
| |
$(22,739)
|
|
Net loss per share attributable to common stockholders,
basic and diluted
|
| |
$(0.91)
|
| |
$(0.55)
|
| |
$(0.55)
|
|
|
| |
|
| |
|
| |
|
|
Weighted-average shares used in computation of net loss
per share attributable to common stockholders, basic and diluted:
|
| |
42,073,351
|
| |
41,635,679
|
| |
41,346,979
|
|
(1)
|
Includes stock-based compensation as follows:
|
|
|
| |
Year Ended January 31,
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
|
| |
(in thousands)
|
||||||
|
Cost of revenue
|
| |
$50
|
| |
$3
|
| |
$9
|
|
Research and development
|
| |
97
|
| |
72
|
| |
85
|
|
Sales and marketing
|
| |
222
|
| |
130
|
| |
87
|
|
General and administrative
|
| |
327
|
| |
245
|
| |
87
|
|
Total stock-based compensation expense
|
| |
$ 696
|
| |
$ 450
|
| |
$ 268
|
52
|
|
| |
As of January 31,
|
|||
|
|
| |
2022
|
| |
2021
|
|
|
| |
(in thousands)
|
|||
|
Cash and cash equivalents
|
| |
$10,274
|
| |
$13,764
|
|
Working capital(2)
|
| |
(14,028)
|
| |
(7,940)
|
|
Total assets
|
| |
91,390
|
| |
82,932
|
|
Total deferred revenue
|
| |
38,831
|
| |
28,501
|
|
Total long-term debt
|
| |
48,068
|
| |
30,000
|
|
Redeemable convertible preferred stock
|
| |
132,229
|
| |
124,390
|
|
Additional paid-in capital
|
| |
3,873
|
| |
2,975
|
|
Accumulated deficit
|
| |
(156,820)
|
| |
(118,381)
|
|
Total shareholders' deficit
|
| |
(153,148)
|
| |
(115,529)
|
|
(2)
|
We define working capital as current assets less current liabilities.
|
53
The following table shows summary historical information of IDX for
the periods and as of the dates indicated.
The summary historical financial information of IDX for the years
ended December 31, 2021, 2020 and 2019, and the condensed balance sheet data as of December 31, 2021 and 2020 are derived from IDX’s audited financial statements included elsewhere in this proxy statement/prospectus.
The following summary historical financial information should be
read together with the consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of IDX”
appearing elsewhere in this proxy statement/prospectus. The summary historical financial information in this section is not intended to replace IDX’s consolidated financial statements and the related notes. IDX’s historical results are not
necessarily indicative of IDX’s future results.
As explained elsewhere in this proxy statement/prospectus, the
financial information contained in this section relates to IDX, prior to and without giving pro forma effect to the impact of the Business Combination and, as a result, the results reflected in this section may not be indicative of the results
of New ZeroFox going forward. See the section “Unaudited Pro Forma Condensed Combined Financial Information” included elsewhere in this proxy statement/prospectus.
|
|
| |
Year Ended
December 31,
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
2019
|
|
|
| |
(in thousands, except share and per share data)
|
||||||
|
Revenue
|
| |
$106,072
|
| |
$103,536
|
| |
$103,104
|
|
Cost of services
|
| |
82,745
|
| |
77,900
|
| |
83,388
|
|
Gross profit
|
| |
23,327
|
| |
25,636
|
| |
19,716
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
|
Research and development
|
| |
4,941
|
| |
4,113
|
| |
3,839
|
|
Sales and marketing
|
| |
7,181
|
| |
6,988
|
| |
6,897
|
|
General and administrative(1)
|
| |
6,873
|
| |
4,341
|
| |
4,452
|
|
Total operating expenses
|
| |
18,995
|
| |
15,442
|
| |
15,188
|
|
Income from operations
|
| |
4,332
|
| |
10,194
|
| |
4,528
|
|
Interest and other expense:
|
| |
|
| |
|
| |
|
|
Interest expense
|
| |
483
|
| |
986
|
| |
1,263
|
|
Change in fair value of warrant liabilities
|
| |
1,943
|
| |
—
|
| |
—
|
|
Other expense
|
| |
716
|
| |
471
|
| |
536
|
|
Total interest and other expense
|
| |
3,143
|
| |
1,457
|
| |
1,799
|
|
Income before provision for income taxes
|
| |
1,189
|
| |
8,737
|
| |
2,729
|
|
Income tax expense (benefit)
|
| |
1,716
|
| |
2,083
|
| |
(424)
|
|
Net income
|
| |
$(527)
|
| |
$6,654
|
| |
$3,153
|
|
Net income attributable to common stockholders
|
| |
|
| |
|
| |
|
|
Basic:
|
| |
(33,978)
|
| |
1,651
|
| |
652
|
|
Diluted:
|
| |
(33,978)
|
| |
6,654
|
| |
3,153
|
|
Net income per share attributable to common stockholders
|
| |
|
| |
|
| |
|
|
Basic:
|
| |
(2.80)
|
| |
0.16
|
| |
0.08
|
|
Diluted:
|
| |
(2.80)
|
| |
0.15
|
| |
0.07
|
|
Weighted average shares used in computing net income per
share attributable to common stockholders
|
| |
|
| |
|
| |
|
|
Basic:
|
| |
11,778
|
| |
10,587
|
| |
8,363
|
|
Diluted:
|
| |
11,778
|
| |
44,078
|
| |
42,845
|
|
(1)
|
Includes stock-based compensation as follows:
|
54
|
|
| |
Year Ended
December 31,
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
2019
|
|
|
| |
(in thousands)
|
||||||
|
Cost of services
|
| |
$—
|
| |
$—
|
| |
$—
|
|
Research and development
|
| |
—
|
| |
—
|
| |
—
|
|
Sales and marketing
|
| |
—
|
| |
—
|
| |
—
|
|
General and administrative
|
| |
28
|
| |
38
|
| |
64
|
|
Total stock-based compensation expense
|
| |
$28
|
| |
$38
|
| |
$64
|
|
|
| |
As of
December 31,
|
|||
|
|
| |
2021
|
| |
2020
|
|
|
| |
(in thousands)
|
|||
|
Cash and cash equivalents
|
| |
$17,986
|
| |
$14,743
|
|
Working capital(2)
|
| |
5,434
|
| |
7,277
|
|
Total assets
|
| |
31,417
|
| |
27,058
|
|
Total deferred revenue
|
| |
9,676
|
| |
9,249
|
|
Total long-term debt
|
| |
8,319
|
| |
11,717
|
|
Redeemable convertible preferred stock
|
| |
64,902
|
| |
32,451
|
|
Additional paid-in capital
|
| |
—
|
| |
586
|
|
Accumulated deficit
|
| |
(70,235)
|
| |
(37,895)
|
|
Total stockholders’ deficit
|
| |
(70,234)
|
| |
(37,309)
|
|
(2)
|
We define working capital as current assets less current liabilities.
|
55
Defined terms included below shall have the same meaning as terms
defined and included elsewhere in this proxy statement/prospectus.
The following summary unaudited pro forma condensed combined financial
information (the “summary pro forma information”) gives effect to the Business Combination described in the section entitled “Unaudited Pro Forma Condensed Combined
Financial Information.” The presentation of pro forma financial statements is dependent upon which entity in the Business Combination is considered the accounting acquirer. A combining entity can be considered an accounting acquirer in
one scenario and an accounting acquiree in another.
The summary unaudited pro forma condensed combined balance sheet
data as of January 31, 2022 and the summary unaudited pro forma condensed combined statement of operations data for the fiscal year ended January 31, 2022 give pro forma effects to the Business Combination as if it had occurred on February 1,
2021.
The summary pro forma information has been derived from, and should be
read in conjunction with, the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” and the historical financial statements of L&F, ZeroFox and IDX and related notes included
elsewhere in this proxy statement/prospectus. The summary pro forma information has been presented for informational purposes only and is not necessarily indicative of what the Combined Company’s financial position or result of operations
actually would have been had the Business Combination been completed as of the dates indicated. In addition, the summary pro forma information does not purport to project the future financial position or operating results of the Combined Company.
The summary unaudited pro forma condensed combined financial
information presents two redemption scenarios as follows:
|
•
|
Assuming No Redemptions (Scenario 1): This presentation assumes that no Public
Shareholders exercise their right to redeem their Class A Ordinary Shares for their pro rata share of the Trust Account and thus the full amount held in the Trust Account as of immediately prior to the Closing is available for the
post-Business Combination company; and
|
|
•
|
Assuming Maximum Redemptions (Scenario 2): This presentation assumes that all Public
Shareholders exercise their rights to redeem their Class A Ordinary Shares for their pro rata share of the Trust Account and thus none of the amount held in the Trust Account as of immediately prior to the Closing is available for the
Business Combination. Scenario 2 assumes all 17,250,000 issued and outstanding Class A Ordinary Shares are redeemed by the Public Shareholders.
|
|
|
| |
Pro Forma Combined
(Assuming No
Redemption)
|
| |
Pro Forma Combined
(Assuming Maximum
Redemption)
|
|
|
| |
(in thousands, except share and per share data)
|
|||
|
Selected Unaudited Pro Forma Condensed
Combined Statement of Operations for the Year Ended January 31, 2022
|
| |
|
| |
|
|
Revenue
|
| |
$151,414
|
| |
$136,508
|
|
Net loss
|
| |
$(56,220)
|
| |
$(98,832)
|
|
Weighted-average shares outstanding, basic and diluted
|
| |
133,888,106
|
| |
116,638,106
|
|
Net loss per share, basic and diluted
|
| |
$(0.42)
|
| |
$(0.85)
|
|
|
| |
|
| |
|
|
Selected Unaudited Pro Forma Condensed
Combined Balance Sheet as of January 31, 2022
|
| |
|
| |
|
|
Total assets
|
| |
$654,369
|
| |
$1,329,496
|
|
Total long-term liabilities
|
| |
$182,738
|
| |
$193,495
|
|
Total liabilities
|
| |
$240,140
|
| |
$235,991
|
|
Total stockholders' equity
|
| |
$414,499
|
| |
$1,093,505
|
If the facts are different than these assumptions, then the amounts and
shares outstanding in the summary unaudited pro forma combined financial information will be different, and differences could be material.
56
PER SHARE FINANCIAL INFORMATION
The following tables sets forth the historical per share information
of L&F, on a standalone basis, and the unaudited pro forma condensed combined per share information after giving effect to the Business Combination, assuming no redemptions and maximum redemptions for the fiscal years ended December 31,
2021 and January 31, 2022. The pro forma net income (loss) per common share data for the fiscal years ended December 31, 2021 and January 31, 2022 is presented as if the Closing occurred on February 1, 2021. The pro forma book value per share
information is presented as if the Closing occurred on January 31, 2022. The information provided in the table below is unaudited.
The historical per share data of L&F was derived from the
audited financial statements for the year ended December 31, 2021, included elsewhere in this proxy statement/prospectus. The historical financial information of ZeroFox was derived from the audited consolidated financial statements for the
year ended January 31, 2022, included elsewhere in this proxy statement/prospectus. The historical financial information of IDX was derived from the audited consolidated financial statements for the year ended December 31, 2021, included
elsewhere in this proxy statement/prospectus. This information should be read together with and audited financial statements and related notes, the section titled “Unaudited Pro Forma Condensed Combined
Financial Information” of this proxy statement/prospectus and other financial information included elsewhere in this proxy statement/prospectus.
The pro forma data is presented for illustrative purposes only and
is not necessarily indicative of the results of operations or the financial condition that would have occurred if the Closing took place as of the dates described above.
|
|
| ||||||||||||||
|
|
| |
Historical
|
| |
Pro Forma Combined(2)
|
|||||||||
|
|
| |
L&F
(December 31,
2021)
|
| |
ZeroFox
(January 31,
2022)
|
| |
IDX
(December 31,
2021)
|
| |
No
Redemptions
|
| |
Maximum
Redemptions
|
|
Net income per Class A common share, basic and diluted
|
| |
$0.26
|
| |
$N/A
|
| |
$N/A
|
| |
$N/A
|
| |
$N/A
|
|
Weighted average shares of Class A outstanding, basic and diluted
|
| |
17,250,000
|
| |
N/A
|
| |
N/A
|
| |
N/A
|
| |
N/A
|
|
Net income per Class B common share, basic and diluted
|
| |
$0.26
|
| |
$N/A
|
| |
$N/A
|
| |
$N/A
|
| |
$N/A
|
|
Weighted average shares of Class B outstanding, basic and diluted
|
| |
4,312,500
|
| |
N/A
|
| |
N/A
|
| |
N/A
|
| |
N/A
|
|
Net income per common share, basic and diluted
|
| |
N/A
|
| |
$(0.91)
|
| |
N/A
|
| |
$(0.42)
|
| |
$(0.85)
|
|
Weighted average shares of common shares outstanding, basic and diluted
|
| |
N/A
|
| |
42,073,351
|
| |
N/A
|
| |
133,888,106
|
| |
116,638,106
|
|
Net income per common share, basic and diluted
|
| |
$N/A
|
| |
$N/A
|
| |
$(2.80)
|
| |
$N/A
|
| |
$N/A
|
|
Weighted average shares of common shares outstanding, basic and diluted
|
| |
N/A
|
| |
N/A
|
| |
11,777,989
|
| |
N/A
|
| |
N/A
|
|
Book value per share(1)
|
| |
$(6.31)
|
| |
$(3.57)
|
| |
$(6.02)
|
| |
$3.10
|
| |
$9.38
|
|
(1)
|
Book value per share is computed as shareholders’ equity divided by common shares outstanding.
|
|
(2)
|
Net loss per common share — basic and diluted and book value per share in these columns are computed on a pro forma combined basis
assuming no redemptions or maximum redemptions. See section titled “Unaudited Pro Forma Condensed Combined Financial Information” of this proxy statement/prospectus for calculation of pro forma net
loss per common share — basic and diluted, pro forma common shares outstanding, and pro forma shareholders’ equity.
|
57
L&F
Units, Common Stock and Warrants
The Class A Ordinary Shares and L&F Public Warrants are currently listed on the
NYSE under the symbols “LNFA” and “LNFA WS,” respectively. Certain of the Class A Ordinary Shares and L&F Public Warrants currently trade as L&F Public Units consisting of one underlying Class A Ordinary Share and one-half of one
underlying redeemable warrant and are listed on the NYSE under the symbol “LNFA.U.” The units will automatically separate into their component securities upon consummation of the Domestication and, as a result, will no longer trade as an
independent security. Upon the Closing, we intend to change our name from “L&F Acquisition Corp.” to “ZeroFox Holdings, Inc.” We intend to apply for listing, to be effective at the time of the Business Combination, of the New ZeroFox Common
Stock and the New ZeroFox Public Warrants on Nasdaq under the proposed symbols “ZFOX” and “ZFOXW.”
Holders
As of , 2022, there were holders of record of L&F Public Units, holders of
record of Class A Ordinary Shares and holders of record of L&F Warrants. The number of holders of record does not include a substantially greater number of “street name” holders or beneficial holders whose L&F Public Units, Class A
Ordinary Shares and L&F Warrants are held of record by banks, brokers and other financial institutions.
Dividend Policy
L&F has not paid any cash dividends on the L&F Ordinary Shares to date and does
not intend to pay any cash dividends prior to the completion of the Business Combination. The payment of cash dividends in the future will be dependent upon New ZeroFox’s revenues and earnings, if any, capital requirements and 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 New ZeroFox Board at such time.
ZeroFox
There is no public market for ZeroFox’s equity securities.
IDX
There is no public market for IDX’s equity securities.
58
You should carefully consider all of the following
risk factors, together with all of the other information in this proxy statement/prospectus, including the financial information, before deciding how to vote or instruct your vote to be cast to approve the proposals described in this proxy
statement/prospectus.
The value of your investment following the
completion of the Business Combination will be subject to significant risks affecting, among other things, the Company’s business, financial condition and results of operations. If any of the events described below occur, the Company’s
post-Business Combination business and financial results could be adversely affected in material respects. This could result in a decline, which may be significant, in the trading price of the Company’s securities and you therefore may lose all
or part of your investment. The risk factors described below are not necessarily exhaustive and you are encouraged to perform your own investigation with respect to the businesses of L&F and the Target Companies.
Throughout this section, references to the
“Company” refer to the Company and its consolidated subsidiaries subsequent to the Business Combination as the context so requires.
For the purposes of this section, “we,” “us” and
“our” refers, as applicable, to ZeroFox and/or IDX prior to the Business Combination and to the Company subsequent to the Business Combination.
Risks Related to Our Technology, Products and Solutions
Defects, errors, or vulnerabilities in our
platform, the failure of our platform to block malware or prevent a security breach, misuse of our platform, or risks of product liability claims would harm our reputation and adversely impact our business, operating results, and financial
condition.
Our platform is multi-faceted and may be deployed with material
defects, software “bugs” or errors that are not detected until after commercial release and deployment to our customers. Our platform provides our customers with the ability to customize a multitude of settings and it is possible that a customer
could misconfigure our platform or otherwise fail to configure our products in an optimal manner. Such defects and misconfigurations of our platform could cause our platform to operate at suboptimal efficacy and increase the risk of cyberattacks
on our customers. In addition, because the techniques used by computer hackers to access or sabotage target computing environments change frequently and generally are not recognized until launched against a target, there is a risk that an
advanced attack could emerge that we do not anticipate and that our platform is unable to detect or prevent.
As a well-known provider of external cybersecurity products and
solutions, we may in the future be specifically targeted by bad actors for attacks intended to circumvent our security capabilities or to exploit our platform as an entry point into customers' endpoints, networks, or systems. In addition, defects
or errors in our platform could result in a failure to effectively alert customers of potential threats. Our data centers and platform may experience technical failures and downtime, may fail to distribute appropriate updates, or may fail to meet
the increased requirements of a growing customer base, any of which could temporarily or permanently reduce the efficacy of our solutions and expose our customers to cyber threats. Any of these situations could result in negative publicity to us,
damage our reputation, and increase expenses and customer relations issues, which would adversely impact our business, financial condition, and operating results.
Advances in computer capabilities, discoveries of new weaknesses and
other developments with software generally used by the internet community may increase the risk we will suffer a security breach. Furthermore, our platform may fail to detect malware, ransomware, viruses, worms or similar threats for any number
of reasons, including our failure to enhance and expand our platform to reflect industry trends, new technologies and new operating environments, the complexity of the environment of our customers and the sophistication of malware, viruses and
other threats. We or our service providers may also suffer security breaches or unauthorized access to personal information, financial account information, and other confidential information due to employee error, rogue employee activity, or
unauthorized access by third parties either by mistake or acting with malicious intent. If we experience any breaches of security measures or sabotage or otherwise suffer unauthorized use or disclosure of, or access to, personal information,
financial account information or other confidential information, we might be required to expend significant capital and resources to address these problems. We may not be able to remedy any problems caused by hackers or other similar actors in a
timely manner, or at all. Any real or perceived defects, errors or vulnerabilities in our platform, or any other failure of our platform to detect an advanced threat, could result in:
|
•
|
a loss of existing or potential customers;
|
|
•
|
delayed or lost revenue and adverse impacts to our business, financial condition and operating results;
|
59
|
•
|
a delay in attaining, or the failure to attain, market acceptance;
|
|
•
|
the expenditure of significant financial and research and development resources in efforts to analyze, correct, eliminate, or work
around errors or defects, and address and eliminate vulnerabilities;
|
|
•
|
an increase in resources devoted to customer service and support, which could adversely affect our gross margin;
|
|
•
|
harm to our reputation or brand; and
|
|
•
|
claims and litigation, regulatory inquiries, or investigations, enforcement actions, and other claims and liabilities, all of
which may be costly and burdensome and further harm our reputation.
|
If a high-profile cybersecurity incident occurs with respect to another
SaaS provider, customers may lose trust in the security of the SaaS business model generally, which could adversely impact our ability to retain existing customers or attract new ones. In the last few years there have been many successful
advanced external cybersecurity incidents that have damaged several prominent companies in spite of strong information security measures. We expect that the risks associated with cybersecurity incidents and the costs of preventing such external
cybersecurity attacks will continue to increase in the future.
We cannot assure you that any limitation of liability provisions in our
customer agreements, contracts with third-party vendors and service providers, or other contracts would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim relating to a
breach of contract, security breach or other security-related matter as a result of federal, state, or local laws or ordinances, or unfavorable judicial decisions in the U.S. or other countries.
While we maintain insurance policies that may cover certain liabilities
in connection with a cybersecurity incident, we cannot be certain that our insurance coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to us on commercially reasonable terms, or at all, or
that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium
increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, results of operations and reputation. Even claims that ultimately are
unsuccessful could result in our expenditure of significant funds in litigation, divert management's time and other resources, and harm our reputation.
If our enterprise platform offerings do not
interoperate with our customers’ network and security infrastructure, or with third-party products, websites or services, our results of operations may be harmed.
Our enterprise product offerings must interoperate with our customers’
existing network and security infrastructure. These complex systems are developed, delivered and maintained by the customer, their employees and a myriad of vendors and service providers. As a result, the components of our customers’
infrastructure have different specifications, rapidly evolve, utilize multiple protocol standards, include multiple versions and generations of products and may be highly customized. Our platform must be able to interoperate with highly complex
and customized networks, which requires careful planning and execution between our customers, our customer support teams and our channel partners. Further, when our customers add new or update elements of their infrastructure, when new usage
trends emerge (such as remote work during the COVID-19 pandemic), or new industry standards or protocols are introduced, we may have to update or enhance our platform and our other solutions to allow us to continue to provide service to
customers. Our competitors or other vendors may refuse to work with us to allow their products to interoperate with our solutions, which could make it difficult for our platform to function properly in customer networks that include these
third-party products.
We may not deliver or maintain interoperability quickly,
cost-effectively, or at all. These efforts require capital investment and engineering resources. If we fail to maintain compatibility of our platform and solutions with our customers’ network and security infrastructures, our customers may not be
able to fully utilize our products and solutions, and we may, among other consequences, lose or fail to increase our market share and experience reduced demand for our services, which would materially harm our business, operating results, and
financial condition.
60
We may not timely and cost-effectively scale
and adapt our existing technology to meet our customers’ performance and other requirements.
Our future growth is dependent upon our ability to continue to meet the
needs of new customers and the expanding needs of our existing customers as their use of our products and solutions grow. As our customers gain more experience with our products and solutions, the amount of data transferred, processed and stored
by us, the number of locations where our platform and services are being accessed, have in the past, and may in the future, expand rapidly. In order to meet the performance and other requirements of our customers, we intend to continue to make
material investments to increase capacity and to develop and implement new technologies in our service and cloud infrastructure operations. These technologies, which include databases, applications and server optimizations, network and hosting
strategies, and automation, are often advanced, complex, new and untested. We may not be successful in developing or implementing these technologies. In addition, it takes a significant amount of time to plan, develop and test improvements to our
technologies and infrastructure, and we may not be able to accurately forecast demand or predict the results we will realize from such improvements. To the extent that we do not effectively scale our operations to meet the needs of our growing
customer base and to maintain performance as our customers expand their use of our products and solutions, we may not be able to grow as quickly as we anticipate, our customers may reduce or cancel use of our solutions and we may be unable to
compete as effectively, and our business and results of operations may be harmed.
Because of the importance of cloud services to our business and our
cloud providers’ positions in the cloud-based server industry, any renegotiation or renewal of our agreements may be on terms that are significantly less favorable to us than our current agreements. If our cloud-based server costs were to
increase, our business, results of operations and financial condition may be adversely affected. Although we expect that we could receive similar services from other cloud providers, if any of our arrangements with our cloud providers are
terminated, we could experience interruptions on our platform and in our ability to make our products and solutions available to customers, as well as delays and additional expenses in arranging alternative cloud infrastructure services. Ongoing
improvements to cloud infrastructure may be more expensive than we anticipate and may not yield the expected savings in operating costs or the expected performance benefits. In addition, we may be required to re-invest any cost savings achieved
from prior cloud infrastructure improvements in future infrastructure projects to maintain the levels of service required by our customers. We may not be able to maintain or achieve cost savings from our investments, which could harm our
financial results.
Our success depends, in part, on the integrity
and scalability of our systems and infrastructure. System interruption and the lack of integration, redundancy and scalability in these systems and infrastructure may adversely affect our business, financial condition, and results of operations.
Our success depends, in part, on our ability to maintain the integrity
of our systems and infrastructure, including websites, information systems and related systems. System interruption and a lack of integration and redundancy in our information systems and infrastructure may adversely affect our ability to operate
websites, process and fulfill transactions, respond to customer inquiries, and generally maintain cost-efficient operations. We may experience occasional system interruptions that make some or all systems or data unavailable or prevent us from
efficiently providing access to our platform.
Our ability to introduce new products and
solutions and features is dependent on adequate research and development resources and our ability to successfully complete acquisitions. If we do not adequately fund our research and development efforts or complete acquisitions successfully, we
may not be able to compete effectively and our business, financial condition, and results of operations may be harmed.
To remain competitive, we must continue to offer new products and
solutions and enhancements to our existing platform. This is particularly true as we further expand and diversify our capabilities. Maintaining adequate research and development resources, such as the appropriate personnel and development
technology, to meet the demands of the market is essential. We may also choose to expand into a certain market or strategy via an acquisition for which we could potentially pay too much or fail to successfully integrate into our operations.
Further, many of our competitors expend a considerably greater amount of funds on their respective research and development programs, and those that do not may be acquired by larger companies that would allocate greater resources to our
competitors’ research and development programs. Our failure to maintain adequate research and development resources or to compete effectively with the research and development programs of our competitors would give an advantage to such
competitors and our business, financial condition, and results of operations
61
could be adversely affected. Moreover, there is no assurance that our research and
development or acquisition efforts will successfully anticipate market needs and result in significant new marketable solutions or enhancements to our existing platform and solutions, design improvements, cost savings, revenues, or other expected
benefits. If we are unable to generate an adequate return on such investments, we may not be able to compete effectively and our business, financial condition, and results of operations may be materially and adversely affected.
We rely on third-party cloud providers, such as
Microsoft Azure, Amazon Web Services, and Cloudflare, to host and operate our platform, and any disruption of or interference with our use of these facilities may negatively affect our ability to maintain the performance and reliability of our
platform which could cause our business to suffer.
Our customers depend on the continuous availability of our platform. We
currently host our platform and serve our customers using a mix of third-party cloud providers, including, but not limited to, Microsoft Azure, Cloudflare, and Amazon Web Services. Consequently, we may be subject to service disruptions as well as
failures to provide adequate support for reasons that are outside of our direct control. We have experienced and expect that in the future we may experience interruptions, delays and outages in service and availability from time to time due to a
variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints.
The following factors, many of which are beyond our control, can affect
the delivery, platform availability, and the performance of our products:
|
•
|
the development and maintenance of the infrastructure of the internet;
|
|
•
|
the performance and availability of third-party providers of cloud infrastructure services, such as AWS, with the necessary speed,
data capacity and security for providing reliable internet access and services;
|
|
•
|
decisions by the owners and operators of service providers where our cloud infrastructure is deployed to terminate our contracts,
discontinue services to us, shut down operations or facilities, increase prices, change service levels, limit bandwidth, declare bankruptcy or prioritize the traffic of other parties;
|
|
•
|
physical or electronic break-ins, acts of war or terrorism, human error or interference (including by disgruntled employees,
former employees or contractors) and other catastrophic events;
|
|
•
|
external cyberattacks, including denial of service attacks, targeted at us or the infrastructure of the internet;
|
|
•
|
failure by us to maintain and update our cloud infrastructure to meet our data capacity requirements;
|
|
•
|
errors, defects or performance problems in our software, including third-party software incorporated in our software;
|
|
•
|
improper deployment or configuration of our solutions;
|
|
•
|
the failure of our redundancy systems, in the event of a service disruption at one of our data centers, to provide failover to
other data centers in our data center network;
|
|
•
|
the failure of our disaster recovery and business continuity arrangements; and
|
|
•
|
availability to acquire and source data.
|
The adverse effects of any service interruptions on our reputation,
results of operations, and financial condition may be disproportionately heightened due to the nature of our business and the fact that our customers have a low tolerance for interruptions of any duration. Interruptions or failures in our service
delivery could result in a cyberattack or other security threat to our customers during such periods of interruption or failure. Additionally, interruptions or failures in our service could cause customers to terminate their subscriptions with
us, adversely affect our renewal rates, and harm our ability to attract new customers. Our business would also be harmed if our customers believe that a cloud-based SaaS-delivered security solution is unreliable. We have experienced, and may in
the future experience, service interruptions and other performance problems due to a variety of factors. The occurrence of any of these factors, or if we are unable to rapidly and cost-effectively fix such errors or other problems that may be
identified, could damage our reputation, negatively affect our relationship with our customers or otherwise harm our business, results of operations and financial condition.
62
We rely on software and services from other
parties. Defects in or the loss of access to software or services from third parties could increase our costs and adversely affect the quality of our solutions.
We rely on third-party computer systems, broadband and other
communications systems and service and data providers to provide customers with access to our platform. Any interruptions, outages or delays in our systems, infrastructure or business, or the systems, infrastructure, or business of such third
parties, or deterioration in the performance of these systems and infrastructure, could impair our ability to provide access to our platform. Our business would be disrupted if any of the third-party software or services we utilize, particularly
with respect to third-party software or services embedded in our solutions, or functional equivalents thereof, were unavailable due to extended outages or interruptions or because they are no longer available on commercially reasonable terms or
prices or at all.
In each case, we would be required to either seek licenses to software
or services from other parties and redesign our solutions to function with such other parties’ software or services or develop these components ourselves, which would result in increased costs and could result in delays in our solution and
solution package launches and the release of new solution and solution package offerings until equivalent technology can be identified, licensed or developed, and integrated into our solutions. Furthermore, we might be forced to limit the
features available in our current or future solutions. If these delays and feature limitations occur, our business, results of operations and financial condition could be adversely affected.
Risk Factors Related to our Business and Industry
ZeroFox has a history of losses, and the Company
may not be able to achieve or sustain profitability in the future.
ZeroFox has incurred net losses in all periods since its inception.
ZeroFox experienced net losses of $38,439,000, $22,740,000 and $22,739,000 for fiscal 2022, 2021 and 2020, respectively. As of January 31, 2022, ZeroFox had an accumulated deficit of $156,820,000, and we cannot predict when or whether the
Company will reach or maintain profitability. We also expect the Company’s operating expenses to increase over our historical expenses in the future as the Company continues to invest for future growth, including expanding our research and
development activities to enhance our platform, expanding our sales and marketing activities and reaching customers in new geographic locations, which will negatively affect our operating results if our total revenue does not increase. We
cannot assure you that these investments will result in substantial increases in our revenue or improvements in our operating results. In addition to the anticipated costs to grow our business, we also expect to incur significant additional
legal, accounting, and other expenses as a newly public operating company. Any failure to increase the Company’s revenue as it invests in its business or to manage its costs could prevent us from achieving or maintaining profitability.
If we are not able to maintain and enhance our
brand and our reputation as a provider of external cybersecurity products and solutions, our business and results of operations may be adversely affected.
We believe that maintaining and enhancing our brand and our reputation
as a provider of external cybersecurity products and solutions is critical to our relationship with existing customers, channel partners, and technology alliance partners and our ability to attract new customers and partners. The successful
promotion of our brand will depend on a number of factors, including our marketing efforts, our ability to continue to develop additional features for our platform and our ability to successfully differentiate our platform from competitive
cloud-based or legacy security solutions. Although we believe it is important for our growth, our brand promotion activities may not be successful or yield increased revenue.
In addition, independent industry or financial analysts and research
firms often test our products and solutions and provide reviews of our platform, as well as the products of our competitors, and the perception of our platform in the marketplace may be significantly influenced by these reviews. If these reviews
are negative, or less positive as compared to those of our competitors’ products, our brand may be adversely affected. Our products and solutions may fail to detect or prevent threats in any particular test for a number of reasons that may or may
not be related to the efficacy of our products and solutions in real world environments. To the extent potential customers, industry analysts or testing firms believe that the occurrence of a failure to detect or prevent any particular threat is
a flaw or indicates that our products and solutions or services do not provide significant value, we may lose customers, and our reputation, financial condition and business would be harmed. Additionally, the performance of our channel partners
and technology alliance partners may affect our brand and
63
reputation if customers do not have a positive experience with these partners. In
addition, we have in the past worked, and continue to work, with high profile customers as well as assist in analyzing and remediating high profile cyberattacks. Our work with such customers has exposed us to publicity and media coverage.
Negative publicity about us, including about our management, the efficacy and reliability of our platform, our products offerings, our professional services, and the customers we work with, even if inaccurate, could adversely affect our
reputation and brand.
If organizations do not adopt cloud, and/or
SaaS-delivered external cybersecurity solutions that may be based on new and untested security concepts, our ability to grow our business and results of operations may be adversely affected.
Our future success depends on the growth in the market for cloud and/or
SaaS-delivered external cybersecurity products and solutions. The use of SaaS products and solutions to manage and automate security and IT operations is rapidly evolving. As such, it is difficult to predict our potential growth, customer
adoption and retention rates, customer demand for our products and solutions, or the success of existing or future competitive products. Any expansion in our market depends on several factors, including the cost, performance and perceived value
associated with our products and solutions and those of our competitors. If our solutions do not achieve widespread adoption or there is a reduction in demand for our products and solutions due to a lack of customer acceptance, technological
challenges, competing products, privacy or other liability concerns, decreases in corporate spending, weakening economic conditions, or otherwise, it could adversely affect our business, results of operations and financial results, resulting in
early terminations, reduced customer retention rates, or decreased sales. We do not know whether the trend in adoption of cloud-enabled and/or SaaS-delivered cybersecurity solutions that we have experienced in the past will continue in the
future. Furthermore, if we or other SaaS security providers experience security incidents, loss or disclosure of customer data, disruptions in delivery, or other problems, the market for SaaS solutions as a whole, including our security
solutions, could be negatively affected.
Historically, information sharing related to cybersecurity has been a
very well accepted concept from a theoretical perspective but very difficult to implement in practice. Companies are generally reluctant to share their sensitive cyber information with other entities, despite knowing the advantages of doing so.
Misperceptions may exist, however, about what information gets shared, with whom that information is shared, and the jurisdictions (including foreign countries) of the companies with which the information gets shared. Further, concerns of
existing or potential customers may exist related to the ability to completely remove any indicia of the source company, general market rejection of information sharing, or specific market skepticism of our approach, which may further add to a
lack of customer acceptance.
In addition to the potential concerns related to sharing sensitive
information in a system consisting of commercial or potentially competitive entities, additional concerns can arise when governments become involved as participants in the collective defense ecosystem. From a commercial perspective, companies
frequently view information sharing on platforms with governments that are also customers as risky, based on perceptions that the governments might use such shared information to take action against the companies or to otherwise utilize it in a
way that will expose such companies to liability. Such perceptions could lead commercial entities to stop sharing, not procure our services in the first place, or terminate their relationship with us altogether. Similarly, governments (as
customers) may be unable to properly process such data or utilize it in a meaningful way, or share useful information back into our solutions. Any of these concerns could lead to reduced sales or contribute to a lack of customer acceptance. In
addition, the mere involvement of one or more government entities as customers may harm our reputation with certain companies.
We have experienced rapid growth in recent
periods, and if we do not manage our future growth, our business and results of operations will be adversely affected.
ZeroFox has experienced rapid revenue growth in recent periods, and
we expect to continue to invest broadly across our organization to support our growth. For example, ZeroFox’s actual employee headcount grew from 158 employees as of January 31, 2019 to 499 employees as of December 31, 2021. IDX's actual
employee headcount grew from 58 employees as of January 31, 2019 to 71 employees as of December 31, 2021. Although ZeroFox has experienced rapid growth historically, we may not sustain our current growth rates, nor can we assure you that our
investments to support our growth will be successful. The growth and expansion of our business will require us to invest significant financial and operational resources and the continuous dedication of
64
our management team. We have encountered and will continue to encounter risks and
difficulties frequently experienced by rapidly growing companies in evolving industries, including market acceptance of our platform, adding new customers, intense competition, and our ability to manage our costs and operating expenses. Our
future success will depend in part on our ability to manage our growth effectively, which will require us to, among other things:
|
•
|
effectively attract, integrate, and retain a large number of new employees, particularly members of our sales and marketing and
research and development teams;
|
|
•
|
further improve our platform and cloud infrastructure to support our business needs;
|
|
•
|
enhance our information and communication systems to ensure that our employees and offices around the world are well-coordinated
and can effectively communicate with each other and our growing base of channel partners and customers; and
|
|
•
|
improve our financial, management, and compliance systems and controls.
|
If we fail to achieve these objectives effectively, our ability to
manage our expected growth, ensure uninterrupted operation of our platform and key business systems, and comply with the rules and regulations applicable to our business could be impaired. Additionally, the quality of our platform and services
could suffer and we may not be able to adequately address competitive challenges. Any of the foregoing could adversely affect our business, results of operations, and financial condition.
We face intense competition and could lose market
share to our competitors, which could adversely affect our business, financial condition, and results of operations.
The market for security solutions is intensely competitive, fragmented,
and characterized by rapid changes in technology, customer requirements and industry standards, increasingly sophisticated attackers, and by frequent introductions of new or improved products to combat security threats. We expect to continue to
face intense competition from current competitors, as well as from new entrants into the market given the relatively low barriers to entry in the industry. If we are unable to anticipate or react to these challenges, our competitive position
could weaken, and we could experience a decline in revenue or reduced revenue growth, and loss of market share that would adversely affect our business, financial condition, and results of operations. Our ability to compete effectively depends
upon numerous factors, many of which are beyond our control, including, but not limited to:
|
•
|
product capabilities, including the performance and reliability of our platform — including our services and features, compared to
those of our competitors;
|
|
•
|
our ability, and the ability of our competitors, to improve existing products, services, and features, or to develop new ones to
address evolving customer needs;
|
|
•
|
our ability to attract, retain, and motivate talented employees;
|
|
•
|
our ability to establish and maintain relationships with channel partners;
|
|
•
|
the strength of our sales and marketing efforts; and
|
|
•
|
acquisitions or consolidation within our industry, which may result in more formidable competitors.
|
Our competitors include the following, by general category:
|
•
|
digital risk protection, such as Proofpoint, Rapid7 and Help Systems;
|
|
•
|
threat intelligence providers, such as Mandiant and Recorded Future; and
|
|
•
|
breach response providers, such as Experian, Transunion, and Kroll.
|
Many of these competitors have greater financial, technical, marketing,
sales, and other resources, greater name recognition, longer operating histories, and a larger base of customers than we do. They may be able to devote greater resources to the development, promotion, and sale of services than we can, and they
may offer lower pricing than we do. Further, they may have greater resources for research and development of new technologies, the provision of customer support, and the pursuit of acquisitions, or they may have other financial, technical, or
other resource advantages. Our larger competitors have substantially broader and more diverse product and service offerings as well as routes to market, which allows them to leverage their relationships based
65
on other products and to incorporate functionality into existing products to gain
business in a manner that discourages users from purchasing our platform. Conditions in our market could change rapidly and significantly because of technological advancements, partnering or acquisitions by our competitors or continuing market
consolidation. Some of our competitors have recently made acquisitions of businesses or have established cooperative relationships that may allow them to offer more directly competitive and comprehensive solutions than were previously offered and
adapt more quickly to new technologies and customer needs. As a result of such acquisitions or arrangements, our current or potential competitors may be able to devote greater resources to bring these solutions and services to market, initiate or
withstand substantial price competition or develop and expand their product and service offerings more quickly than we do. These competitive pressures in our market or our failure to compete effectively may result in price reductions, fewer
orders, reduced revenue and gross margins, increased net losses and loss of market share. Further, many competitors that specialize in providing protection from a single type of security threat may be able to deliver these targeted security
products to the market quicker than we can or convince organizations that these limited products meet their needs. Even if there is significant demand for cloud-based security solutions like ours, if our competitors include functionality that is,
or is perceived to be, equivalent to or better than ours in legacy products that are already generally accepted as necessary components of an organization’s security architecture, we may have difficulty increasing the market penetration of our
platform. Furthermore, even if the functionality offered by other security providers is different and more limited than the functionality of our platform, organizations may elect to accept such limited functionality in lieu of adding products
from additional vendors like us.
For all of these reasons, competition may negatively impact our ability
to maintain and grow consumption of our platform and solutions or put downward pressure on our prices and gross margins, any of which could materially harm our reputation, business, financial condition, and results of operations.
Competitive pricing pressure may reduce
revenue, gross profits, and adversely affect our financial results.
If we are unable to maintain our pricing due to competitive pressures
or other factors, our revenue and margins may be reduced and our revenue and gross profits, business, results of operations and financial condition may be adversely affected. The prices for our platform, products and solutions, and professional
services may decline for a variety of reasons, including competitive pricing pressures, discounts, anticipation of the introduction of new solutions by competitors, or promotional programs offered by us or our competitors. Competition continues
to increase in the market segments in which we operate, and we expect competition to further increase in the future. Larger competitors with more diverse product and service offerings may reduce the price of products or subscriptions that compete
with ours or may bundle them with other products and subscriptions in an effort to leverage their existing market share to make it harder for newer companies, like us, to effectively compete.
Adverse general and industry-specific economic
and market conditions and reductions in customer spending, in either the private or public sector, may reduce demand for our platform or products and solutions, which could harm our business, financial condition and results of operations.
Our business, financial condition, and results of operations depend on
the overall demand for our platform and products and solutions. Negative conditions in the general economy both in the United States and abroad, including conditions resulting from the COVID-19 pandemic, changes in gross domestic product growth,
financial and credit market fluctuations, energy costs, international trade relations, geopolitical issues or the availability and cost of credit could lead to increased market volatility, decreased consumer confidence, and diminished growth
expectations in the U.S. economy and abroad, which in turn could result in reductions in information technology, software, and security spending by our existing and prospective customers. Negative economic conditions in both the public and
private sectors, including macroeconomic, political and market conditions, government shutdowns or reduction in government spending, the availability of short-term and long-term funding and capital, the level and volatility of interest rates,
currency exchange rates, and inflation, may cause customers to reduce their spending. Prolonged economic slowdowns may result in customers delaying or canceling projects, choosing to focus on in-house development efforts or seeking to lower their
costs by requesting us to renegotiate existing contracts on less advantageous terms or defaulting on payments due on existing contracts or not renewing at the end of the contract term.
66
The estimates of market opportunity and
forecasts of market growth included in this proxy statement/prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business could fail to grow at similar rates, if at all.
Market opportunity estimates and growth forecasts included in this
proxy statement/prospectus, including those we have generated ourselves, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. Such information concerning the market and the industry
in which ZeroFox and IDX compete, including their market positions, general expectations of market opportunities and market sizes, are based on information from various third-party sources, internal data and estimates, and assumptions made by
ZeroFox and IDX based on such sources and ZeroFox’s and IDX’s knowledge of the external cybersecurity market and data breach response market. Internal data and estimates are based upon information obtained from trade and business organizations
and other contacts in the markets in which ZeroFox and IDX operate and ZeroFox’s and IDX’s respective management’s understanding of industry conditions. This information and any estimates provided herein involve numerous assumptions and
limitations. Third-party sources generally state that their information has been obtained from sources believed to be reliable. There can be no assurance as to the accuracy or completeness of such information. Industry and market data could be
wrong because of the method by which sources obtained their data and because information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data
gathering process and other limitations and uncertainties. We have not independently verified any third-party information, and each publication speaks as of its original publication date (and not as of the date of this proxy
statement/prospectus). We do not know all of the assumptions regarding general economic conditions or growth that were used in preparing the forecasts from the sources relied upon or cited in this proxy statement/prospectus.
The COVID-19 pandemic could adversely affect our
business, operating results, and financial condition.
We face various risks related to public health issues, including
epidemics, pandemics, and other outbreaks, including the ongoing COVID-19 pandemic. The effects and potential effects of COVID-19 include, but are not limited to, its impact on general economic conditions, trade and financing markets and changes
in customer behavior, and significant uncertainty in the overall continuity in business operations. In light of the uncertain and rapidly evolving situation relating to the spread of COVID-19, we have taken precautionary measures intended to
minimize the risk of the virus to our employees, our customers, and the communities in which we operate, which may negatively impact our business. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business,
operating results, cash flows, and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted.
ZeroFox has experienced, and we may continue to experience, an adverse
impact on certain parts of our business following the implementation of shelter-in-place orders to mitigate the outbreak of the COVID-19 pandemic, including a lengthening of the sales cycle for some prospective customers and delays in the
delivery of professional services and trainings to our customers.
We do not yet know the full extent of potential impacts on our
business, operations or on the global economy, particularly if the COVID-19 pandemic continues and persists for an extended period. The impacts and potential impacts of the COVID-19 pandemic on our business operations include:
|
•
|
our customer prospects and our existing customers may experience slowdowns in their businesses, which in turn may result in
reduced demand for our platform, change in budget priorities, lengthening of sales cycles, loss of customers, and difficulties in collections;
|
|
•
|
while certain of our offices have reopened on a limited basis in accordance with local ordinances, a substantial number of our
employees continue to work from home and a substantial number may continue to do so for the foreseeable future, which may result in decreased employee productivity and morale with increased unwanted employee attrition;
|
|
•
|
we continue to incur fixed costs, particularly for real estate, and are deriving reduced or no benefit from those costs;
|
|
•
|
we may continue to experience disruptions to our growth planning, such as for facilities and international expansion;
|
67
|
•
|
we anticipate incurring costs in returning to work from our facilities, including changes to the workplace, such as space
planning, food service, and amenities;
|
|
•
|
we may be subject to legal liability for safe workplace claims;
|
|
•
|
our critical vendors could go out of business;
|
|
•
|
substantially all of our in-person marketing events, including conferences, have been canceled and we may continue to experience
prolonged delays in our ability to reschedule or conduct in-person events and other related activities that help us generate new business; and
|
|
•
|
we may experience unwanted attrition, retention challenges or greater competition for recruiting.
|
Any of the foregoing could adversely affect our business, financial
condition, and operating results.
The extent to which the COVID-19 pandemic may continue to affect our
business will depend on continued developments, which are uncertain and cannot be predicted. Even after the COVID-19 pandemic has subsided, we may continue to suffer an adverse effect to our business due to its global economic effect, including
any economic recessions. In addition, a recurrence of COVID-19 cases or an emergence of additional variants or strains could cause other widespread or more severe impacts depending on where infection rates are highest.
We employ multiple and evolving pricing models,
which subject us to various pricing challenges that could make it difficult for us to derive value from our customers and may adversely affect our business, financial condition, and results of operations.
We employ multiple and evolving pricing models for our offerings. Our
pricing models may ultimately result in a higher total cost to our customers generally as data volumes increase over time, or may cause our customers to limit or decrease usage in order to stay within the limits of their existing licenses or
lower their costs, making it more difficult for us to compete in our markets or negatively impacting our business, financial condition, and results of operations. As the amount of data within our customers’ organizations grows, we face downward
pressure from our customers regarding our pricing, which could adversely affect our revenues and operating margins. In addition, our pricing models may allow competitors with different pricing models to attract customers unfamiliar or
uncomfortable with our pricing models, which would cause us to lose business or modify our pricing models, both of which could adversely affect our revenues and operating margins. We have introduced and expect to continue to introduce variations
to our pricing models, including but not limited to usage-based, tiered pricing based on number of users, flat upfront fee, fixed price, level of effort, cost plus fee, utility-based pricing and other pricing programs. We also must determine the
appropriate price to enable us to compete effectively internationally. Although we believe that these pricing models and variations to these models will drive net new customers, and increase customer adoption, it is possible that they will not
and may potentially cause customers to decline to purchase or renew contracts with us or confuse customers and reduce their lifetime value, which could negatively impact our business, financial condition, and results of operations.
If we fail to adapt to rapid technological
change, evolving industry standards and changing customer needs, requirements or preferences, our ability to remain competitive could be impaired.
The market for our platform and solutions is characterized by rapid
technological change, evolving industry standards and changing regulations, as well as changing customer needs, requirements, and preferences. The success of our business will depend, in part, on our ability to anticipate, adapt and respond
effectively to these changes on a timely and cost-effective basis. In addition, as our customers’ data infrastructure needs grow more complex, we expect them to face new and increasing challenges. Our customers require that our platform and
products and solutions effectively identify and respond to these challenges without disrupting the performance of our customers’ information technology and data systems or interrupting their operations. As a result, we must continually modify and
improve our offerings in response to changes in our customers’ data infrastructures and operational needs or end-user preferences. The success of any enhancement to our existing offerings or the deployment of new offerings depends on several
factors, including the timely completion and market acceptance of our enhancements or new offerings. Any enhancement to our existing offerings or new offerings that we develop and introduce involves significant commitment of time and resources
and is subject to a number of risks and challenges, including, but not limited to:
|
•
|
ensuring the timely release of new solutions (including products and professional services) and enhancements to our existing
solutions;
|
68
|
•
|
adapting to emerging and evolving industry standards, technological developments by our competitors and customers and changing
regulatory requirements;
|
|
•
|
interoperating effectively with existing or newly-introduced technologies, systems or applications of our existing and prospective
customers;
|
|
•
|
resolving defects, errors or failures in our platform or solutions;
|
|
•
|
extending our solutions to new and evolving operating systems and hardware products; and
|
|
•
|
managing new solutions, product suites and service strategies for the markets in which we operate.
|
If we are not successful in managing these risks and challenges, or if
our platform or products and solutions (including any upgrades thereto) are not technologically competitive or do not achieve market acceptance, our business, financial condition, and results of operations could be adversely affected.
If we are unable to maintain successful
relationships with our channel partners, or if our channel partners fail to perform, our ability to market, sell and distribute our platform will be limited, and our business, financial position and results of operations will be harmed.
In addition to our direct sales force, we rely on our channel
partners to sell our platform. A substantial amount of sales of our platform flows through our channel partners and we expect this to continue for the foreseeable future. We derived approximately 40% of our revenue for the fiscal year ended
January 31, 2022 from subscriptions through channel partners. The loss of a substantial number of our channel partners or the failure to recruit additional channel partners, could adversely affect our operating results. Our ability to increase
revenue will depend in part on our success in maintaining successful relationships with our channel partners and in training our channel partners to independently sell and deploy our platform. If we fail to effectively manage our existing sales
channels, or if our channel partners are unsuccessful in fulfilling the orders for our solutions, or if we are unable to enter into arrangements with, and retain a sufficient number of, high quality channel partners in each of the regions in
which we sell products and solutions and keep them motivated to sell our products and solutions, our ability to sell our products and solutions and results of operations will be harmed.
We target enterprise customers and government
organizations, and sales to these customers involve risks that may not be present or that are present to a lesser extent with sales to smaller entities.
We have a robust sales team that targets enterprise customers and
government organizations. These sales involve risks that may not be present or that are present to a lesser extent with sales to smaller entities, such as longer sales cycles, more complex customer requirements, substantial upfront sales costs,
and less predictability in completing sales. For example, enterprise customers may require considerable time to evaluate and test our products and solutions and those of our competitors prior to making a purchase decision and placing an order. A
number of factors influence the length and variability of our sales cycle, including the need to educate potential customers about the uses and benefits of our products and solutions, the discretionary nature of purchasing and budget cycles, and
the competitive nature of evaluation and purchasing approval and/or competitive bidding processes. As a result, the length of our sales cycle, from identification of the opportunity to deal closure, may vary significantly from customer to
customer, with sales to enterprise customers and government organizations typically taking longer to complete. Moreover, enterprise customers often begin to deploy our products and solutions on a limited basis, but nevertheless demand
configuration, integration services and pricing negotiations, which increase our upfront investment in the sales effort with no guarantee that these customers will deploy our products and solutions widely enough across their organization to
justify our substantial upfront investment. Further, a significant percentage of our enterprise sales are to customers in the financial services sector. An economic slowdown in that sector could adversely impact our sales.
Our success and ability to grow our business
depend on retaining and expanding our customer base. If we fail to add new customers or retain existing customers, our business, financial condition, and results of operations could be harmed.
We may enter into subscription agreements for our platform and
solutions where customers have discretion to renew or terminate services at the end of the term, or stand-alone agreements for the provision of specified software or services. For us to improve our operating results, it is important that we add
new customers and that our existing customers renew their subscriptions and upgrade and expand their subscribed services. Our
69
customers have no obligation to renew their subscriptions, to upgrade or expand their
subscribed services, or to continue their relationship with us once a stand-alone engagement ends. Our customers’ renewal, upgrade and expansion rates may decline or fluctuate as a result of a number of factors, including their satisfaction or
dissatisfaction with our offerings, our pricing, the effects of general economic conditions, competitive offerings, or alterations or reductions in our customers’ spending levels. If we are unable to add new customers or if our existing customers
do not renew their subscriptions when the term expires or do not upgrade and expand the subscribed services or if customers renew on terms less favorable to us, or do not otherwise continue to use our platform and solutions for subsequent
engagements, our revenues may decline and our business, financial condition, and results of operations could be harmed.
Our customers may merge with other entities who purchase solutions and
services from our competitors, and, during weak economic times, there is an increased risk that one or more of our customers will file for bankruptcy protection, either of which may harm our business, financial condition, and results of
operations. We also face risks from international customers that file for bankruptcy protection in foreign jurisdictions, particularly given that the application of foreign bankruptcy laws may be more difficult to predict. In addition, we may
determine that the cost of pursuing any claim may outweigh the recovery potential of such claim. As a result, broadening or protracted extension of an economic downturn could harm our business, financial condition, and results of operations.
We provide service level commitments under some
of our customer contracts. If we fail to meet these contractual commitments, we could be obligated to provide credits for future service and our business could suffer.
Certain of our customer agreements contain service level commitments,
which contain specifications regarding the availability and performance of our platform. Any failure of or disruption to our infrastructure could impact the performance of our platform and the availability of products and services to customers.
If we are unable to meet our stated service level commitments or if we suffer extended periods of poor performance or unavailability of our platform, we may be contractually obligated to provide affected customers with service credits for future
subscriptions, refunds, and in certain cases, the right to cancel their subscription. Our revenue, other results of operations and financial condition could be harmed if we suffer performance issues or downtime that exceeds the service level
commitments under our agreements with our customers.
Our business will be subject to the risks of
natural catastrophic events and to interruption by man-made problems such as power disruptions or terrorism.
A significant natural disaster, such as an earthquake, a fire, a flood,
or significant power outage could have a material adverse impact on our business, results of operations and financial condition. Natural disasters could affect our personnel, supply chain, or logistics providers’ ability to provide materials and
perform services. In addition, climate change could result in an increase in the frequency or severity of natural disasters. In the event that our infrastructure, or the information technology systems, supply chain or logistics of our service
providers, is hindered by any of the events discussed above, the results could be missed financial targets, such as revenue, for a particular quarter. Likewise, we could be subject to other man-made problems, including but not limited to power
disruptions and terrorist acts.
We rely heavily on the services of our senior
management team, and if we are not successful in attracting or retaining senior management personnel, we may not be able to successfully implement our business strategy.
Our future success will be substantially dependent on the Company’s
ability to attract, retain, and motivate our key employees and the members of the Company’s management team. In particular, we will be highly dependent on the services of James C. Foster, our chief executive officer, who will be critical to our
future vision and strategic direction. We will also rely on our leadership team in the areas of operations, security, analytics, engineering, product management, research and development, marketing, sales, partnerships, mergers and acquisitions,
support, and general and administrative functions. Although we expect to enter into employment agreements with our key personnel following the consummation of the Business Combination, our senior management will be employed on an “at-will” basis,
which means they may terminate their employment with us at any time. If one or more of our key employees resigns or otherwise ceases to provide us with their service, our business could be harmed.
70
We rely on the performance of highly skilled
personnel, including senior engineering, professional services, sales and technology professionals, and our ability to increase our customer base will depend to a significant extent on our ability to expand our sales and marketing operations.
We believe our success has depended, and continues to depend, on the
efforts and talents of our highly skilled team members, including our sales personnel, professional services personnel, and software engineers. We do not maintain key person insurance on any of our employees. Our key employees are employed on an
“at-will” basis, which means that they could terminate their employment with us at any time. The loss of any of our key employees could adversely affect our ability to execute our business plan, and we may not be able to find adequate
replacements. We cannot ensure that we will be able to retain the services of our key employees.
If we do not effectively expand and train our
sales force, we may be unable to add new customers or increase sales to our existing customers, and our business will be adversely affected.
We depend on our sales force to obtain new customers and increase sales
with existing customers. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training and retaining sufficient numbers of sales personnel, and our third-party channel partner network of
resellers, both domestically and internationally. We have expanded our sales organization in recent periods and expect to continue to add additional sales capabilities in the near term. Significant competition exists for sales personnel with the
skills and technical knowledge that we require. New hires require significant training and may take significant time before they achieve full productivity, and this delay may be accentuated by our long sales cycles. Our recent hires and planned
hires may not become productive as quickly as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business. In addition, a significant percentage of our
sales force is new to our company and selling our solutions, and therefore this team may be less effective than our more seasoned sales personnel. Furthermore, hiring sales personnel in new countries, or expanding our existing presence, requires
upfront and ongoing expenditures that we may not recover if the sales personnel fail to achieve full productivity. We cannot predict whether, or to what extent, our sales will increase as we expand our sales force or how long it will take for
sales personnel to become productive. If we are unable to hire and train a sufficient number of effective sales personnel, or the sales personnel we hire are not successful in obtaining new customers or increasing sales to our existing customer
base, our business and results of operations will be adversely affected. All of these efforts will require us to invest significant financial and other resources and our business will be harmed if our efforts do not generate a correspondingly
significant increase in revenue.
Our ability to maintain customer satisfaction
depends in part on the quality of our customer support.
Once our platform and solutions are purchased, our customers depend on
our maintenance and support teams to resolve technical and operational issues relating to our platform and solutions. Our ability to provide effective customer maintenance and support is largely dependent on our ability to attract, train, and
retain qualified personnel with experience in supporting customers with our platform and products and solutions such as ours and maintaining the same. The number of our customers has grown significantly and that has and will continue to put
additional pressure on our support teams. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for technical support. We may be subject to disruptions in customer support as well as failures to provide
adequate support for reasons that are outside of our direct control. We also may be unable to modify the future, scope, and delivery of our maintenance services and technical support to compete with changes in the technical services provided by
our competitors. Increased customer demand for maintenance and support services, without corresponding revenue, could increase costs and negatively affect our operating results. In addition, if we experience increased customer demand for support
and maintenance, we may face increased costs that may harm our business, financial condition, or results of operations. Further, as we continue to grow our operations and support our global customer base, we need to be able to continue to provide
efficient support and effective maintenance that meets our customers’ needs globally at scale. Customers receive additional maintenance and support features, and the number of our customers has grown significantly, which will put additional
pressure on our organization. If we are unable to provide efficient customer maintenance and support globally at scale or if we need to hire additional maintenance and support personnel, our business may be harmed. Our ability to attract new
customers is highly dependent on our business reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality maintenance and support services or a market perception that we do not maintain
high-quality maintenance and support services for our customers would harm our business.
71
If we cannot maintain our company culture as we
grow, we could lose the innovation, teamwork, passion, and focus on execution that we believe contribute to our success and our business may be harmed.
We believe that our corporate culture has been a contributor to our
success, which we believe promotes innovation, teamwork, passion and focus on building and marketing our products and solutions. Any integration challenges or any failure to preserve our culture could harm our future success, including our
ability to retain and recruit personnel, innovate and operate effectively and execute on our business strategy. As we grow, we may find it difficult to maintain our corporate culture. Additionally, our productivity and the quality of our products
and solutions may be adversely affected if we do not integrate and train our new employees quickly and effectively. If we experience any of these effects in connection with future growth, it could impair our ability to attract new customers,
retain existing customers and expand their use of our products and solutions, all of which would adversely affect our business, financial condition and results of operations.
Our operating results may fluctuate
significantly which could make our future results difficult to predict and could cause our operating results to fall below expectations.
Our operating results may vary significantly in the future,
particularly considering the number of enterprise customer contracts and the cyclical nature of our government sales generation, and period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results of any one
quarter should not be relied upon as an indication of future performance. Our quarterly operating results may fluctuate as a result of a variety of factors, many of which are outside of our control, and as a result, may not fully reflect the
underlying performance of our business. Fluctuations in quarterly results may negatively impact the value of our securities. Factors that may cause fluctuations in our quarterly operating results include, without limitation, those disclosed
elsewhere in this proxy statement/prospectus and:
|
•
|
our ability to generate significant revenue from new offerings and cross-selling current offerings;
|
|
•
|
our ability to expand our number of customers and sales;
|
|
•
|
our ability to hire and retain employees, in particular those responsible for our sales and marketing;
|
|
•
|
changes in the way we organize and compensate our sales teams;
|
|
•
|
the timing of expenses and recognition of revenue;
|
|
•
|
the timing and length of our sales cycles;
|
|
•
|
increased sales to large organizations;
|
|
•
|
the amount and timing of operating expenses related to the maintenance and expansion of our business and operations, as well as
international expansion;
|
|
•
|
the timing and effectiveness of new sales and marketing initiatives;
|
|
•
|
changes in our pricing policies or those of our competitors;
|
|
•
|
the timing and success of new platforms, applications, features, and functionality by us or our competitors;
|
|
•
|
changes in the competitive dynamics of our industry, including consolidation among competitors;
|
|
•
|
changes in laws and regulations that impact our business;
|
|
•
|
the timing of expenses related to any future acquisitions, including our ability to successfully integrate, and fully realize the
expected benefits of, completed acquisitions;
|
|
•
|
health epidemics or pandemics, such as the COVID-19 pandemic;
|
|
•
|
civil unrest and geopolitical instability; and
|
|
•
|
general political, economic, and market conditions.
|
72
Our long-term success depends, in part, on our
ability to expand the sale of our platform to customers located outside of the U.S., and our current, and any further, expansion of our international operations exposes us to risks that could have a material adverse effect on our business,
operating results, and financial condition.
We are generating a portion of our revenue outside of the U.S., and
conduct our business activities in various foreign countries, including some emerging markets, where the challenges of conducting our business can be significantly different from those we have faced in more developed markets and where business
practices may create internal control risks. There are certain risks inherent in conducting international business, including:
|
•
|
fluctuations in foreign currency exchange rates, which could add volatility to our operating results;
|
|
•
|
new, or changes in, regulatory requirements;
|
|
•
|
uncertainty regarding regulation, currency, tax, and operations resulting from the United Kingdom’s, or the U.K. exit from the
European Union, or the E.U., and possible disruptions in trade, the sale of our services and commerce, and movement of our people between the U.K., E.U., and other locations;
|
|
•
|
tariffs, export and import restrictions, restrictions on foreign investments, sanctions, and other trade barriers or protection
measures;
|
|
•
|
costs and liabilities related to compliance with foreign privacy, data protection and information security laws and regulations,
including the GDPR, and the risks and costs of noncompliance;
|
|
•
|
costs of localizing products and services;
|
|
•
|
the lack of acceptance of localized products and services;
|
|
•
|
the need to make significant investments in people, solutions and infrastructure, typically well in advance of revenue generation;
|
|
•
|
challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need
to implement appropriate systems, policies, benefits and compliance programs;
|
|
•
|
difficulties in maintaining our corporate culture with a dispersed and distant workforce;
|
|
•
|
treatment of revenue from international sources, evolving domestic and international tax environments, and other potential tax
issues, including with respect to our corporate operating structure and intercompany arrangements;
|
|
•
|
different standards for or weaker protection of our intellectual property, including increased risk of theft of our proprietary
technology and other intellectual property;
|
|
•
|
economic weakness or currency-related crises;
|
|
•
|
compliance with multiple, conflicting, ambiguous or evolving governmental laws and regulations, including employment, tax,
privacy, anti-corruption, import/export, antitrust, data transfer, storage and protection, and industry-specific laws and regulations, including rules related to compliance by our third-party resellers and our ability to identify and
respond timely to compliance issues when they occur, and regulations applicable to us and our third-party data providers from whom we purchase and resell data;
|
|
•
|
vetting and monitoring our third-party resellers in new and evolving markets to confirm they maintain standards consistent with
our brand and reputation;
|
|
•
|
generally longer payment cycles and greater difficulty in collecting accounts receivable;
|
|
•
|
our ability to adapt to sales practices and customer requirements in different cultures;
|
|
•
|
the lack of reference customers and other marketing assets in regional markets that are new or developing for us, as well as other
adaptations in our market generation efforts that we may be slow to identify and implement;
|
|
•
|
dependence on certain third parties, including resellers with whom we do not have extensive experience;
|
73
|
•
|
natural disasters, acts of war, terrorism, or pandemics, including the ongoing COVID-19 pandemic;
|
|
•
|
corporate espionage; and
|
|
•
|
political instability and security risks in the countries where we are doing business and changes in the public perception of
governments in the countries where we operate or plan to operate.
|
We might undertake corporate operating restructurings that involve our
group of foreign country subsidiaries through which we do business abroad. We consider various factors in evaluating these restructurings, including the alignment of our corporate legal entity structure with our organizational structure and its
objectives, the operational and tax efficiency of our group structure, and the long-term cash flows and cash needs of our business. Such restructurings could increase our operating costs, and if ineffectual, could increase our income tax
liabilities and our global effective tax rate.
We recognize revenue from subscriptions to our
platform over the term of the subscription. Consequently, increases or decreases in new sales may not be immediately reflected in our results of operations.
We generally recognize revenue from customers ratably over the terms of
their subscription, which is generally one to three years. As a result, a substantial portion of the revenue we report in each period is attributable to the recognition of deferred revenue relating to agreements that we entered into during
previous periods. Consequently, any increase or decline in new sales or renewals in any one period will not be immediately reflected in our revenue for that period. Any such change, however, would affect our revenue in future periods.
Accordingly, the effect of downturns or upturns in new sales and potential changes in our rate of renewals may not be fully reflected in our results of operations until future periods. We may also be unable to timely reduce our cost structure in
line with a significant deterioration in sales or renewals that would adversely affect our results of operations and financial condition.
Risks Related to Government Contracting
Historically, one U.S. government customer has
accounted for a substantial portion of IDX’s revenues and is expected to account for a substantial portion of the Company’s revenues following the Business Combination. If IDX’s largest customer does not renew its contract with IDX (or renews at
reduced spending levels), or if IDX’s relationship with its largest customer is impaired or terminated, our revenues would decline, and our business, financial condition, and results of operations would be adversely affected.
IDX derives a substantial portion of its revenues from one U.S.
government customer, the Office of Personnel Management. The OPM Contract is structured as a Base Period from July 1, 2019 to June 30, 2020, followed by a series of options as follows: Option Period I from July 1, 2020 to June 30, 2021, Option
Period II from July 1, 2021 to June 30, 2022, Option Period III from July 1, 2022 to June 30, 2023, and Option Period IV from July 1, 2023 to December 31, 2023. OPM has an option to extend the OPM Contract from January 1, 2024 to June 30, 2024,
as well as an option to add a transition-out period. To date, OPM has exercised Option Period I and Option Period II. IDX plans to pursue the rebid of the OPM Contract in 2024 for an extension through 2027. A copy of the OPM Contract is filed
as as an exhibit to the registration statement of which this proxy statement/prospectus forms a part. OPM accounted for approximately 54% of the combined Target Companies' total pro forma revenue and approximately 64% of the combined Target
Companies' total pro forma revenue for the fiscal years ended January 31, 2022 and 2021, respectively.
As a result, our revenue could fluctuate materially, and could be
materially and disproportionately affected by purchasing decisions by this customer or any other significant future customer. This customer may decide to purchase less than it has in the past, may alter its purchasing patterns at any time with
limited notice, or may decide not to continue to license IDX’s products at all, any of which could cause our revenues to decline and adversely affect our financial condition and results of operations. If we do not further diversify our customer
base, we will continue to be susceptible to risks associated with customer concentration.
Our business depends, in part, on sales to
government organizations, and significant changes in the contracting or fiscal policies of such government organizations could have an adverse effect on our business and results of operations.
Our future growth depends, in part, on increasing sales to government
organizations. Demand from government organizations is often unpredictable, subject to budgetary uncertainty and typically involves long sales cycles. We have made significant investment to address the government sector, but we cannot assure you
74
that these investments will be successful, or that we will be able to maintain or grow
our revenue from the government sector. U.S. federal, state and local government sales are subject to a number of challenges and risks that may adversely impact our business. Sales to such government entities include the following risks:
|
•
|
selling to governmental agencies can be highly competitive, expensive and time consuming, often requiring significant upfront time
and expense without any assurance that such efforts will generate a sale;
|
|
•
|
government certification requirements applicable to our products may change and, in doing so, restrict our ability to sell into
the U.S. federal government sector until we have attained the revised certification. For example, although we are currently certified under the Federal Risk and Authorization Management Program, or FedRAMP, such certification is costly to
maintain and if we lose our certification in the future it would restrict our ability to sell to government customers;
|
|
•
|
government demand and payment for our platform may be impacted by public sector budgetary cycles and funding priorities and
authorizations, with funding reductions or delays adversely affecting public sector demand for our platform;
|
|
•
|
governments routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could
result in the government refusing to continue buying our platform, which would adversely impact our revenue and results of operations, or institute fines or civil or criminal liability if the audit were to uncover improper or illegal
activities; and
|
|
•
|
governments may add new or change existing contractual and/or data security infrastructure requirements that could restrict our
ability to sell to government customers.
|
The occurrence of any of the foregoing could cause governments and
governmental agencies to delay or refrain from purchasing our solutions in the future or otherwise have an adverse effect on our business and results of operations.
A decline in the U.S. government budget,
changes in spending or budgetary priorities or delays in contract awards may adversely affect our business, financial condition, and results of operations and limit our growth prospects.
Following the completion of our proposed Business Combination, we
expect that revenue under contracts with U.S. government agencies will represent a substantial amount of our total revenue. Levels of U.S. government spending are difficult to predict and subject to significant risk. Laws and plans adopted by the
U.S. government relating to, along with pressures on and uncertainty surrounding the U.S. federal budget, potential changes in budgetary priorities, sequestration, the appropriations process, and the permissible federal debt limit, could
adversely affect the funding for individual programs and delay purchasing or payment decisions by our customers. Considerable uncertainty exists regarding how future budget and program decisions will unfold and what challenges budget reductions
will present for us and the industry for our solutions and products.
Current U.S. government spending levels may not be sustained and future
spending and program authorizations may not increase or may decrease or shift to programs in areas in which we do not provide services or are less likely to be awarded contracts. Such changes in spending authorizations and budgetary priorities
may occur as a result of uncertainty surrounding the federal budget, increasing political pressure and legislation, shifts in spending priorities as a result of competing demands for federal funds, or other factors. In the event government
funding relating to our contracts with the U.S. government becomes unavailable, or is reduced or delayed, or planned orders are reduced, our contract or subcontract under such programs may be terminated or adjusted by the U.S. government or the
prime contractor, if applicable. Our operating results could also be adversely affected by spending caps or changes in the budgetary priorities of the U.S. government, as well as delays in program starts or the award of contracts or task orders
under contracts.
In addition, changes to the federal acquisition system and contracting
models could affect whether and how we pursue certain opportunities and the terms under which we are able to do so. A significant decline in overall U.S. government spending, a significant shift in its spending priorities, significant delays in
contract or task order awards for large programs could adversely affect our business, financial condition, and results of operations and limit our growth prospects.
75
A delay in the completion of the U.S.
government’s budget and appropriation process could delay procurement of solutions we provide and have an adverse effect on our future revenues.
The funding of U.S. government programs is subject to an annual
congressional budget authorization and appropriations process. In years when the U.S. government does not complete its appropriations before the beginning of the new fiscal year on October 1, government operations are typically funded pursuant to
a “continuing resolution,” which allows federal government agencies to operate at spending levels approved in the previous appropriations cycle but does not authorize new spending initiatives. When the U.S. government operates under a continuing
resolution, delays can occur in the procurement of our products and solutions and may result in new initiatives being canceled. Revenue from government customers is often cyclical and based upon delays or change in the appropriation cycle or
government shutdowns and thus can impact future performance. When the U.S. government fails to complete its appropriations process or to provide for a continuing resolution, a full or partial federal government shutdown may result. A federal
government shutdown could, in turn, result in our incurrence of substantial labor or other costs without reimbursement under customer contracts, the delay or cancellation of key programs or the delay of contract payments, which could have a
negative effect on our cash flows and adversely affect our business, financial condition, and results of operations. For many programs, Congress appropriates funds on an annual fiscal year basis even though the program performance period may
extend over several years. Consequently, programs are often partially funded initially, and additional funds are committed only as Congress makes further appropriations. If we incur costs in excess of funds obligated on a contract, we may be at
risk for reimbursement of those costs unless or until additional funds are earmarked to the contract. In addition, when supplemental appropriations are required to operate the U.S. government or fund specific programs and passage of legislation
needed to approve any supplemental appropriations bill is delayed, the overall funding environment for our business could be adversely affected.
Due to the competitive process to obtain
contracts and the likelihood of bid protests, we may be unable to achieve or sustain revenue growth and our business, financial condition, and results of operations may be adversely affected.
Following the Business Combination, we expect that a substantial
portion of the business that we seek with respect to our solutions will be subject to competitive bidding processes with U.S. government customers. The U.S. government has increasingly relied on contracts that are subject to a continuing
competitive bidding process which has resulted in greater competition and increased pricing pressure. The competitive bidding process involves substantial costs and several risks, including significant cost and managerial time to prepare bids and
proposals for contracts that may not be awarded to us, may be split among competitors or that may be awarded but for which we do not receive meaningful task orders, and to the risk of inaccurately estimating the resources and costs that will be
required to fulfill any contract we win.
Following contract award, we may encounter significant expense, delay,
contract modifications or even contract loss because of our competitors challenging (or protesting) the award of contracts to us in competitive bidding. Any resulting loss or delay of start-up and funding of work under protested contract awards
may adversely affect our revenues and/or profitability. In addition, multi-award contracts require that we make sustained post-award efforts to obtain task orders under the contract. As a result, we may not be able to obtain these task orders or
recognize revenues under these multi-award contracts. We are also experiencing increased competition generally which impacts our ability to obtain contracts. Our failure to compete effectively in this procurement environment would adversely
affect our revenues and our business, financial condition, and results of operations may be adversely affected.
The U.S. government may terminate, cancel, stop,
modify or curtail our contracts at any time prior to their completion and, if we do not replace them, this may adversely affect our future revenues and profitability.
Many of the U.S. government programs in which we may participate as a
prime contractor or subcontractor extend for several years and include one or more base years and one or more option years. These programs are normally funded on an annual basis. Under our contracts, the U.S. government generally has the right to
not exercise options to extend or expand our contracts and may otherwise terminate, cancel, stop, modify, or curtail our contracts at its convenience. Any decisions by the U.S. government to not exercise contract options or to terminate, cancel,
stop, modify or curtail our major programs or contracts would adversely affect our revenues, revenue growth and profitability.
We may also experience technological or other performance difficulties
under our contracts, which may result in delays, cost overruns, and failures in our performance of these contracts. If a government customer
76
terminates a contract for default, we may be exposed to liability, including for excess
costs incurred by the customer in procuring undelivered services and solutions from another source. Depending on the nature and value of the contract, a performance issue or termination for default could cause our actual results to differ from
those anticipated and could harm our reputation, and even lead to a suspension or debarment action.
Our failure to comply with a variety of complex
procurement rules and regulations could result in our being liable for civil or criminal penalties, termination of our U.S. government contracts, disqualification from bidding on future U.S. government contracts, and suspension or debarment from
U.S. government contracting.
As a U.S. government contractor, we must comply with laws and
regulations relating to the formation, administration, and performance of U.S. government contracts, which affect how we do business with our customers. Such laws and regulations may potentially impose added costs on our business and our failure
to comply with them may lead to civil or criminal penalties, termination of our U.S. government contracts, or suspension or debarment from contracting with federal agencies. Some significant laws and regulations that affect us include, but are
not limited to the following:
|
•
|
the Federal Acquisition Regulations (“FAR”) and FAR supplements, which regulate the formation, administration and performance of
U.S. government contracts;
|
|
•
|
Truthful Cost or Pricing Data, formerly known as the Truth in Negotiations Act, which requires certification and disclosure of
cost and pricing data in connection with certain contract negotiations;
|
|
•
|
the Procurement Integrity Act, which regulates access to competitor bid and proposal information and government source selection
information and our ability to provide compensation to certain former government officials;
|
|
•
|
the Civil False Claims Act, which provides for substantial civil penalties for violations, including for the knowing submission of
a false or fraudulent claim to the U.S. government for payment or approval;
|
|
•
|
the False Statements Act, which imposes civil and criminal liability for making false statements to the U.S. government; and
|
|
•
|
the U.S. government Cost Accounting Standards, which imposes accounting requirements that govern our right to reimbursement under
certain cost-based U.S. government contracts.
|
The FAR and many of our U.S. government contracts contain
organizational conflict of interest clauses that may limit our ability to compete for or perform certain other contracts or other types of services for particular customers. Organizational conflicts of interest (“OCI”) arise when we engage in
activities that may make us unable to render impartial assistance or advice to the U.S. government, impair our objectivity in performing contract work or provide us with an unfair competitive advantage in winning or performing on a contract. An
OCI that precludes our competition for or performance on a significant program or contract could harm our prospects. Conversely, our failure to identify and disclose an OCI can result in civil and/or criminal penalties.
The U.S. government may adopt new contract
rules and regulations or revise its procurement practices in a manner adverse to us at any time without notice and/or compensation, which could adversely affect our profitability, cash position or growth prospects.
Our industry has experienced, and we expect it will continue to
experience, significant changes to business practices because of an increased focus on affordability, efficiencies and recovery of costs, among other items. U.S. government agencies may face restrictions or pressure regarding the type and number
of services that they may obtain from private contractors. Legislation, regulations, and initiatives dealing with enhanced governance, oversight, and/or security (physical or cyber), procurement reform, mitigation of potential conflicts of
interest, and environmental responsibility or sustainability, as well as any resulting shifts in the buying practices of U.S. government agencies, such as increased usage of fixed-price contracts, multiple-award contracts and small business
set-aside contracts, could have adverse effects on government contractors. Any of these changes could impair our ability to obtain new contracts or renew our existing contracts when customers recompete those contracts. Any new contracting
requirements or procurement methods could be costly or administratively difficult for us to implement and could adversely affect our business, financial condition, and results of operations.
77
As a U.S. government contractor, we are subject
to reviews, audits, and cost adjustments by the U.S. government, which, if resolved unfavorably to us, could adversely affect our profitability, cash position or growth prospects.
U.S. government contractors (including their subcontractors and others
with whom they do business) operate in a highly regulated environment and are routinely audited and reviewed by the U.S. government and its agencies. These agencies review a contractor’s performance on government contracts, cost structure,
indirect rates, and pricing practices and compliance with applicable contracting and procurement laws, regulations, terms and standards, as well as the adequacy of our systems and processes in meeting government requirements. They also review the
adequacy of the contractor’s compliance with government standards for its business systems, including a contractor’s accounting system, earned value management system, estimating system, materials management and accounting system, property
management system and purchasing system.
Both contractors and the U.S. government agencies conducting these
audits and reviews have come under increased scrutiny. As a result, the current audits and reviews have become more rigorous and the standards to which we are held are being more strictly interpreted, increasing the likelihood of an audit or
review resulting in an adverse outcome.
A finding of significant control deficiencies in our system audits or
other reviews can result in decremented billing rates to our U.S. government customers until the control deficiencies are corrected and our remediations are accepted. Government audits and reviews may conclude that our practices are not
consistent with applicable laws and regulations and result in adjustments to contract costs and mandatory customer refunds. Such adjustments can be applied retroactively, which could result in significant customer refunds. Our receipt of adverse
audit findings or the failure to obtain an “approved” determination of our various business systems from the responsible U.S. government agency could significantly and adversely affect our business, including our ability to bid on new contracts
and our competitive position in the bidding process. A determination of non-compliance with applicable contracting and procurement laws, regulations and standards could also result in the U.S. government imposing penalties and sanctions against
us, including reductions of the value of contracts, contract modifications or termination, withholding of payments, the loss of export/import privileges, administrative or civil judgements and liabilities, criminal judgements or convictions,
liabilities and consent or other voluntary decrees or agreements, other sanctions, the assessment of penalties, fines or compensatory, treble or other damages or non-monetary relief or actions, suspension or debarment, suspension of payments, and
increased government scrutiny that could negatively impact our reputation, delay or adversely affect our ability to invoice and receive timely payment on contracts, perform contracts or compete for contracts with the U.S. government and may
adversely affect our revenues and profitability.
Risks Relating to Financial, Tax and Accounting Issues
We have debt outstanding and may incur additional
debt in the future, which may adversely affect our financial condition and future financial results. Our existing debt agreements contain restrictive covenants that may limit our ability to operate our business.
As of January 31, 2022, ZeroFox had outstanding secured indebtedness
with Stifel and Orix of $15.0 million and $30.0 million, respectively, and outstanding unsecured debt with the ZeroFox Investors and InfoArmor of $5.0 million and $3.2 million, respectively. Our indebtedness contains, a number of restrictive
covenants that impose significant operating and financial restrictions on us. As a result of these covenants, our ability to respond to changes in business and economic conditions and engage in beneficial transactions, including to obtain
additional financing as needed, may be restricted. Furthermore, our failure to comply with our debt covenants could result in a default under our debt agreements, which would cause our indebtedness under such debt agreements to become
immediately due and payable. If any of our debt is accelerated, we may not have sufficient funds available to repay it.
Our ability to make scheduled payments of principal and interest and
other required repayments depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flows from operations in the future sufficient to service
our debt and make necessary capital expenditures. If we are unable to generate such cash flows, we may be required to adopt one or more alternatives, such as selling assets, restructuring operations, restructuring debt or obtaining additional
equity capital on terms that may be onerous or dilutive.
78
We may incur additional indebtedness in the future in the ordinary
course of business, which could include restrictive covenants. If new debt is added to current debt levels, including the Notes, the risks described above could intensify.
Prior to the Business Combination, our management
has concluded that uncertainties around our ability to raise additional capital raise substantial doubt about our ability to continue as a going concern if we do not receive additional financing capital in a timely manner.
ZeroFox has experienced recurring losses and negative cash flows
from operations, and has no certainty of achieving or growing revenues in the future. To date, we have not generated sufficient liquidity to fund our operations and have relied on funding through a combination of equity financing and bank debt.
Without additional financing, such as in connection with the Business Combination, these conditions raise substantial doubt about ZeroFox’s ability to continue as a going concern, meaning that we may be unable to continue operations for at
least the next twelve months or realize assets and discharge liabilities in the ordinary course of operations. The report of ZeroFox’s independent registered public accounting firm on our financial statements for the years ended January 31,
2022, 2021 and 2020 includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern. Additionally, our financial statements have been prepared assuming that ZeroFox will continue as
a going concern and do not include adjustments to reflect the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
We may need to raise additional capital to
maintain and expand our operations and invest in new solutions, which capital may not be available on terms acceptable to us, or at all, and which could reduce our ability to compete and could harm our business.
Retaining or expanding our current levels of personnel and products
offerings may require additional funds to respond to business challenges, including the need to develop new products and enhancements to our platform, improve our operating infrastructure, or acquire complementary businesses and technologies. Our
need for additional capital will be exacerbated to the extent a significant number of Public Shareholders redeem their Public Shares in connection with the Business Combination. The failure to raise additional capital or generate the significant
capital necessary to expand our operations and invest in new products and solutions could reduce our ability to compete and could harm our business. Accordingly, we may need to engage in additional equity or debt financings to secure additional
funds. If we raise additional equity financing, shareholders may experience significant dilution of their ownership interests and the market price of the New ZeroFox Common Stock could decline. If we engage in debt financing, the holders of debt
would have priority over the holders of the New ZeroFox Common Stock, and we may be required to accept terms that restrict our operations or our ability to incur additional indebtedness or to take other actions that would otherwise be in the
interests of the debt holders. Any of the above could harm our business, results of operations and financial condition.
Future acquisitions, strategic investments,
partnerships, or alliances could be difficult to identify and integrate, divert the attention of key management personnel, disrupt our business, dilute shareholder value, and adversely affect our results of operations and financial condition.
As part of our business strategy, we have in the past and expect to
continue to make investments in and/or acquire complementary businesses and assets. Our ability as an organization to acquire and integrate other companies, services, or technologies in a successful manner in the future is not guaranteed. We may
not be able to find suitable acquisition candidates, and we may not be able to complete such acquisitions on favorable terms, if at all. If we do complete acquisitions or strategic investments, we may not ultimately strengthen our competitive
position or ability to achieve our business objectives, and any acquisitions or investments we complete could be viewed negatively by our end-customers or investors. In addition, our due diligence may fail to identify all the problems,
liabilities or other shortcomings or challenges of an acquired business, product, or technology, including issues related to intellectual property, product quality or product architecture, regulatory compliance practices, revenue recognition or
other accounting practices or issues with employees or customers. If we are unsuccessful at integrating such acquisitions, or the technologies associated with such acquisitions, into our company, the revenue, and results of operations of the
Company could be adversely affected. Any integration process may require significant time and resources, and we may not be able to manage the process successfully. We may not successfully evaluate or utilize the acquired technology or personnel,
or accurately forecast the financial impact of an acquisition transaction, including accounting charges. We may have to pay cash, incur debt
79
or issue equity securities to pay for any such acquisition, each of which could
adversely affect our financial condition and the market price of New ZeroFox Common Stock. The sale of equity or issuance of debt to finance any such acquisitions could result in dilution to our shareholders. The incurrence of indebtedness would
result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations.
Additional risks we may face in connection with acquisitions include:
|
•
|
diversion of management time and focus from operating our business to addressing acquisition integration challenges;
|
|
•
|
coordination of research and development and sales and marketing functions
|
|
•
|
integration of product and service offerings;
|
|
•
|
retention of key employees from the acquired company;
|
|
•
|
changes in relationships with strategic partners as a result of product acquisitions or strategic positioning resulting from the
acquisition;
|
|
•
|
cultural challenges associated with integrating employees from the acquired company into our organization;
|
|
•
|
integration of the acquired company’s accounting, management information, human resources and other administrative systems;
|
|
•
|
the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may have lacked
sufficiently effective controls, procedures and policies;
|
|
•
|
additional legal, regulatory or compliance requirements;
|
|
•
|
financial reporting, revenue recognition or other financial or control deficiencies of the acquired company that we do not
adequately address and that cause our reported results to be incorrect;
|
|
•
|
liability for activities of the acquired company before the acquisition, including intellectual property infringement claims,
violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities;
|
|
•
|
unanticipated write-offs or charges; and
|
|
•
|
litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former
shareholders or other third parties.
|
Our failure to address these risks or other problems encountered in
connection with acquisitions and investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities, and harm our business generally.
ZeroFox identified a material weakness in
its internal control over financial reporting and we may identify additional material weaknesses in the future or otherwise fail to maintain effective internal control over financial reporting, which may result in material misstatements of our
financial statements or cause us to fail to meet our periodic reporting obligations. This material weakness could adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner.
Our 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. Our
management is likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses identified through such evaluation in 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 our annual or interim financial statements will not be prevented or
detected on a timely basis. If we conclude that a material weakness occurred or is occurring, we expect to evaluate and pursue steps to remediate the material weakness. These remediation measures may be time consuming and costly and there is no
assurance that these initiatives will ultimately have the intended effects.
80
In connection with the preparation and audit of ZeroFox’s
financial statements for its fiscal year ended January 31, 2022, a material weakness was identified in its internal control over financial reporting. While we added accounting and financial reporting personnel with requisite technical knowledge
and experience in GAAP and SEC rules, we continue to add financial reporting personnel and finalizing our processes and procedures, establishing clear authorities and approvals and segregating duties to facilitate accurate and timely financial
reporting.
We are implementing a remediation plan, which includes adding
additional resources as well as improving the control environment around financial systems and processes. In fiscal year 2022, we completed the following remedial actions:
|
•
|
hired additional full-time accounting personnel with appropriate levels of experience, and augmented skills gaps with external
advisors;
|
|
•
|
established and implemented controls surrounding the approval of transactions, related to, but not limited to, review of
routine and non-standard transactions and certain monitoring controls; and
|
|
•
|
selected and began implementing a financial accounting system to support effective internal controls over financial reporting
as well as the anticipated growth of the business.
|
There can be no assurance that the actions we already have completed
coupled with the additional actions we have planned under our remediation plan will be sufficient to remediate the material weakness identified and strengthen our internal control over financial reporting. The actions we are taking are subject
to ongoing senior management review, as well as Audit Committee oversight.
Any failure to maintain such internal control could adversely impact
our ability to report our financial position and results of operations on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our financial
statements are not filed on a timely basis, we could be subject to sanctions or investigations by the stock exchange on which New ZeroFox Common Stock is listed, the SEC or other regulatory authorities. In either case, there could result a
material adverse effect on our business. Failure to timely file will cause us to be ineligible to utilize short form registration statements on Form S-3, which may impair our ability to obtain capital in a timely fashion to execute our business
strategies or issue shares to effect an acquisition. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
We can give no assurance that any additional material weaknesses or
resulting 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 we are successful in
strengthening our 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 our financial statements.
IDX identified a material weakness in its
internal control over financial reporting, and may identify additional material weaknesses in its internal control over financial reporting.
IDX’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. 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 material misstatements of annual or interim financial statements will not be prevented or
detected on a timely basis.
In connection with the preparation and audit of IDX’s financial
statements, a material weakness was identified in its internal control over financial reporting related to IDX not maintaining adequate controls over the review of the valuation of its common stock as of December 31, 2021. Specifically, the
valuation did not include all known or knowable information available to determine the value of the potential transaction outcome.
Any failure to maintain adequate internal control could adversely
affect IDX’s ability to report its financial position and results of operations on a timely and accurate basis. If its financial statements are not accurate, investors may not have a complete understanding of its or New ZeroFox’s operations.
81
We can give no assurance that any additional material weaknesses
or restatements of financial results will not arise or be identified before the Business Combination, due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls.
Our ability to use our net operating loss
carryforwards and certain other tax attributes may be limited.
As of January 31, 2022, ZeroFox had aggregate U.S. federal and state
net operating loss carryforwards, or NOLs, of $101.9 million, which may be available to offset future taxable income for income tax purposes, and portions of which expire in various years. A lack of future taxable income would adversely affect
our ability to utilize these NOLs before they expire. Under the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), as modified by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), federal NOLs incurred in tax years beginning after December 31, 2017 may be carried forward indefinitely, but the deductibility of such federal NOLs in tax years beginning after December
31, 2020 is limited to 80% of taxable income. It is uncertain if and to what extent various states will conform to the Tax Act or the CARES Act.
In addition, under Section 382 of the Code, a corporation that
undergoes an “ownership change” (as defined under Sections 382 and 383 of the Code and applicable Treasury Regulations) is subject to limitations on its ability to utilize its pre-change NOLs and certain other tax attributes to offset
post-change taxable income or taxes. We may experience a future ownership change under Section 382 of the Code that could affect our ability to utilize our NOLs to offset our income. Furthermore, our ability to utilize NOLs of companies that we
have acquired or may acquire in the future may be subject to limitations. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state
taxes owed. For these reasons, we may not be able to utilize a material portion of the NOLs reflected on our balance sheet, even if we attain profitability, which could potentially result in increased future tax liability to us and could
adversely affect our operating results and financial condition.
Taxing authorities may successfully assert that
we should have collected, or in the future should collect, sales and use, value-added or similar taxes, and we could be subject to liability with respect to past or future sales, which could adversely affect our results of operations.
We do not collect sales and use, value added or similar taxes in all
jurisdictions in which we have sales because we have been advised that such taxes are not applicable to our services in those jurisdictions. Sales and use, value added, and similar tax laws and rates vary greatly by jurisdiction. Certain
jurisdictions in which we do not collect such taxes may assert that such taxes are applicable, which could result in tax assessments, penalties, and interest, to us or our customers for the past amounts, and we may be required to collect such
taxes in the future. If we are unsuccessful in collecting such taxes from our customers, we could be held liable for such costs, which would adversely affect our results of operations.
Prior to January 1, 2022, IDX did not collect sales and use tax from
its customers for its services. During 2020, IDX engaged an external tax consultant to perform a full sales tax nexus study and analysis. IDX has accrued and reflected historical liabilities in its financial statements, and IDX is in the process
of filing Voluntary Disclosure Agreements (VDA) in relevant jurisdictions, and will be remitting liabilities accordingly. As of January 1, 2022, IDX collects, reports, and remits appropriate sales tax from its customers in all applicable
jurisdictions.
Our goodwill and identifiable intangible assets
could become impaired, which could reduce the value of our assets and reduce our net income in the year in which the write-off occurs.
Goodwill represents the excess of the cost of an acquisition over the
fair value of the net assets acquired. We also ascribe value to certain identifiable intangible assets, which consist primarily of customer relationships, developed technology and trade names, among others, as a result of acquisitions. We may
incur impairment charges on goodwill or identifiable intangible assets if we determine that the fair values of goodwill or identifiable intangible assets are less than their current carrying values. We evaluate, on a regular basis, whether events
or circumstances have occurred that indicate all, or a portion, of the carrying amount of goodwill may no longer be recoverable, in which case an impairment charge to earnings would become necessary.
A decline in general economic conditions or global equity valuations
could impact the judgments and assumptions about the fair value of our business and we could be required to record impairment charges on our goodwill or other identifiable intangible assets in the future, which could impact our consolidated
balance sheet, as well as our consolidated statement of comprehensive loss.
82
If our estimates or judgments relating to our
critical accounting policies prove to be incorrect or financial reporting standards or interpretations change, our results of operations could be adversely affected.
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We have historically based our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances as discussed in the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of ZeroFox” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations of IDX.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily
apparent from other sources. Significant assumptions and estimates used in our consolidated financial statements will include, and may include in the future, those related to revenue recognition; valuation of intangibles in purchase accounting;
allowance for doubtful accounts; costs to obtain or fulfill a contract; valuation of common stock; carrying value and useful lives of long-lived assets; loss contingencies; and the provision for income taxes and related deferred taxes. Our
operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of industry or financial analysts and
investors, resulting in a decline in the market price of the New ZeroFox Common Stock.
Additionally, we will regularly monitor our compliance with applicable
financial reporting standards and review new pronouncements and drafts thereof that are relevant to us. As a result of new standards, changes to existing standards and changes in their interpretation, we might be required to change our accounting
policies, alter our operational policies and implement new or enhance existing systems so that they reflect new or amended financial reporting standards, or we may be required to restate our published financial statements. Such changes to
existing standards or changes in their interpretation may have an adverse effect on our reputation, business, financial position and profit, or cause an adverse deviation from our revenue and operating profit targets, which may negatively impact
our financial results.
Risks Related to Legal and Regulatory Matters
Failure to adequately obtain, maintain, protect,
and enforce our intellectual property and other proprietary rights could adversely affect our business.
Our success and ability to compete depends in part on our ability to
protect the proprietary information, methods, software, and technologies that we develop, hold, or claim under a combination of intellectual property and proprietary rights in and outside the U.S. Despite our efforts, third parties may still
attempt to disclose, obtain, copy, use or otherwise exploit our intellectual property or other proprietary information, methods or technologies without our authorization, and our efforts to protect our intellectual property and other proprietary
rights may not prevent such unauthorized disclosure, use, exploitation, misappropriation, infringement, reverse engineering or other violation of our intellectual property or other proprietary rights. Further, effective protection of our rights
may not be available to us in every country in which our platform or products and solutions are available. The laws of some countries also may not be as protective of intellectual property and other proprietary rights as those in the U.S., and
mechanisms for enforcement of intellectual property and other proprietary rights may be inadequate. In addition, we may need to license our intellectual property in order to participate in patent pools or industry standard setting activities or
to receive third-party grants as a part of stand-alone licensing arrangements. Accordingly, despite our efforts, we may be unable to prevent third parties from using our intellectual property or other proprietary information or technology.
While we hold a number of issued patents and have a number of pending
patent applications, we may be unable to obtain patent protection for the technology covered in our patent applications or such patent protection may not be obtained quickly enough to meet our business needs. Furthermore, the patent prosecution
process is expensive, time-consuming, and complex, and we may not be able to prepare, file, prosecute, maintain, and enforce all necessary or desirable patent applications at a reasonable cost or in a timely manner. The scope of patent protection
also can be reinterpreted after issuance and issued patents may be invalidated. Even if our patent applications do issue as patents, they may not issue in a form that is sufficiently broad to protect our technology, prevent competitors or other
third parties from competing with us, or otherwise provide us with any competitive advantage. In addition, any of our patents, copyrights, trademarks, or other proprietary rights may be challenged, narrowed, invalidated, held unenforceable, or
circumvented in litigation or other proceedings,
83
including, where applicable, opposition, re-examination, inter partes review,
post-grant review, interference, nullification and derivation proceedings, and equivalent proceedings in foreign jurisdictions, and such intellectual property or other proprietary rights may be lost or no longer provide us meaningful competitive
advantages. Such proceedings may result in substantial cost and require significant time from our management, even if the eventual outcome is favorable to us. Third parties also may legitimately and independently develop solutions, services, and
technology similar or duplicative of our platform.
Besides protection under intellectual property laws, we enforce and
protect our rights through confidentiality or license agreements that we generally enter into with our corporate partners, employees, consultants, advisors, vendors, and customers. We generally limit access to our intellectual property and
control access to our proprietary information. However, we cannot guarantee protection of our intellectual property or proprietary information with all of the parties who may have or have had access, and we cannot guarantee that such agreements
we have entered into will not be breached or challenged, or that such breaches will be detected. Furthermore, non-disclosure provisions within such agreements can be difficult to enforce, and even if successfully enforced, may not be entirely
effective.
Despite our efforts, we cannot guarantee that any of the measures we
have taken will limit the unauthorized use of our proprietary information or prevent infringement, misappropriation, or other violation of our technology or other intellectual property or proprietary rights. We may be an attractive target for
cyberattacks or other unauthorized intrusion or access, and we may also have a heightened risk of unauthorized access to, and misappropriation of, our proprietary and competitively sensitive information. We therefore may be required to spend
significant resources to monitor and protect our intellectual property and other proprietary rights, and we may conclude that in at least some instances the benefits of protecting our intellectual property or other proprietary rights may be
outweighed by the expense or distraction to our management. We may initiate claims or litigation against third parties for infringement, misappropriation, or other violation of our intellectual property or other proprietary rights or to establish
the validity of our intellectual property or other proprietary rights. Any such claims or litigation, whether or not it is resolved in our favor, could be time-consuming, result in significant expense to us and divert the efforts of our technical
and management personnel. Furthermore, attempts to enforce our intellectual property rights against third parties could also provoke these third parties to assert their own intellectual property or other rights against us, or result in a holding
that invalidates or narrows the scope of our intellectual property rights, in whole or in part.
Claims by others that we infringe their
proprietary technology or other intellectual property rights could result in significant costs and substantially harm our business, financial condition, results of operations, and prospects.
Claims by others that we infringe their intellectual property rights
or violate other rights in their proprietary technology could harm our business. Companies in our industry hold a large number of patents and also protect their copyright, trade secret and other intellectual property rights, and companies in
the security industry frequently enter into litigation based on allegations of patent infringement or other violations of intellectual property rights. As we face increasing competition and grow, the possibility of intellectual property rights
claims against us also grows. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that such personnel have divulged proprietary or other confidential information to us.
Third parties may in the future also assert claims against our
customers or channel partners, whom our standard license and other agreements obligate us to indemnify against third-party claims that our products and solutions infringe the intellectual property rights of third parties. As the number of
products and competitors in the security and IT operations market increases and overlaps occur, third-party claims of infringement, misappropriation, and other violations of intellectual property rights may also increase. While we intend to
increase the size of our patent portfolio, many of our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have. In addition, future litigation may involve non-practicing entities,
companies or other patent owners who have no relevant product offerings or revenue and against whom our own patents may therefore provide little or no deterrence or protection. Any claim of intellectual property infringement by a third party,
even a claim without merit, could cause us to incur substantial costs defending against such claim, could distract our management from our business and could require us to cease use of such intellectual property.
Additionally, our insurance policies may not cover intellectual
property infringement claims. In the event that we fail to successfully defend ourselves against an infringement claim, a successful claimant could secure a judgment or otherwise require payment of legal fees, settlement payments, ongoing
royalties or other costs or
84
damages; we may agree to a settlement that prevents us from offering certain services
or features; or we may be required to obtain a license, which may not be available on reasonable terms, or at all, to use the relevant technology. If we are prevented from using certain technology or intellectual property, we may be required to
develop alternative, non-infringing technology, which could require significant time and costs, during which we could be unable to continue to offer our affected products and services or features, and may ultimately not be successful. Any of
these events could harm our business, financial condition and results of operations.
Although third parties may alternatively offer a license to their
technology or other intellectual property, the terms of any such license may not be acceptable, and the failure to obtain a license or the costs associated with any license could cause our business, financial condition and results of operations
to be adversely affected. In addition, some licenses may be nonexclusive, and therefore our competitors may have access to the same technology licensed to us.
Some of our technologies incorporate
“open-source” software, which could negatively affect our ability to sell our platform and subject us to possible litigation.
Our platform and subscriptions contain third-party open-source software
components, and failure to comply with the terms of the underlying open-source software licenses could restrict our ability to sell our platform and services. The use and distribution of open-source software may also entail greater risks than the
use of third-party commercial software, as open-source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code. Many of the risks associated with use of open-source
software cannot be eliminated and could negatively affect our business. In addition, the wide availability of open code used in our solutions could expose us to security vulnerabilities.
Certain open-source licenses may contain requirements that we make
available source code for the modifications or derivative works we create based upon the type of open-source software used. If we combine our proprietary software with such open-source software, under such open-source licenses, we may be required
to release the source code of our proprietary software to the public, including authorizing further modification and redistribution, or otherwise be limited in the licensing of our services, each of which could provide an advantage to our
competitors or other entrants to the market, create security vulnerabilities in our solutions, require us to re-engineer all or a portion of our platform, and could reduce or eliminate the value of our services. This would allow our competitors
to create similar products with lower development effort and time and ultimately could result in a loss of sales for us.
The terms of many open-source licenses have not been interpreted by
U.S. courts, and there is a risk that these licenses could be construed in ways that could impose unanticipated conditions or restrictions on our ability to commercialize products, solutions and subscriptions incorporating such software.
Moreover, we cannot assure you that the Company’s processes for controlling its use of open-source software in its products, solutions and subscriptions has been or will be effective. From time to time, the Company may face claims from third
parties asserting ownership of, or demanding release of, the open-source software or derivative works that we developed using such software (which could include our proprietary source code), or otherwise seeking to enforce the terms of the
applicable open-source license. These claims could result in litigation that could be costly to defend, have a negative effect on our operating results and financial condition or require us to devote additional research and development
resources to change our solutions. Responding to any infringement or noncompliance claim by an open-source vendor, regardless of its validity, discovering certain open-source software code in our platform, or a finding that we have breached the
terms of an open-source software license, could harm our business, results of operations and financial condition, by, among other things:
|
•
|
resulting in time-consuming and costly litigation;
|
|
•
|
diverting management’s time and attention from developing our business;
|
|
•
|
requiring us to pay monetary damages or enter into royalty and licensing agreements that we would not normally find acceptable;
|
|
•
|
causing delays in the deployment of our platform or service offerings to our customers;
|
|
•
|
requiring us to stop offering certain services or features of our platform;
|
|
•
|
requiring us to redesign certain components of our platform using alternative non-infringing or non-open-source technology, which
could require significant effort and expense;
|
|
•
|
requiring us to disclose our proprietary software source code and the detailed program commands for our software;
|
85
|
•
|
prohibiting us from charging license fees for the proprietary software that uses certain open source; and
|
|
•
|
requiring us to satisfy indemnification obligations to our customers.
|
We may become involved in litigation that may
adversely affect us.
We may become subject to claims, suits, and government
investigations and other proceedings including patent, product liability, class action, whistleblower, personal injury, property damage, labor and employment (including all allegations of wage and hour violations), commercial disputes,
compliance with laws and regulatory requirements and other matters, and we may become subject to additional types of claims, suits, investigations and proceedings as our business develops. Such claims, suits, and government investigations and
proceedings are inherently uncertain, and their results cannot be predicted. Regardless of the outcome, any of these types of legal proceedings can have an adverse impact on us because of legal costs and diversion of management attention and
resources and could cause us to incur significant expenses or liability, adversely affect our brand recognition, and/or require us to change our business practices. The expense of litigation and the timing of this expense from period to period
are difficult to estimate, subject to change and could adversely affect our results of operations. It is possible that a resolution of one or more such proceedings could result in substantial damages, settlement costs, fines and penalties that
could adversely affect our business, consolidated financial position, results of operations, or cash flows in a particular period. These proceedings could also result in reputational harm, sanctions, consent decrees, or orders requiring a
change in our business practices. Because of the potential risks, expenses, and uncertainties of litigation, we may, from time to time, settle disputes, even where we have meritorious claims or defenses, by agreeing to settlement agreements.
Because litigation is inherently unpredictable, we cannot assure you that the results of any of these actions will not have a material adverse effect on our business, financial condition, results of operations, and prospects. Any of these
consequences could adversely affect our business and results of operations.
If we are not able to satisfy data protection,
security, privacy, and other government- and industry-specific requirements or regulations, our business, results of operations, and financial condition could be harmed.
Personal privacy, data protection, information security regulations,
and other laws applicable to specific categories of information raise significant issues in the U.S., Europe and in other jurisdictions where we offer our products and solutions. The data that we collect, analyze, and store is subject to a
variety of laws and regulations, including regulation by various government agencies. The U.S. federal government, and various state and foreign governments, have adopted or proposed limitations on the collection, distribution, use, retention,
protection, transfer, processing, and storage of certain categories of information, such as the personal information of individuals. These laws and regulations include, but are not limited to, the Federal Trade Commission Act, the Computer
Fraud and Abuse Act, the Health Insurance Portability and Accountability Act, and the Gramm-Leach-Bliley Act.
The nature of cybersecurity product and service offerings requires
the collection of various types of data. In the operation of our business we may collect the types of data covered by these laws and regulations including personally identifiable information, such as information about an individual's health and
financial information about individuals. To the extent we are in possession of such data and these various laws and regulations are determined to apply to us, this could require us to adopt additional operational, technological and security
measures to protect and manage such information which could increase our costs of operations. Our failure to comply with such laws and regulations could also result in monetary fines and reputational damage which would have a negative impact on
our business. Laws and regulations outside the U.S., and particularly in Europe, often are more restrictive than those in the U.S. Applicable laws and regulations may require us to implement privacy and security policies, permit customers to
access, correct, and delete personal information stored or maintained by us, inform individuals of security breaches that affect their personal information, and, in some cases, obtain individuals’ consents to use personal information for
certain purposes. In addition, some foreign governments require that personal information collected in a country not be disseminated outside of that country without consent or other implemented safeguards.
We may find it necessary or desirable to join industry or other
self-regulatory bodies or other information security or data protection-related organizations that require compliance with their rules pertaining to information security and data protection. We also may be bound by additional, more stringent
contractual obligations with our customers and partners relating to our collection, use and disclosure of personal, financial, and other data. We
86
expect that there will continue to be new proposed laws, regulations, and industry
standards concerning privacy, data protection, information security, specific categories of data, and electronic services in the U.S., the European Union, and other jurisdictions in which we operate or may operate, and we cannot yet determine
the impact such future laws, regulations, standards, or perception of their requirements may have on our business.
For example, the European Union General Data Protection Regulation,
or GDPR, applies to the processing (which includes the collection and use) of certain personal data of data subjects in the European Economic Area, or EEA. As compared to previously effective data protection law in the European Union, the GDPR
imposes additional obligations and resulting risk upon our business and increases substantially the penalties to which we could be subject in the event of any non-compliance. Administrative fines under the GDPR can amount to 20,000,000 Euros or
four percent of our worldwide annual revenue for the prior fiscal year, whichever is higher. We may be required to incur, in the future, substantial expense in complying with the obligations imposed by the GDPR, potentially making significant
changes in our business operations, which may adversely affect our revenue and our business overall. Additionally, because there have been very few GDPR actions enforced against companies similar to ours, we are unable to predict how they will
be applied to us or our customers. Despite our efforts to comply with the GDPR, a regulator may determine that we have not done so and subject us to fines and public censure, which could harm our company financially and negatively affect our
reputation. Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have been found to not provide adequate protection to such personal data, including the U.S. We have undertaken
certain efforts to conform transfers of personal data from the EEA to the U.S. and other jurisdictions based on our understanding of current regulatory obligations and the guidance of data protection authorities. Despite this, we may be
unsuccessful in establishing or maintaining conforming means of transferring such data from the EEA, in particular because of continued legal and legislative activity within the European Union that has challenged or called into question the
legal basis for existing means of data transfers to countries (including the U.S.) that have been found to not provide adequate protection for personal data.
The implementation of the GDPR has led other jurisdictions to either
amend existing laws or propose new data privacy and cybersecurity laws to resemble all or a portion of the requirements of the GDPR (e.g., for purposes of having an adequate level of data protection to facilitate data transfers from the EU).
Accordingly, the challenges we face in the EU will likely also apply to other jurisdictions outside the EU that adopt laws similar to the GDPR or regulatory frameworks of equivalent complexity. For example, the California Consumer Privacy Act
of 2018, or CCPA, became enforceable on July 1, 2020. The CCPA has been characterized as the first “GDPR-like” privacy statute to be enacted in the U.S. because it contains several provisions similar to certain provisions of the GDPR. In
addition, the California Privacy Rights Act of 2020, or the CPRA, was passed by California voters in November 2020. The CPRA amends the CCPA by creating additional privacy rights for California consumers and additional obligations on
businesses, which could subject us to additional compliance costs as well as potential fines, individual claims, and commercial liabilities. The majority of the CPRA provisions will take effect on January 1, 2023. The CCPA and CPRA could mark
the beginning of a trend toward more stringent privacy legislation in the U.S., as other states or the federal government may follow California’s lead and increase protections for U.S. residents. For example, on March 2, 2021, the Virginia
Consumer Data Protection Act, which will take effect on January 1, 2023, was signed into law. The CCPA has already prompted several proposals for new federal and state privacy legislation that, if passed, could increase our potential liability,
add layers of complexity to compliance in the U.S. market, increase our compliance costs and adversely affect our business.
Evolving and changing definitions of personal data and personal
information within the European Union, the U.S., and elsewhere, especially relating to classification of IP addresses, machine identification, location data and other information, may limit or inhibit our ability to operate or expand our
business, including limiting technology alliance partnerships with other security vendors that may involve the sharing of data. Even the perception of privacy concerns, whether or not valid, may harm our reputation, inhibit adoption of our
products by current and future customers, or adversely impact our ability to attract and retain workforce talent. In addition, changes in laws or regulations that adversely affect the use of the internet, including laws impacting net neutrality,
could impact our business. We expect that existing laws, regulations and standards may be interpreted in new manners in the future. Future laws, regulations, standards and other obligations, and changes in the interpretation of existing laws,
regulations, standards and other obligations could require us to modify our products and solutions, restrict our business operations, increase our costs and impair our ability to maintain and grow our customer base and increase our revenue.
87
Beyond broader data processing regulations affecting our business,
the overall cybersecurity industry may face direct regulation. For example, in 2018, Singapore introduced what is believed to be the world’s first cybersecurity licensing requirement, mandating that providers of specific types of incident
response services receive a government license before providing such services. License requirements such as these may impose upon us significant organizational costs and high barriers of entry into new markets.
Although we have worked and will continue to work to comply with
applicable laws and regulations, applicable industry standards with which we represent compliance, and our contractual obligations, such laws, regulations, standards, and obligations are evolving and may be modified, interpreted and applied in
an inconsistent manner from one jurisdiction to another, and may conflict with one another. In addition, they may conflict with other requirements or legal obligations that apply to our business or the security features and services that our
customers expect from our solutions. As such, we cannot assure ongoing compliance with all such laws, regulations, standards, and obligations which may change in the future. Any failure or perceived failure by us or our employees,
representatives, contractors, channel partners, agents, intermediaries, or other third parties to comply with applicable laws and regulations, or applicable industry standards that we represent compliance with or that may be asserted to apply
to us, or to comply with employee, customer, partner, and other data privacy and data security requirements pursuant to contract and our stated notices or policies, could result in enforcement actions against us, including fines, imprisonment
of company officials and public censure, claims for damages by customers and other affected individuals, damage to our reputation and loss of goodwill (both in relation to existing customers and prospective customers), any of which could have a
material adverse effect on our operations, financial performance and business. Any inability of us or our employees, representatives, contractors, channel partners, agents, intermediaries, or other third parties to adequately address privacy
and security concerns, even if unfounded, or comply with applicable laws, regulations, standards, and obligations, could result in additional cost and liability to us, damage our reputation, inhibit sales, and adversely affect our business and
results of operations.
We are subject to laws and regulations, including
governmental export and import controls, sanctions, foreign investment screening, and anti-corruption laws, that could impair our ability to compete in our markets and subject us to liability if we are not in full compliance with applicable laws.
We are subject to laws and regulations, including governmental
export controls, that could subject us to liability or impair our ability to compete in our markets. Our products and solutions are subject to U.S. export controls, including the U.S. Department of Commerce’s Export Administration Regulations,
and we and our employees, representatives, contractors, agents, intermediaries, and other third parties are also subject to various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets
Control. We incorporate standard encryption algorithms into our products, which, along with the underlying technology, may be exported outside of the U.S. only with the required export authorizations, including by license, license exception or
other appropriate government authorizations, which may require the filing of an encryption registration and classification request. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain cloud-based
solutions to countries, governments, and persons targeted by U.S. sanctions. We also collect information about cyber threats from internet-accessible, and non-internet routable sources, intermediaries, and third parties that we make available
to our customers in our threat industry publications. While we have implemented certain procedures to facilitate compliance with applicable laws and regulations in connection with the collection of this information, we cannot assure you that
these procedures have been effective or that we, or third parties, many of whom we do not control, have complied with all laws or regulations in this regard. Failure by our employees, representatives, contractors, channel partners, agents,
intermediaries, or other third parties to comply with applicable laws and regulations in the collection of this information also could have negative consequences to us, including reputational harm, government investigations and penalties.
Although we take precautions to prevent our information collection
practices and services from being provided in violation of such laws, our information collection practices and services may have been in the past, and could in the future be, provided in violation of such laws. If we or our employees,
representatives, contractors, channel partners, agents, intermediaries, or other third parties fail to comply with these laws and regulations, we could be subject to civil or criminal penalties, including the possible loss of export privileges
and fines. We may also be adversely affected through reputational harm, loss of access to certain markets, or otherwise. Obtaining the necessary authorizations, including any required license, for a particular transaction may be time-consuming,
is not guaranteed and may result in the delay or loss of sales opportunities.
88
Various countries regulate the import of certain encryption
technology, including through import permit and license requirements, and have enacted laws that could limit our ability to distribute our products or could limit our customers’ ability to implement our products in those countries. Changes in our
products and solutions or changes in export and import regulations may create delays in the introduction of our products and solutions into international markets, prevent our customers with international operations from deploying our products and
solutions globally or, in some cases, prevent the export or import of our products and solutions to certain countries, governments or persons altogether. Any change in export or import regulations, economic sanctions or related legislation, shift
in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our products and solutions by, or in our decreased ability to
export or sell our products and solutions to, existing or potential customers with international operations. Any decreased use of our products and solutions or limitation on our ability to export or sell our products and solutions would likely
adversely affect our business, results of operations, and financial condition.
We may be subject to review and enforcement under domestic and foreign
laws that screen investment and to other national-security-related laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than in the United States and may impact cybersecurity providers more
specifically. As a result of these laws, investments by certain investors may impose added costs on our business, impact our operations, and/or limit our ability to engage in strategic transactions that might otherwise be beneficial to us and our
investors.
We are also subject to the FCPA, the U.K. Anti-Bribery Act, and
other anti-corruption, sanctions, anti-bribery, anti-money laundering and similar laws in the U.S. and other countries in which we conduct activities. Anti-corruption and anti-bribery laws, which have been enforced aggressively and are
interpreted broadly, prohibit companies and their employees, agents, intermediaries, and other third parties from promising, authorizing, making or offering improper payments or other benefits to government officials and others in the private
sector. We leverage third parties, including intermediaries, agents, and channel partners, to conduct our business in the U.S. and abroad, to sell subscriptions to our platform and to collect information about cyber threats. We and these third
parties may have direct or indirect interactions with officials and employees of government agencies, or state-owned or affiliated entities and we may be held liable for the corrupt or other illegal activities of these third-party business
partners and intermediaries, our employees, representatives, contractors, channel partners, agents, intermediaries, and other third parties, even if we do not explicitly authorize such activities. While we have policies and procedures to
address compliance with the FCPA, the U.K. Anti-Bribery Act and other anti-corruption, sanctions, anti-bribery, anti-money laundering and similar laws, we cannot assure you that they will be effective, or that all of our employees,
representatives, contractors, channel partners, agents, intermediaries, or other third parties have not taken, or will not take actions, in violation of our policies and applicable law, for which we may be ultimately held responsible. As we
increase our international sales and business, our risks under these laws may increase. Noncompliance with these laws could subject us to investigations, severe criminal or civil sanctions, settlements, prosecution, loss of export privileges,
suspension or debarment from U.S. government contracts, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, whistleblower complaints, adverse media coverage and
other consequences. Any investigations, actions or sanctions could harm our reputation, business, results of operations and financial condition.
Risks Related to the Business Combination and Integration of ZeroFox
and IDX
The integration of the two companies with
different organization and compensation structures presents significant management challenges. There can be no assurance that this integration, and the synergies expected to result from that integration, will be achieved as rapidly or to the
extent currently anticipated.
The Business Combination involves the integration of two businesses
that currently operate as independent businesses. ZeroFox and IDX will be required to devote management attention and resources to integrating their business practices and operations following the Closing, and prior to the Business Combination,
management
89
attention and resources will be required to plan for such integration. We may encounter
potential difficulties in the integration process including the following:
|
•
|
the inability to successfully integrate our businesses, including operations, technologies, products and services, in a manner
that permits the Company to achieve the cost savings and operating synergies anticipated to result from the Business Combination, which could result in the anticipated benefits of the Business Combination not being realized partly or
wholly in the time frame currently anticipated or at all;
|
|
•
|
the loss of customers as a result of certain customers of either or both of the two businesses deciding not to continue to do
business with ZeroFox or IDX, or deciding to decrease their amount of business in order to reduce their reliance on a single company;
|
|
•
|
the necessity of coordinating geographically separated organizations, systems and facilities;
|
|
•
|
potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the Business Combination;
|
|
•
|
the integration of personnel, including sales teams, with diverse business backgrounds and business cultures, while maintaining
focus on providing consistent, high-quality products and services;
|
|
•
|
the consolidation and rationalization of information technology platforms and administrative infrastructures as well as accounting
systems and related financial reporting activities; and
|
|
•
|
the challenge of preserving important relationships of both ZeroFox and IDX and resolving potential conflicts that may arise.
|
Furthermore, it is possible that the integration process could result
in the loss of talented employees or skilled workers of ZeroFox and IDX. The loss of talented employees and skilled workers could adversely affect our ability to successfully conduct the business of ZeroFox and IDX because of such employees’
experience and knowledge of the respective business. In addition, we could be adversely affected by the diversion of management’s attention and any delays or difficulties encountered in connection with the integration of ZeroFox and IDX. The
process of integrating operations could cause an interruption of, or loss of momentum in, the activities of the businesses. If we experience difficulties with the integration process, the anticipated benefits of the Business Combination may not
be realized fully or at all, or may take longer to realize than expected. These integration matters could have an adverse effect on our business, results of operations, financial condition or prospects during this transition period and for an
undetermined period after completion of the Business Combination.
ZeroFox’s and IDX’s operations may be
restricted during the pendency of the Business Combination pursuant to terms of the Business Combination Agreement.
Prior to the consummation of the Business Combination, each of ZeroFox
and IDX is subject to customary interim operating covenants relating to carrying on its business in the ordinary course of business and is also subject to customary restrictions on actions that may be taken during such period. As a result, each
of ZeroFox and IDX may be unable, during the pendency of the Business Combination, to make certain acquisitions and capital expenditures, borrow money and otherwise pursue other actions, even if such actions would prove beneficial.
Uncertainty about the effects of the Business
Combination may affect our ability to retain key employees and integrate management structures and may materially impact the management, strategy and results of our operation as a combined company.
Uncertainty about the effects of the Business Combination on ZeroFox’s
and IDX’s business, employees, customers, third parties with whom ZeroFox and IDX have relationships, and other third parties may adversely affect us. These uncertainties may impair our ability to attract, retain and motivate key personnel for a
period of time after the Business Combination. If key employees depart because of issues related to the uncertainty and difficulty of integration or a desire not to remain with the Company, our business could be harmed.
90
Some of ZeroFox’s or IDX’s existing agreements
contain change in control or early termination rights that may be implicated by the Business Combination.
Parties with which ZeroFox or IDX currently do business or may do
business in the future, including customers and suppliers, may experience uncertainty associated with the Business Combination, including with respect to current or future business relationships with ZeroFox, IDX and the Company. As a result, the
business relationships of ZeroFox, IDX and the Company may be subject to disruptions if customers, suppliers or others attempt to negotiate or renegotiate changes in existing business relationships or consider entering into business relationships
with parties other than ZeroFox, IDX and the Company. For example, certain customers, suppliers and third-party providers may have contractual consent rights or termination rights that may be triggered by a change of control. These disruptions
could harm our relationships with existing third parties with whom ZeroFox and IDX have relationships, all of which could have a material adverse effect on our business, financial condition and results of operations, cash flows, and/or share
price of the Company. The effects of such disruptions could be exacerbated by a delay in the consummation of the Business Combination.
Risks Related to Ownership of New ZeroFox Common Stock Following the
Business Combination
All references in this section to “we,” “us” or “our” mean L&F prior
to the Closing and the Company after the Closing, as the context requires. References to the “Company” refer to New ZeroFox and its consolidated subsidiaries subsequent to the Business Combination.
Subsequent to the completion of the Business
Combination, the Company may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on its financial condition and its share price, which could cause you to lose
some or all of your investment.
We cannot assure you that the due diligence we conducted on the Target
Companies will reveal all material issues that may be present with regard to the Target Companies, or that factors outside of our control will not later arise. As a result of unidentified issues or factors outside of our control, we may be forced
to later write-down or write-off assets, restructure operations, or incur impairment or other charges that could result in reporting losses. Even if our due diligence successfully identifies certain risks, unexpected risks may arise and
previously known risks may materialize in a manner not consistent with the preliminary risk analysis conducted by L&F. Even though these charges may be non-cash items that would not have an immediate impact on our liquidity, reporting charges
of this nature could contribute to negative market perceptions about the Company or its securities. In addition, charges of this nature may cause us to violate leverage or other covenants to which we are subject. Accordingly, any shareholders who
choose to remain shareholders following the Business Combination could suffer a reduction in the value of their shares from any such write-down or write-downs.
Our ability to be successful following the
Business Combination will depend upon the efforts of the Company’s Board and the Target Companies’ key personnel and the loss of such persons could negatively impact the operations and profitability of the Company’s business following the
Business Combination.
Our ability to be successful following the Business Combination will be
dependent upon the efforts of the New ZeroFox Board and key personnel and we cannot assure you that, following the Business Combination, our Board and our key personnel will be effective or successful or remain with the Company. In addition to
the other challenges they will face, such individuals may be unfamiliar with the requirements of operating a public company, which could cause our management to expend time and resources becoming familiar with such requirements.
The NYSE or Nasdaq may delist the Company’s
securities from trading on its exchange, which could limit investors’ ability to make transactions in the Company’s securities and subject the Company to additional trading restrictions.
The Class A Ordinary Shares are currently listed on the NYSE and
following the Business Combination, we anticipate that the New ZeroFox Common Stock will be listed on Nasdaq. However, we cannot assure you that our Class A Ordinary Shares will continue to be listed on the NYSE or that the New ZeroFox Common
Stock will be listed on Nasdaq in the future. To continue to maintain the listing of our securities on the NYSE or Nasdaq, we must maintain certain financial, distribution and stock price levels. In addition to the listing requirements for our
Class A Ordinary Shares and the New ZeroFox Common Stock, the NYSE and Nasdaq impose listing standards on warrants. We cannot assure you that the Company will be able to meet those initial listing requirements.
91
If the NYSE delists the Class A Ordinary Shares or Nasdaq delists
the New ZeroFox Common Stock from trading on its exchange and we are not able to list our securities on another national securities exchange, L&F expects the Company’s securities could be quoted on an over-the-counter market. If this were to
occur, the Company could face significant material adverse consequences, including:
|
•
|
a limited availability of market quotations for its securities;
|
|
•
|
reduced liquidity for its securities;
|
|
•
|
a determination that the New ZeroFox Common Stock is a “penny stock” which will require brokers trading in the common stock to
adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for the Company’s securities;
|
|
•
|
a limited amount of news and analyst coverage; and
|
|
•
|
a decreased ability to issue additional securities or obtain additional financing in the future.
|
The Company’s business and operations could be
negatively affected if it becomes subject to any securities litigation or shareholder activism, which could cause the Company to incur significant expense, hinder execution of business and growth strategy and impact its stock price.
In the past, following periods of volatility in the market price of a
company’s securities, securities class action litigation has often been brought against that company. Shareholder activism, which could take many forms or arise in a variety of situations, has been increasing recently. Volatility in the stock
price of the New ZeroFox Common Stock or other reasons may in the future cause it to become the target of securities litigation or shareholder activism. Securities litigation and shareholder activism, including potential proxy contests, could
result in substantial costs and divert management’s and the New ZeroFox Board’s attention and resources from the Company’s business. Additionally, such securities litigation and shareholder activism could give rise to perceived uncertainties as
to the Company’s future, adversely affect its relationships with service providers and make it more difficult to attract and retain qualified personnel. Also, the Company may be required to incur significant legal fees and other expenses related
to any securities litigation and activist shareholder matters. Further, its stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any securities litigation and
shareholder activism.
Future resales of New ZeroFox Common Stock after
the consummation of the Business Combination may cause the market price of the Company’s securities to drop significantly, even if the Company’s business is doing well.
Pursuant to the Registration Rights Agreement, the Sponsor Support
Letter Agreement and the Proposed Bylaws, after the consummation of the Business Combination and subject to certain exceptions, the Sponsor, those receiving shares of New ZeroFox Common Stock as consideration pursuant to the Business Combination
Agreement, directors, officers and employees of the Company receiving shares of New ZeroFox Common Stock upon the settlement or exercise of warrants, stock options or other equity awards, and warrant holders of the Company receiving shares of New
ZeroFox Common Stock upon the settlement or exercise of such warrants (other than holders of the Company’s warrants that are currently listed) will be contractually restricted from selling or transferring any of their shares of New ZeroFox Common
Stock. Such restrictions begin at Closing and end, in the case of the shares that are restricted pursuant to the Registration Rights Agreement and the Proposed Bylaws, on the date that is 180 days after Closing and in the case of the shares
restricted pursuant to the Sponsor Support Letter Agreement, on such dates as are described in the section titled “Proposal No. 2 - The Business Combination
Proposal—Related Agreements.”
However, following the expiration of the applicable lock-up period,
such equity holders will not be restricted from selling shares of the New ZeroFox Common Stock held by them, other than by applicable securities laws. As such, sales of a substantial number of shares of New ZeroFox 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 New ZeroFox Common Stock. As restrictions on resale end and
registration statements (filed after the Closing to provide for the resale of such shares from time to time) are available for use, the sale or possibility of sale of these shares could have the effect of increasing the volatility in the
Company’s share price or the market price of the New ZeroFox Common Stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.
92
The market price of shares of the New ZeroFox
Common Stock may be volatile, which could cause the value of shareholder investments to decline.
Even if an active trading market develops following the Business
Combination, the market price of the New ZeroFox Common Stock may be highly volatile and could be subject to wide fluctuations. Securities markets worldwide experience significant price and volume fluctuations. The securities markets have
experienced significant volatility as a result of the COVID-19 pandemic. Market volatility, as well as general economic, market or political conditions, could reduce the market price of shares of the New ZeroFox Common Stock regardless of its
operating performance.
In addition, the Company’s operating results could be below the
expectations of public market analysts and investors due to a number of potential factors, including:
|
•
|
variations in quarterly operating results or dividends, if any, to shareholders;
|
|
•
|
additions or departures of key management personnel;
|
|
•
|
publication of research reports about the Company’s industry;
|
|
•
|
litigation and government investigations;
|
|
•
|
changes or proposed changes in laws or regulations or differing interpretations or enforcement of laws or regulations affecting
the Company’s business;
|
|
•
|
adverse market reaction to any indebtedness incurred or securities issued in the future;
|
|
•
|
changes in market valuations of similar companies;
|
|
•
|
adverse publicity or speculation in the press or investment community;
|
|
•
|
announcements by competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures, or
capital commitments; and
|
|
•
|
the impact of the COVID-19 pandemic (or future pandemics) on the Company’s management, employees, partners, customers, and
operating results.
|
In response to any of the foregoing developments, the market price of
shares of the New ZeroFox Common Stock could decrease significantly. You may be unable to resell your shares at or above your purchase price.
Following periods of volatility in the overall market and the market
price of a company’s securities, securities class action litigation has often been instituted against that company. Any such litigation, if instituted against the Company, could result in substantial costs and a diversion of management’s
attention and resources.
A small number of shareholders will continue to
have substantial control over the Company after the Business Combination, which may limit other shareholders’ ability to influence corporate matters and delay or prevent a third party from acquiring control over the Company.
Upon completion of the Business Combination, the directors and
executive officers of the Company, and beneficial owners expected to own 5% or more of its voting securities and their respective affiliates, will beneficially own, in the aggregate, approximately 53.5% of its outstanding New ZeroFox Common
Stock, assuming no Public Shareholders redeem their L&F Ordinary Shares. This significant concentration of ownership may have a negative impact on the trading price for the New ZeroFox Common Stock because investors often perceive
disadvantages in owning stock in companies with controlling shareholders. In addition, these shareholders will be able to exercise influence over all matters requiring shareholder approval, including the election of directors and approval of
corporate transactions, such as a merger or other sale of the Company or its assets. This concentration of ownership could limit shareholders’ ability to influence corporate matters and may have the effect of delaying or preventing a change in
control, including a merger, consolidation or other business combination, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if that change in control would benefit the other
shareholders.
There may not be an active trading market for the
New ZeroFox Common Stock, which may make it difficult to sell shares of New ZeroFox Common Stock.
It is possible that after the Business Combination, an active trading
market will not develop or, if developed, that any market will not be sustained. This would make it difficult for you to sell shares of New ZeroFox
93
Common Stock at an attractive price or at all. The market price per Class A Ordinary
Share prior to the Business Combination may not be indicative of the price at which shares of New ZeroFox Common Stock will trade in the public market after the Business Combination.
If the Company’s operating and financial
performance in any given period does not meet the guidance provided to the public or the expectations of investment analysts, the market price of the New ZeroFox Common Stock may decline.
We may, but are not obligated to, provide public guidance on our
expected operating and financial results for future periods. Any such guidance will consist of forward-looking statements, subject to the risks and uncertainties described in this prospectus/proxy statement and in our other public filings and
public statements. The ability to provide this public guidance, and the ability to accurately forecast our results of operations, could be impacted by the COVID-19 pandemic. Our actual results may not always be in line with or exceed any guidance
we have provided, especially in times of economic uncertainty, such as the current global economic uncertainty being experienced as a result of the COVID-19 pandemic. If, in the future, our operating or financial results for a particular period
do not meet any guidance provided or the expectations of investment analysts, or if we reduce our guidance for future periods, the market price of the New ZeroFox Common Stock may decline as well. Even if we do issue public guidance, there can be
no assurance that we will continue to do so in the future.
If securities or industry analysts do not publish
research or reports about the Company’s business or publish negative reports, the market price of the New ZeroFox Common Stock could decline.
The trading market for the New ZeroFox Common Stock will be influenced
by the research and reports that industry or securities analysts publish about us and our business. If regular publication of research reports ceases, we could lose visibility in the financial markets, which in turn could cause the market price
or trading volume of the New ZeroFox Common Stock to decline. Moreover, if one or more of the analysts who cover us downgrade the New ZeroFox Common Stock or if reporting results do not meet their expectations, the market price of the New ZeroFox
Common Stock could decline.
Subsequent to the consummation of the Business
Combination, we may issue additional shares of New ZeroFox Common Stock (including upon the exercise of warrants), which would increase the number of shares eligible for future resale in the public market and result in dilution to Company
shareholders.
Outstanding warrants to purchase an aggregate of 16,213,430 shares of
New ZeroFox Common Stock will become exercisable thirty days after the completion of the Business Combination provided in each case that the Company has an effective registration statement under the Securities Act covering the shares of New
ZeroFox Common Stock issuable upon exercise of the New ZeroFox Warrants and a current prospectus relating to them is available and such shares are registered, qualified or exempt from registration under the securities, or blue sky, laws of the
state of residence of the holder (or holders exercise their warrants on a cashless basis under the circumstances specified in the warrant agreement). Each warrant entitles the holder thereof to purchase one share of New ZeroFox Common Stock at a
price of $11.50 per whole share, subject to adjustment. In addition, the Notes will be convertible into approximately 13,043,475 shares of New ZeroFox Common Stock (please see “Risk Factors—Risks Related to
L&F, the Business Combination and the Company—Our Notes to be issued and outstanding after consummation of the Business Combination may impact our financial results, result in the dilution of our shareholders, create downward pressure on
the price of New ZeroFox Common Stock, and restrict our ability to raise additional capital or take advantage of future opportunities.”) The issuance of additional shares of New ZeroFox Common Stock as a result of any of the
aforementioned transactions may result in dilution to the then-existing holders of New ZeroFox Common Stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public
market could adversely affect the market price of the New ZeroFox Common Stock.
The Company may issue additional shares of New
ZeroFox Common Stock or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of the New ZeroFox Common Stock.
Pursuant to the Incentive Equity Plan, following the consummation of
the Business Combination, we may issue an aggregate of up to the number of shares equal to ten percent (10%) of New ZeroFox Common Stock issued and outstanding at the Effective Time, which amount will be subject to increase from time to time. For
94
additional information about this plan, please read the discussion under the headings “Proposal No. 7—The Incentive Equity Plan Proposal.” We may also issue additional shares of New ZeroFox Common Stock or other equity securities of equal or senior rank in the future in connection with, among
other things, future acquisitions or repayment of outstanding indebtedness, without shareholder approval, in a number of circumstances.
The issuance of additional shares or other equity securities of equal
or senior rank would have the following effects:
|
•
|
existing shareholders’ proportionate ownership interest in the Company will decrease;
|
|
•
|
the amount of cash available per share, including for payment of dividends in the future, may decrease;
|
|
•
|
the relative voting strength of each share of previously outstanding common stock may be diminished; and
|
|
•
|
the market price of the New ZeroFox Common Stock may decline.
|
L&F’s shareholders will experience
dilution due to the issuance of shares of New ZeroFox Common Stock, and securities that are exercisable for shares of New ZeroFox Common Stock, to the Target Companies’ security holders as consideration in the Business Combination, and the
issuance of shares of New ZeroFox Common Stock to the Common Equity PIPE Investors in the Common Equity PIPE Financing or upon the conversion of the Notes.
Based on the Target Companies’ and L&F’s current capitalization,
we anticipate issuing to the Target Companies’ shareholders an aggregate of up to 111,187,816 shares of New ZeroFox Common Stock pursuant to the Business Combination Agreement (assuming the cash exercise of ZeroFox and IDX warrants and
excluding approximately 8,351,008 shares issuable upon the exercise of assumed options) and 2,000,000 shares of New ZeroFox Common Stock to the Common Equity PIPE Investors, and it is currently expected that L&F’s current shareholders would
hold in the aggregate approximately 16.0% of the outstanding New ZeroFox Common Stock (assuming that no Class A Ordinary Shares are redeemed by Public Shareholders). If any of the Class A Ordinary Shares are redeemed in connection with the
Business Combination, the percentage of the outstanding New ZeroFox Common Stock held by the Public Shareholders will decrease and the percentages of the outstanding New ZeroFox Common Stock held immediately following the Business Combination
by the L&F Initial Shareholders and the Target Companies’ security holders will increase. To the extent that any of the outstanding New ZeroFox Warrants are exercised for shares of the New ZeroFox Common Stock, L&F’s existing
shareholders would experience additional dilution. In addition, if the Notes issued in the Convertible Notes Financing are converted in full and settled fully in shares, our fully diluted share capital would increase by an additional 13,043,475
shares. Such dilution could, among other things, limit the ability of L&F’s current shareholders to influence the Company’s management through the election of directors following the Business Combination.
Risks Related to L&F, the Business Combination and the Company
All references in this section to “we,” “us” or “our” means L&F
prior to the Closing and the Company after the Closing, as the context requires. References to the “Company” refer to New ZeroFox and its consolidated subsidiaries subsequent to the Business Combination.
The Sponsor, as well as L&F’s officers and
directors have agreed to vote in favor of the Business Combination, regardless of how the Public Shareholders vote.
Unlike many other blank check companies in which the initial
shareholders agree to vote their founder shares in accordance with the majority of the votes cast by the public shareholders in connection with an initial business combination, the Sponsor and L&F’s officers and directors have agreed to vote
any L&F Ordinary Shares owned by them in favor of the Business Combination proposal and the other proposals to be presented at the Shareholder Meeting. As of the date of this proxy statement/prospectus, the Sponsor and L&F’s officers and
directors beneficially own in the aggregate shares equal to 20% of the issued and outstanding L&F Ordinary Shares. Accordingly, it is more likely that the necessary shareholder approval will be received for the Business Combination than would
be the case if the Sponsor and L&F’s officers and directors had agreed to vote any L&F Ordinary Shares owned by them in accordance with the majority of the votes cast by the Public Shareholders.
95
Since the L&F Initial Shareholders,
including L&F’s officers and directors, have interests that are different, or in addition to (and which may conflict with), the interests of the Public Shareholders, a conflict of interest may have existed in determining whether the Business
Combination with the Target Companies is appropriate as our initial business combination. Such interests include that Sponsor, as well as our officers and directors, will lose their entire investment in us if our business combination is not
completed.
When you consider the recommendation of the L&F Board to vote in
favor of approval of the Business Combination Proposal, you should keep in mind that the L&F Initial Shareholders, including L&F’s officers and directors, have interests in such proposal that are different from, or in addition to, those
of L&F shareholders generally. These interests include, among other things, the interests listed below:
|
•
|
the fact that the Sponsor and L&F’s directors and officers have agreed not to redeem any Class A Ordinary Shares held by them
in connection with a shareholder vote to approve the Business Combination and the Sponsor Holders are obligated to vote in favor of the Business Combination;
|
|
•
|
the fact that the Sponsor has irrevocably waived the anti-dilution adjustments set forth in L&F’s organizational documents, or
any other anti-dilution or similar adjustment rights to which the Sponsor may otherwise be entitled related to or arising from the Business Combination;
|
|
•
|
the fact that the Sponsor Holders paid an aggregate amount of $25,000 for the Founder Shares, which will convert into 4,312,500
shares of New ZeroFox Common Stock in accordance with the terms of L&F’s organizational documents and such securities will have a significantly higher value at the time of the Business Combination;
|
|
•
|
the fact that the Sponsor paid $5,450,000 for 5,450,000 L&F Private Placement Warrants, each of which is exercisable
commencing on the later of 12 months from the closing of the L&F IPO and 30 days following the Closing for one Class A Ordinary Share at $11.50 per share; if we do not consummate an initial business combination by May 23, 2022 (or
such later date as may be approved by L&F's shareholders), then the proceeds from the sale of the L&F Private Placement Warrants will be part of the liquidating distribution to the Public Shareholders and the warrants held by
our Sponsor will be worthless;
|
|
•
|
the fact that the L&F Initial Shareholders, including the Sponsor (and certain of L&F’s officers and directors who are
members of the Sponsor), have invested in L&F an aggregate of $5,475,000, comprised of the $25,000 purchase price for 4,312,500 Founder Shares and the $5,450,000 purchase price for 5,450,000 L&F Private Placement Warrants.
Subsequent to the initial purchase of the Founder Shares by the Sponsor, the Sponsor transferred 20,000 Founder Shares to Mr. Albert Goldstein and 50,000 Founder Shares to Senator Joseph Lieberman at a nominal purchase price of $0.004
per Founder Share prior to the closing of the L&F IPO and 39,733 Founder Shares to Mr. Kurt Summers shortly after his being appointed to the L&F Board in December 2021 for no cash consideration. Assuming a trading price of
$10.11 per Class A Ordinary Share and $0.3612 per L&F Public Warrant (based upon the respective closing prices of the Class A Ordinary Shares and the L&F Public Warrants on the NYSE on April 4, 2022), the 4,312,500 Founder
Shares and 5,450,000 Private Placement Warrants would have an implied aggregate market value of $45,567,915. Even if the trading price of the shares of New ZeroFox Common Stock were as low as $1.27 per share, the aggregate market value
of the Founder Shares alone (without taking into account the value of the L&F Private Placement Warrants) would be approximately equal to the initial investment in L&F by the L&F Initial Shareholders. As a result, the
L&F Initial Shareholders are likely to be able to make a substantial profit on their investment in L&F at a time when shares of New ZeroFox Common Stock have lost significant value. On the other hand, if L&F liquidates
without completing a business combination before May 23, 2022 (or such later date as may be approved by L&F's shareholders), the L&F Initial Shareholders will likely lose their entire investment in L&F;
|
|
•
|
the fact that the Sponsor and L&F’s officers and directors will benefit from the completion of a business combination and may
be incentivized to complete an acquisition of a less favorable target company or on terms less favorable to shareholders rather than liquidate;
|
|
•
|
the fact that the L&F Initial Shareholders including the Sponsor (and the L&F’s officers and directors who are members of
the Sponsor) can earn a positive rate of return on their investment, even if other L&F shareholders experience a negative rate of return in New ZeroFox;
|
96
|
•
|
the fact that the L&F Initial Shareholders and L&F’s other current officers and directors have agreed to waive their
rights to liquidating distributions from the Trust Account with respect to any L&F Ordinary Shares (other than Public Shares) held by them if L&F fails to complete an initial business combination by May 23, 2022 (or such later
date as may be approved by L&F shareholders);
|
|
•
|
the fact that, at the option of the Sponsor, any amounts outstanding under any loan made by the Sponsor or any of its
affiliates to L&F in an aggregate amount of up to $1,500,000 may be converted into L&F Private Placement Warrants in connection with the consummation of the Business Combination;
|
|
•
|
the fact that the Sponsor and L&F’s officers and directors will lose their entire investment in L&F and will not be
reimbursed for any loans extended, fees due or out-of-pocket expenses if an initial business combination is not consummated by May 23, 2022 (or such later date as may be approved by L&F shareholders). As of the date of this proxy
statement/prospectus there are no loans extended, fees due or outstanding out-of-pocket expenses for which the Sponsor and L&F’s officers and directors are awaiting reimbursement;
|
|
•
|
the fact that if the Trust Account is liquidated, including in the event L&F is unable to complete an initial business
combination within the required time period, Sponsor has agreed to indemnify L&F to ensure that the proceeds in the Trust Account are not reduced below $10.15 per L&F 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 L&F has entered into an acquisition agreement or claims of any third party for services rendered or products sold to L&F, 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 fact that L&F may be entitled to distribute or pay over funds held by L&F outside the Trust Account to Sponsor or any
of its affiliates prior to the Closing;
|
|
•
|
the fact that (i) L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity
affiliated with Richard Levy, a director of L&F), GCP-OI I, LLC (an entity affiliated with Adam Gerchen, our chief executive officer and a director of L&F), JCH Investments LLC (an entity affiliated with Jeffrey C. Hammes, the
chairman of the L&F Board) and an affiliate of Corbin Capital Partners, LP, a significant security holder of L&F, have executed and delivered Common Equity Subscription Agreements for an aggregate amount of $10,000,000,
(ii) L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F) and an affiliate of Corbin Capital Partners, LP, a significant security
holder of L&F, have executed and delivered Convertible Notes Subscription Agreements for an aggregate principal amount of $30,000,000, and (iii) Adam Gerchen (our chief executive officer and director of L&F) is a limited partner
in funds managed by Monarch Capital, and that Monarch Capital has executed and delivered a Convertible Notes Subscription Agreement for an aggregate principal amount of $120,000,000;
|
|
•
|
L&F has agreed to pay Jefferies, L&F’s co-PIPE placement agent and financial advisor, and sole underwriter in the
L&F IPO: (i) a cash fee for their services in connection with the L&F IPO in an aggregate amount equal to 5.5% of the gross proceeds of the L&F IPO, with 2.0% of the gross proceeds being paid to the underwriters at the time
the L&F IPO was completed and 3.5% of the gross proceeds (i.e., the deferred underwriting fee) being payable, and conditioned, upon consummating an initial business combination; the aggregate underwriting fee is fixed at 5.5% of the
gross proceeds from the L&F IPO and will not be adjusted based on the number of shares that are redeemed in connection with the Business Combination; the aggregate underwriting fee of $6,037,500 represents approximately 3.5%, 4.7%,
7.0% and 14.0% of the aggregate proceeds from the L&F IPO, net of redemptions, in the no redemption, 25% redemption, 50% redemption and 75% redemption scenarios, respectively; (ii) a placement agency fee as a percentage of the
aggregate gross proceeds received or to be received from the sale of L&F’s equity securities and split with Stifel (defined below); and (iii) financial advisory fees as a fixed amount related to capital markets financial advice and
assistance in connection with the Business Combination, as applicable, upon completion of the Business Combination;
|
97
|
•
|
the fact that, Stifel, co-PIPE placement agent for the Common Equity PIPE Financing and a creditor of ZeroFox, will be entitled
to receive a placement agency fee as a percentage of the aggregate gross proceeds received or to be received from the one or more commitments for financing the Business Combination from sources other than any affiliates of ZeroFox, IDX
or L&F, and split with Jefferies, upon completion of the Business Combination;
|
|
•
|
the fact that (i) James C. Foster, Peter Barris, Corey Mulloy, Samskriti King, and Todd Headley, current directors of ZeroFox,
(ii) Thomas F. Kelly and Sean Cunningham, current directors of IDX and (iii) Adam Gerchen, current officer of the Sponsor, are each expected to be directors of New ZeroFox after the consummation of the Business Combination. As such, in
the future each of the aforementioned will receive any cash fees, stock options, stock awards or other remuneration that New ZeroFox’s board of directors determines to pay them and any applicable compensation as described under the
section titled “Executive and Director Compensation”; and
|
|
•
|
the fact that the Sponsor Group will have paid an aggregate of approximately $15,475,000 for its investment in New ZeroFox,
including the investment of L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F), GCP-OI I, LLC (an entity affiliated with Adam
Gerchen, our chief executive officer and a director of L&F), JCH Investments LLC (an entity affiliated with Jeffrey C. Hammes, the chairman of the L&F Board) in the Common Equity PIPE Financing, and the investment of L&F
Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F) in the Convertible Notes Financing), as summarized in the table below, and, following the
consummation of the Business Combination, the aggregate value of the Sponsor Group’s investment will be $48,095,415, based upon the respective closing prices of the Class A Ordinary Shares and the L&F Public Warrants on the NYSE on
April 4, 2022.
|
Sponsor Group Beneficial Ownership of L&F Prior to Closing
|
|
| |
Securities held by
Sponsor Group
|
| |
Sponsor Cost at L&F’s
Initial Public Offering ($)
|
|
Class A Ordinary Shares
|
| |
—
|
| |
—
|
|
Founder Shares
|
| |
4,312,500
|
| |
$25,000
|
|
L&F Private Placement Warrants
|
| |
5,450,000
|
| |
$5,450,000
|
|
Total
|
| |
|
| |
$5,475,000
|
Sponsor Group Ownership of New ZeroFox Following the Closing(1)
|
|
| |
Securities
held by
Sponsor
Group at
Closing
|
| |
Value per
Security ($)
|
| |
Sponsor
Group Cost
at Closing ($)
|
| |
Total Value ($)
|
|
New ZeroFox Common Stock Issued Pursuant to the Common
Equity PIPE Financing
|
| |
250,000
|
| |
$10.11
|
| |
$2,500,000
|
| |
$2,527,500
|
|
New ZeroFox Common Stock Issued to Holders of Founder
Shares
|
| |
4,312,500(1)
|
| |
$10.11
|
| |
—
|
| |
$43,599,375
|
|
New ZeroFox Private Placement Warrants
|
| |
5,450,000
|
| |
$0.3612
|
| |
—
|
| |
$1,968,540
|
|
Total
|
| |
|
| |
|
| |
$2,500,000
|
| |
$48,095,415
|
|
(1)
|
Does not include New ZeroFox Common Stock issuable upon conversion of the Notes that are convertible at an initial conversion
price of $11.50 per share.
|
|
(2)
|
Includes 1,293,750 shares of New ZeroFox Common Stock which will be subject to an earnout, whereby such shares will be forfeited
unless certain volume-weighted average share price thresholds are met in trading or are deemed to occur in connection with a Change of Control (as defined in the Business Combination Agreement) within five years from the Closing. See “Proposal No. 2 — Business Combination Proposal — Related Agreements — The Sponsor Support Letter Agreement” for more information related to the Sponsor Support Letter Agreement.
|
98
L&F has identified a material weakness
in its internal control over financial reporting. If we are unable to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which
may adversely affect investor confidence in us and materially and adversely affect our business and operating results.
L&F identified a material weakness in its internal control over
financial reporting related to the accounting for a significant and unusual transaction related to the warrants issued in connection with its initial public offering in November 2020 and the underwriters’ partial exercise of the over-allotment
option in November 2020. As a result of this material weakness, L&F’s management concluded that its internal control over financial reporting was not effective as of December 31, 2020 and December 31, 2021. This material weakness resulted
in a material misstatement of its warrant liabilities, change in fair value of warrant liabilities, additional paid-in capital, accumulated deficit and related financial disclosures for the affected periods.
L&F identified a material weakness in its internal control over
financial reporting related to the application of ASC 480-10-S99-3A to its accounting classification of the Class A Ordinary Shares. As a result of this material weakness, L&F’s management concluded that its internal control over financial
reporting was not effective as of December 31, 2021. Historically, a portion of the Class A Ordinary Shares was classified as permanent equity to maintain stockholders’ equity greater than $5 million on the basis that L&F will not redeem
its Class A Ordinary Shares in an amount that would cause its net tangible assets to be less than $5,000,001, as described in the Existing Governing Documents. Pursuant to L&F’s re-evaluation of the application of ASC 480-10-S99-3A to its
accounting classification of the Class A Ordinary Shares, L&F’s management determined that the Class A Ordinary Shares included certain provisions that required classification of all of the Class A Ordinary Shares as temporary equity
regardless of the net tangible assets redemption limitation contained in the Existing Governing Documents.
To respond to these instances of material weakness, L&F devoted,
and plans to continue to devote, significant effort and resources to the remediation and improvement of its internal control over financial reporting. While L&F has processes to identify and appropriately apply applicable accounting
requirements, it plans to enhance these processes to better evaluate its research and understanding of the nuances of the complex accounting standards that apply to its consolidated financial statements. L&F’s plans include providing
enhanced access to accounting literature, research materials and documents and increased communication among its personnel and third-party professionals with whom it consults regarding complex accounting applications. The elements of its
remediation plan can only be accomplished over time, and it can offer no assurance that these initiatives will ultimately have the intended effects.
If L&F identifies any new material weaknesses in the future, any
such newly identified material weakness could limit its ability to prevent or detect a misstatement of L&F’s accounts or disclosures that could result in a material misstatement of L&F’s annual or interim financial statements. In such
case, L&F may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in its financial
reporting and its stock price may decline as a result. L&F cannot assure you that the measures it has taken to date, or any measures L&F or the Company may take in the future, will be sufficient to avoid potential future material
weaknesses.
As a result of these material weaknesses, our management concluded
that our internal control over financial reporting was not effective as of December 31, 2021.
L&F may face litigation and other risks as a
result of the material weaknesses in L&F’s internal control over financial reporting.
As a result of the material weaknesses L&F identified in its
internal controls over financial reporting (see above), the restatement of its financial statements, the change in accounting for the warrants, and other matters raised or that may in the future be raised by the SEC, the Financial Accounting
Standards Board and various other bodies formed to interpret and create appropriate accounting principles and guidance L&F and, following the Business Combination, the Company, face 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 restatement and material weaknesses in L&F’s internal control over financial reporting and the preparation of
L&F’s financial statements. As of the date of this proxy statement/prospectus, L&F has no knowledge of any such litigation or dispute. However, L&F can provide no assurance that such litigation or dispute will not arise in
99
the future. Any such litigation or dispute, whether successful or not, could have a
material adverse effect on L&F’s, or following the Business Combination, the Company’s business, results of operations and financial condition or L&F’s ability to complete the Business Combination.
If L&F does not consummate an initial
business combination by May 23, 2022, its Public Shareholders may be forced to wait until after May 23, 2022 before redemption from the Trust Account.
L&F’s Existing Governing Documents provide that it has only 18
months from the closing of the L&F IPO, or until May 23, 2022, to consummate an initial business combination. If L&F has not consummated an initial business combination within 18 months from the closing of the L&F IPO, or May 23,
2022, it will: (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the
aggregate amount then on deposit in the trust account, including interest earned on the funds held in the trust account and not previously released to us to pay our taxes, if any (less up to $100,000 of interest to pay dissolution expenses)
divided by the number of the then-outstanding Public Shares, which redemption will completely extinguish Public Shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any); and (iii) as
promptly as reasonably possible following such redemption, subject to the approval of our remaining shareholders and L&F’s board of directors, liquidate and dissolve, subject in the case of clauses (ii) and (iii) to our obligations under
Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to L&F’s warrants, which will expire worthless if it fails to
consummate an initial business combination within 18 months from the closing of the L&F IPO. L&F’s Existing Governing Documents provide that, if a resolution of L&F’s shareholders is passed pursuant to the Cayman Islands Companies
Act to commence the voluntary liquidation of L&F, it will follow the foregoing procedures with respect to the liquidation of the Trust Account as promptly as reasonably possible but not more than ten business days thereafter, subject to
applicable Cayman Islands law.
As a result, investors may be forced to wait beyond May 23, 2022 (as
such date may be extended pursuant to L&F’s Existing Governing Documents), before the redemption proceeds of the Trust Account become available to them, and they receive the return of their pro rata portion of the proceeds from the Trust
Account. L&F has no obligation to return funds to investors prior to the date of our redemption or liquidation unless, prior thereto, L&F consummates its initial business combination or amends certain provisions of the Existing
Governing Documents, and only then in cases where investors have sought to redeem their Public Shares. Only upon L&F’s redemption or any liquidation will Public Shareholders be entitled to distributions if L&F does not complete its
initial business combination and does not amend the Existing Governing Documents.
L&F’s officers and directors and/or their
affiliates may enter into agreements concerning L&F’s securities prior to the Shareholder Meeting, which may have the effect of increasing the likelihood of completion of the Business Combination or decreasing the value of the L&F
Ordinary Shares.
At any time prior to the Shareholder Meeting, during a period when they
are not then aware of any material nonpublic information regarding L&F or its securities, L&F’s officers and directors and/or their affiliates may enter into a written plan to purchase L&F’s securities pursuant to Rule 10b5-1 under
the Exchange Act, and may engage in other public market purchases, as well as private purchases, of securities. In addition, at any time prior to the Shareholder Meeting, during a period when they are not then aware of any material nonpublic
information regarding L&F or its securities, L&F’s officers and directors and/or their respective affiliates may (i) purchase shares from institutional and other investors who vote, or indicate an intention to vote, against the Business
Combination Proposal or the other proposals, (ii) execute agreements to purchase such shares from institutional and other investors in the future, and/or (iii) enter into transactions with institutional and other investors to provide such persons
with incentives to acquire Class A Ordinary Shares or vote their Class A Ordinary Shares in favor of the Business Combination Proposal or the other proposals. Such an agreement may include a contractual acknowledgement that such shareholder,
although still the record holder of such shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that L&F’s officers and directors or their affiliates purchase shares in
privately negotiated transactions from Public Shareholders who have already elected to exercise their redemption rights, such selling Public Shareholders would be required to revoke their prior elections to redeem their shares. While the exact
nature of any such
100
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 the transfer of shares or L&F Warrants owned by the Sponsor
for nominal value to such investors or holders.
The purpose of such share purchases and other transactions by L&F’s
officers and directors and/or their respective affiliates would be to increase the likelihood of satisfaction of the requirements that (x) the holders of the requisite number of L&F Shares present and voting at the Shareholder Meeting vote in
favor of the Business Combination Proposal and the other proposals and/or (y) that L&F will satisfy the Available Closing Acquiror Cash Condition after taking into account holders of Class A Ordinary Shares that properly demanded Redemption
of their shares into cash, when, in each case, it appears that such requirements would otherwise not be met.
Entering into any such arrangements may have a depressive effect on the
Class A Ordinary Shares. 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 it owns, either
prior to or immediately after the Shareholder Meeting.
As of the date of this proxy statement/prospectus, L&F’s directors
and officers and their affiliates have not entered into any such agreements. L&F 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 Redemption threshold. Any such report will include descriptions of any arrangements entered into or significant purchases by any of the aforementioned persons.
The Company will be a holding company and its
only material assets after completion of the Business Combination will be its interest in its subsidiaries, and it is accordingly dependent upon distributions made by its subsidiaries to pay taxes and pay dividends.
Upon completion of the Business Combination, we will be a holding
company with no material assets other than the equity interests in our direct and indirect subsidiaries. As a result, we will have no independent means of generating revenue or cash flow and our ability to pay taxes and pay dividends will depend
on the financial results and cash flows of our subsidiaries and the distributions we receive from our subsidiaries. Deterioration in the financial condition, earnings or cash flow of our subsidiaries for any reason could limit or impair such
subsidiaries’ ability to pay such distributions. Additionally, if we need funds and our subsidiaries are restricted from making such distributions under applicable law or regulation or under the terms of any financing arrangements, or our
subsidiaries are otherwise unable to provide such funds, our liquidity and financial condition could be adversely affected.
Dividends on New ZeroFox Common Stock, if any, will be paid at the
discretion of the New ZeroFox Board, which will consider, among other things, the Company’s business, operating results, financial condition, current and expected cash needs, plans for expansion and any legal or contractual limitations on its
ability to pay such dividends. Financing arrangements may include restrictive covenants that restrict our ability to pay dividends or make other distributions to our shareholders. In addition, entities are generally prohibited under relevant
law from making a distribution to a shareholder to the extent that, at the time of the distribution, after giving effect to the distribution, the liabilities of such entity (subject to certain exceptions) exceed the fair value of its assets. If
our subsidiaries do not have sufficient funds to make distributions, our ability to declare and pay cash dividends may also be restricted or impaired. ZeroFox and its subsidiaries would be restricted from making distributions or advances to New
ZeroFox under ZeroFox's existing credit facilities.
L&F has not obtained an opinion from an
independent investment banking firm or another independent firm, and consequently, you have no assurance from an independent source that the terms of the Business Combination are fair to L&F from a financial point of view.
The L&F Board did not obtain a third-party valuation or fairness
opinion in connection with its determination to approve the Business Combination. L&F is not required to obtain an opinion from an independent investment banking firm that is a member of FINRA or from another independent firm that the price
it is paying is fair to L&F from a financial point of view. In analyzing the Business Combination, the L&F Board and L&F’s management conducted due diligence on the Target Companies and researched the industry in which the Target
Companies operate and concluded that the Business Combination was in the best interest of its shareholders. Accordingly, L&F’s shareholders will be relying solely on the judgment of the L&F Board in
101
determining the value of the Business Combination, and the L&F 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 shareholders to vote against the Business Combination or demand redemption of their shares, which could potentially impact
our ability to consummate the Business Combination. For more information about our decision-making process, see the section titled “Proposal No. 2 - The Business
Combination Proposal — The Board’s Reasons for the Approval of the Business Combination.”
The level of due diligence conducted in
connection with the Business Combination may not be as high as would be the case if the Target Companies became a public company through an underwritten public offering, which could result in defects with the Target Companies’ business or
problems with the Target Companies’ management to be overlooked.
If the Target Companies became a public company through an underwritten
public offering, the underwriters would be subject to liability under Section 11 of the Securities Act for material misstatements and omissions in the initial public offering registration statement. In general, an underwriter is able to avoid
liability under Section 11 if it can prove that, it “had, after reasonable investigation, reasonable ground to believe and did believe, at the time . . . the registration statement became effective, that the statements therein (other than the
audited financial statements) were true and that there was no omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading.” In order to fulfill its duty to conduct a “reasonable
investigation,” an underwriter will, in addition to conducting a significant amount of due diligence on its own, usually require that an issuer’s independent registered public accounting firm provide a comfort letter with respect to certain
numbers included in the registration statement and will require its law firm and the law firm for the issuer to provide letters to the underwriters generally stating that the law firms are not aware of any material misstatements or omissions in
the initial public offering registration statement (“Counsel Negative Assurance Letters”). Auditor comfort letters and Counsel Negative Assurance Letters are generally not required in connection with
private companies going public through a merger with a special purpose acquisition company, such as L&F, and no auditor comfort letters or Counsel Negative Assurance Letters have been requested or obtained in connection with the Business
Combination or the preparation of this proxy statement/prospectus. In addition, the amount of due diligence conducted by L&F and its advisors in connection with the Business Combination may not be as high as would have been undertaken by an
underwriter in connection with an initial public offering of the Target Companies. Accordingly, it is possible that defects in the Target Companies’ business or problems with the Target Companies’ management that would have been discovered if the
Target Companies conducted an underwritten public offering will not be discovered in connection with the Business Combination, which could adversely affect the market price of the New ZeroFox Common Stock.
The process of taking a company public by means
of a business combination with a special purpose acquisition company (“SPAC”) is different from taking a company public through an underwritten offering and may create risks for our unaffiliated investors.
An underwritten offering involves a company engaging underwriters to
purchase its shares and resell them to the public. An underwritten offering imposes statutory liability on the underwriters for material misstatements or omissions contained in the registration statement unless they are able to sustain the burden
of providing that they did not know and could not reasonably have discovered such material misstatements or omissions. This is referred to as a “due diligence” defense and results in the underwriters undertaking a detailed review of the company’s
business, financial condition and results of operations. Going public via a business combination with a SPAC does not involve any underwriters and does not generally necessitate the level of review required to establish a “due diligence” defense
as would be customary on an underwritten offering.
In addition, going public via a business combination with a SPAC does
not involve a book-building process as is the case in an underwritten public offering. In any underwritten public offering, the initial value of a company is set by investors who indicate the price at which they are prepared to purchase shares
from the underwriters. In the case of a SPAC transaction, the value of the company is established by means of negotiations between the target company, the SPAC and, in some cases, “PIPE” investors who agree to purchase shares at the time of the
business combination. The process of establishing the value of a company in a SPAC business combination may be less effective than the book-building process in an underwritten public offering and also does not reflect events that may have
occurred between the date of the business combination agreement and the closing of the transaction. In addition, underwritten public offerings are frequently oversubscribed resulting in
102
additional potential demand for shares in the aftermarket following the underwritten
public offering. There is often no such book of demand built up in connection with SPAC transaction and no underwriters with the responsibility of stabilizing the share price which may result in the share price being harder to sustain after the
consummation of the business combination.
The unaudited pro forma financial information
included in the section titled “Unaudited Pro Forma Condensed Combined Financial Information” may not be representative of the Company’s results if the Business Combination is completed.
L&F and the Target Companies currently operate as separate
companies and have had no prior history as a combined entity, and the Target Companies’ and the Company’s operations have not previously been managed on a combined basis. The pro forma financial information included in this proxy
statement/prospectus is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations that would have actually occurred had the Business Combination been completed at or as of the
dates indicated, nor is it indicative of the future operating results or financial position of the Company. The unaudited pro forma financial information does not reflect future events that may occur after the Business Combination and does not
consider potential impacts of future market conditions on revenues or expenses. The pro forma financial information included in the section titled “Unaudited Pro Forma Condensed Combined Financial Information” has been derived from L&F’s and the Target Companies’ historical financial statements and certain adjustments and assumptions have been made regarding the Company after giving effect to the
Business Combination. There may be differences between preliminary estimates in the pro forma financial information and the final acquisition accounting, which could result in material differences from the pro forma information presented in this
proxy statement/prospectus in respect of the estimated financial position and results of operations of the Company.
In addition, the assumptions used in preparing the pro forma financial
information may not prove to be accurate and other factors may affect our financial condition or results of operations following the Closing. Any potential decline in our financial condition or results of operations may cause significant
variations in the stock price of the Company.
During the pendency of the Business Combination,
L&F will not be able to enter into a business combination with another party because of restrictions in the Business Combination Agreement. Furthermore, certain provisions of the Business Combination Agreement will discourage third parties
from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Business Combination Agreement.
Covenants in the Business Combination Agreement impede the ability of
L&F to make acquisitions or complete other transactions that are not in the ordinary course of business pending completion of the Business Combination. As a result, L&F may be at a disadvantage to its competitors during that period. In
addition, while the Business Combination Agreement is in effect, neither L&F nor the Target Companies may solicit, assist, facilitate the making, submission or announcement of, or intentionally encourage any alternative acquisition proposal,
such as a merger, material sale of assets or equity interests or other business combination, with any third party, even though any such alternative acquisition could be more favorable to L&F’s shareholders than the Business Combination. In
addition, if the Business Combination is not completed, these provisions will make it more difficult to complete an alternative business combination following the termination of the Business Combination Agreement due to the passage of time during
which these provisions have remained in effect.
If the conditions to the Business Combination
Agreement are not met, the Business Combination may not occur.
Even if the Business Combination Agreement is approved by the
shareholders of L&F, specified conditions must be satisfied or waived before the parties to the Business Combination Agreement are obligated to complete the Business Combination. For a list of the material closing conditions contained in the
Business Combination Agreement, see the section titled “Proposal No. 2 - The Business Combination Proposal — The Business Combination Agreement — Conditions to the
Closing of the Business Combination.” L&F and the Target Companies may not satisfy all of the closing conditions in the Business Combination Agreement. If the closing conditions are not satisfied or waived, the Business Combination
will not occur, or will be delayed pending later satisfaction or waiver, and such delay may cause L&F and the Target Companies to each lose some or all of the intended benefits of the Business Combination.
103
L&F’s warrants are accounted for as
liabilities and the changes in value of its warrants could have a material effect on its financial results.
L&F is subject to complex securities laws and regulations and
accounting principles and interpretations. The preparation of its financial statements requires L&F to interpret accounting principles and guidance and to make estimates and judgments that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. L&F bases its interpretations, estimates and judgments on its historical
experience and on various other factors that L&F believes are reasonable under the circumstances, the results of which form the basis for the preparation of its financial statements. GAAP presentation is subject to interpretation by the SEC,
the Financial Accounting Standards Board and various other bodies formed to interpret and create appropriate accounting principles and guidance. If one of these bodies disagrees with L&F’s accounting recognition, measurement or disclosure or
any of its accounting interpretations, estimates or assumptions, it may have a significant effect on its reported results and may retroactively affect previously reported results.
On April 12, 2021, the staff (the “SEC Staff”) of the SEC issued a
statement titled “Staff Statement on Accounting and Reporting Considerations for warrants Issued by Special Purpose Acquisition Companies (“SPACs”) (the “SEC Staff Statement”).” In the SEC Staff Statement, the SEC Staff expressed its view that
certain terms and conditions common to SPAC warrants may require the warrants to be classified as liabilities on the SPAC’s balance sheet as opposed to equity. Since issuance on November 23, 2020, the outstanding warrants were accounted for as
equity within L&F’s balance sheet. After discussion and evaluation, including with the L&F’s independent registered public accounting firm and the audit committee of the board of directors (the “Audit Committee”), and taking into
consideration the SEC Staff Statement, L&F reevaluated the accounting treatment of L&F’s 8,625,000 L&F Public Warrants and 7,588,430 L&F Private Placement Warrants, and determined to classify the warrants as derivative liabilities
measured at fair value, with changes in fair value each period reported in earnings.
As a result of the foregoing, on May 11, 2021, the Audit Committee
concluded, in consultation with L&F’s management, that its previously issued financial statements for the periods beginning with the period from August 20, 2020 (date of inception) through December 31, 2020 should be restated because of a
misapplication of the guidance around accounting for the warrants and should no longer be relied upon.
As a result, included on L&F’s consolidated balance sheets as of
December 31, 2021 and 2020 contained elsewhere in this proxy statement/prospectus are derivative liabilities related to embedded features contained within L&F’s warrants. Accounting Standards Codification 815, Derivatives and Hedging,
provides for the re-measurement of the fair value of such derivatives at each balance sheet date, with a resulting non-cash gain or loss related to the change in the fair value being recognized in earnings in the statement of operations. As a
result of the recurring fair value measurement, L&F’s consolidated financial statements and results of operations may fluctuate quarterly, based on factors which are outside of L&F’s control. Due to the recurring fair value measurement,
L&F expects that it will recognize non-cash gains or losses on its warrants each reporting period and that the amount of such gains or losses could be material.
Any further restatement of the L&F financial results could, among
other potential adverse effects:
|
•
|
result in L&F incurring substantial costs;
|
|
•
|
affect L&F’s ability to timely file its periodic reports until the restatement is completed;
|
|
•
|
divert the attention of L&F’s management and employees from managing the business;
|
|
•
|
result in material changes to L&F’s historical and future financial results;
|
|
•
|
result in investors losing confidence in L&F’s operating results;
|
|
•
|
subject L&F to securities class action litigation; and
|
|
•
|
cause L&F’s share price to decline.
|
Even if L&F consummates the Business
Combination, there is no guarantee that the New ZeroFox Public Warrants will ever be in the money, and they may expire worthless.
The exercise price for L&F Public Warrants is $11.50 per L&F
Ordinary Share and, if the Business Combination is consummated, the L&F Public Warrants will be exchanged for New ZeroFox Public Warrants.
104
There is no guarantee that the New ZeroFox Public Warrants will ever be in the money
prior to their expiration, and as such, the New ZeroFox Public Warrants may expire worthless.
We may amend the terms of the New ZeroFox
Public Warrants in a manner that may be adverse to holders of such warrants with the approval by the holders of at least 50% of the then outstanding New ZeroFox Public Warrants. As a result, the exercise price of the New ZeroFox Public Warrants
could be increased, the exercise period could be shortened and the number of shares of New ZeroFox Common Stock purchasable upon exercise of a New ZeroFox Public Warrant could be decreased, all without any particular public warrantholder’s
approval.
The L&F Public Warrants (which will convert to New ZeroFox Public Warrants
following the Domestication) were issued in registered form under the L&F Warrant Agreement. The L&F Warrant Agreement provides that the terms of the public warrants may be amended without the consent of any holder to cure any
ambiguity, mistake or correct any defective provision, but requires the approval by the holders of at least 50% of the then outstanding public warrants to make any change that adversely affects the interests of the registered holders of such
warrants. Accordingly, we may amend the terms of the New ZeroFox Public Warrants in a manner adverse to a holder if holders of at least 50% of the then outstanding public warrants approve of such amendment and, solely with respect to any
amendment to the terms of the New ZeroFox Private Placement Warrants or any provision of the L&F Warrant Agreement with respect to the New ZeroFox Private Placement Warrants, 50% of the number of the then outstanding New ZeroFox Private
Placement Warrants. Although our ability to amend the terms of the New ZeroFox Public Warrants with the consent of at least 50% 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 warrants, convert the warrants into cash, shorten the exercise period or decrease the number of shares of New ZeroFox Common Stock purchasable upon exercise of a warrant.
We may redeem your unexpired New ZeroFox
Public Warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.
We have the ability to redeem all, but not less than all, of the outstanding New
ZeroFox Public Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the closing price of the New ZeroFox Common Stock equals or exceeds $18.00 per share (as adjusted
for share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like) 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 warrants holders and provided certain other conditions are met. We may not redeem the warrants unless an effective registration statement under the Securities Act covering the shares of New ZeroFox Common Stock issuable upon
exercise of the warrants is effective and a current prospectus relating to those shares is available throughout the minimum 30-day notice period discussed below. If and when the New ZeroFox Public Warrants become redeemable by us, we may
exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force you to (i) exercise your warrants and
pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) sell your warrants at the then-current market price when you might otherwise wish to hold your warrants or (iii) accept the nominal redemption price
which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of your warrants. None of the New ZeroFox Private Placement Warrants will be redeemable by us in accordance with
these provisions so long as they are held by the Sponsor, Jefferies or their permitted transferees.
In addition, we have the ability to redeem all, but not less than all, of the
outstanding New ZeroFox Public Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.10 per warrant, provided that the closing price of the New ZeroFox Common Stock equals or exceeds $10.00 per share
(as adjusted for share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like) 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 warrants holders and provided certain other conditions are met, including that holders will be able to exercise their warrants on a “cashless basis” prior to redemption for a number of shares of New ZeroFox
Common Stock determined based on the period of time to expiration of the warrants and the redemption fair market value of the New ZeroFox Common Stock, both as set forth in a table in the L&F Warrant Agreement. See “Description of Securities—Warrants—New ZeroFox Public Warrants—Redemption of New ZeroFox Warrants when the price per share of New ZeroFox Common Stock equals or exceeds $10.00.”
If and when the New ZeroFox Public Warrants become redeemable by us, we may
105
exercise our redemption right even if we are unable to register or qualify the
underlying securities for sale under all applicable state securities laws. The value received upon exercise of the warrants (1) may be less than the value the holders would have received if they had been able to exercise their warrants at a
later time at which the underlying share price is higher and (2) may not compensate the holders for the value of the warrants, including because the number of shares received on a cashless exercise basis is capped at 0.361 of a share of New
ZeroFox Common Stock per warrant (subject to adjustment) irrespective of the remaining life of the New ZeroFox Public Warrants. If the closing price of the New ZeroFox Common Stock is less than $18.00 per share (as adjusted for share
sub-divisions, share capitalizations, reorganizations, recapitalizations and the like) 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 warrants holders, we may only redeem the New ZeroFox Public Warrants in accordance with these provisions if we concurrently redeem the outstanding New ZeroFox Private Placement Warrants on the same terms.
The closing price of the Class A Ordinary Shares for 20 trading days within a 30
trading-day period ending as of April 4, 2022 would have exceeded the $10.00 closing price threshold but would have been lower than the $18.00 closing price threshold. It is not possible to predict what the trading price of the New ZeroFox
Common Stock will be after the closing of the Business Combination, and the trading price of our securities may fluctuate following the consummation of the Business Combination, and can vary due to general economic conditions and forecasts, our
general business condition and the release of our financial reports.
In the event that we elect to redeem the New ZeroFox Public Warrants in either of the
scenarios described above we would only be required to have the notice of redemption mailed by first class mail, postage prepaid, by us not less than thirty (30) days prior to the redemption date to the registered holders of the outstanding
warrants to be redeemed at their last addresses as they shall appear on the registration books. Any notice mailed in the manner provided above will be conclusively presumed to have been duly given whether or not the registered holder of the
warrants received such notice. We are not contractually obligated to notify investors when New ZeroFox Public Warrants become eligible for redemption, and we do not intend to so notify investors upon eligibility of the warrants for redemption.
The L&F Warrant Agreement designates the
courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of L&F Warrants, which
could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with L&F.
The L&F Warrant Agreement provides that, subject to applicable
law, (i) any action, proceeding or claim against L&F arising out of or relating in any way to the L&F Warrant Agreement, including under the Securities Act, will be brought and enforced in the courts of the State of New York or the
United States District Court for the Southern District of New York, and (ii) that L&F irrevocably submits to such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim. L&F will waive any
objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. However Section 22 of the Securities Act provides that federal and state courts have concurrent jurisdiction over lawsuits brought under the
Securities Act or the rules and regulations thereunder. To the extent the exclusive forum provision restricts the courts in which claims arising under the Securities Act may be brought, there is uncertainty as to whether a court would enforce
such a provision. We note that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.
Notwithstanding the foregoing, these provisions of the L&F Warrant
Agreement do not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum. Any person or entity
purchasing or otherwise acquiring any interest in any L&F Warrants shall be deemed to have notice of and to have consented to the forum provisions in the L&F Warrant Agreement. If any action, the subject matter of which is within the
scope the forum provisions of the L&F Warrant Agreement, is filed in a court other than a court of the State of New York or the United States District Court for the Southern District of New York (a “foreign
action”) in the name of any holder of L&F Warrants, such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action
brought in any such court to enforce the forum provisions (an “enforcement action”), and (y) having service of process made upon such warrant holder in any such enforcement action by service upon such
warrant holder’s counsel in the foreign action as agent for such warrant holder.
106
This choice-of-forum provision may limit a warrant holder’s ability
to bring a claim in a judicial forum that it finds favorable for disputes with L&F, which may discourage such lawsuits. Alternatively, if a court were to find this provision of the L&F Warrant Agreement inapplicable or unenforceable with
respect to one or more of the specified types of actions or proceedings, L&F may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial
condition and results of operations and result in a diversion of the time and resources of our management and board of directors.
Our Notes to be issued and outstanding after
consummation of the Business Combination may impact our financial results, result in the dilution of our shareholders, create downward pressure on the price of New ZeroFox Common Stock, and restrict our ability to raise additional capital or take
advantage of future opportunities.
In connection with the Business Combination, L&F entered into
the Convertible Notes Subscription Agreements, pursuant to which L&F agreed to issue and sell the Notes in private placements to close substantially concurrently with the consummation of the Business Combination in an aggregate principal
amount of $150,000,000. The Notes will be convertible into shares of New ZeroFox Common Stock at an initial conversion rate of 86.9565 shares of New ZeroFox Common Stock (subject to adjustment as provided in the Indenture) per $1,000 of
principal amount of Notes and 86.9565 shares of New ZeroFox Common Stock (subject to adjustment as provided in the Indenture) per $1,000 of accrued and unpaid interest on any Notes. To the extent the Company exercises its option to pay interest
in kind with respect to the Notes rather than in cash, the number of shares of New ZeroFox Common Stock into which the Notes may be converted would increase. The sale of the Notes may affect our earnings per share, as accounting procedures may
require that we include in our calculation of earnings per share the number of shares of the New ZeroFox Common Stock into which the Notes are convertible.
Upon a conversion of the Notes, we will have the ability to settle by
payment of cash, by issuance of New ZeroFox Common Stock, or a combination of both. If shares of New ZeroFox Common Stock are issued to the holders of the Notes upon conversion, there will be dilution to the Company’s shareholders and the market
price of the New ZeroFox Common Stock may decrease due to the additional selling pressure in the market. Any downward pressure on the price of New ZeroFox Common Stock caused by the sale, or potential sale, of shares issuable upon conversion of
the Notes could also encourage short sales by third parties, creating additional selling pressure on our share price.
We may not have the ability to raise the
funds necessary to settle in cash conversions of the Notes, repurchase the Notes upon a fundamental change or repay the Notes in cash at their maturity, and our future debt may contain limitations on our ability to pay cash upon conversion,
redemption or repurchase of the Notes.
Holders of the Notes will have the right under the Indenture to require
us to repurchase all or a portion of their Notes upon the occurrence of a fundamental change before the applicable maturity date at a repurchase price equal to 100% of the principal amount of such Notes to be repurchased plus accrued and unpaid
interest to, but not including, the repurchase date. Moreover, we will be required to repay the Notes in cash at their maturity, unless earlier converted, redeemed or repurchased. We may not have enough available cash or be able to obtain
financing at the time we are required to make repurchases of such Notes surrendered or pay cash with respect to such Notes being converted (which we otherwise may elect to do upon the conversion of Notes in lieu of issuing shares).
Upon a conversion of the Notes, we will have the ability to settle
by payment of cash, by issuance of New ZeroFox Common Stock, or a combination of both. Our ability to repurchase, redeem or to pay cash upon conversion of Notes may be limited by law, regulatory authority, or agreements governing our future
indebtedness. Our failure to repurchase the Notes at a time when the repurchase is required by the Indenture would constitute a default under such indenture (provided that upon a conversion, we could settle by issuance of New ZeroFox Common
Stock). A default under the Indenture or the fundamental change itself could also lead to a default under agreements governing our future indebtedness. If the payment of the related indebtedness were to be accelerated after any applicable
notice or grace periods, we may not have sufficient funds to repay the interest on such indebtedness and repurchase the Notes or to pay cash upon conversion of the Notes.
107
We may still incur substantially more debt or
take other actions that would diminish our ability to make payments on the Notes when due.
We and our subsidiaries may be able to incur substantial additional
debt in the future, subject to the restrictions contained in our debt instruments, including, pursuant to the Indenture governing the Notes. Pursuant to the Indenture, we and our subsidiaries are not permitted to issue any Senior Indebtedness,
Disqualified Capital Stock and Preferred Stock (each term as defined in the Indenture) in an aggregate principal amount in excess of $50,000,000. However, we will not be restricted from recapitalizing our debt or taking a number of other
actions that are not limited by the terms of the Indenture that could have the effect of diminishing our ability to make payments on the Notes when due.
L&F will not have any right to make damage
claims against the Target Companies’ shareholders for the breach of any representation, warranty or covenant made by the Target Companies in the Business Combination Agreement.
The Business Combination Agreement provides that all of the
representations, warranties and covenants of the parties contained therein shall not survive the closing of the Business Combination, except for those covenants that by their terms apply or are to be performed in whole or in part after the
Closing, and then only with respect to breaches occurring after Closing. Accordingly, there are no remedies available to the parties with respect to any breach of the representations, warranties, covenants or agreements of the parties to the
Business Combination Agreement after the Closing of the Business Combination, except for covenants to be performed in whole or in part after the Closing. As a result, L&F will have no remedy available to it if the Business Combination is
consummated and it is later revealed that there was a breach of any of the representations, warranties and covenants made by the Target Companies at the time of the Business Combination.
L&F does not have a specified maximum
redemption threshold. The absence of such a redemption threshold may make it possible for L&F to complete the Business Combination with which a substantial majority of its shareholders does not agree.
The Business Combination imposes the Available Acquiror Closing Cash
Condition. For more details see “Proposal No. 2 - The Business Combination Proposal — The Business Combination Agreement — Conditions to the Closing of the Business
Combination.” As the proceeds from the Common Equity PIPE Financing and the Convertible Notes Financing are expected to satisfy the Available Acquiror Closing Cash Condition, L&F may be able to complete the Business Combination even
though a substantial majority of the Public Shareholders does not agree with the transaction and have redeemed their shares.
You will not have any rights or interests in
funds from the Trust Account, except under certain limited circumstances. Therefore, to liquidate your investment, you may be forced to sell your Class A Ordinary Shares or L&F Warrants, potentially at a loss.
The Public Shareholders are entitled to receive funds from the Trust
Account only upon the earliest to occur of: (i) L&F’s completion of an initial business combination, and then only in connection with those Class A Ordinary Shares that such shareholder properly elected to redeem, subject to the limitations
and on the conditions described herein; (ii) the redemption of any Public Shares properly submitted in connection with a shareholder vote to amend L&F’s Existing Governing Documents (A) to modify the substance or timing of L&F’s
obligation to allow redemption in connection with its initial business combination or to redeem 100% of its Public Shares if L&F does not complete its initial business combination within 18 months from the closing of the L&F IPO or (B)
with respect to any other material provisions relating to shareholders’ rights or pre-initial business combination activity; and (iii) the redemption of L&F’s Public Shares if it is unable to complete an initial business combination within
18 months from the closing of the L&F IPO, subject to applicable law and as further described herein. In no other circumstances will a Public Shareholder have any right or interest of any kind in the Trust Account. Holders of warrants will
not have any right to the proceeds held in the Trust Account with respect to the warrants. Accordingly, to liquidate your investment, you may be forced to sell your Class A Ordinary Shares or L&F Warrants, potentially at a loss.
The ability of the Public Shareholders to
exercise redemption rights with respect to a large number of its Public Shares may not allow L&F to complete the most desirable business combination or optimize the capital structure of the Company.
At the time of entering into the Business Combination Agreement,
L&F did not know how many shareholders may exercise their redemption rights, and therefore, L&F structured the transaction based on L&F’s
108
expectations as to the number of shares that will be submitted for redemption. The
consummation of the Business Combination is conditioned upon, among other things, (i) the approval by L&F’s shareholders of the Condition Precedent Proposals being obtained; (ii) the applicable waiting period under the HSR Act relating to the
Business Combination Agreement having expired or been terminated (which expired on January 31, 2022); (iii) the Available Closing Acquiror Cash being not less than $170,000,000; (iv) the approval by NYSE or Nasdaq of L&F’s initial listing
application in connection with the Business Combination; and (v) the consummation of the Domestication. Therefore, unless these conditions are waived by the applicable parties to the Business Combination Agreement, the Business Combination
Agreement could terminate and the Business Combination may not be consummated. For further details, see the section titled “Proposal No. 2 - The Business Combination Proposal — The Business Combination Agreement
— Conditions to the Closing of the Business Combination.”
L&F has no operating history, and L&F’s
management has determined that the mandatory liquidation of L&F should an initial business combination not be consummated by May 23, 2022 raises substantial doubt about L&F’s ability to continue as a going concern.
L&F is a blank check company with no operating history or results. L&F’s
management has determined that the mandatory liquidation of L&F, should a business combination not occur by May 23, 2022, and potential subsequent dissolution, raises substantial doubt about L&F’s ability to continue as a going concern.
See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of L&F—Liquidity and Capital Resources.”
L&F and the Target Companies have incurred
and expect to incur significant costs associated with the Business Combination.
L&F and the Target Companies expect to incur significant,
non-recurring costs in connection with consummating the Business Combination and operating as a public company following the Business Combination. The Target Companies may also incur additional costs to retain key employees. All expenses
incurred in connection with the Business Combination Agreement and the transactions contemplated thereby, 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, provided that if the Closing occurs, L&F will bear and pay at or promptly after Closing all L&F and Target Companies’ transaction expenses.
The aggregate transaction expenses as a result of the Business
Combination are expected to be approximately $32 million. The per-share amount we will distribute to shareholders who properly exercise their redemption rights will not be reduced by the transaction expenses and after such redemptions, the
per-share value of shares held by non-redeeming shareholders will reflect our obligation to pay the transaction expenses.
The exercise of L&F’s directors’ and
officers’ discretion in agreeing to changes or waivers in the terms of the Business Combination may result in a conflict of interest when determining whether such changes to the terms of the Business Combination or waivers of conditions are
appropriate and in the best interests of L&F shareholders.
In the period leading up to the closing of the Business Combination,
events may occur that, pursuant to the Business Combination Agreement, would require L&F to agree to amend the Business Combination Agreement, to consent to certain actions taken by the Target Companies or to waive rights that L&F is
entitled to under the Business Combination Agreement. Such events could arise because of changes in the course of the Target Companies’ business, a request by the Target Companies to undertake actions that would otherwise be prohibited by the
terms of the Business Combination Agreement or the occurrence of other events that would have a material adverse effect on the Target Companies’ business and would entitle L&F to terminate the Business Combination Agreement. In any of such
circumstances, it would be at L&F’s discretion, acting through its board of directors, to grant its consent or waive those rights. The existence of the financial and personal interests of the directors described in the preceding risk
factors may result in a conflict of interest on the part of one or more of the directors between what they may believe is best for L&F and what they may believe is best for themselves in determining whether or not to take the requested
action. As of the date of this proxy statement/prospectus, L&F does not believe there will be any material changes or waivers that L&F’s directors and officers would be likely to make after the mailing of this proxy
statement/prospectus. L&F will circulate a supplemental or amended proxy statement/prospectus if changes to the terms of the Business Combination that would have a material impact on its shareholders are required prior to the vote on the
Business Combination proposal.
109
If, after L&F distributes the proceeds in
the Trust Account to the Public Shareholders, it files a bankruptcy or insolvency petition or an involuntary bankruptcy or insolvency petition is filed against it that is not dismissed, a bankruptcy or insolvency court may seek to recover such
proceeds, and the members of the L&F Board may be viewed as having breached their fiduciary duties to the creditors of L&F, thereby exposing L&F and the members of the L&F Board to claims of punitive damages.
If, after L&F distribute the proceeds in the Trust Account to the
Public Shareholders, it files a bankruptcy or insolvency petition or an involuntary bankruptcy or insolvency petition is filed against it that is not dismissed, any distributions received by the Public Shareholders could be viewed under
applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy or insolvency court could seek to recover some or all amounts received by the Public Shareholders. In
addition, the L&F Board may be viewed as having breached its fiduciary duty to the creditors of L&F and/or having acted in bad faith, thereby exposing itself and L&F to claims of punitive damages, by paying Public Shareholders from
the Trust Account prior to addressing the claims of creditors.
If, before distributing the proceeds in the Trust
Account to the Public Shareholders, L&F files a bankruptcy or insolvency petition or an involuntary bankruptcy or insolvency petition is filed against L&F that is not dismissed, the claims of creditors in such proceeding may have priority
over the claims of L&F shareholders and the per-share amount that would otherwise be received by L&F shareholders in connection with L&F’s liquidation may be reduced.
If, before distributing the proceeds in the Trust Account to the Public
Shareholders, L&F files a bankruptcy or insolvency petition or an involuntary bankruptcy or insolvency petition is filed against L&F that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy
law, and may be included in L&F’s bankruptcy estate and subject to the claims of third parties with priority over the claims of L&F’s shareholders. To the extent any bankruptcy claims deplete the Trust Account, the per-share amount that
would otherwise be received by L&F’s shareholders in connection with L&F’s liquidation may be reduced.
Risks Related to the Consummation of the Domestication and the Adoption
of the Proposed Governing Documents
All references in this section to “we,” “us” or “our” mean L&F prior
to the Closing and the Company after the Closing, as the context requires. References to the “Company” refer to New ZeroFox and its consolidated subsidiaries subsequent to the Business Combination.
The Domestication may result in adverse tax
consequences for holders of the L&F Public Shares and public warrants.
As discussed more fully under “Certain
Material United States Federal Income Tax Considerations,” the Domestication generally should qualify as an F Reorganization. However, L&F has not requested, and does not intend to request, a ruling from the
IRS as to the U.S. federal income tax consequences of the Domestication. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a contrary position. Accordingly, each U.S. Holder of our
securities is urged to consult its tax advisor with respect to the particular tax consequences of the Domestication to such U.S. Holder. If the Domestication qualifies as a reorganization within the meaning of Section 368(a)(1)(F) of the Code,
U.S. Holders (as defined in “Certain Material United States Federal Income Tax Considerations — U.S. Holders” below) will be subject to Section 367(b) of the Code
and, as a result of the Domestication:
|
•
|
a U.S. Holder that holds Public Shares that have a fair market value of less than $50,000 on the date of the Domestication and
that is not a U.S. Shareholder (as defined herein) on the date of the Domestication generally will not recognize any gain or loss and will not be required to include any part of L&F’s earnings in income;
|
|
•
|
a U.S. Holder that holds Public Shares that have a fair market value of $50,000 or more on the date of the Domestication and
that is not a U.S. Shareholder (as defined herein) on the date of the Domestication generally will recognize gain (but not loss) on the exchange of L&F Public Shares for ZeroFox Holdings, Inc.’s Common Stock pursuant to the
Domestication. As an alternative to recognizing gain, such U.S. Holder may file an election to include in income as a deemed dividend the “all earnings and profits amount,” as defined in the U.S. Department of the Treasury Regulations
under Section 367(b) of the Code, attributable to its Public Shares provided certain other requirements are satisfied; and
|
110
|
•
|
a U.S. Holder that, on the date of the Domestication, owns (directly or constructively) 10% or more of the total combined
voting power of all classes of our stock entitled to vote or 10% or more of the total value of all classes of our stock (a “U.S. Shareholder”) generally will be required to include in income as a deemed dividend the “all earnings and
profits amount” attributable to its Public Shares provided certain other requirements are satisfied. Any such U.S. Holder that is a corporation may, under certain circumstances, effectively be exempt from taxation on a portion or all of
the deemed dividend pursuant to Section 245A of the Code (commonly referred to as the participation exemption).
|
L&F does not expect to have significant cumulative earnings and
profits through the date of the Domestication.
Furthermore, even if the Domestication qualifies as an F
Reorganization, a U.S. Holder of L&F Public Shares or public warrants may, in certain circumstances, still recognize gain (but not loss) upon the exchange of its L&F Public Shares or public warrants for the common stock or warrants of
ZeroFox Holdings, Inc. pursuant to the Domestication under the “passive foreign investment company,” or PFIC, rules of the Code. Proposed Treasury Regulations with a retroactive effective date have been promulgated under Section 1291(f) of the
Code that generally require that a U.S. person who disposes of stock of a PFIC (including for this purpose exchanging public warrants for newly issued warrants in the Domestication) must recognize gain equal to the excess, if any, of the fair
market value of the common stock or warrants of ZeroFox Holdings, Inc. received in the Domestication and the U.S. Holder’s adjusted tax basis in the corresponding L&F Public Shares or public warrants surrendered in exchange therefor,
notwithstanding any other provision of the Code. Because L&F is a blank check company with no current active business, we believe that L&F likely is classified as a PFIC for U.S. federal income tax purposes. As a result, these proposed
Treasury Regulations, if finalized in their current form, would generally require a U.S. Holder of L&F Public Shares or public warrants to recognize gain on the exchange of such shares or warrants for common stock or warrants of ZeroFox
Holdings, Inc. pursuant to the Domestication, unless, in the case of only common stock, such U.S. Holder has made certain tax elections with respect to such U.S. Holder’s Public Shares. A U.S. Holder cannot currently make the aforementioned
elections with respect to such U.S. Holder’s public warrants. The tax on any such gain so recognized would be imposed at the rate applicable to ordinary income and an interest charge would apply based on complex rules designed to offset the tax
deferral to such U.S. Holder on the undistributed earnings, if any, of L&F. It is not possible to determine at this time whether, in what form, and with what effective date, final Treasury Regulations under Section 1291(f) of the Code will
be adopted. For a more complete discussion of the potential application of the PFIC rules to U.S. Holders as a result of the Domestication, see the discussion in the section entitled “Certain Material
United States Federal Income Tax Considerations — U.S. Holders — PFIC Considerations.”
Additionally, the Domestication may cause non-U.S. Holders (as
defined in “Certain Material United States Federal Income Tax Considerations — Non-U.S. Holders”) to become subject to U.S. federal income withholding taxes on any dividends
paid in respect of such non-U.S. Holder’s ZeroFox Holdings, Inc.’s public shares after the Domestication.
The tax consequences of the Domestication are complex and will
depend on a holder’s particular circumstances. All holders are urged to consult their tax advisor on the tax consequences to them of the Domestication, including the applicability and effect of U.S. federal, state, local and foreign income and
other tax laws. For a more complete discussion of the U.S. federal income tax considerations of the Domestication, see “Certain Material United States Federal Income Tax Considerations.”
For a description of the tax consequences for shareholders
exercising redemption rights in connection with the Business Combination, see the sections entitled “Certain Material United States Federal Income Tax Considerations — U.S. Holders
— Effects to U.S. Holders of Exercising Redemption Rights” and “Certain Material United States Federal Income Tax Considerations — Non-U.S. Holders — Effects of
Exercising Redemption Rights to Non-U.S. Holders.”
The Proposed Certificate of Incorporation will
not limit the ability of the Sponsor or its affiliates to compete with us.
The Sponsor and its affiliates engage in a broad spectrum of
activities. In the ordinary course of their business activities, the Sponsor and its affiliates may engage in activities where their interests conflict with the Company’s interests or those of its shareholders. The Proposed Certificate of
Incorporation will provide that none of the Company’s non-employee directors or his or her affiliates will have any duty to refrain from engaging,
111
directly or indirectly, in the same business activities or similar business activities
or lines of business in which the Company operates. The Sponsor and its affiliates also may pursue, in their capacities other than as directors of the New ZeroFox Board, acquisition opportunities that may be complementary to the Company’s
business, and, as a result, those acquisition opportunities may not be available to the Company. In addition, the Sponsor may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its
investment, even though such transactions might involve risks to you.
Provisions in the Proposed Governing Documents
and provisions of the DGCL may delay or prevent an acquisition by a third party that could otherwise be in the interests of shareholders.
The Company’s Proposed Certificate of Incorporation and the Company’s
Proposed Bylaws to be in effect following the Closing of the Business Combination will contain several provisions that may make it more difficult or expensive for a third party to acquire control of the Company without the approval of the New
ZeroFox Board. These provisions, which may delay, prevent or deter a merger, acquisition, tender offer, proxy contest, or other transaction that shareholders may consider favorable, include the following:
|
•
|
the division of the New ZeroFox Board into three classes and the election of each class for three-year terms;
|
|
•
|
advance notice requirements for shareholder proposals and director nominations;
|
|
•
|
provisions limiting shareholders’ ability to call special meetings of shareholders and to take action by written consent;
|
|
•
|
restrictions on business combinations with interested stockholders;
|
|
•
|
in certain cases, the approval of holders representing at least two-thirds of the total voting power of the shares entitled to
vote will be required for shareholders to adopt, amend or repeal certain provisions of the Proposed Bylaws, or amend or repeal certain provisions of the Proposed Certificate of Incorporation;
|
|
•
|
no cumulative voting; and
|
|
•
|
the ability of the board of directors to designate the terms of and issue new series of preferred stock without shareholder
approval, which could be used, among other things, to institute a rights plan that would have the effect of significantly diluting the stock ownership of a potential hostile acquirer, likely preventing acquisitions by such acquirer.
|
These provisions of the Proposed Certificate of Incorporation and
Proposed Bylaws could discourage potential takeover attempts and reduce the price that investors might be willing to pay for the shares of New ZeroFox Common Stock in the future, which could reduce the market price of the common stock. For more
information, see the section titled “Description of Securities”.
The provision of the Proposed Certificate of
Incorporation to be in effect following the Business Combination requiring exclusive venue in the Court of Chancery in the State of Delaware and the federal district courts of the United States for certain types of lawsuits may have the effect of
discouraging lawsuits against directors and officers.
The Proposed Certificate of Incorporation will provide that, unless
otherwise consented to by the Company in writing, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in 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 the following types of actions or proceedings: (i) any derivative action or proceeding brought on behalf of the Company; (ii) any action asserting a
claim of breach of a duty (including any fiduciary duty) owed by any current or former director, officer, shareholder, employee or agent of the Company to the Company or the Company’s shareholders; (iii) any action asserting a claim against the
Company or any current or former director, officer, shareholder, employee or agent of the Company relating to any provision of the DGCL or the Proposed Certificate of Incorporation or the Proposed Bylaws or as to which the DGCL confers
jurisdiction on the Court of Chancery of the State of Delaware; and (iv) any action asserting a claim against the Company or any current or former director, officer, shareholder, employee or agent of the Company governed by the internal affairs
doctrine of the State of Delaware, in each such case unless the Court of Chancery (or such other state or federal court located within the
112
State of Delaware, as applicable) has dismissed a prior action by the same plaintiff
asserting the same claims because such court lacked personal jurisdiction over an indispensable party named as a defendant therein. The Proposed Certificate of Incorporation will further provide that, unless otherwise consented to by the Company
in writing to the selection of an alternative forum, the federal district courts of the United States will, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint against any person in
connection with any offering of the Company’s securities, asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in the Company’s securities will be deemed to have notice
of and consented to this provision.
Although the Proposed Certificate of Incorporation contains the choice
of forum provisions described above, it is possible that a court could rule that such provisions are inapplicable for a particular claim or action or that such provisions are unenforceable. For example, under the Securities Act, federal courts
have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. In addition,
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, therefore, the exclusive forum provisions
described above do not apply to any actions brought under the Exchange Act.
Although we believe these provisions will benefit us by limiting costly
and time-consuming litigation in multiple forums and by providing increased consistency in the application of applicable law, these exclusive forum provisions may limit the ability of our shareholders to bring a claim in a judicial forum that
such shareholders find favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers and other employees.
Risks Related to Redemption
All references in this section to “we,” “us” or “our” mean L&F prior
to the Closing and the Company after the Closing, as the context requires. References to the “Company” refer to New ZeroFox and its consolidated subsidiaries subsequent to the Business Combination.
There is no guarantee that a Public Shareholder’s
decision whether to redeem its shares for a pro rata portion of the Trust Account will put the shareholder in a better future economic position.
L&F can give no assurance as to the price at which a Public
Shareholder may be able to sell the shares of New ZeroFox Common Stock in the future following the completion of the Business Combination or any alternative business combination. Certain events following the consummation of any initial business
combination, including the Business Combination, may cause an increase in New ZeroFox’s stock price, and may result in a lower value realized now than a Public Shareholder of L&F might realize in the future had the shareholder not redeemed
its shares. Similarly, if a Public Shareholder does not redeem its shares, the shareholder will bear the risk of ownership of New ZeroFox Common Stock after the consummation of the Business Combination, and there can be no assurance that a
shareholder can sell its shares of New ZeroFox Common Stock in the future for a greater amount than the redemption price set forth in this proxy statement/prospectus. A Public Shareholder should consult his, her or its own tax and/or financial
advisor for assistance on how this may affect his, her or its individual situation.
If Public Shareholders fail to receive notice of
the L&F offer to redeem their Class A Ordinary Shares in connection with the Business Combination, or if Public Shareholders fail to demand redemption rights properly, they will not be entitled to have their Class A Ordinary Shares redeemed
for a pro rata portion of the Trust Account.
L&F will comply with the proxy rules or tender offer rules, as
applicable, when conducting redemptions in connection with the Business Combination. Despite L&F’s compliance with these rules, if a Public Shareholder fails to receive L&F’s proxy materials or tender offer documents, as applicable, such
Public Shareholder may not become aware of the opportunity to redeem its shares. Public Shareholder holding Class A Ordinary Shares may demand that L&F redeem their shares for a pro rata portion of the Trust Account, calculated as of two
business days prior to the anticipated consummation of the Business Combination, including interest earned on the Trust Account and not previously released to L&F to pay its tax obligations. Public Shareholders who seek to exercise this
redemption right must deliver their shares (either physically or electronically) to L&F’s transfer agent two business days prior to the Shareholder Meeting. Any Public Shareholder who fails to deliver its shares properly
113
as described in this proxy statement/prospectus will not be entitled to have its shares
redeemed. See the section titled “Shareholder Meeting — Redemption Rights” for the procedures to be followed if you wish to have your Class A Ordinary Shares redeemed.
If you or a “group” of shareholders are deemed
to hold in excess of 15% of the outstanding Class A Ordinary Shares, you will lose the ability to redeem all such shares in excess of 15% of the outstanding Class A Ordinary Shares.
The Existing Governing Documents provide that a Public Shareholder,
together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13(d) of the Exchange Act), is restricted from redeeming its shares with respect to
more than an aggregate of 15% of the outstanding shares, which we refer to as the “Excess Shares,” without L&F’s prior consent. However, L&F would not be restricting its shareholders’ ability to vote all of their shares (including
Excess Shares) for or against the Business Combination or another initial business combination. Your inability to redeem the Excess Shares will reduce your influence over L&F’s ability to complete the Business Combination or another initial
business combination and you could suffer a material loss on your investment in L&F if you sell Excess Shares in open market transactions. Additionally, you will not receive redemption distributions with respect to the Excess Shares if
L&F consummates the Business Combination. As a result, you will continue to hold that number of shares exceeding 15% and, in order to dispose of such shares, would be required to sell your shares in open market transactions, potentially at
a loss.
Public Shareholders who redeem their Class A
Ordinary Shares may continue to hold any L&F Public Warrants they own, which will result in additional dilution to non-redeeming holders upon exercise of the L&F Public Warrants.
Public Shareholders who redeem their Class A Ordinary Shares may
continue to hold any L&F Public Warrants they owned prior to redemption, which will result in additional dilution to non-redeeming holders upon exercise of such L&F Public Warrants. Assuming (i) all redeeming Public Shareholders acquired
L&F Public Units in the L&F IPO and continue to hold the L&F Public Warrants that were included in the L&F Public Units, and (ii) maximum redemption of Class A Ordinary Shares held by the redeeming Public Shareholders, 8,625,000
Public Warrants would be retained by redeeming Public Shareholders with a value of approximately $ , based on the market price of $ per warrant based on the closing price of the L&F Public Warrants on the NYSE on , 2022. As a result
of the Redemption, the redeeming Public Shareholders would recoup their entire investment and continue to hold L&F Public Warrants with an aggregate market value of approximately $ , while non-redeeming Public Shareholders would suffer
additional dilution in their percentage ownership and voting interest of the post-Business Combination company to the extent such warrants are exercised and additional shares of New ZeroFox Common Stock are issued.
Risks if the Adjournment Proposal is Not Approved
If the Adjournment Proposal is not approved, and
an insufficient number of votes have been obtained to authorize the consummation of the Business Combination, L&F’s board of directors may not have the ability to adjourn the Shareholder Meeting to a later date in order to solicit further
votes, and, therefore, the Business Combination will not be approved.
The L&F Board of directors is seeking approval to adjourn the
Shareholder Meeting to a later date or dates if necessary to permit further solicitation and votes of proxies if, based upon tabulated votes at the time of the Shareholder Meeting, there are insufficient L&F Ordinary Shares represented
(either in person or by proxy) to constitute a quorum necessary to conduct business at the Shareholder Meeting or to approve the Articles Amendment Proposal, the Business Combination Proposal, the Domestication Proposal, the Governing Documents
Proposal, the Advisory Governing Documents Proposals, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal or the Director Election Proposal. If the Adjournment Proposal is not approved, the
L&F Board may not have the ability to adjourn the Shareholder Meeting to a later date and, therefore, the Business Combination would not be completed.
114
Risks Related to Being a Public Company
All references in this section to “we,” “us” or “our” mean L&F prior
to the Closing and the Company after the Closing, as the context requires. References to the “Company” refer to New ZeroFox and its consolidated subsidiaries subsequent to the Business Combination.
The Company will qualify as an “emerging growth
company.” The reduced public company reporting requirements applicable to emerging growth companies may make its common stock less attractive to investors.
Following the consummation of the Business Combination, we will qualify
as an “emerging growth company” under SEC rules. As an emerging growth company, we will be permitted and plan to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth
companies. These provisions include, but are not limited to: (1) an exemption from compliance with the auditor attestation requirement in the assessment of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley
Act of 2002, (2) not being required to comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial
statements, (3) reduced disclosure obligations regarding executive compensation arrangements in periodic reports, registration statements, and proxy statements, and (4) exemptions from the requirements of holding a nonbinding advisory vote on
executive compensation and shareholder approval of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial
accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new
or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out
is irrevocable. As a result, the information we provide will be different than the information that is available with respect to other public companies that are not emerging growth companies. If some investors find the New ZeroFox Common Stock
less attractive as a result, there may be a less active trading market for the New ZeroFox Common Stock, and the market price of the New ZeroFox Common Stock may be more volatile.
ZeroFox management has limited experience in
operating a public company.
The executive officers of ZeroFox have limited experience in the
management of a publicly traded company. The ZeroFox management team may not successfully or effectively manage our 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 Company. The Company may not have adequate personnel with the appropriate level of knowledge, experience, and training in the accounting policies,
practices or internal control over financial reporting required of public companies in the United States. The development and implementation of the standards and controls necessary for the Company to achieve the level of accounting standards
required of a public company in the United States may require costs greater than expected. It is possible that the 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.
Following the consummation of the Business
Combination, the Company will incur significant increased expenses and administrative burdens as a public company, which could negatively impact its business, financial condition and results of operations.
Following the consummation of the Business Combination, we will face
increased legal, accounting, administrative and other costs and expenses as a public company that the Target Companies have not historically incurred as private companies. The Sarbanes-Oxley Act, including the requirements of Section 404(a)
relating to disclosing (i) management’s responsibility for establishing and maintaining internal control over financial reporting and (ii) annually assessing the effectiveness of the internal control over financial reporting, as well as rules and
regulations subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations promulgated and to be promulgated thereunder, the PCAOB and the securities exchanges, impose
additional reporting and other obligations on public companies. Compliance with public company requirements will increase costs and make certain activities more time-consuming. Our management and other personnel will be required to devote a
substantial amount of time to compliance with these requirements.
115
A number of these requirements will require us to carry out
activities that we have not done previously. For example, we will create new board committees and adopt new internal controls and disclosure controls and procedures. In addition, expenses associated with SEC reporting requirements will be
incurred. Furthermore, if any issues in complying with those requirements are identified (for example, if we identify a material weakness or significant deficiency in the internal control over financial reporting), we could incur additional costs
rectifying those issues, and the existence of those issues could harm our reputation or investor perceptions of it. It may also be more expensive to obtain director and officer liability insurance. Risks associated with our status as a public
company may make it more difficult to attract and retain qualified persons to serve on the board of directors of the Company or as executive officers. The additional reporting and other obligations imposed by these rules and regulations will
increase legal and financial compliance costs and the costs of related legal, accounting and administrative activities. These increased costs will require us to divert a significant amount of money that could otherwise be used to expand the
business and achieve strategic objectives. Advocacy efforts by shareholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase our costs.
The Company has no current plans to pay cash
dividends on the New ZeroFox Common Stock. As a result, shareholders may not receive any return on investment unless they sell their common stock for a price greater than the purchase price.
We have no current plans to pay dividends on the New ZeroFox Common
Stock. Any future determination to pay dividends will be made at the discretion of the New ZeroFox Board, subject to applicable laws. It will depend on a number of factors, including our financial condition, results of operations, capital
requirements, contractual, legal, tax and regulatory restrictions, general business conditions, and other factors that the New ZeroFox Board may deem relevant. In addition, the ability to pay cash dividends may be restricted by the terms of debt
financing arrangements, as any future debt financing arrangement likely will contain terms restricting or limiting the amount of dividends that may be declared or paid on the New ZeroFox Common Stock. As a result, shareholders may not receive any
return on an investment in the New ZeroFox Common Stock unless they sell their shares for a price greater than that which they paid for them.
116
General
L&F is furnishing this proxy statement/prospectus to its
shareholders as part of the solicitation of proxies by L&F’s Board for use at the Shareholder Meeting to be held on , 2022, and at any postponements or adjournments thereof. This proxy statement/prospectus is first being furnished to
L&F’s shareholders on or about , 2022 in connection with the vote on the proposals described in this proxy statement/prospectus. This proxy statement/prospectus provides L&F’s shareholders with information they need to know to be able
to vote or instruct their vote to be cast at the Shareholder Meeting.
Date, Time and Place of Shareholder Meeting
The Shareholder Meeting will be held on , 2022 at a.m., Eastern
Time, at the offices of Kirkland & Ellis LLP located at 601 Lexington Avenue, New York, New York 10022, and via a virtual meeting, or at such other time, on such other date and at such other place to which the meeting may be postponed or
adjourned.
Shareholders may attend the Shareholder Meeting in person. However,
in view of the ongoing COVID-19 pandemic, we are taking precautionary measures and therefore encourage you to attend the Shareholder Meeting virtually. If you wish to attend the Shareholder Meeting in person, you must reserve your attendance at
least two business days in advance of the Shareholder Meeting by contacting L&F’s investor relations department at by 9:00 a.m., Eastern Time, on (two business days prior to the meeting date).
You can pre-register to attend the virtual Shareholder Meeting starting
, 2022 at 9:00 a.m., Eastern Time (five business days prior to the meeting date). Enter the URL address into your browser https://www.cstproxy.com/ , enter your control number, name and email address. Once you pre-register you can vote or
enter questions in the chat box. At the start of the Shareholder Meeting you will need to log in again using your control number and will also be prompted to enter your control number if you vote during the Shareholder Meeting.
Shareholders who hold their investments through a bank or broker, will
need to contact the Transfer Agent to receive a control number. If you plan to vote at the Shareholder Meeting you will need to have a legal proxy from your bank or broker or if you would like to join and not vote, the Transfer Agent will issue
you a guest control number with proof of ownership. Either way you must contact the Transfer Agent for specific instructions on how to receive the control number. The Transfer Agent can be contacted at 917-262-2373, or via email at
proxy@continentalstock.com. Please allow up to 72 hours prior to the meeting for processing your control number.
If you do not have access to Internet, you can listen only to the
meeting by dialing (or if you are located outside the United States and Canada (standard rates apply)) and when prompted enter the pin number . Please note that you will not be able to vote or ask questions at the Shareholder Meeting
if you choose to participate telephonically.
Purpose of the Shareholder Meeting
At the Shareholder Meeting, L&F is asking holders of L&F
Ordinary Shares to consider and vote upon:
|
•
|
the Articles Amendment Proposal;
|
|
•
|
the Business Combination Proposal;
|
|
•
|
the Domestication Proposal;
|
|
•
|
the Governing Documents Proposal;
|
|
•
|
the Advisory Governing Documents Proposals;
|
|
•
|
the Listing Proposal;
|
|
•
|
the Incentive Equity Plan Proposal;
|
|
•
|
the Employee Stock Purchase Plan Proposal;
|
117
|
•
|
the Director Election Proposal; and
|
|
•
|
the Adjournment Proposal.
|
Each of the Condition Precedent Proposals is conditioned on the
approval and adoption of each of the other Condition Precedent Proposals. The Condition Precedent Proposals will be presented to the shareholders for a vote only if the Articles Amendment Proposal is approved. The Advisory Governing Documents
Proposals will be presented to the shareholders for a vote only if the Business Combination Proposal is approved. The Articles Amendment Proposal and the Adjournment Proposal are not conditioned upon the approval of any other proposal, though the
special resolution contemplated by the Articles Amendment Proposal will be adopted only if the Business Combination Proposal is approved.
Recommendation of the L&F Board with Respect to the Proposals
The Board believes that the Business Combination Proposal and the other
proposals to be presented at the Shareholder Meeting are in the best interests of L&F’s shareholders and unanimously recommends that our shareholders vote “FOR” the Articles Amendment Proposal, “FOR” the Business Combination Proposal, “FOR”
the Domestication Proposal, “FOR” the Governing Documents Proposal, “FOR” each of the Advisory Governing Documents Proposals, “FOR” the Listing Proposal, “FOR” the Incentive Equity Plan Proposal, “FOR” the Employee Stock Purchase Plan Proposal,
“FOR” each of the director nominees set forth in the Director Election Proposal, and “FOR” the Adjournment Proposal, in each case, if presented to the Shareholder Meeting.
The existence of financial and personal interests of L&F’s
directors and officers may result in conflicts of interest, including a conflict between what may be in the best interests of L&F and its shareholders and what may be best for a director’s personal interests when determining to recommend
that shareholders vote for the proposals. These conflicts of interest include, among other things, that if we do not consummate an initial business combination by May 23, 2022 (or such later date as may be approved by L&F's shareholders),
we may be forced to liquidate, and the 4,312,500 Founder Shares owned by the Sponsor Holders and 5,450,000 Private Placement Warrants owned by our Sponsor, of which our directors and officers are members, would be worthless. See the sections
titled “Proposal No. 2 - The Business Combination Proposal — Interests of Certain Persons in the Business Combination,”
“Certain Relationships and Related Person Transactions,” “Executive and Director Compensation - Director Compensation”
and “Beneficial Ownership of Securities” for more information.
Record Date; Who is Entitled to Vote
We have fixed the close of business on , 2022, as the “record date”
for determining the shareholders entitled to notice of and to attend and vote at the Shareholder Meeting. As of the close of business on , 2022, there were 21,562,500 L&F Ordinary Shares outstanding and entitled to vote. Each L&F
Ordinary Share is entitled to one vote per share at the Shareholder Meeting.
The L&F Initial Shareholders entered into a Sponsor Support
Letter Agreement to vote their Class B Ordinary Shares and any Public Shares purchased during or after the L&F IPO, in favor of the Business Combination Proposal and the other proposals to be voted upon at the Shareholder Meeting. As of the
date hereof, the L&F Initial Shareholders own 20% of the total outstanding L&F Ordinary Shares.
Quorum
The presence (which would include presence at the virtual
Shareholder Meeting), in person or by proxy, of shareholders holding a majority of the L&F Ordinary Shares at the Shareholder Meeting constitutes a quorum at the Shareholder Meeting. Abstentions will be considered present for the purposes
of establishing a quorum. The L&F Initial Shareholders, who own 20% of the issued and outstanding L&F Ordinary Shares as of the record date, will count towards this quorum. As a result, as of the record date, in addition to the shares
of the L&F Initial Shareholders, an additional 6,468,751 L&F Ordinary Shares held by Public Shareholders would be required to be present at the Shareholder Meeting to achieve a quorum. In the absence of a quorum, the chairman of the
Shareholder Meeting has the power to adjourn the Shareholder Meeting.
Abstentions
Abstentions will be considered present for the purposes of establishing
a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no effect on the approval of any of the proposals voted upon at the Shareholder Meeting.
118
Under NYSE rules, if a shareholder holds their shares in “street”
name through a bank, broker or other nominee and the shareholder does not instruct their broker, bank or other nominee how to vote their shares on a proposal, the broker, bank or other nominee has the authority to vote the shares in its
discretion on certain “routine” matters. However, banks, brokers and other nominees are not authorized to exercise their voting discretion on any “non-routine” matters. This can result in a “broker non-vote,” which occurs on a proposal when (i) a
bank, broker or other nominee has discretionary authority to vote on one or more “routine” proposals to be voted on at a meeting of shareholders, (ii) there are one or more “non-routine” proposals to be voted on at the meeting for which the bank,
broker or other nominee does not have authority to vote without instructions from the beneficial owner of the shares and (iii) the beneficial owner fails to provide the bank, broker or other nominee with voting instructions on a “non-routine”
matter.
We believe that all of the proposals to be voted on at the Shareholder
Meeting will be considered non-routine matters. As a result, if you hold your shares in street name, your bank, brokerage firm or other nominee cannot vote your shares on any of the proposals to be voted on at the Shareholder Meeting without your
instruction.
Because all of the proposals to be voted on at the Shareholder Meeting
are “non-routine” matters, banks, brokers and other nominees will not have authority to vote on any proposals unless instructed, so L&F does not expect there to be any broker non-votes at the Shareholder Meeting.
Vote Required for Approval
The approval of the Articles Amendment Proposal requires a special
resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to
vote thereon at the Shareholder Meeting.
The approval of the Business Combination Proposal requires an
ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote
thereon at the Shareholder Meeting
The approval of the Domestication Proposal requires a special
resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to
vote thereon at the Shareholder Meeting.
The approval of the Governing Documents Proposal requires a special
resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to
vote thereon at the Shareholder Meeting.
The approval of each of the Advisory Governing Documents Proposals
requires an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to
vote thereon at the Shareholder Meeting. Each of the Advisory Governing Documents Proposals will be voted upon on a non-binding advisory basis only.
The approval of the Listing Proposal requires an ordinary resolution
under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder
Meeting.
The approval of the Director Election Proposal requires an ordinary
resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued Class B Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the
Shareholder Meeting. Pursuant to the Sponsor Support Letter Agreement, the L&F Initial Shareholders have agreed to vote their Class B Ordinary Shares in favor of the Director Election Proposal and the election of the director nominees is
therefore assured.
119
The approval of the Incentive Equity Plan Proposal requires an
ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote
thereon at the Shareholder Meeting.
The approval of the Employee Stock Purchase Plan Proposal requires
an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote
thereon at the Shareholder Meeting.
The approval of the Adjournment Proposal requires an ordinary
resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the
Shareholder Meeting.
Voting Your Shares
If you were a holder of record of L&F Ordinary Shares as of the
close of business on , 2022, the record date for the Shareholder Meeting, you may vote with respect to the proposals in person or virtually at the Shareholder Meeting, or by completing, signing, dating and returning the enclosed proxy card in
the postage-paid envelope provided. Your proxy card shows the number of L&F Ordinary Shares that you own. 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.
There are three ways to vote your L&F Ordinary Shares at the
Shareholder Meeting:
Voting by Mail.
By signing the proxy card and returning it in the enclosed prepaid and addressed envelope, you are authorizing the individuals named on the proxy card to vote your shares at the Shareholder Meeting in the manner you indicate. You are encouraged
to sign and return the proxy card even if you plan to attend the Shareholder Meeting so that your shares will be voted if you are unable to attend the Shareholder Meeting. If you receive more than one proxy card, it is an indication that your
shares are held in multiple accounts. Please sign and return all proxy cards to ensure that all of your shares are voted. Votes submitted by mail must be received by 5:00 p.m., Eastern Time, on , 2022.
Voting in Person at the Meeting. If you attend the Shareholder Meeting and plan to vote in person, you will be provided with a ballot at the Shareholder Meeting. If your shares are registered directly in your name, you are considered the
shareholder of record and you have the right to vote in person at the Shareholder Meeting. If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or other nominee, you should follow the
instructions provided by your broker, bank or nominee to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the record holder of your shares with instructions on how to vote your
shares or, if you wish to attend the Shareholder Meeting and vote in person, you will need to bring to the Shareholder Meeting a legal proxy from your broker, bank or nominee authorizing you to vote these shares.
Voting Electronically. You may attend, vote and examine the list of shareholders entitled to vote at the Shareholder Meeting by visiting https://www.cstproxy.com/ and entering the control number found on your proxy card, voting instruction form or
notice included in the proxy materials.
Revoking Your Proxy
If you give a proxy, you may revoke it at any time before the
Shareholder Meeting or at the Shareholder Meeting by doing any one of the following:
|
•
|
you may send another proxy card with a later date;
|
|
•
|
you may notify L&F’s Secretary in writing to L&F Acquisition Corp., 150 North Riverside Plaza, Suite 5200, Chicago,
Illinois 60606, before the Shareholder Meeting that you have revoked your proxy; or
|
|
•
|
you may attend the Shareholder Meeting, revoke your proxy, and vote in person, as indicated above.
|
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.
120
Who Can Answer Your Questions About Voting Your Shares?
If you are an L&F shareholder and have any questions about how
to vote or direct a vote in respect of your L&F Ordinary Shares, you may call Morrow Sodali, our proxy solicitor, by calling (800) 662-5200 (toll-free), or banks and brokers can call (203) 658-9400, or by emailing
LNFA.info@investor.morrowsodali.com.
Vote of L&F’s Sponsor, Directors and Officers
The L&F Initial Shareholders entered into a Sponsor Support
Letter Agreement to vote their Class B Ordinary Shares and any Public Shares purchased during or after the L&F IPO, in favor of the Business Combination Proposal and the other proposals to be voted upon at the Shareholder Meeting. As of the
date hereof, the L&F Initial Shareholders own 20% of the total outstanding L&F Ordinary Shares.
Redemption Rights
Pursuant to the Existing Governing Documents, holders of Class A
Ordinary Shares may seek to redeem their shares for cash, regardless of whether they vote for or against, or whether they abstain from voting on, the Business Combination Proposal. Any shareholder holding Class A Ordinary Shares may demand that
L&F redeem such shares for a full pro rata portion of the Trust Account (which, for illustrative purposes, was $ per share as of , 2022, the record date for the meeting), 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, L&F 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.
As a holder of Class A Ordinary Shares, you will be entitled to receive
cash for any Class A Ordinary Shares to be redeemed only if you:
|
(i)
|
hold Class A Ordinary Shares;
|
|
(ii)
|
submit a written request to Continental, L&F’s transfer agent, in which you (i) request that L&F redeem all or a portion
of your Class A Ordinary Shares for cash, and (ii) identify yourself as the beneficial holder of the Class A Ordinary Shares and provide your legal name, phone number and address; and
|
|
(iii)
|
deliver your Class A Ordinary Shares to Continental, L&F’s transfer agent, physically or electronically through DTC.
|
Holders must complete the procedures for electing to
redeem their Class A Ordinary Shares in the manner described above prior to 5:00 p.m., Eastern Time, on , 2022 (two business days before the Shareholder Meeting) in order for their shares to be redeemed.
The redemption rights include the requirement that a holder must
identify itself in writing as a beneficial holder and provide its legal name, phone number and address to Continental in order to validly redeem its shares. If the Business Combination is not consummated, the Class A Ordinary Shares will be
returned to the respective holder, broker or bank.
If you hold the shares in “street name,” you will have to coordinate
with your broker to have your shares certificated or delivered electronically. Shares of L&F 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 DTC’s DWAC system. The Transfer Agent will typically charge the tendering broker $80 and it would be up to the broker whether
or not to pass this cost on to the redeeming shareholder. In the event the proposed Business Combination is not consummated this may result in an additional cost to shareholders for the return of their shares.
Any request for redemption, once made by a holder of Class A Ordinary
Shares, may not be withdrawn following the Redemption Deadline, unless the L&F Board determines (in its sole discretion) to permit such withdrawal of a redemption request (which it may do in whole or in part).
Any corrected or changed written exercise of redemption rights must be
received by Continental, L&F’s transfer agent, at least two business days prior to the Shareholder Meeting. No request for redemption will be
121
honored unless the holder’s Class A Ordinary Shares have been delivered (either
physically or electronically) to Continental, L&F’s transfer agent, prior to 5:00 p.m., Eastern Time, on , 2022 (two business days before the Shareholder Meeting).
Notwithstanding the foregoing, a Public Shareholder, together with any
affiliate of such Public Shareholder or any other person with whom such Public Shareholder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from redeeming its Class A Ordinary Shares
with respect to more than an aggregate of 15% of the outstanding Class A Ordinary Shares, without our prior consent. Accordingly, if a Public Shareholder, alone or acting in concert or as a group, seeks to redeem more than 15% of the outstanding
Class A Ordinary Shares, then any such shares in excess of that 15% limit would not be redeemed for cash, without our prior consent.
The L&F Initial Shareholders have, pursuant to the Sponsor
Support Letter Agreement, agreed to, among other things, vote all of their L&F Ordinary Shares in favor of the proposals being presented at the Shareholder Meeting and waive their anti-dilution rights with respect to their Class B Ordinary
Shares in connection with the consummation of the Business Combination. Such shares will be excluded from the pro rata calculation used to determine the per-share redemption price. As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders own 20% of the issued and outstanding L&F Ordinary Shares. See “Proposal No. 2 - Business Combination Proposal — Related Agreements — The Sponsor
Support Letter Agreement” for more information related to the Sponsor Support Letter Agreement.
If the Business Combination is not approved or completed for any
reason, then the Public Shareholders who elected to exercise their redemption rights will not be entitled to redeem their shares for a full pro rata portion of the Trust Account, as applicable. In such case, L&F will promptly return any
shares delivered by Public Shareholders.
The closing price of Class A Ordinary Shares on , 2022, the
record date for the Shareholder Meeting, was $ per share. The cash held in the Trust Account on such date was approximately $ (net of taxes payable) ($ per Class A Ordinary Share). Prior to exercising redemption rights, shareholders
should verify the market price of Class A Ordinary Shares as they may receive higher proceeds from the sale of their Class A Ordinary Shares in the public market than from exercising their redemption rights if the market price per share is
higher than the redemption price. L&F cannot assure its shareholders that they will be able to sell their Class A Ordinary Shares 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 shareholders wish to sell their shares.
If a holder of Class A Ordinary Shares exercises his, her or its
redemption rights, then he, she or it will be exchanging his, her or its Class A Ordinary Shares 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 by
delivering your stock certificate (either physically or electronically) to L&F’s transfer agent prior to the vote at the Shareholder Meeting, and the Business Combination is consummated.
For a discussion of the material U.S. federal income tax
considerations for shareholders with respect to the exercise of these redemption rights, see “Certain Material United States Federal Income Tax Considerations.” The
consequences of a redemption to any particular shareholder will depend on that shareholder's particular facts and circumstances. Accordingly, you are urged to consult your tax advisor to determine your tax consequences from the exercise of your
redemption rights, including the applicability and effect of U.S. federal, state, local and non-U.S. income and other tax laws in light of your particular circumstances.
Appraisal Rights
L&F Shareholders have no appraisal rights in connection with the
Business Combination or the Domestication under the Cayman Islands Companies Act or under the DGCL.
122
Proxy Solicitation Costs
L&F is soliciting proxies on behalf of the L&F Board. This
proxy solicitation is being made by mail, but also may be made by telephone or in person. L&F has engaged Morrow Sodali to assist in the solicitation of proxies for the Shareholder Meeting. L&F and its directors, officers and employees
may also solicit proxies in person. L&F will ask banks, brokers and other institutions, nominees and fiduciaries to forward this proxy statement/prospectus and the related proxy materials to their principals and to obtain their authority to
execute proxies and voting instructions.
L&F will bear the entire cost of the proxy solicitation,
including the preparation, assembly, printing, mailing and distribution of this proxy statement/prospectus and the related proxy materials. L&F will pay Morrow Sodali a fee of $32,500, plus disbursements, reimburse Morrow Sodali for its
reasonable out-of-pocket expenses and indemnify Morrow Sodali and its affiliates against certain claims, liabilities, losses, damages and expenses for its services as L&F’s proxy solicitor. L&F will reimburse brokerage firms and other
custodians for their reasonable out-of-pocket expenses for forwarding this proxy statement/prospectus and the related proxy materials to L&F shareholders. Directors, officers and employees of L&F who solicit proxies will not be paid any
additional compensation for soliciting.
Potential Purchases of Public Shares and/or Warrants
At any time prior to the Shareholder Meeting, during a period when they
are not then aware of any material nonpublic information regarding L&F or our securities, subject to applicable law, rules and regulations, L&F’s Initial Shareholders, the Target Companies and/or their respective affiliates may purchase
shares and/or warrants from investors, or they may enter into transactions with such investors and others to provide them with incentives to acquire shares of L&F Ordinary Shares 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 that the proposals presented to Public Shareholders for approval at the Shareholder Meeting are approved or to provide additional equity
financing. Any such share purchases and other transactions may thereby increase the likelihood of obtaining Public Shareholder approval of the Business Combination. This may result in the completion of our Business Combination that may not
otherwise have been possible. 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.
Entering into any such incentive arrangements may have a depressive
effect on the Class A Ordinary Shares. 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 he
owns, either prior to or immediately after the Shareholder 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 Class A Ordinary Shares by the persons described above would allow them to exert more influence over the approval of the
proposals to be presented at the Shareholder Meeting and would likely increase the chances that such proposals would be approved. As of the date of this proxy statement/prospectus, there have been no such discussions and no agreements to such
effect have been entered into with any such investor or holder. L&F will file a Current Report on Form 8-K to disclose any arrangements entered into or significant purchases made by any of the aforementioned persons that would affect the vote
on the proposals to be voted on at the Shareholder Meeting. Any such report will include descriptions of any arrangements entered into or significant purchases by any of the aforementioned persons.
123
Overview
As discussed in this proxy statement/prospectus, L&F is asking its
shareholders to approve the Articles Amendment Proposal. The Articles Amendment Proposal is not conditioned on any other proposal, though the special resolution contemplated by the Articles Amendment Proposal will be adopted only if the Business
Combination Proposal is approved. However, the Condition Precedent Proposals will not be presented to the shareholders for a vote if the Articles Amendment Proposal is not approved.
Reasons for the Amendments
L&F shareholders are being asked to adopt the proposed
amendments to the Existing Governing Documents, prior to the Domestication, which, in the judgment of the L&F Board, is necessary to facilitate the Business Combination. The Existing Governing Documents limit L&F’s ability to consummate
a Business Combination, or to redeem Class A Ordinary Shares in connection with a Business Combination, if it would cause L&F to have less than $5,000,001 in net tangible assets. The purpose of such limitation is to ensure that the L&F
Ordinary Shares are not deemed to be a “penny stock” pursuant to Rule 3a51-1 under the Exchange Act. Because the Class A Ordinary Shares and the New ZeroFox Common Stock would not be deemed to be a “penny stock” pursuant to other applicable
provisions of Rule 3a51-1 under the Exchange Act, L&F is presenting the Articles Amendment Proposal to facilitate the consummation of the Business Combination. In connection with the approval of the Articles Amendment Proposal, the parties
to the Business Combination Agreement have waived the condition to Closing under the Business Combination Agreement that L&F have at least $5,000,0001 in tangible net assets (as determined in accordance with Rule 3a51-1(g)(1) under the
Exchange Act), subject to the approval of the Articles Amendment Proposal and the Business Combination Proposal. If the Articles Amendment Proposal is not approved and there are significant requests for redemption such that L&F's net
tangible assets would be less than $5,000,001 upon the consummation of the Business Combination, we would be unable to consummate the Business Combination even if all other conditions to Closing are met.
Vote Required for Approval
The Articles Amendment Proposal is not conditioned on any other
proposal, though the special resolution contemplated by the Articles Amendment Proposal will be adopted only if the Business Combination Proposal is approved. The approval of the Articles Amendment Proposal requires a special resolution under
Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the
Shareholder Meeting. Abstentions will be considered present for the purposes of establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no effect on the
approval of the Articles Amendment Proposal.
As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders have agreed to vote any L&F Ordinary Shares owned by them in favor of the Articles Amendment Proposal. As of the date hereof, the L&F Initial Shareholders own 20% of the issued and outstanding L&F Ordinary
Shares and have not purchased any Public Shares, but may do so at any time, subject to certain requirements discussed under “Shareholder Meeting—Potential Purchases of Public Shares and/or
Warrants”. As a result, in addition to the L&F Initial Shareholders, approval of the Articles Amendment Proposal will require the affirmative vote of at least 10,062,500 L&F Ordinary Shares held by Public Shareholders
(or approximately 58.3% of the Class A Ordinary Shares) if all L&F Ordinary Shares are represented at the Shareholder Meeting and cast votes, and the affirmative vote of at least 2,875,001 L&F Ordinary Shares held by Public Shareholders
(or approximately 16.7% of the Class A Ordinary Shares) if only such shares as are required to establish a quorum are represented at the Shareholder Meeting and cast votes.
124
Resolution
The full text of the resolution to be voted upon is as follows:
RESOLVED,
as a special resolution, that subject to the approval of Proposal No. 2 (the Business Combination Proposal):
|
(a)
|
Article 49.2(b) be deleted in its entirety and be replaced with the following new Article 49.2(b):
|
“provide Members with the opportunity to have their Shares repurchased by means of a
tender offer for a per-Share repurchase price payable in cash, equal to the aggregate amount then on deposit in the Trust Account, calculated as of two business days prior to the consummation of such Business Combination, including interest
earned on the Trust Account (which interest shall be net of taxes paid or payable, if any), divided by the number of then issued Public Shares. Such obligation to repurchase Shares is subject to the completion of the proposed Business Combination
to which it relates.”
|
(b)
|
Article 49.4 be deleted in its entirety and be replaced with the following new Article 49.4:
|
“At a general meeting called for the purposes of approving a Business Combination
pursuant to this Article, in the event that such Business Combination is approved by Ordinary Resolution, the Company shall be authorised to consummate such Business Combination.”
|
(c)
|
the following final sentence of Article 49.5 be deleted in its entirety:
|
“The Company shall not redeem Public Shares that would cause the Company’s net tangible
assets to be less than US$5,000,001 following such redemptions (the “Redemption Limitation”).”
|
(d)
|
the final sentence of Article 49.8 be deleted in its entirety and be replaced with the following new final sentence of Article
49.8:
|
“The Company shall not provide such redemption in this Article if it would cause the
Company’s net tangible assets to be less than US$5,000,001 following such redemption.”
Recommendation of the Board
THE BOARD UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR” THE
APPROVAL OF THE ARTICLES AMENDMENT PROPOSAL.
The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to recommend that shareholders vote for the proposals. See the section titled “Proposal No. 2 — The Business Combination Proposal — Interests
of Certain Persons in the Business Combination” for a further discussion of these considerations.
125
We are asking our shareholders to approve and adopt the Business
Combination Agreement and the transactions contemplated thereby. Our shareholders should carefully read this proxy statement/prospectus in its entirety for more detailed information concerning the Business Combination Agreement, which is
attached as Annex A to this proxy statement/prospectus and is hereby incorporated by reference. Please see the subsection titled “—The Business Combination Agreement” below, for additional
information and a summary of certain terms of the Business Combination Agreement. You are urged to carefully read the Business Combination Agreement in its entirety before voting on this proposal.
Because we are holding a shareholder vote on the Business
Combination, we may consummate the Business Combination only if it is approved by the affirmative vote for the proposal by the holders of a majority of the issued L&F Ordinary Shares who, being present (in person or by proxy) and entitled
to vote at the Shareholder Meeting to approve the Business Combination Proposal, vote at the Shareholder Meeting, voting as a single class.
The Business Combination Agreement
This section describes the material provisions of the Business
Combination Agreement, but does not purport to describe all of the terms of the Business Combination Agreement. The following summary is qualified in its entirety by reference to the complete text of the Business Combination Agreement, a copy of
which is attached as Annex A hereto, which is incorporated herein by reference. Shareholders and other interested parties are urged to read the Business Combination Agreement, carefully and in its entirety (and, if appropriate, with the advice of
financial and legal counsel) because it is the primary legal document that governs the Business Combination.
The Business Combination Agreement contains representations, warranties
and covenants that the respective parties made to each other as of the date of the Business Combination Agreement or other specific dates. The assertions embodied in those representations, warranties and covenants were made for purposes of the
contract among the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating the Business Combination Agreement. The representations, warranties and covenants in the
Business Combination Agreement are also modified in part by the underlying disclosure schedules (the “disclosure schedules”), which are not filed publicly and which are subject to a contractual standard of
materiality different from that generally applicable to shareholders and were used for the purpose of allocating risk among the parties rather than establishing matters as facts. We do not believe that the disclosure schedules contain information
that is material to an investment decision. Additionally, the representations and warranties of the parties to the Business Combination Agreement may or may not have been accurate as of any specific date and do not purport to be accurate as of
the date of this proxy statement/prospectus. Accordingly, no person should rely on the representations and warranties in the Business Combination Agreement or the summaries thereof in this proxy statement/prospectus as characterizations of the
actual state of facts about L&F, ZeroFox, IDX or any other matter.
General; Structure of the Business Combination
On December 17, 2021, L&F entered into the Business Combination
Agreement with L&F Holdings, ZF Merger Sub, IDX Merger Sub, IDX Forward Merger Sub and the Target Companies, pursuant to which, at the Closing, on the terms and subject to the conditions set forth in the Business Combination Agreement and in
accordance with the applicable provisions of the DGCL, the DLLCA and other applicable laws:
(a) ZeroFox and ZF Merger Sub will consummate the ZF Merger, pursuant
to which ZF Merger Sub will be merged with and into ZeroFox, following which the separate existence of ZF Merger Sub will cease and ZeroFox will continue after the ZF Merger as a direct, wholly-owned subsidiary of L&F Holdings;
(b) IDX and IDX Merger Sub will consummate the IDX Merger, pursuant to
which IDX Merger Sub will be merged with and into IDX, following which the separate existence of IDX Merger Sub will cease and IDX will continue as the surviving entity after the IDX Merger (referred to as Transitional IDX Entity) as a direct,
wholly-owned subsidiary of L&F Holdings; and
126
(c) Immediately following the IDX Merger, Transitional IDX Entity
and IDX Forward Merger Sub will consummate the IDX Forward Merger, pursuant to which Transitional IDX Entity will be merged with and into IDX Forward Merger Sub, following which the separate existence of Transitional IDX Entity will cease and IDX
Forward Merger Sub will continue as the surviving entity after the IDX Forward Merger as a direct, wholly-owned subsidiary of L&F Holdings.
(d) On the Closing Date, prior to the consummation of the Mergers,
L&F will complete the Domestication, upon which L&F will change its name to “ZeroFox Holdings, Inc.” (for further details, see the section titled “The Domestication Proposal” in the accompanying
proxy statement/prospectus).
Effect of the Domestication on Existing L&F
Equity in the Business Combination
The Domestication will result in, among other things, the following,
each of which will occur prior to the consummation of the Mergers on the Closing Date:
|
•
|
each issued and outstanding Class A Ordinary Share will be converted, on a one-for-one basis, into one share of New ZeroFox Common
Stock;
|
|
•
|
each issued and outstanding L&F Class B Ordinary Share will be converted, on a one-for-one basis, into one share of New
ZeroFox Common Stock;
|
|
•
|
each issued and outstanding L&F Public Warrant and L&F Private Placement Warrant exercisable for one Class A Ordinary
Share will be converted, on a one-for-one basis, into one warrant exercisable for one share of New ZeroFox Common Stock; and
|
|
•
|
the governing documents of L&F will be replaced by the Proposed Certificate of Incorporation and the Proposed Bylaws as
described in this proxy statement/prospectus and L&F’s name will be changed to “ZeroFox Holdings, Inc.”
|
Consideration to be Received in the Business
Combination
In consideration for the consummation of the Business Combination and
as a result of the Mergers, among other things,
(a) Each share of ZeroFox Common Stock (including shares of ZeroFox
restricted stock) issued and outstanding immediately prior to the ZF Effective Time (after giving effect to the ZF Mandatory Conversion and other than ZF Dissenting Shares and ZF Cancelled Shares) will be automatically cancelled and
extinguished and converted into the right to receive the ZF Closing Stock Per Share Consideration. The ZF Closing Stock Per Share Consideration issued in respect of shares of ZeroFox restricted stock will continue to have, and be subject to,
the same terms and conditions (including restrictions on vesting) relating thereto as in effect immediately prior to the Closing. The ZF Closing Stock Per Share Consideration is based on a pre-money enterprise value of ZeroFox of $866,250,000
and a price of $10.00 per share of New ZeroFox Common Stock and is calculated to be a fraction of a share of New ZeroFox Common Stock equal to the quotient obtained by dividing 86,625,000 by ZeroFox’s fully diluted shares of stock. For purposes
of this calculation, ZeroFox’s fully diluted shares is equal to the sum of (i) the total number of shares of ZeroFox Common Stock (excluding unvested restricted shares), (ii) the total number of shares of ZeroFox Common Stock issuable upon the
exercise of all vested ZeroFox options, and (iii) the total number of shares of ZeroFox Common Stock issuable upon the exercise or settlement of all ZeroFox warrants (whether or not vested), in each case of clauses (ii) and (iii), determined on
a net exercise basis. Based on vested options to purchase 13,670,673 shares of ZeroFox Common Stock outstanding as of the date of this proxy statement/prospectus and assuming that outstanding warrants to purchase 5,912,146 shares of ZeroFox
Common Stock are exercised on a cash basis prior to the ZF Effective Time, the ZF Closing Stock Per Share Consideration will be 0.2872 and 83,371,892 shares of New ZeroFox Common Stock will be issued to ZeroFox shareholders.
(b) (i) Each share of IDX Common Stock issued and outstanding
immediately prior to the IDX Effective Time (other than IDX Dissenting Shares and IDX Cancelled Shares) will be automatically cancelled and extinguished and converted into the right to receive (A) the IDX Closing Stock Per Share Consideration and
(B) the IDX Closing Cash Per Share Consideration; (ii) each share of IDX series A-1 Preferred Stock and IDX series A-2 Preferred Stock issued and outstanding immediately prior to the IDX Effective Time (other than IDX Dissenting Shares and IDX
Cancelled Shares) will be automatically cancelled and extinguished and converted
127
into the right to receive (A) the IDX Closing Stock Per Share Consideration, (B) the
IDX Closing Cash Per Share Consideration, and (C) an amount in cash equal to $0.361 per share (the “IDX Liquidation Preference”); and (iii) each share of IDX series B Preferred Stock issued
and outstanding immediately prior to the IDX Effective Time (other than IDX Dissenting Shares and IDX Cancelled Shares) will be automatically cancelled and extinguished and converted into the right to receive an amount of cash equal to the IDX
Liquidation Preference. The IDX Closing Stock Per Share Consideration and IDX Closing Cash Per Share Consideration are based on a pre-money enterprise value of IDX of $338,750,000 and a price of $10.00 per share of New ZeroFox Common Stock. The
IDX Closing Stock Per Share Consideration is calculated to be a fraction of a share of New ZeroFox Common Stock equal to the quotient obtained by dividing 28,875,000 by IDX’s fully diluted shares of stock. The IDX Closing Cash Per Share
Consideration is calculated to be an amount equal to the quotient obtained by dividing $50,000,000 (subject to certain Closing adjustments for cash, working capital, debt and transaction expenses, and net of the aggregate IDX Liquidation
Preference) by IDX’s fully diluted shares of stock. For purposes of these calculation, IDX’s fully diluted shares is the sum of (i) the total number of shares of IDX Common Stock, IDX series A-1 Preferred Stock and IDX series A-2 Preferred
Stock, (ii) the total number of shares of IDX Common Stock issuable upon the exercise of all vested IDX options, and (iii) the total number of shares of IDX Common Stock issuable upon the exercise or settlement of all IDX warrants (whether or
not vested), in each case of clauses (ii) and (iii), determined on a net exercise basis. Based on vested options to purchase 1,650,952 shares of IDX Common Stock outstanding as of the date of this proxy statement/prospectus and assuming that
outstanding warrants to purchase 125,000 shares of IDX Common Stock are exercised on a cash basis prior to the IDX Effective Time, the IDX Closing Stock Per Share Consideration will be 0.6174 and, 27,815,924 shares of New ZeroFox Common Stock
will be issued to IDX shareholders.
(c) To the extent not exercised and exchanged prior to the ZF Effective
Time, each warrant of ZeroFox issued, outstanding and unexercised immediately prior to the ZF Effective Time will be assumed and converted into a warrant to purchase shares of New ZeroFox Common Stock (each, a “ZF
Assumed Warrant”). Each such ZF Assumed Warrant as so assumed and converted will continue to have, and will be subject to, the same terms and conditions as applied to the underlying warrant of ZeroFox immediately prior to the ZF
Effective Time. Each such ZF Assumed Warrant as so assumed and converted will be a warrant to purchase (i) that number of shares of New ZeroFox Common Stock (rounded down to the nearest whole share) equal to the product of (A) the number of
shares of ZeroFox Common Stock subject to such warrant of ZeroFox immediately prior to the ZF Effective Time (assuming the exercise of such warrant of ZeroFox immediately prior to the ZF Effective Time and, where applicable, the ZF Mandatory
Conversion) and (B) the ZF Closing Stock Per Share Consideration, (ii) at an exercise price per share of New ZeroFox Common Stock (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (x) the exercise price per share
of ZeroFox common stock applicable to the underlying warrant of ZeroFox immediately prior to the ZF Effective Time (giving effect to the exercise of such warrant of ZeroFox immediately prior to the ZF Effective Time and, where applicable, the ZF
Mandatory Conversion) by (y) the ZF Closing Stock Per Share Consideration.
(d) To the extent not exercised and exchanged prior to the IDX
Effective Time, each warrant of IDX issued, outstanding and unexercised immediately prior to the IDX Effective Time will be assumed and converted into a warrant to purchase New ZeroFox Common Stock (each, an “IDX Assumed Warrant”). Each such IDX Assumed Warrant as so assumed and converted will continue to have, and will be subject to, the same terms and conditions as applied to the underlying warrant of IDX immediately prior
to the IDX Effective Time. Each such IDX Assumed Warrant to purchase IDX Common Stock as so assumed and converted will be a warrant to purchase (i) that number of shares of New ZeroFox Common Stock (rounded down to the nearest whole share)
equal to the product of (A) the number of shares of IDX Common Stock subject to the underlying warrant of IDX immediately prior to the IDX Effective Time and (B) the IDX Total Per Share Consideration, (ii) at an exercise price per share of New
ZeroFox Common Stock (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (x) the exercise price per share of IDX Common Stock applicable to the underlying warrant of IDX immediately prior to the IDX Effective Time
by (y) the IDX Total Per Share Consideration. Each such IDX Assumed Warrant to purchase IDX Preferred Stock as so assumed and converted will be a warrant to purchase (i) that number of shares of New ZeroFox Common Stock (rounded down to the
nearest whole share) equal to the product of (A) the number of shares of IDX Preferred Stock subject to the underlying warrant of IDX immediately prior to the IDX Effective Time and (B) the IDX Total Preferred Per Share Consideration, (ii) at
an exercise price per share of New ZeroFox Common Stock (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (x) the exercise price per share of IDX Preferred
128
Stock applicable to the underlying warrant of IDX immediately prior to the IDX
Effective Time by (y) the IDX Total Preferred Per Share Consideration. For purposes of the foregoing, (i) the IDX Total Per Share Consideration is calculated to be a fraction of a share of New ZeroFox Common Stock equal to the sum of the IDX
Closing Stock Per Share Consideration plus the quotient obtained by dividing the IDX Closing Cash Per Share Consideration by the L&F Closing Stock Price and (ii) the IDX Total Preferred Per Share Consideration is calculated to be a fraction
of a share of New ZeroFox Common Stock equal to the sum of the IDX Closing Stock Per Share Consideration plus the quotient obtained by dividing the IDX Closing Cash Per Share Consideration plus the IDX Liquidation Preference by the L&F
Closing Stock Price.
(e) Each option of ZeroFox (whether vested or unvested) that is
outstanding and unexercised as of immediately prior to the ZF Effective Time will be assumed and converted into an option to purchase shares of New ZeroFox Common Stock (each, a “New ZeroFox Option”). Each
such New ZeroFox Option as so assumed and converted will continue to have, and will be subject to, the same terms and conditions as applied to the underlying option of ZeroFox immediately prior to the ZF Effective Time. Each such New ZeroFox
Option as so assumed and converted will be an option to acquire (i) that number of shares of New ZeroFox Common Stock (rounded down to the nearest whole share) equal to the product of (A) the number of shares of ZeroFox Common Stock subject to
such option of ZeroFox immediately prior to the ZF Effective Time and (B) the ZF Closing Stock Per Share Consideration, (ii) at an exercise price per share of New ZeroFox Common Stock (rounded up to the nearest whole cent) equal to the quotient
obtained by dividing (x) the exercise price per share of ZeroFox Common Stock applicable to such option of ZeroFox immediately prior to the ZF Effective Time by (y) the ZF Closing Stock Per Share Consideration.
(f) Each option of IDX (whether vested or unvested) that is outstanding
and unexercised as of immediately prior to the IDX Effective Time will be assumed and converted into a New ZeroFox Option. Each such New ZeroFox Option as so assumed and converted will continue to have, and will be subject to, the same terms and
conditions as applied to the underlying option of IDX immediately prior to the IDX Effective Time. Each such New ZeroFox Option as so assumed and converted will be an option to acquire (i) that number of shares of New ZeroFox Common Stock
(rounded down to the nearest whole share) equal to the product of (A) the number of shares of IDX Common Stock subject to such option of IDX immediately prior to the IDX Effective Time and (B) the IDX Total Per Share Consideration, (ii) at an
exercise price per share of New ZeroFox Common Stock (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (x) the exercise price per share of IDX Common Stock applicable to such option of IDX immediately prior to the
IDX Effective Time by (y) the IDX Total Per Share Consideration.
Closing of the Business Combination
The Closing will take place (i) electronically by the mutual
exchange of electronic signatures (including portable document format (PDF)) commencing as promptly as practicable (and in any event no later than 9:00 a.m., Eastern Time, on the third Business Day) following the satisfaction or, to the extent
permitted by applicable law, waiver of the conditions set forth below in “—Conditions to the Closing of the Business Combination” (other than those conditions that by their terms
or nature are to be satisfied at the Closing; provided, that such conditions are satisfied or, to the extent permitted by applicable law, waived in writing) or (ii) at such other place, time or date as L&F, ZeroFox and IDX may mutually
agree in writing.
Conditions to the Closing of the Business
Combination
Conditions to Obligations of all Parties
The respective obligations of L&F, ZeroFox and IDX to consummate
the Business Combination are subject to the satisfaction, or in the case of the last three items below, if permitted by applicable law, written waiver by all parties, of each of the following conditions:
|
•
|
all applicable waiting periods (and any extensions) under the HSR Act in respect of the Business Combination will have expired or
been terminated (which expired on January 31, 2022);
|
|
•
|
there will not be in force any law or governmental order by any governmental authority enjoining, prohibiting, or making illegal
the consummation of the Domestication or any of the transactions contemplated by the Business Combination Agreement, including the Mergers;
|
129
|
•
|
the approval of each Condition Precedent Proposal by the requisite vote of the L&F Shareholders; and the approvals of the
Business Combination Agreement and the transactions contemplated by the Business Combination Agreement, including the Mergers, by the requisite consent of the shareholders of each of ZeroFox and IDX (which approvals have been received);
|
|
•
|
the registration statement of which this proxy statement/prospectus forms a part will have become effective in accordance with the
provisions of the Securities Act, no stop order will have been issued by the SEC that remains in effect with respect to the registration statement, and no proceeding seeking such a stop order will have been threatened or initiated by the
SEC that remains pending;
|
|
•
|
the Common Equity PIPE Financing and the Convertible Notes Financing will have been consummated or will be consummated
substantially concurrently with the Closing in accordance with the terms of the applicable subscription agreements;
|
|
•
|
the New ZeroFox Common Stock to be issued in connection with the Business Combination will have been approved for listing on the
NYSE or Nasdaq, subject only to official notice of issuance thereof and the requirement to have a sufficient number of round lot holders, and, immediately following the Effective Time, L&F will, after giving effect to the Redemption,
satisfy any applicable initial and continuing listing requirements of the NYSE or Nasdaq, and L&F will not have received any notice of non-compliance therewith that has not been cured prior to, or would not be curable at or
immediately following, the Effective Time; and
|
|
•
|
after giving effect to the Business Combination, (i) the Available Closing Acquiror Cash will not be less than $170,000,000,
and L&F will have made arrangements for the Available Closing Acquiror Cash held in the Trust Account to be released from the Trust Account at the Effective Time and (ii) L&F will meet the Tangible Net Assets Condition. The
parties to the Business Combination Agreement have waived the Tangible Net Assets Condition, subject to the approval of the Articles Amendment Proposal and the Business Combination Proposal.
|
Additional Conditions to Obligations of L&F Parties
The obligations of the L&F Parties to consummate, or cause to be
consummated, the Business Combination are subject to the satisfaction, or written waiver by L&F, of each of the following additional conditions:
|
•
|
each of the representations and warranties of the Target Companies regarding corporate organization, subsidiaries, due
authorization, current capitalization, capitalization of subsidiaries, absence of any Target Company action that would require consent of L&F, and brokers fees (the “Company Group Specified
Representations”), will be true and correct, without giving any effect to any limitation as to “materiality” or “Company Material Adverse Effect” (as such term is defined below) or any similar limitation set forth therein, in all
material respects as of the date of the Business Combination Agreement and as of the Closing Date (except to the extent such representations and warranties expressly relate to an earlier date, which in such case, will be true and correct
in all material respects on and as of such earlier date);
|
|
•
|
the representations and warranties of ZeroFox and IDX regarding the absence of a Company Material Adverse Effect from and after
October 31, 2021, in the case of ZeroFox, and September 30, 2021 in the case of IDX, will be true and correct in all respects as of the date of the Business Combination Agreement and as of the Closing Date;
|
|
•
|
each of the other representations and warranties of the Target Parties will be true and correct (without giving any effect to any
limitation as to “materiality” or “Company Material Adverse Effect” or any similar limitation set forth therein) as of the date of the Business Combination Agreement and as of the Closing Date as though then made (except to the extent
such representations and warranties expressly relate to an earlier date, which in such case, will be true and correct on and as of such earlier date), except, in either case, where the failure of such representations and warranties to be
so true and correct, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Company Material Adverse Effect;
|
|
•
|
each of ZeroFox and IDX having performed in all material respects its respective covenants and agreements required to be
performed under the Business Combination Agreement;
|
130
|
•
|
each of ZeroFox and IDX having delivered to L&F a certificate signed by its respective officer, certifying that the conditions
specified above with respect to ZF and IDX, as applicable, have been fulfilled;
|
|
•
|
each of ZeroFox and IDX will have provided a properly executed statement pursuant to applicable regulations dated no more than 30
days prior to the Closing Date and signed by an officer of ZeroFox and IDX, as applicable, certifying that interests in ZeroFox or IDX, as applicable, do not constitute “United States real property interests” under applicable Code
provisions with the notice to the IRS in accordance with applicable regulations; and
|
|
•
|
since the date of the Business Combination Agreement, there will not have occurred any Company Material Adverse Effect that is
continuing.
|
Additional Conditions to Obligations of ZeroFox and IDX
The obligation of each of ZeroFox and IDX to consummate, or cause to be
consummated, the Business Combination is subject to the satisfaction, or written waiver by ZeroFox and IDX, as applicable, of each of the following additional conditions:
|
•
|
each of the representations and warranties of the L&F Parties regarding corporate organization, due authorization, trust
account, brokers’ fees, capitalization, related party transactions, and absence of action that would require the consent of the Target Companies between September 30, 2021 and the date of the Business Combination Agreement (the “L&F Specified Representations”) will be true and correct (without giving any effect to any limitation as to “materiality” or any similar limitation set forth therein) in all material
respects as of the Closing Date as though then made (except to the extent such representations and warranties expressly relate to an earlier date, which in such case, will be true and correct in all material respects on and as of such
earlier date);
|
|
•
|
the representations and warranties of the L&F Parties regarding the absence of an Acquiror Material Adverse Effect (as
defined below) from and after September 30, 2021 will be true and correct in all respects as of the date of the Business Combination Agreement and as of the Closing Date;
|
|
•
|
each of the other representations and warranties of the L&F Parties will be true and correct, without giving any effect to
any limitation as to “materiality” or “Acquiror Material Adverse Effect” or any similar limitation set forth therein, as of the date of the Business Combination Agreement and as of the Closing Date as though then made (except to the
extent such representations and warranties expressly relate to an earlier date, which in such case, will be true and correct on and as of such earlier date), except, in either case, where the failure of such representations and
warranties to be so true and correct, individually or in the aggregate, has not had, and would not reasonably be expected to have, an Acquiror Material Adverse Effect;
|
“Acquiror Material Adverse Effect” means, any
change, event, circumstance, occurrence, effect, development or state of facts that, individually or in the aggregate, with any other change, event, circumstance, occurrence, effect, development or state of facts, either (a) has a material
adverse effect on the business, assets, operations, results of operations or financial condition of L&F and its subsidiaries, taken as a whole, or (b) prevents or materially delays or materially impacts the ability of any of the L&F
Parties or Sponsor to consummate all or any of the Business Combination or would reasonably be expected to have any such effect; provided, however, that none of the following, alone or in combination, will be taken into account in
determining whether an Acquiror Material Adverse Effect has occurred: (i) changes or proposed changes in applicable law, regulations or interpretations thereof or decisions by any governmental authority after the date of the Business Combination
Agreement; (ii) changes or proposed changes in GAAP (or any official interpretation thereof) after the date of the Business Combination Agreement; (iii) any downturn in general economic conditions, including changes in the credit, debt,
securities, financial, capital or reinsurance markets (including changes in interest or exchange rates, prices of any security or market index or commodity or any disruption of such markets), in each case, in the United States or anywhere else in
the world; (iv) any earthquake, hurricane, tornado, pandemic or other natural or man-made disaster; (v) the taking of any action
131
required by the Business Combination Agreement; (vi) the announcement of the Business
Combination Agreement or consummation of the Business Combination; (vii) any action taken, or failures to take action, or such other changes or events, in each case by, or at the request of, any Target Company or (viii) the consummation of the
Redemption.
|
•
|
each of the Company Group Specified Representations made by IDX (or ZeroFox, in the case of the conditions to the obligation of
IDX to close) will be true and correct (without giving any effect to any limitation as to “materiality” or “Company Material Adverse Effect” or any similar limitation set forth therein) in all material respects as of the date of the
Business Combination Agreement and as of the Closing Date as though then made (except to the extent such representations and warranties expressly relate to an earlier date, which in such case, will be true and correct in all material
respects on and as of such earlier date);
|
|
•
|
the representations and warranties of IDX (or ZeroFox, in the case of the conditions to the obligation of IDX to close)
regarding the absence of a Company Material Adverse Effect from and after September 30, 2021 (October 31, 2021 in the case of ZeroFox) will be true and correct in all respects as of the date of the Business Combination Agreement and as
of the Closing Date;
|
|
•
|
each of the other representations and warranties contained in Article IV of the Business Combination Agreement made by IDX (or
ZeroFox, in the case of the conditions to the obligation of IDX to close) will be true and correct (without giving any effect to any limitation as to “materiality” or “Company Material Adverse Effect” or any similar limitation set forth
therein) as of the date of the Business Combination Agreement and as of the Closing Date as though then made (except to the extent such representations and warranties expressly relate to an earlier date, which in such case, will be true
and correct on and as of such earlier date), except, in either case, where the failure of such representations and warranties to be so true and correct, individually or in the aggregate, has not had, and would not reasonably be expected
to have, a Company Material Adverse Effect;
|
|
•
|
the L&F Parties and IDX (or ZeroFox, in the case of the conditions to the obligation of IDX to close) having performed in all
material respects its respective covenants and agreements required to be performed under the Business Combination Agreement;
|
|
•
|
each of L&F and IDX (or ZeroFox, in the case of the conditions to the obligation of IDX to close) having delivered to the
applicable party a certificate signed by its respective officer, certifying that the conditions specified above with respect to such party have been fulfilled;
|
|
•
|
the Domestication having been completed as provided in the Business Combination Agreement and a time-stamped copy of the
certificates issued by the Secretary of State of the State of Delaware in relation thereto having been delivered to ZeroFox or IDX, as applicable; and
|
|
•
|
since the date of the Business Combination Agreement, there will not have occurred any Acquiror Material Adverse Effect or Company
Material Adverse Effect (relating to IDX in the case of the conditions to the obligation of ZeroFox to close or relating to ZeroFox in the case of the conditions to the obligation of IDX to close) that is continuing.
|
Limitations of Failure of a Condition
A party may not rely on the failure of any condition set forth in
Article IX of the Business Combination Agreement to be satisfied if such failure was due to the failure of such party to perform any of its obligations under the Business Combination Agreement.
Termination
The Business Combination Agreement may be terminated and the Business
Combination abandoned at any time prior to the Closing by:
|
•
|
mutual written agreement of L&F and the Target Companies;
|
132
|
•
|
by L&F, ZeroFox or IDX, if there is in effect any (i) law in any jurisdiction of competent authority or (ii) governmental
order issued, promulgated, made, rendered or entered into by any court or other tribunal of competent jurisdiction, that, in the case of each of clauses (i) and (ii), permanently restrains, enjoins, makes illegal or otherwise prohibits
the consummation of the Domestication or any of the Mergers;
|
|
•
|
by L&F, ZeroFox or IDX, if the Closing has not occurred by August 23, 2022 (the “Termination
Date”);
|
|
•
|
by L&F, ZeroFox or IDX, if the Condition Precedent Proposals are not approved by the requisite vote of the L&F
Shareholders at the Shareholder Meeting or at any adjournment or postponement thereof;
|
|
•
|
by L&F or IDX, subject to certain exceptions, if any of the representations or warranties made by ZeroFox are not true and
correct or if ZeroFox fails to perform any of its respective covenants or agreements under the Business Combination Agreement (including an obligation to consummate the Closing) such that certain conditions to the obligations of L&F
or IDX, as applicable, as described in the section titled “—Conditions to the Closing of the Business Combination” above, would not be satisfied and the breach (or breaches) of such
representations or warranties or failure (or failures) to perform such covenants or agreements is (or are) not cured or cannot be cured within the earlier of (a) 30 days after receipt of written notice thereof and (b) the fifth business
day prior to the Termination Date;
|
|
•
|
by ZeroFox or IDX, subject to certain exceptions, if any of the representations or warranties made by any L&F Party are not
true and correct or if any L&F Party fails to perform any of its respective covenants or agreements under the Business Combination Agreement (including an obligation to consummate the Closing) such that certain conditions to the
obligations of ZeroFox or IDX, as applicable, as described in the section titled “— Conditions to the Closing of the Business Combination” above, would not be satisfied and the breach (or
breaches) of such representations or warranties or failure (or failures) to perform such covenants or agreements is (or are) not cured or cannot be cured within the earlier of (a) 30 days after receipt of written notice thereof and (b)
the fifth business day prior to the Termination Date; and
|
|
•
|
by L&F or ZeroFox, subject to certain exceptions, if any of the representations or warranties made by IDX are not true and
correct or if IDX fails to perform any of its respective covenants or agreements under the Business Combination Agreement (including an obligation to consummate the Closing) such that certain conditions to the obligations of L&F or
ZeroFox, as applicable, as described in the section titled “— Conditions to the Closing of the Business Combination” above, would not be satisfied and the breach (or breaches) of such
representations or warranties or failure (or failures) to perform such covenants or agreements is (or are) not cured or cannot be cured within the earlier of (a) 30 days after receipt of written notice thereof and (b) the fifth business
day prior to the Termination Date.
|
If the Business Combination Agreement terminates, the Business
Combination Agreement will become void and have no effect, without any liability on the part of any party or its respective affiliates, officers, directors, employees or shareholders, other than liability of any party for any fraud or any willful
and knowing material breach of the Business Combination Agreement by such party occurring prior to such termination. The provisions in the Business Combination Agreement limiting claims against the Trust Account and relating to confidentiality
and publicity, and certain other provisions which are required to survive in order to give appropriate effect to such provisions, and the confidentiality agreements among the parties, will in each case survive any termination of the Business
Combination Agreement.
Fees and Expenses
Each of L&F, the Target Companies and its and their subsidiaries
is responsible for its own expenses incurred in connection with the Business Combination Agreement and the Business Combination whether or not such transactions will be consummated, including all fees of its legal counsel, financial advisers
and accountants; provided, that if the Closing occurs, L&F will bear and pay at or promptly after Closing all L&F transaction expenses, all ZeroFox transaction expenses and all IDX transaction expenses.
133
L&F will pay all filing fees in connection with the HSR Act, and
will pay any and all similar filing fees regarding regulatory or governmental authority approval in connection with the Domestication and the Business Combination, including, but not limited to filing of the registration statement, of which this
proxy statement/prospectus is a part.
Covenants of the Parties
Joint Covenants
Each of L&F, the Target Companies and its and their subsidiaries
made certain joint covenants in the Business Combination Agreement including, among others:
|
•
|
using reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things reasonably
necessary or advisable to consummate and make effective as promptly as reasonably practicable the Domestication and the Business Combination (including (i) the satisfaction of the conditions described above under the heading “– Conditions to the Closing of the Business Combination” and (ii) using reasonable best efforts to consummate the Common Equity PIPE Financing and the
Convertible Notes Financing);
|
|
•
|
using reasonable best efforts to obtain, file with or deliver to, as applicable, any consents of any governmental authorities
or other persons necessary to consummate the Domestication, Business Combination, and other transactions contemplated by the Business Combination Agreement, including making all required filings pursuant to the HSR Act with respect to
the Business Combination;
|
|
•
|
to cooperate with each other to prepare and make certain SEC filings, including this proxy statement/prospectus and the related
registration statement, and causing the same to be declared effective under the Securities Act as promptly as practicable after such filing and to keep the same effective as long as is necessary to consummate the Business Combination and
otherwise ensure that the information contained therein contains no untrue statement of material fact or material omission;
|
|
•
|
with respect to L&F, to take all action necessary to duly convene the Shareholder Meeting as promptly as reasonably
practicable after the registration statement of which this proxy statement/prospectus forms a part is declared effective for the purpose of voting upon the approval of the proposals described in this proxy statement/prospectus, and
providing L&F shareholders with an opportunity to elect to redeem pursuant to the Redemption, and using its reasonable best efforts to solicit from L&F shareholders proxies in favor of the Acquiror Shareholder Matters (as
defined in the Business Combination Agreement) and to include in this proxy statement/prospectus the recommendation of the L&F Board to the L&F Shareholders to vote in favor of such proposals;
|
|
•
|
with respect to the Target Companies, to not take, or permit any of its affiliates or representatives to take, directly or
indirectly, any action to solicit, engage in discussions with, enter into any agreement with, or encourage or provide information to, any person that is not a party or a party’s affiliates or representatives concerning any merger or
similar business combination or sale of substantially all assets or any other transaction that would in the case of the Target Companies, prohibit or delay the Business Combination, other than the Business Combination, or take any action
in connection with a public offering of equity securities, and cease any and all discussions or negotiations with any person conducted prior to the date of the Business Combination Agreement with respect to the foregoing;
|
|
•
|
with respect to L&F, to not take, or permit any of its affiliates or representatives to take, directly or indirectly, any
action to solicit, engage in discussions with, enter into any agreement with, or encourage or provide information to, any person that is not a party or a party’s affiliates or representatives concerning any offer, inquiry, proposal,
indication of interest, written or oral relating to any other business combination involving L&F, and cease any and all discussions or negotiations with any person conducted prior to the date of the Business Combination Agreement with
respect to the foregoing;
|
|
•
|
to cooperate on certain tax matters, including the intended tax treatment, transfer taxes, and the termination of any tax-sharing
agreements or similar agreements involving the Target Companies and any of their subsidiaries as of the Closing;
|
|
•
|
to maintain certain standards of confidentiality with respect to information provided in connection with the Business Combination
Agreement, and to prohibit, prior to the Closing, the issuance of any press releases or the making of any public announcement without the other parties’ prior written consent,
|
134
except that each party may make any such announcement or other communication (i) if such
announcement or other communication is required by applicable law or the rules of any stock exchange, in which case the disclosing party will, to the extent permitted by applicable law, first allow (A) ZeroFox, if the disclosing Party is L&F
or IDX, (B) IDX, if the disclosing Party is L&F or ZeroFox, or (C) L&F, if the disclosing Party is ZeroFox or IDX (prior to the Closing), to review such announcement or communication and have the opportunity to comment thereon and the
disclosing party will consider such comments in good faith, (ii) to the extent such announcements or other communications contain only information previously disclosed in a public statement, press release or other communication previously
approved in accordance with the Business Combination Agreement, and (iii) to governmental authorities in connection with any consents required to be obtained under the Business Combination Agreement or in connection with the Business Combination,
and to coordinate release of an initial joint press release and L&F’s Current Report on Form 8-K, filed on December 20, 2021;
|
•
|
to take certain post-Closing actions as necessary to give effect to the Business Combination;
|
|
•
|
with respect to L&F, to take all actions necessary until the Closing to maintain qualification as an “emerging growth company”
within the meaning of the Jumpstart Our Business Startups Act of 2012; and
|
|
•
|
at Closing, each of the Target Companies and L&F will deliver to the other parties a copy of the Registration Rights Agreement
duly executed by those identified persons in the Business Combination Agreement and the disclosure schedules to the Business Combination Agreement.
|
L&F Covenants
L&F made certain other covenants in the Business Combination
Agreement, including:
|
•
|
to indemnify each present and former director, manager and officer of L&F, each Target Company and each of their respective
subsidiaries against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any action, whether civil, criminal, administrative or investigative,
arising out of or pertaining to matters existing or occurring at or prior to the Closing;
|
|
•
|
during the period from the date of the Business Combination Agreement until the earlier of the Closing or the termination of the
Business Combination Agreement (the “Interim Period”), unless consented to by the Target Companies (such consent not to be unreasonably withheld) or required by applicable law, subject to certain
exceptions, to use its commercially reasonable efforts to conduct and operate its business in the ordinary course of business in all material respects, and to not take the following actions (and cause its subsidiaries not to take such
actions):
|
|
○
|
change, modify or amend the Trust Agreement (as defined in the Business Combination Agreement) or
the organizational documents of L&F or any of its subsidiaries;
|
|
○
|
(A) declare, set aside or pay any dividends on, or make any other distribution in respect of any
outstanding equity securities of L&F or any of its subsidiaries, (B) split, combine or reclassify any equity securities of L&F or any of its subsidiaries or (C) other than in connection with the Redemption or as otherwise
required by L&F’s organizational documents in order to consummate the Business Combination, repurchase, redeem or otherwise acquire, or offer to repurchase, redeem or otherwise acquire, any equity securities of L&F or any of its
subsidiaries;
|
|
○
|
make, change or revoke any tax election in a manner inconsistent with past practice, adopt, change
or revoke any accounting method with respect to taxes, file or amend any tax return in a manner inconsistent with past practice, prosecute, settle or compromise any tax liability or any action, audit or other similar proceeding related
to any amount of taxes, enter into any closing agreement with respect to any tax, surrender any right to claim a refund of taxes, consent to any extension or waiver of the limitations period applicable to any tax claim or assessment, or
enter into any tax allocation, tax sharing, tax indemnification or similar agreement or arrangement (other than any customary commercial agreement entered into in the ordinary course of business and not primarily relating to taxes), in
each case with respect to each foregoing item, if such action could reasonably be expected to have an adverse impact (other than a de minimis adverse impact) on L&F, ZeroFox and its subsidiaries or IDX and its subsidiaries;
|
135
|
○
|
enter into, renew or amend any transaction or contract with an affiliate of L&F (including, for
the avoidance of doubt, (A) the Sponsor and (B) any person in which the Sponsor has a direct or indirect legal, contractual or beneficial ownership interest of 5% or greater);
|
|
○
|
settle any pending or threatened action, (A) if such settlement would require payment by L&F
or any of its subsidiaries in an amount greater than $250,000, (B) to the extent such settlement includes an agreement to accept or concede injunctive relief, or (C) to the extent such settlement involves
a governmental authority or alleged criminal wrongdoing;
|
|
○
|
incur or assume any indebtedness or guarantee any indebtedness of another person, issue or sell any
debt securities or warrants or other rights to acquire any debt securities of another person, other than any indebtedness (A) for certain Sponsor working capital loans or (B) incurred between L&F and its wholly-owned subsidiaries;
|
|
○
|
(A) offer, issue, deliver, grant or sell, or authorize or propose to offer, issue, deliver, grant
or sell, any equity securities other than (i) the issuance of Class A Ordinary Shares in connection with the exercise of any L&F Warrants outstanding on the date of the Business Combination
Agreement, (ii) the issuance of New ZeroFox Common Stock at not less than $10 per share in connection with the transactions contemplated by the Common Equity Subscription Agreements, (iii) the issuance
of convertible notes at a conversion price of not less than $11.50 per share in connection with the transactions contemplated by the Convertible Notes Subscription Agreements or (iv) the issuance of
New ZeroFox Common Stock in connection with the conversion of the Class B Ordinary Shares as a result of the Domestication, or (B) amend, modify or waive any of the terms or rights set forth in, any L&F Warrants or
the applicable warrant agreement, including any amendment, modification or reduction of the warrant price set forth therein;
|
|
○
|
directly or indirectly acquire by merging or consolidating with, or by purchasing a substantial
portion of the assets of, or by purchasing all of or a substantial equity interest in, or by any other manner, any business or any corporation, partnership, limited liability company, joint venture, association or other entity or person
or division thereof;
|
|
○
|
make any loans, advances or capital contributions to, or investments in, any other person (including
to any of its officers, directors, agents or consultants);
|
|
○
|
adopt or enter into a plan of complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of L&F or any of its subsidiaries (other than the Business Combination);
|
|
○
|
enter into any new line of business outside of the business currently conducted by L&F and its
subsidiaries as of the date of the Business Combination Agreement;
|
|
○
|
make any material change in accounting principles or methods of accounting, other than as may be
required by GAAP;
|
|
○
|
permit any “foreign person,” as defined in Section 721 of the Defense Production Act, as amended,
including all implementing regulations thereof (the “DPA”), whether affiliated as a limited partner or otherwise, to obtain through L&F
any of the following rights with respect to L&F, ZeroFox or IDX as a result of that foreign person’s investment in L&F, ZeroFox, or IDX: (a) access to any “material nonpublic technical information” (as defined in Section 721 of
the DPA) in the possession of the entity; (b) membership or observer rights on the board of directors or equivalent governing body of the entity or the right to nominate an individual to a position on the board of directors or
equivalent governing body of the entity; (c) any involvement, other than through the voting of shares, in the substantive decision making of the entity regarding (i) the use, development, acquisition, or release of any “critical
technology” (as defined in the DPA), (ii) the use, development, acquisition, safekeeping, or release of “sensitive personal data” (as defined in the DPA) of U.S. citizens maintained or collected by the entity, or (iii) the management,
operation, manufacture, or supply of “covered investment critical infrastructure” (as defined in the DPA); or (d) “control” of the entity (as defined in the DPA); or
|
|
○
|
enter into any agreement, or otherwise become obligated, to do any action prohibited by the
foregoing sub-bullets;
|
136
|
•
|
to use its commercially reasonable efforts to, and cause its subsidiaries to use their commercially reasonable efforts to, comply
with, and continue performing under, as applicable, material contracts to which L&F or its subsidiaries may be a party;
|
|
•
|
to provide the Target Companies with reasonable access to L&F’s and its subsidiaries’ books and records and to furnish such
financial and operating information as the Target Companies may reasonably request solely for purposes of consummating the Business Combination, subject to customary exceptions, privileges and confidentiality requirements;
|
|
•
|
to take all commercially reasonable steps to cause acquisitions or dispositions of the Class A Ordinary Shares, Class B Ordinary
Shares or New ZeroFox Common Stock that occurs or is deemed to occur by reason of or pursuant to the Business Combination by each individual who is or will be subject to the reporting requirements of Section 16(a) of the Exchange Act with
respect to L&F to be exempt under Rule 16b-3 promulgated under the Exchange Act, including adopting resolutions and taking other steps in accordance with the No-Action Letter, dated as of January 12, 1999, issued by the SEC regarding
such matters;
|
|
•
|
subject to the L&F organizational documents, to take all necessary action to appoint the agreed-upon initial post-Closing
directors and officers of New ZeroFox;
|
|
•
|
subject to the required shareholder approval, to adopt the Incentive Equity Plan and the ESPP;
|
|
•
|
subject to the required shareholder approval, L&F will continue and domesticate to the State of Delaware and become a Delaware
corporation in accordance with applicable law by (i) filing a certificate of corporate domestication with respect to the domestication and a certificate of incorporation with the Secretary of State of the State of Delaware,
(ii) completing, making and procuring all those filings required to be made with the Cayman Islands Registrar of Companies in connection with the domestication and (iii) obtaining a certificate of de-registration from the Cayman Islands
Registrar of Companies described below in the section titled “Proposal No. 3 - The Domestication Proposal”;
|
|
•
|
to not permit any amendment or modification to either the Common Equity Subscription Agreements or the Convertible Notes
Subscription Agreements, unless otherwise approved in writing by the Target Companies;
|
|
•
|
to timely file all required SEC reports;
|
|
•
|
to ensure that L&F remains listed as a public company on the NYSE or Nasdaq; to take such action as necessary to delist the
Class A Ordinary Shares, L&F Public Warrants and L&F Public Units from the NYSE in connection with the Closing and list the Class A Ordinary Shares and L&F Public Warrants on Nasdaq effective upon the delisting; and use
reasonable best efforts to cause the shares of New ZeroFox Common Stock to be issued or reserved for issuance in connection with the Business Combination to be approved for listing on Nasdaq, subject to official notice of issuance, on
or prior to the Closing Date; and
|
|
•
|
to provide certain employee benefits to employees of the Target Companies post-Closing.
|
Target Companies’ Covenants
Each of the Target Companies made certain other covenants in the
Business Combination Agreement, including:
|
•
|
during the Interim Period, unless consented to by L&F (such consent not to be unreasonably withheld) or required by applicable
law, subject to certain exceptions to use (and cause each of its subsidiaries to use) its commercially reasonable efforts to conduct and operate its business in the ordinary course of business in all material respects, maintain the
existing relations and goodwill of such Target Company and its subsidiaries with customers, suppliers, distributors and creditors of such Target Company and its subsidiaries in all material respects, and to not take the following actions
(and cause its subsidiaries not to take such actions):
|
|
○
|
to change or amend its certificate of formation, limited liability company agreement, certificate of
incorporation, bylaws or other organizational documents;
|
137
|
○
|
to make, declare, set aside, establish a record date for or pay any dividend or distribution, other
than any dividends or distributions from any wholly owned subsidiary of such Target Company either to such Target Company or any other wholly-owned subsidiaries of such Target Company;
|
|
○
|
except in the ordinary course of business, enter into, materially and adversely modify, materially
and adversely amend, waive any material right under, terminate or fail to renew, any material contract of such Target Company and any of its subsidiaries or any lease to which such Target Company or its subsidiaries is a party or by
which it is bound;
|
|
○
|
to (i) issue, deliver, sell, transfer, pledge or dispose of, or place any lien, other than certain
permitted liens on, any equity securities of such Target Company or any of its subsidiaries (other than equity securities issued upon exercise of a Target Company option or warrant or conversion of Target Company preferred stock or
conversion of any outstanding convertible debt) or (ii) issue or grant any options, warrants or other rights to purchase or obtain any equity securities of such Target Company or its subsidiaries (except in the ordinary course
consistent with any applicable Target Company benefit plan);
|
|
○
|
to sell, assign, transfer, convey, lease, exclusively license, abandon, allow to lapse or expire,
subject to or grant any lien, other than certain permitted liens on, or otherwise dispose of, any material assets, rights or properties of such Target Company and its subsidiaries, other than (i) the expiration of owned intellectual
property in accordance with the applicable statutory term or abandonment of owned intellectual property registrations or applications in the ordinary course of business and in such Target Company’s exercise of its good faith business
judgment, (ii) non-exclusive licenses of owned intellectual property granted to customers, channel partners or technology partners in the ordinary course consistent with past practices, (iii) the sale or provision of goods or services
to customers in the ordinary course of business, or the sale, permission to lapse, abandonment, or other disposition of tangible assets or equipment deemed by such Target Company in its reasonable business judgment to be obsolete or not
worth the costs of maintaining or registering the item, or (iv) transactions among such Target Company and its wholly-owned subsidiaries or among its wholly-owned subsidiaries;
|
|
○
|
to disclose to any person any trade secrets or any source code constituting owned intellectual
property (in each case, other than to L&F and its representatives or pursuant to a written confidentiality agreement entered into in the ordinary course of business, or in connection with the Business Combination);
|
|
○
|
to (i) cancel or compromise any claim or indebtedness owed to such Target Company or any of its
subsidiaries, (ii) settle any pending or threatened action, subject to certain exceptions or (iii) agree to modify in any respect materially adverse to such Target Company and its subsidiaries any confidentiality or similar contract to
which such Target Company or any of its subsidiaries are a party;
|
|
○
|
to (i) make any grant or promise of any severance, retention or termination payment or arrangement
to certain designated executive officer or (ii) except in the ordinary course of business consistent with past practice or as required by the terms of any existing specified Target Company benefit plans as in effect on the date of the
Business Combination Agreement, (A) materially increase the compensation or benefits of any current or former Specified Employee (as defined in the Business Combination Agreement), (B) make any change in the key management structure of
such Target Company or any of its subsidiaries, including the hiring of any individuals who would be, upon such action, Specified Employees, or the termination (other than for “cause” or due to death or disability) of Specified
Employees, (C) take any action to accelerate any payments or benefits, or the vesting or funding of any payments or benefits, payable or that may become payable to any current or former Company Party Service Provider (as defined in the
Business Combination Agreement), or (D) establish, adopt, enter into, amend or terminate in any material respect any material Target Company benefit plan or any plan, agreement, program, policy, trust, fund, contract or other
arrangement that would be a Target Company benefit plan if it were in existence as of the date of the Business Combination Agreement (other than an employment offer letter that does not contain severance and/or a transaction or
retention payment);
|
138
|
○
|
to implement or announce any employee layoffs, furloughs, reductions in force, or similar actions
that could implicate the Worker Adjustment and Retraining Notification Act of 1988, as amended, or any similar laws;
|
|
○
|
to (i) negotiate, modify, extend, or enter into any collective bargaining agreement or
(ii) recognize or certify any labor union, labor organization, works council, or group of employees as the bargaining representative for any employee of such Target Company or any of its subsidiaries;
|
|
○
|
to waive or release any noncompetition, nonsolicitation, nondisclosure, noninterference,
nondisparagement, or other restrictive covenant obligation of any individual who is a Company Party Service Provider;
|
|
○
|
to hire, engage, terminate (without cause), furlough, or temporarily layoff any employee or
independent contractor with annual compensation in excess of $250,000;
|
|
○
|
to directly or indirectly acquire any business, partnership, limited liability company, joint
venture, association or any corporation or other entity or person or division or substantial portion of the assets or a substantial equity interest thereof, in each case, that would be material to such Target Company and its
subsidiaries, taken as a whole, and other than in the ordinary course of business;
|
|
○
|
to make any loans or advance any money or other property to any person, except for (A) advances in
the ordinary course of business to employees, officers or independent contractors of such Target Company or any of its subsidiaries for expenses not to exceed $100,000 individually or $500,000 in the aggregate, (B) prepayments and
deposits paid to suppliers of such Target Company Party or any of its subsidiaries in the ordinary course of business, (C) trade credit extended to customers of such Target Company or any of its subsidiaries in the ordinary course of
business, and (D) loans, advances or contributions among such Target Company and its wholly-owned subsidiaries or among the wholly-owned subsidiaries of such Target Company;
|
|
○
|
to redeem, purchase, repurchase or otherwise acquire, or offer to redeem, purchase, repurchase or
acquire, any equity securities of such Target Company or any of its subsidiaries, except for (i) the acquisition by such Target Company or any of its subsidiaries of any equity securities of such Target Company or its subsidiaries in
connection with the forfeiture or cancellation of such interests and (ii) transactions between such Target Company and a wholly-owned subsidiary of such Target Company or between wholly-owned subsidiaries of such Target Company;
|
|
○
|
to adjust, split, combine, subdivide, recapitalize, reclassify or otherwise effect any change in
respect of any equity securities of such Target Company or any of its subsidiaries, except for any such transaction by a wholly-owned subsidiary of such Target Company that remains a wholly-owned subsidiary of such Target Company after
consummation of such transaction;
|
|
○
|
to make any material change in accounting principles or methods of accounting, other than as may be
required by GAAP or in Regulation S-X under the Exchange Act or in connection with the Business Combination, as agreed to by its independent public accountants;
|
|
○
|
to adopt or enter into a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of such Target Company or any of its subsidiaries (other than the Business Combination);
|
|
○
|
to make, change or revoke any tax election in a manner inconsistent with past practice, adopt,
change or revoke any accounting method with respect to taxes, file or amend any tax return in a manner inconsistent with past practice, prosecute, settle or compromise any tax liability or any action, audit or other similar proceeding
related to taxes, except as required by law, enter into any closing agreement with respect to any tax, surrender any right to claim a refund of taxes, consent to any extension or waiver of the limitations period applicable to any tax
claim or assessment, or enter into any tax allocation, tax sharing, tax indemnification or similar agreement or arrangement (other than any customary commercial agreement entered into in the ordinary course of business and not primarily
relating to taxes), in each case, to the extent such action would have a material and adverse impact on L&F or ZeroFox and its subsidiaries or IDX and its subsidiaries;
|
|
○
|
to (i) incur, create or assume any indebtedness, (ii) modify the terms of any indebtedness, or
(iii) assume, guarantee or endorse, or otherwise become responsible for, the obligations of any person for indebtedness, in each case, other than any (w) indebtedness in replacement of existing
|
139
indebtedness for borrowed money on terms substantially consistent with or more
favorable to such Target Company or its applicable subsidiary than the indebtedness being replaced, (x) indebtedness incurred in the ordinary course of business, the proceeds of which are used solely with respect to operational aspects of such
Target Company or its applicable subsidiary and in an aggregate amount not to exceed $10,000,000, (y) indebtedness incurred between such Target Company and any of its wholly-owned subsidiaries or between any of such wholly-owned subsidiaries, or
(z) guarantees of indebtedness of a wholly-owned subsidiary of such Target Company otherwise incurred in compliance with the Business Combination Agreement;
|
○
|
to fail to maintain in full force and effect material insurance policies covering such Target
Company and its subsidiaries and their respective properties, assets and businesses in a form and amount consistent with past practices in a manner materially detrimental to such Target Company and its subsidiaries;
|
|
○
|
to enter into any contract or amend in any material respect any existing contract with any of such
Target Company’s shareholders, any person that is an affiliate of any such Target Company shareholder, or an affiliate of such Target Company or its subsidiaries (excluding any ordinary course payments of annual compensation, provision
of benefits or reimbursement of expenses in respect of members or shareholders who are officers or directors of such Target Company or its subsidiaries in their capacity as an officer or director);
|
|
○
|
to amend, modify, extend, renew or terminate any material lease or enter into any new lease,
sublease, license or other agreement for the use or occupancy of any real property;
|
|
○
|
to permit any “foreign person,” as defined in Section 721 of the DPA, whether affiliated as a
limited partner or otherwise, to obtain through that Target Company any of the following rights with respect to ZeroFox or IDX as a result of that foreign person’s investment in ZeroFox or IDX: (i) access to any “material nonpublic
technical information” (as defined in the DPA) in the possession of the entity; (ii) membership or observer rights on the board of directors or equivalent governing body of the entity or the right to nominate an individual to a position
on the board of directors or equivalent governing body of the entity; (iii) any involvement, other than through the voting of shares, in the substantive decision making of the entity regarding (x) the use, development, acquisition, or
release of any “critical technology” (as defined in the DPA), (y) the use, development, acquisition, safekeeping, or release of “sensitive personal data” (as defined in the DPA) of U.S. citizens maintained or collected by the entity, or
(z) the management, operation, manufacture, or supply of “covered investment critical infrastructure” (as defined in the DPA); or (iv) “control” of the entity (as defined in the DPA); or
|
|
○
|
to enter into any contract, or otherwise become obligated, to do any of the foregoing.
|
Additional covenants that each of the Target Companies made include:
|
•
|
to provide L&F (and the other Target Company) with reasonable access to such Target Company’s books and records and to furnish
such financial and operating information as L&F may reasonably request, subject to customary exceptions and confidentiality requirements;
|
|
•
|
to release certain claims it and its affiliates may have against the trust account (see the section titled “Trust Account Waiver”
below);
|
|
•
|
to provide L&F with required documentation for this proxy statement/prospectus, and providing L&F with prompt written
notice of any developments that become known by such Target Company that would cause the proxy statement/prospectus to contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the
statements, in light of the circumstances under which they were made, not misleading;
|
|
•
|
to refrain from purchasing or selling any securities of L&F while in possession of material nonpublic information; and
|
|
•
|
with regard to IDX and its subsidiaries, (i) to use commercially reasonable efforts to ensure that the General Services
Administration will allow IDX to renew or extend its GS-23F-0037T GSA Schedule in 2022, (ii) to terminate the employment of Mr. Kelly and Mr. Uppal in accordance with the Business Combination Agreement, and (iii) to comply with certain
Section 280G requirements in accordance with the Business Combination Agreement.
|
140
Trust Account Waiver
Each of the Target Companies has agreed that it does not and will not
at any time have any right, title, interest or claim of any kind in or to any assets in the Trust Account (or distributions therefrom), and has waived any claims it, and its equity holders and affiliates, had or may have at any time against or
with respect to the Trust Account (or distributions therefrom) as a result of, or arising out of, any discussions, contracts or agreements among L&F and the Target Companies and agreed not to seek recourse against the Trust Account (or
distributions therefrom) for any reason whatsoever.
Representations and Warranties
The Business Combination Agreement contains customary representations
and warranties by the parties thereto.
In the Business Combination Agreement, L&F makes customary
representations and warranties regarding itself, L&F Holdings, ZF Merger Sub, IDX Merger Sub and IDX Forward Merger Sub, including in relation to: corporate organization, due authorization, non-contravention, litigation, governmental
authorities and required consents, trust account matters, brokers’ fees, L&F’s SEC filings and financial statements and liabilities relating thereto, prior business activities, taxes, capitalization, L&F’s listing on the NYSE or Nasdaq,
the Common Equity PIPE Financing and the Convertible Notes Financing, related party transactions, this proxy statement/prospectus, the absence of certain material adverse changes, employee matters, the Investment Company Act, foreign person
status, compliance with laws and the Sponsor Support Letter Agreement.
In the Business Combination Agreement, each of the Target Companies
makes representations and warranties regarding itself and its subsidiaries, including in relation to: corporate organization, due authorization, non-contravention, governmental authorities and required consents, current capitalization, financial
statements, undisclosed liabilities, litigation, compliance with laws, material contracts and contractual defaults, benefit plans, labor matters, taxes, insurance, compliance with permits, title to tangible assets and equipment, real property,
intellectual property and information security, environmental matters, the absence of certain material adverse changes, brokers’ fees, related party transactions, this proxy statement/prospectus, international trade and anti-corruption matters,
government contracts, and in the case of IDX only, its good standing with the U.S. General Services Administration.
Company Material Adverse Effect
Under the Business Combination Agreement, certain representations and
warranties of the Target Companies are qualified in whole or in part by a material adverse effect standard for purposes of determining whether a breach of such representations and warranties has occurred and for purposes of determining whether
certain conditions to Closing have been satisfied.
Pursuant to the Business Combination Agreement, a material adverse
effect with respect to either ZeroFox or IDX and its respective subsidiaries means any change, event, circumstance, occurrence, effect, development or state of facts that, individually or in the aggregate, either (a) has a material adverse effect
on the business, assets, operations, results of operations or financial condition of such Target Company and its subsidiaries, taken as a whole or (b) prevents or materially delays or materially impacts the ability of such Target Company to
consummate all or any of the transactions contemplated by the Business Combination Agreement or would reasonably be expected to have any such effect (“Company Material Adverse Effect”).
However, in no event would any of the following, alone or in
combination, be deemed to constitute, or be taken into account in determining whether there has been or will be, a Company Material Adverse Effect:
|
(a)
|
any changes or proposed changes in applicable law, regulations or interpretations thereof or decisions by any governmental
authority after the date of the Business Combination Agreement, including COVID-19 measures;
|
|
(b)
|
any changes or proposed changes in GAAP (or any official interpretation thereof) after the date of the Business Combination
Agreement;
|
|
(c)
|
any downturn in general economic conditions, including changes in the credit, debt, securities, financial, capital or reinsurance
markets (including changes in interest or exchange rates, prices of any security or market index or commodity or any disruption of such markets), in each case, in the United States or anywhere else in the world;
|
141
|
(d)
|
any earthquake, hurricane, tornado, pandemic or other natural or man-made disaster;
|
|
(e)
|
the taking of any action required by the Business Combination Agreement;
|
|
(f)
|
any acts of terrorism (including cyberterrorism) or war, the outbreak or escalation of hostilities, geopolitical conditions,
local, national or international political conditions;
|
|
(g)
|
any failure of such Target Company to meet any projections or forecasts;
|
|
(h)
|
any changes, events, circumstances, occurrences, effects or developments generally applicable to the industries or markets in
which such Target Company and its subsidiaries operate (including increases in the cost of products, supplies, materials or other goods purchased from third party suppliers);
|
|
(i)
|
the announcement of the Business Combination Agreement or consummation of the transactions contemplated thereby, including any
termination of, reduction in or similar adverse impact (but in each case only to the extent attributable to such announcement or consummation) on relationships, contractual or otherwise, with any landlords, customers, suppliers,
distributors, partners or employees of such Target Company and its subsidiaries; or
|
|
(j)
|
any action taken by, or at the request of, L&F;
|
provided, that in the case of clauses (a), (b), (d), (f) and (h) such
changes may be taken into account to the extent (but only to the extent) that such changes have had a disproportionate impact on the Target Company and its subsidiaries, taken as a whole, as compared to other industry participants in the
industries or markets in which the Target Company and its subsidiaries operates.
No Survival of Representations and Warranties of
Pre-Closing Covenants; Amendments
L&F and the Target Companies may, to the extent legally allowed and
except as otherwise set forth in the Business Combination Agreement, extend the time for performance of any of the obligations or acts of another party, waive any inaccuracies in the representations and warranties of the another party, and
subject to the requirements of applicable law, waive compliance by the another party with any of the agreements or conditions contained in the Business Combination Agreement applicable to such party. Any agreement on the part of L&F or the
Target Companies to any such extension of waiver will be valid only if set forth in an instrument in writing signed by such party, and any delay in exercising any right pursuant to the Business Combination Agreement will not constitute a waiver
of such right.
The Business Combination Agreement may be amended or modified in whole
or in part, only by a duly authorized agreement in writing that is executed by each of the parties in the same manner as the Business Combination Agreement and which makes reference to the Business Combination Agreement; provided, however, that
no amendment will be made that pursuant to applicable law requires further approval or adoption by the shareholders of L&F or the shareholders of ZeroFox or IDX, as applicable, without such further approval or adoption.
None of the representations, warranties, covenants, obligations or
other agreements in the Business Combination Agreement or in any certificate, statement or instrument delivered pursuant to the Business Combination Agreement, including any rights arising out of any breach of such representations, warranties,
covenants, obligations, agreements and other provisions, will survive the Closing and will terminate and expire upon the occurrence of the Effective Time (and there will be no liability after the Closing in respect thereof), except for (a) those
covenants and agreements that by their terms apply in whole or in part at or after the Closing and then only with respect to any breaches occurring at or after the Closing and (b) Article XI of the Business Combination Agreement.
Ownership of New ZeroFox Immediately Following the Business
Combination
As of the date of this proxy statement/prospectus, there are (i)
17,250,000 Class A Ordinary Shares issued and outstanding and (ii) 4,312,500 Class B Ordinary Shares issued and outstanding. In addition, as of the date of this proxy statement/prospectus, there are outstanding 5,450,000 L&F Private Placement
Warrants held by the Sponsor, 2,138,430 L&F Private Placement Warrants held by Jefferies and 8,625,000 L&F Public Warrants. Each whole warrant entitles the holder thereof to purchase one Class A Ordinary Share and, following the
Domestication, will entitle the holder thereof to purchase one share of New ZeroFox Common Stock. Therefore,
142
as of the date of this proxy statement/prospectus (without giving effect to the
Business Combination and assuming that none of the Class A Ordinary Shares are redeemed in connection with the Business Combination), L&F’s fully-diluted share capital (after giving effect to the exercise of all of the L&F Private
Placement Warrants and all of the L&F Public Warrants) would be 37,775,930 L&F Ordinary Shares.
The following table illustrates varying ownership levels in New
ZeroFox Common Stock immediately following the consummation of the Business Combination based on the varying levels of redemptions by the Public Shareholders and the following additional assumptions: (i) 83,371,892 shares of New ZeroFox Common
Stock are issued to the ZeroFox shareholders at Closing in both a no redemption scenario and a maximum redemption scenario; (ii) 27,815,924 shares of New ZeroFox Common Stock are issued to the IDX shareholders at Closing in both a no redemption
scenario and a maximum redemption scenario; (iii) all outstanding ZeroFox warrants and IDX warrants will be exercised on a cash basis immediately prior to the Closing; (iv) 2,000,000 shares of New ZeroFox Common Stock are issued in the Common
Equity PIPE Financing; (v) no New ZeroFox Public Warrants and New ZeroFox Private Placement Warrants issued in connection with the Business Combination to purchase New ZeroFox Common Stock that will be outstanding immediately following Closing
have been exercised; (vi) no Notes issued in the Convertible Notes Financing have been converted; and (vii) all outstanding vested and unvested ZeroFox options and IDX options are converted into New ZeroFox Options exercisable for shares of New
ZeroFox Common Stock.
Based on these assumptions, and assuming that no outstanding Class A
Ordinary Shares are redeemed in connection with the Business Combination, there would be approximately 134,750,316 shares of New ZeroFox Common Stock outstanding immediately following the consummation of the Business Combination. If the actual
facts are different than these assumptions, the ownership percentages in New ZeroFox will be different.
For example, there are currently outstanding an aggregate of 16,213,430
L&F Warrants to acquire our Class A Ordinary Shares, which are comprised of 7,588,430 L&F Private Placement Warrants and 8,625,000 L&F Public Warrants sold as part of the L&F Public Units sold in the L&F IPO. Each outstanding
L&F Warrant would be exercisable as a New ZeroFox Warrant commencing 30 days following the Closing for one share of New ZeroFox Common Stock. If we assume that each outstanding warrant is exercised and one share of New ZeroFox Common Stock is
issued as a result of such exercise, with payment to New ZeroFox of the exercise price of $11.50 per warrant for one share, our fully-diluted share capital would increase by a total of 16,213,430 shares, with $186,454,445 paid to New ZeroFox to
exercise the warrants. In addition, an aggregate principal amount of $150,000,000 of Notes will be issued in the Convertible Notes Financing. The Notes may be converted at a conversion price of $11.50 per share of New ZeroFox Common Stock. If we
assume that the Notes (excluding any paid-in-kind interest) are converted in full and settled fully in shares, our fully-diluted share capital would increase by a total of 13,043,475 shares.
|
|
| |
Share Ownership in New ZeroFox
|
|||
|
|
| |
No Redemptions
|
| |
Maximum
Redemptions(1)
|
|
|
| |
Percentage of
Outstanding Shares
|
| |
Percentage of
Outstanding Shares
|
|
L&F Public Shareholders(2)
|
| |
12.8%
|
| |
—
|
|
L&F Initial Shareholders(3)
|
| |
3.2%
|
| |
3.7%
|
|
Common Equity PIPE Investors(4)
|
| |
1.5%
|
| |
1.7%
|
|
ZeroFox Shareholders(5)
|
| |
61.9%
|
| |
71.0%
|
|
IDX Shareholders(6)
|
| |
20.6%
|
| |
23.7%
|
|
(1)
|
Assumes that all 17,250,000 Class A Ordinary Shares outstanding are redeemed for an aggregate payment of approximately
$175,100,000 (based on the estimated per share redemption price of approximately $10.15 per share) from the Trust Account. As the proceeds (without taking into account offering expenses) from the Common Equity PIPE Financing and the
Convertible Notes Financing are expected to satisfy the Available Closing Acquiror Cash Condition, the maximum redemption scenario reflects the redemption of 100% of the Class A Ordinary Shares held by the Public Shareholders; amounts
do not sum due to rounding.
|
|
(2)
|
Represents shares of New ZeroFox Common Stock to be issued upon conversion of 17,250,000 Class A Ordinary Shares issued in
connection with the L&F IPO.
|
|
(3)
|
Represents shares of New ZeroFox Common Stock to be issued upon conversion of 4,312,500 Class B Ordinary Shares acquired by the
L&F Initial Shareholders prior to or in connection with the L&F IPO (including 20,000 shares held by Albert Goldstein, 50,000 shares
|
143
held by Joseph Lieberman and 39,733 shares held by Kurt Summers). Includes 1,293,750
shares of New ZeroFox Common Stock held by the L&F Initial Shareholders under both scenarios that are subject to forfeiture if certain earnout conditions are not satisfied, as the shares are issued and outstanding as of the closing date of
the Business Combination.
|
(4)
|
Consists of 2,000,000 shares of New ZeroFox Common Stock to be issued in the Common Equity PIPE Financing.
|
|
(5)
|
Includes 1,698,148 shares of New ZeroFox Common Stock to be issued in exchange for shares of ZeroFox Common Stock assumed to be
issued upon the cash exercise of ZeroFox warrants prior to the Closing.
|
|
(6)
|
Includes 91,751 shares of New ZeroFox Common Stock to be issued in exchange for shares of IDX Common Stock assumed to be issued
upon the cash exercise of IDX warrants prior to the Closing.]
|
The numbers of shares and percentage interests set forth above have
been presented for illustrative purposes only and do not necessarily reflect what New ZeroFox’s share ownership will be after the Closing. For more information about the consideration to be received in the Business Combination, these scenarios
and the underlying assumptions, see “Unaudited Pro Forma Condensed Combined Financial Information” and “Proposal No. 2—The Business Combination Proposal—The Business
Combination Agreement—Consideration to be Received in the Business Combination.”
Related Agreements
This section describes certain additional agreements entered into or to
be entered into pursuant to the Business Combination Agreement, but does not purport to describe all of the terms thereof. The following summaries are qualified in their entirety by reference to the complete text of each of the agreements. The
full text of such related agreements, or forms thereof, are filed as annexes to this proxy statement/prospectus or as exhibits to the registration statement of which this proxy statement/prospectus forms a part, and the following descriptions are
qualified in their entirety by the full text of such annexes and exhibits. Shareholders and other interested parties are urged to read such related agreements in their entirety prior to voting on the proposals presented at the Shareholder
Meeting.
The Sponsor Support Letter Agreement
Concurrently with the execution of the Business Combination Agreement,
(i) L&F, (ii) the Sponsor, Albert Goldstein and Joseph Lieberman, (iii) ZeroFox, (iv) IDX, and (v) Jeffrey C. Hammes, Adam Gerchen, Tom Gazdziak and Richard Levy (solely for the limited purposes set forth therein) entered into an Amended and
Restated Sponsor Support Letter Agreement. On January 31, 2022, (i) L&F, (ii) the Sponsor Holders, (iii) ZeroFox, (iv) IDX and (v) Jeffrey C. Hammes, Adam Gerchen, Tom Gazdziak and Richard Levy (solely for the limited purposes set forth
therein), entered into a Second Amended and Restated Sponsor Support Letter Agreement (the “Sponsor Support Letter Agreement”). Pursuant to the Sponsor Support Letter Agreement, the Sponsor Holders have
agreed to subject an aggregate of 1,293,750 shares of New ZeroFox Common Stock held by such Sponsor Holders to an earnout, whereby such shares will be forfeited unless the following volume-weighted average share price thresholds are met in
trading or are deemed to occur in connection with a Change of Control (as defined in the Business Combination Agreement) within five years from the Closing: one-third vesting if the volume-weighted average share price equals or exceeds $12.50;
one-third vesting if the volume-weighted average share price equals or exceeds $15.00; and one-third vesting if the volume-weighted average share price equals or exceeds $17.50.
In addition, the Sponsor Holders have agreed to (i) vote in favor of
the Business Combination Agreement and the transactions contemplated thereby (including the Mergers), (ii) waive the anti-dilution or similar protection with respect to the Founder Shares (whether resulting from the transactions contemplated by
the Common Equity PIPE Financing, the Convertible Notes Financing, the Domestication, the Mergers or otherwise), (iii) be bound by certain other covenants and agreements related to the Business Combination, and (iv) not transfer (subject to
customary exceptions) any Founder Shares until the earlier of (a) one year after the Closing, (b) the share price equaling or exceeding $12.00 on a volume-weighted average price basis for any 20 trading days within any 30 trading day period
commencing at least 150 days after the Closing, and (c) the completion of a transaction that results in all shareholders having the right to exchange shares for cash, securities or other property.
Common Equity PIPE Financing
Concurrently with the execution of the Business Combination Agreement,
L&F entered into the Common Equity Subscription Agreements with the Common Equity PIPE Investors. Pursuant to the Common Equity
144
Subscription Agreements, the Common Equity PIPE Investors agreed to subscribe for and
purchase, and L&F agreed to issue and sell to such investors, on the Closing Date (as defined in the Business Combination Agreement), an aggregate of 2,000,000 shares of New ZeroFox Common Stock in exchange for an aggregate purchase price of
$20,000,000.
In addition, on December 16, 2021, the ZeroFox Investors purchased
the ZeroFox PIK Promissory Notes for an aggregate purchase price of $5,000,000. Such ZeroFox PIK Promissory Notes accrue interest that will be paid-in-kind at a rate of 5.0% per annum. If the Closing occurs, the repayment of the original
principal amount of the ZeroFox PIK Promissory Notes may be offset against amounts owed by the ZeroFox Investors under their Common Equity Subscription Agreements.
In addition, if the Closing occurs, any portion of closing cash
consideration to which the IDX Investors are entitled in connection with the consummation of the Business Combination may be reduced to fund the subscription amount the IDX Investors would otherwise be required to pay pursuant to the Common
Equity Subscription Agreements.
The closing of the Common Equity PIPE Financing is contingent upon,
among other things, the substantially concurrent consummation of the Business Combination. The Common Equity Subscription Agreements provide that L&F will grant the investors in the Common Equity PIPE Financing certain customary registration
rights.
Convertible Notes Financing
In connection with signing the Business Combination Agreement,
L&F entered into the Convertible Notes Subscription Agreements with the Convertible Notes Investors, in respect of $150,000,000 aggregate principal amount of the Notes to be issued in connection with the Closing. The principal terms of the
Notes are set forth in the form of indenture attached as an exhibit to the Convertible Notes Subscription Agreements, which Indenture will be entered into by L&F, the guarantors party thereto and the indenture trustee, and the form of
global note attached thereto. The Notes will bear interest at a rate of 7.00% per annum, payable quarterly in cash; provided, that the issuer may elect to pay interest in kind at a rate of 8.75% per annum, and the Notes will be convertible at
the Conversion Price, and will mature on the date that is three years following the closing of the Convertible Notes Financing. New ZeroFox may, at its election, force conversion on or after the Conversion Trigger Date, subject to a holder’s
prior right to convert, if the volume-weighted average trading price of the New ZeroFox Common Stock (x) for the first year after the Conversion Trigger Date, is greater than or equal to 150% of the conversion price for more than 20 trading
days during a period of 30 consecutive trading days and (y) for the second year after the Conversion Trigger Date, is greater than or equal to 130% of the conversion price for more than 20 trading days during a period of 30 consecutive trading
days. Upon conversion of any Note, New ZeroFox shall have the option to settle the conversion in cash, shares of New ZeroFox Common Stock or a combination of both. Each holder of a Note will have the right to cause New ZeroFox to repurchase for
cash all or a portion of the Notes held by such holder at any time upon the occurrence of a Fundamental Change, at a price equal to par plus accrued and unpaid interest. In the event of a conversion in connection with a make-whole Fundamental
Change, the Conversion Price will be adjusted by a usual and customary make-whole Fundamental Change “make-whole table” provided in the Indenture. The Indenture includes restrictive covenants that, among other things, will limit the ability of
New ZeroFox to incur senior debt in excess of $50,000,000, subject to certain qualifications and exceptions set forth in the Indenture. The Indenture also will include customary events of default. The closing of the Convertible Notes Financing
is contingent upon, among other things, the substantially concurrent consummation of the Business Combination. L&F has agreed to execute a registration rights agreement for the benefit of the Convertible Notes Investors, providing for
customary demand, shelf and piggyback registration rights and otherwise in form and substance acceptable to the Convertible Notes Investors and L&F.
Registration Rights Agreement
At the Closing, New ZeroFox, the Sponsor, Jefferies and certain
shareholders of ZeroFox and IDX will enter into the Registration Rights Agreement pursuant to which, among other things, New ZeroFox will grant to the other parties customary registration rights with respect to shares of New ZeroFox, and former
shareholders of ZeroFox and IDX will be subject to a 180-day lock-up period following execution of the Registration Rights Agreement during which period such shareholders may not transfer their shares (subject to customary
145
exceptions). The lock-up period described above will not apply to any shares acquired
in the Common Equity PIPE Financing or shares issuable upon conversion of the Convertible Notes.
Lock-Up
Shareholders of ZeroFox and IDX who are not party to the Registration
Rights Agreement who receive shares of New ZeroFox Common Stock in the Business Combination, including through the exercise of New ZeroFox Options, will be subject to a 180-day lock-up period during which such shareholders may not transfer their
shares (subject to customary exceptions).
Background of the Business Combination
The terms of the Business Combination Agreement and ancillary
agreements are the result of negotiations between L&F, ZeroFox and IDX, and each of their respective representatives. The following is a brief summary of the background of these negotiations and related transactions and does not purport to
catalogue every conversation between L&F, ZeroFox and IDX, or their respective representatives, but instead is intended as a summary of material developments over the course of the negotiations.
L&F is a blank check company organized under the laws of the Cayman
Islands and was formed on August 20, 2020. L&F was 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
(collectively, a “business combination”), with the intent to concentrate on identifying technology and services businesses in the governance, risk, compliance (“GRC”)
and legal sector. On September 3, 2020, L&F engaged Jefferies LLC (“Jefferies”) as a sole book-running manager and sole underwriter in the L&F IPO and as its lead financial advisor and capital
markets advisor to assist in any potential business combinations.
On August 28, 2020, the Sponsor purchased 5,750,000 Founder Shares for
an aggregate purchase price of $25,000, or approximately $0.004 per share. On November 13, 2020, the Sponsor effectuated a surrender of 1,437,500 Founder Shares to L&F for no consideration, resulting in a decrease in the total number of
Founder Shares outstanding to 4,312,500. The Sponsor transferred an aggregate of 109,733 Founder Shares to L&F’s independent directors, resulting in the Sponsor holding an aggregate of 4,202,767 Founder Shares. Up to 562,500 of these Founder
Shares were subject to forfeiture, such that the Founder Shares would comprise 20% of the outstanding shares after the L&F IPO and the exercise, if any, of the over-allotment option.
On November 23, 2020, L&F completed the L&F IPO of 15,000,000
units at a price of $10.00 per unit, generating gross proceeds of $150 million. Each unit consists of one Class A Share and one-half of one L&F Public Warrant. Each whole L&F Public Warrant entitles the holder thereof to purchase one
Class A Share at a price of $11.50 per share, subject to certain adjustments. The registration statement relating to these securities was filed with the SEC and declared effective on November 18, 2020.
Concurrent with the completion of the L&F IPO, the Sponsor
purchased an aggregate of 5,000,000 L&F Private Placement Warrants at a price of $1.00 per warrant, or $5.0 million in the aggregate, and Jefferies purchased an aggregate of 1,859,505 L&F Private Placement Warrants at a price of $1.21 per
warrant, or $2,250,001.05 in the aggregate. Each whole L&F Private Placement Warrant entitles the holder thereof to purchase one Class A Share at a price of $11.50 per share, subject to certain adjustments.
In connection with the L&F IPO, L&F’s underwriter was granted
an over-allotment option to purchase up to an additional 2,250,000 units. The underwriter exercised the over-allotment option in full. This full exercise of the over-allotment option resulted in none of the Founder Shares being forfeited.
Concurrent with the underwriter’s exercise of the over-allotment,
L&F consummated private placements with the Sponsor of an additional 450,000 L&F Private Placement Warrants at a price of $1.00 per warrant, or $450,000 in the aggregate, and with Jefferies of an additional 278,925 L&F Private
Placement Warrants at a price of $1.21 per warrant, or $337,499.25 in the aggregate.
On November 19, 2020, the units began trading on the NYSE under the
symbol “LNFA.U” and, starting January 7, 2021, Class A Ordinary Shares and L&F Public Warrants that were separated started trading on the NYSE under the symbols “LNFA” and “LNFA WS”, respectively.
Prior to the consummation of the L&F IPO, neither L&F, nor
anyone on its behalf, had any substantive discussions, formal or otherwise, with any business combination target with respect to a potential business combination transaction with L&F.
146
After the L&F IPO, L&F commenced an active search for
prospective businesses and assets to acquire, identifying over 120 potentially attractive business combination opportunities through this process. L&F conducted due diligence to varying degrees on such businesses and assets, including review
of such businesses’ management, business model, competitive landscape, and certain financials, in each case, to the extent available. In addition, representatives of L&F were contacted by additional potential targets that they had not
previously identified through its search process. In total, following the L&F IPO, representatives of L&F, its advisors and the Sponsor were contacted by or initiated contact with approximately 40 business combination opportunities in the
broad GRC and legal industries. L&F, with the assistance of Jefferies, reviewed opportunities on a rolling basis, including based on discussions and information received under confidentiality agreements entered into or through introductory
materials exchanged with approximately 15 potential counterparties. After reviewing and considering the foregoing opportunities, L&F continued to cull its list of prospective businesses and assets based on a core set of criteria, including
maturity of the business, size of the business, management team, near-term path to profitability, public market readiness, including the state of financial statements and internal controls, growth prospects and impacts of COVID-19. Following such
reviews and discussions, and at various points in time, L&F discontinued its review of certain targets for failing to satisfy one or more of the aforementioned criteria, among other reasons. Throughout its active search process, L&F
extended approximately 10 non-binding proposals for a business combination to private company management teams, with varying levels of detail surrounding potential transaction structure and plans for future partnership.
Until agreeing to exclusivity with ZeroFox on July 8, 2021, L&F
engaged in a general active search process and reviewed, to the extent available, the management, business model, competitive landscape, and certain financials with respect to other potential target companies. During this time, L&F focused
its active engagement on ZeroFox and three other companies—a GRC software company (“Company A”), a legal software company (“Company B”), and a regulation and policy
information services company (“Company C”)—that merited serious consideration based on L&F’s selection criteria described above (Companies A, B, and C, the “Potential
Targets”). As further described below, throughout the second quarter of 2021 (until agreeing to exclusivity with ZeroFox), representatives of L&F and the L&F Board engaged in discussions at varying levels of depth with the
Potential Targets’, ZeroFox’s and IDX’s respective management teams. With respect to all Potential Targets, there were no agreements of exclusivity at the time L&F executed its exclusivity agreement with ZeroFox.
On January 12, 2021, representatives of Stifel Nicolaus & Company,
Incorporated (“Stifel”) spoke with Adam Gerchen, L&F’s chief executive officer, providing Mr. Gerchen with an initial overview of ZeroFox.
On February 19, 2021, Mr. Gerchen spoke with a representative of
Company A’s financial advisor who gave an overview of the industry and business model of Company A. During the call, Mr. Gerchen discussed with such representative Company A’s interest in a business combination transaction and the extent to which
Company A exhibited characteristics matching L&F’s acquisition criteria as outlined in the L&F IPO prospectus.
On March 18, 2021, a representative of Company A’s financial advisor
emailed Zack Malkin, L&F’s Secretary and a Principal at Victory Park Capital, regarding L&F’s interest in Company A and offered to broker an introduction to Company A’s management team.
On March 19, 2021, representatives of L&F including Mr. Malkin
spoke with representatives of Company A’s financial advisor virtually regarding a potential business combination with Company A.
Also in March 2021, representatives of L&F including Mr. Malkin
spoke with Company B’s chief financial officer regarding a potential transaction. Although preliminary transaction expectations were discussed, no earnest negotiations were ever held between the parties given that Company B was focused on
alternative options for raising capital.
On April 5, 2021, representatives of L&F, including Messrs. Gerchen
and Malkin, spoke with representatives of Company A regarding a potential transaction. Topics covered included, among others, Company A’s outlook for the GRC software industry, Company A’s competitive positioning, and future growth prospects.
At the November 2020 and December 2020 meetings of the ZeroFox Board,
the ZeroFox Board discussed long-term financing alternatives which included a possible transaction with a special purpose acquisition company (“SPAC”). As part of these conversations, ZeroFox considered
whether a transaction with a SPAC
147
should include the merger of ZeroFox and a third party in addition to ZeroFox merging
with an existing SPAC. As a result, in the fourth quarter of 2020 through the first quarter of 2021, ZeroFox engaged its financial advisor, Stifel, to evaluate acquisition targets on behalf of ZeroFox.
On February 5, 2021, ZeroFox had a conference call with Stifel, the
purpose of which was to discuss the potential transaction structure. ZeroFox’s management and Stifel considered acquisition opportunities to fulfill ZeroFox’s growth objectives, including trends in the digital assessment and protection, threat
intelligence, security response, and security automation markets. During Stifel’s evaluation of the markets, ZeroFox identified the acquisition of IDX as a potential opportunity for growth. Since April 2019, ZeroFox and IDX were already engaged
in a commercial arrangement, pursuant to which IDX licensed certain technology from ZeroFox for purposes of bundling such ZeroFox technology with IDX offerings. Over this period, ZeroFox and IDX had been meeting periodically to discuss alignment
of customer integration, sales strategies, go-to-market campaigns and other matters relating to the commercial relationship. Other strategic rationales for a potential business combination between ZeroFox and IDX included reduced customer
acquisition cost, additional cross-sell opportunities, complementary product offerings and the unification of threat intelligence, digital protection and breach response under one business operation that would capture the entire lifecycle of the
external cybersecurity market.
Over the course of February 2021, as a result of Stifel’s evaluation
and ZeroFox’s identification of IDX, ZeroFox and Stifel had several conversations with IDX management and the IDX Board regarding an acquisition proposal and a potential merger with IDX.
On February 25, 2021, at the ZeroFox Board meeting, ZeroFox management
informed the ZeroFox Board that IDX was a top target for a potential merger and larger transaction with a SPAC. On February 25, 2021, ZeroFox and IDX also entered into a mutual non-disclosure agreement for purposes of exploring a merger
transaction with a SPAC together. Over the course of the next week, ZeroFox had a number of conference calls with IDX to discuss the potential merger and structure.
On March 5, 2021, the ZeroFox CEO emailed the IDX CEO describing the
potential framework for a ZeroFox-IDX merger.
On March 9, 2021, the IDX CEO updated the IDX Board via videoconference
on discussions with ZeroFox for a potential transaction with ZeroFox and larger transaction with a SPAC.
On March 10, 2021, the ZeroFox CEO also presented a proposal of the
ZeroFox-IDX merger to the IDX Board.
On March 10, 2021, ZeroFox signed an engagement letter with Stifel,
pursuant to which Stifel would represent ZeroFox and be compensated for a completed SPAC transaction involving ZeroFox.
On March 11, 2021, the IDX CEO updated the IDX Board by videoconference
on the proposal delivered by ZeroFox and the engagement of a financial advisor to assist IDX in connection with a potential merger and transaction with a SPAC.
Over the course of the next two weeks, ZeroFox management had a number
of conference calls with IDX management and Stifel, both individually and jointly, regarding the prospects of a transaction which included the merger of ZeroFox and IDX with a SPAC.
On March 20, 2021, ZeroFox presented an initial draft of a letter of
intent to the IDX CEO. The letter was based on the prior conversations between representatives of ZeroFox and IDX regarding the framework of a merger of ZeroFox and IDX with a SPAC. Over the course of the next three weeks, ZeroFox and IDX had
numerous conversations about the proposed transaction and exchanged a number of drafts of the letter of intent.
On March 25, 2021, IDX signed an engagement letter with DBO Partners
LLC (“DBO”) as its financial advisor in connection with a potential sale, merger or similar significant transaction.
On April 6, 2021, ZeroFox and IDX signed a letter of intent (the “Original IDX LOI”) that involved a business combination of ZeroFox, IDX and a SPAC and related financing of a private investment in a public entity.
148
From April 5, 2021 through July 8, 2021, Stifel contacted a variety
of SPACs and ultimately signed 13 non-disclosure agreements and held 11 management presentations with such SPACs. Eleven parties, including L&F, received bid instructions requesting a letter of intent. ZeroFox received four bids, including a
bid from L&F as described below.
On April 12, 2021, representatives of Stifel again contacted Mr.
Gerchen by email, to provide Mr. Gerchen with an overview of ZeroFox’s business and growth prospects, including the prospective acquisition of IDX by ZeroFox, as well as a brief presentation highlighting ZeroFox’s strengths. Representatives of
Stifel included a non-disclosure agreement in the email to Mr. Gerchen.
From April 13, 2021 to April 15, 2021, members of ZeroFox management
and IDX management had in-person meetings in Portland, Oregon at IDX’s offices. The purpose of these meetings was to commence an initial diligence review and consider the framework for the merger. Shortly following these meetings, a virtual data
room was established for the parties to share information and conduct a diligence review. The initial due diligence review focused primarily on IDX’s large Office of Personnel Management government contract, as well as general corporate and
financial matters.
On April 16, 2021, L&F executed a mutual non-disclosure agreement
with Company A.
On April 22, 2021, IDX held a virtual meeting of the IDX Board that DBO
attended and discussed the progress toward selecting a SPAC party for a potential transaction and the status of the diligence meetings between ZeroFox and IDX.
On April 28, 2021, Jeffrey Hammes, Chairman of the L&F Board,
received an email from a representative of Company C’s financial advisor regarding an opportunity in the regulation and policy information services industry involving Company C. The email identified Company C and provided an overview of Company
C’s financial performance and intended use of proceeds resulting from a potential business combination transaction.
On May 3, 2021, L&F executed a mutual non-disclosure agreement with
Company C and received both video and presentation materials detailing Company C’s history, product offerings, and strategies for future growth, among other topics.
On May 6, 2021, Mr. Malkin responded to Company C’s financial advisor’s
email by providing them with overview materials on L&F detailing L&F’s management team and acquisition criteria. Additionally provided was a draft agenda for an introductory call with Company C’s management.
On May 10, 2021, representatives of L&F, including Messrs. Gerchen
and Malkin, held virtual meetings with representatives of Company A’s financial advisor and with Company A’s management team to further discuss a potential transaction with Company A. During these meetings, representatives of Company A’s
financial advisor presented information about Company A’s history, management team and product offerings, and Company A’s management team discussed their experience in both the GRC and software industries, financial performance, and potential
uses of proceeds from a business combination transaction.
On May 13, 2021, Company A shared materials with L&F detailing
Company A’s growth strategy for fiscal year 2022.
Also on May 13, 2021, representatives of L&F, including Messrs.
Gerchen and Malkin and Richard Levy, a member of the L&F Board and Founder & CEO of Victory Park Capital, held a virtual meeting with members of Company C’s management to discuss a potential transaction. Topics discussed included
introductions to Company C’s management team, a history and overview of the business, and Company C’s customer acquisition strategy, among others.
On May 14, 2021, representatives of L&F, including Mr. Gerchen,
spoke with members of Company C’s financial advisor to further discuss a potential transaction with Company C, as well as Company C’s fundraising history.
On May 19, 2021, representatives of Stifel emailed Mr. Gerchen to
follow up on L&F’s potential interest in ZeroFox and IDX, and followed up on the non-disclosure agreement on May 20, 2021. Mr. Gerchen introduced Mr. Malkin to representatives of Stifel to facilitate a virtual meeting.
149
On May 20, 2021, representatives of L&F spoke with members of
Company C’s management and representatives of Company C’s financial advisor to discuss additional diligence questions related to Company C’s customer base, competitive positioning within the industry, and drivers of organic growth.
Later that same day, L&F received from Company C’s financial
advisor a process letter with instructions for the submission of an indication of interest for a business combination with Company C.
On May 24, 2021, representatives of L&F, including Mr. Malkin,
spoke with members of the Jefferies investment banking team to discuss the potential transaction with Company C.
On May 25, 2021, representatives of L&F, including Messrs. Hammes,
Gerchen, and Malkin, held a virtual meeting hosted by Company C’s financial advisor wherein members of Company C’s management team demonstrated the product offerings and capabilities of Company C’s software platform. Ultimately, following
discussion among representatives of L&F and Jefferies, a decision was made not to pursue a transaction with Company C as a result of Company C’s failure to meet one or more of L&F’s selection criteria.
On May 26, 2021, Company A shared an investor presentation with L&F
providing a company overview and financial summary, detail on Company A’s product offerings and software capabilities, and areas identified for future growth.
Between May 26, 2021 and June 10, 2021, L&F held multiple internal
meetings and corresponded with Company A’s financial advisor to discuss a potential transaction with Company A. Topics discussed, among others, included valuation of the pro forma business and structuring of a potential PIPE investment concurrent
with the proposed merger. Materials were prepared by L&F for the L&F Board outlining the proposed transaction structure and acquisition consideration.
On May 27, 2021, in response to Stifel’s email from May 19, 2021,
L&F executed a non-disclosure letter agreement with Stifel regarding ZeroFox.
On June 8, 2021, representatives of L&F, including Mr. Gerchen and
Mr. Malkin, met virtually with representatives of ZeroFox and IDX, including James C. Foster, CEO of ZeroFox, Tim Bender, CFO of ZeroFox, and Tom Kelly, CEO of IDX, along with representatives of Stifel. During this meeting, Mr. Foster and Mr.
Kelly provided overviews of the businesses, cybersecurity industry, and competitive landscape of ZeroFox and IDX. A more detailed presentation was used to present representatives of L&F with the plans for a future partnership between ZeroFox
and IDX, identified areas of growth and expansion, and forecasted performance following the close of a business combination. ZeroFox, IDX and Stifel informed L&F that they were in the early stages of initial meetings with various SPACs.
Following the meeting, Mr. Malkin and a representative of Stifel exchanged emails in which, among other things, they discussed L&F’s interest in a potential business combination and the inclusion of L&F in ZeroFox’s business combination
process. Later that day, Stifel provided L&F with access to a data room containing, among other documents, a company presentation, historical ZeroFox and IDX financials, the company’s pro forma financial model, and ZeroFox’s capitalization
table.
Later that same day, Mr. Malkin circulated an email to members of
L&F management and the L&F Board including Messrs. Gerchen, Levy and Hammes. Mr. Malkin’s email summarized the meeting with ZeroFox and IDX management held earlier that day and noted that key investors in ZeroFox included New Enterprise
Associates and Intel Capital.
From June 9, 2021 through June 13, 2021, representatives of L&F and
Stifel exchanged emails to schedule a product demonstration with ZeroFox management, as well as answer questions regarding ZeroFox’s latest financing round, the terms of ZeroFox’s acquisition of IDX in connection with a business combination, and
information regarding the integration of ZeroFox’s prior acquisitions. The product demonstration took place on June 15, 2021.
On June 10, 2021, the IDX CEO updated the IDX Board by videoconference,
which DBO attended, on the progress toward a potential transaction, in particular focusing on discussions with L&F.
On June 10, 2021, representatives of L&F received an email from a
representative of Stifel containing the Project Northstar process letter. This process letter requested a preliminary non-binding letter of intent (“LOI”)
150
for a business combination with both ZeroFox and IDX, and among other items requested
that L&F provide detail on L&F’s background and key management, L&F’s proposed merger consideration and valuation methodology, proposed transaction structure and form of financing, and pro forma ownership. ZeroFox’s process letter
requested a response by June 21, 2021.
Also on June 10, 2021, representatives of L&F including Messrs.
Levy and Gerchen, met with members of Company A’s management team in person. At the meeting, the valuation and transaction structure mentioned above were discussed.
Although Company A had begun to explore a variety of potential
strategic transactions, L&F ultimately decided not to pursue a business combination with Company A due to L&F’s views on Company A’s opportunities for future growth and the Company A management team’s ability to execute on Company A’s
strategy as a public company.
On June 15, 2021, Stifel hosted a virtual meeting wherein Mr. Foster
provided representatives of L&F with a product demonstration presenting some of the capabilities of the ZeroFox platform to identify and mitigate threats targeting its customers’ digital assets. Mr. Foster’s demonstration included ZeroFox’s
use cases for both mobile application (iOS and Android) and desktop software users. Additionally, Mr. Foster’s demonstration included an overview regarding the types of digital assets that ZeroFox protects, the platform’s full cloud-based
infrastructure, and its suite of application program interfaces enabling the software to integrate into ZeroFox customers’ existing user application environment. Additionally on this call, Mr. Foster provided an overview of the new customer
onboarding process and the customization tools provided to new customers for use within the ZeroFox platform.
Later that same day, Mr. Malkin emailed representatives of Jefferies
regarding the ZeroFox opportunity. Mr. Malkin’s email included an overview of ZeroFox’s business, key investors, and targeted capital raise amount in connection with a business combination. Additionally, Mr. Malkin’s email requested a call with
representatives of Jefferies to discuss the business’s valuation.
On the evening of June 15, 2021, representatives of L&F emailed
Stifel a list of diligence questions focused on the materials contained within the initial data room. Among other topics, the questions related to calculations of customer lifetime value and acquisition cost, ZeroFox’s largest customer contracts,
and the pro forma financial model. On June 16, 2021, Stifel replied with answers to these questions.
On June 16, 2021 and June 17, 2021, representatives of L&F and
Jefferies met virtually to discuss the proposed transaction. During this meeting, L&F and Jefferies discussed comparable companies and both their operating metrics and trading valuations. Additionally, representatives of L&F were
introduced to a representative of Jefferies focused on the industries in which ZeroFox and IDX operate. During these meetings, representatives of L&F and Jefferies discussed operating metrics and valuation multiples of comparable publicly
traded companies, the importance of revenue growth and gross margin expansion to software company investors, and how best to value ZeroFox and IDX.
From June 16, 2021 to June 21, 2021, representatives of L&F and
Jefferies held numerous internal calls and virtual meetings to discuss the LOI and valuation framework for the ZeroFox business combination proposal, both generally and in respect of diligence conducted to date. The participants discussed
numerous valuation methodologies, including precedent transaction comparables and a sum-of-the-parts valuation. After considering the existing partnerships between ZeroFox and IDX, and the potential operational synergies and business development
opportunities forecasted to result from the merger of ZeroFox and IDX, L&F and the Jefferies investment banking team ultimately decided on June 21, 2021 to value ZeroFox based on calendar year 2022 projected revenue.
On June 19, 2021, representatives of L&F emailed representatives of
Kirkland & Ellis LLP (“K&E”) with a draft of the LOI for the combined ZeroFox and IDX merger transaction. Representatives of K&E provided comments to the LOI, which were incorporated prior to
sharing with ZeroFox.
On June 21, 2021, Mr. Gerchen emailed the L&F Board a detailed
communication regarding the submission of the LOI for a proposed business combination with ZeroFox and IDX. Mr. Gerchen’s email contained a background on the industry, both ZeroFox’s and IDX’s business models, and opportunities for future growth.
Additionally provided was information on the bidding process and steps that representatives of L&F had taken to date in order to diligence the acquisition targets. Mr. Gerchen’s email included a draft LOI to be submitted to
151
Stifel and expectations surrounding valuation of the pro forma business, as well as the
valuation framework options as discussed between representatives of L&F and Jefferies. The members of the L&F Board replied to Mr. Gerchen’s email approving the submission of the LOI as drafted.
Later that day, Mr. Gerchen submitted the initial LOI via email to
representatives of Stifel, who then confirmed receipt. L&F’s initial LOI valued ZeroFox’s and IDX’s combined businesses at a $1.1 billion pre-money pro forma enterprise value. The initial LOI contemplated the issuance of shares in New
ZeroFox to current ZeroFox and IDX shareholders valued at $1 billion, at $10.00 per share, in addition to $50 million of cash to be paid to selling IDX shareholders. The initial LOI contemplated $150 million for the Common Equity PIPE
Financing, which would be completed concurrently with the Business Combination. The proposed valuation of ZeroFox and IDX’s combined business and the composition of the proposed Business Combination consideration were based on the financial
projections provided by ZeroFox management and prior discussions regarding the cash proceeds required for the acquisition of IDX.
On June 22, 2021, the IDX CEO updated the IDX Board via
videoconference, which DBO attended, on the terms of the LOI submitted by L&F.
On June 24, 2021, representatives of L&F including Messrs. Gerchen
and Malkin hosted a virtual meeting with a representative of Stifel to discuss the submitted LOI. Among other topics, the group discussed L&F’s plan for approaching PIPE investors, the valuation of the pro forma business, and marketing
strategies for the pro forma company following a merger.
On June 25, 2021, representatives of L&F received from a
representative of Stifel an emailed document containing revised bid instructions for the proposed business combination. Among other items, these revised instructions included a request for L&F to consider subjecting 30% of its Founder Shares
to a vesting schedule, as well as further details on L&F’s due diligence process.
On June 28, 2021, the L&F Board held a virtual meeting to discuss a
revised LOI for the combined ZeroFox and IDX merger transaction. Presented to the L&F Board was a draft of the revised LOI and a management presentation outlining the key changes, including, among others, the addition of a vesting schedule
for 30% of the Founder Shares. After discussion, the L&F Board agreed to submit the revised LOI.
During the same meeting of the L&F Board, Senator Joseph Lieberman,
a member of the L&F Board, highlighted that he is acquainted with a member of ZeroFox’s Board, former Director of National Intelligence John Mike McConnell. Senator Lieberman was familiar with Mr. McConnell through their shared involvement in
legislation surrounding cybersecurity and national defense. The L&F Board discussed and agreed that Senator Lieberman should contact Mr. McConnell to discuss the proposed transaction.
Later that same day, L&F emailed a representative of Stifel
attaching the revised LOI. L&F’s revised LOI included a vesting schedule for 30% of the Founder Shares, as well as a schedule of required diligence items, including a virtual meeting with ZeroFox management to review the financial model.
Included in this email, Mr. Gerchen highlighted Senator Lieberman’s prior involvement in cybersecurity legislation and the potential benefits that the L&F Board’s industry experience could bring to structuring and marketing the merger to PIPE
investors and public shareholders focused on the cybersecurity industry.
On June 29, 2021, a representative of Stifel informed representatives
of L&F via email that L&F’s revised LOI was of interest to ZeroFox, and invited L&F to present as one of two potential merger partners to the ZeroFox Board. Also on June 29, the ZeroFox Board held a meeting and Stifel gave the ZeroFox
Board an overview of potential SPACs to consider.
On June 30, 2021, the IDX Board held a virtual meeting, which DBO
attended, to discuss the revised LOI delivered by L&F and proposed response by IDX and ZeroFox.
On June 30, 2021, ZeroFox and IDX executed a replacement letter of
intent (the “Replacement IDX LOI”) that superseded the Original IDX LOI. The Replacement IDX LOI similarly provided for a business combination of ZeroFox, IDX and a special purpose acquisition company and
related financing of a private investment in a public entity, with the shareholders of IDX receiving cash consideration of $50,000,000 and 25% of the shares issued to the parties in the transaction of the combined pro forma entity and the
shareholders of ZeroFox receiving 75% of the shares issued to the parties in the transaction of the combined pro forma entity.
152
Also on June 30, 2021, Mr. Malkin informed the L&F Board of the
upcoming presentation to the ZeroFox Board and invited the members of the L&F Board to join the virtual meeting.
Later that same day, Mr. Foster emailed Mr. Gerchen and a
representative of Stifel to inform them that Senator Lieberman and Mr. McConnell had connected regarding the potential business combination and that both participants reported a constructive discussion and optimism about a future partnership.
On July 1, 2021, members of the L&F Board and management and
ZeroFox Board attended a virtual meeting to discuss the revised LOI. Among other topics, discussion ensued regarding Mr. Foster’s position as the continuing CEO of the pro forma company, L&F’s envisioned PIPE raise process, and the status of
the PIPE financing market at such time. Following a constructive discussion, the ZeroFox Board conferred, without any representatives of L&F present, regarding the revised LOI in comparison to any other indications of interest received.
On July 2 and July 3, 2021, Mr. Malkin and a representative of Stifel
held telephone conferences to discuss feedback from the July 1, 2021 meeting among members of the L&F Board and management and ZeroFox Board. Additionally, such representative of Stifel indicated ZeroFox’s interest in executing an exclusive
LOI the week of July 5, 2021 with one of the two SPACs with whom ZeroFox was then engaged, including L&F.
On July 5, 2021, representatives of L&F requested and Stifel
provided the Replacement IDX LOI detailing the terms of their proposed transaction in connection with a business combination.
Additionally, on July 5, 2021, Stifel hosted a virtual comprehensive
diligence session wherein ZeroFox management, with the consent of IDX management, presented to L&F representatives the explanations and rationale behind the pro forma financial model that had previously been distributed to L&F.
Discussion ensued regarding ZeroFox management’s post-merger operating strategy and implementation of the growth and synergistic initiatives outlined in the pro forma operating model. In addition, L&F representatives discussed with ZeroFox
management the accounting function and public company readiness of ZeroFox and IDX. Additional comprehensive diligence was performed regarding IDX’s Office of Personnel Management contract including review of terms for annual recurring revenue,
margin analysis, and duration of the contract.
On July 7, 2021, L&F received a revised version of the LOI from
a representative of Stifel, including ZeroFox’s views on valuation and the implementation of a cap on L&F’s expenses should redemptions exceed 50% of L&F’s Class A Ordinary Shares, and mutual exclusivity, among other items. ZeroFox’s
views on valuation included an increased pre-money pro forma equity valuation for ZeroFox’s and IDX’s combined businesses in the form of merger consideration consisting of $1.2 billion of shares in New ZeroFox, valued at $10.00 per share, in
addition to $50 million in cash consideration to be paid to selling IDX shareholders.
On July 6, 2021 and additionally July 7, 2021, representatives of
L&F and Jefferies met virtually to further consider the valuation framework applied to New ZeroFox. The considerations discussed included performance, the growth profiles of both ZeroFox and IDX, and operating margins of comparable publicly
traded companies at initial public offering as compared to after such companies completed de-SPAC transactions, as applicable, in addition to current trading prices and valuation multiples of said comparable publicly traded companies.
Additionally, the parties discussed potential reactions from PIPE investors regarding valuation multiples in the GRC and legal sector and the proposed valuation of New ZeroFox.
Later that same day, Mr. Malkin provided an email update to the
L&F Board outlining the terms of L&F’s further revised LOI, including the implementation of a three-tranche vesting schedule for 30% of L&F’s Founder Shares based on share price performance and entering into a period of mutual
exclusivity between ZeroFox and L&F. Mr. Malkin’s email additionally outlined the increased pre-money pro forma equity valuation for New ZeroFox of $1.2 billion. Based on discussions among L&F management and the L&F Board, it was
determined that the revised valuation of New ZeroFox remained attractive to L&F shareholders based on relative valuations of comparable publicly traded companies as a multiple of go-forward revenue, and the growth and margin profiles of New
ZeroFox projected in the financial model presented by ZeroFox management on July 5, 2021. Based on this analysis and these discussions, the L&F Board determined that exclusivity was in the best interest of L&F’s shareholders and
approved via email the submission of a further revised LOI.
On July 8, 2021, the ZeroFox Board approved entering into the LOI at
a meeting called for that purpose and, later that day, following final revisions to certain provisions of the LOI, L&F and ZeroFox executed the LOI, which contained, among other things, mutual exclusivity provisions that expired on the
earlier of (i) the
153
signing of the Business Combination Agreement, (ii) 45 days following the execution
of the LOI and (iii) the mutual written consent of ZeroFox and L&F, and reflected a fully diluted pre-money equity value of approximately $1.2 billion, consisting of $1.155 billion of shares in New ZeroFox, valued at $10.00 per share, in
addition to a $50 million cash consideration to be paid to selling IDX shareholders, as outlined in the further revised LOI. With the planned $150 million PIPE financing, the combined company would have a pro forma enterprise valuation of $1.3
billion, excluding L&F shareholder redemptions. The LOI also provided for, among other things, a minimum cash condition of $200 million, certain forfeiture obligations in respect of 30% of the Founder Shares in certain scenarios based upon
the performance of the New ZeroFox Common Stock following the closing of any business combination, post-Closing lock-up restrictions to be applied to the shares of New ZeroFox Common Stock to be held by the Sponsor Holders and ZeroFox
shareholders, and a requirement for the holders of at least a majority of ZeroFox capital stock to approve the execution of the Business Combination Agreement.
On July 12, 2021, a virtual meeting was held between representatives of
ZeroFox, IDX, L&F, and their financial advisors, Jefferies and Stifel, to begin planning the PIPE marketing process and to discuss the timeline to closing and all of the material requirements to achieve the closing.
From July 12, 2021 through July 14, 2021, the extended management teams
of ZeroFox and IDX met at ZeroFox’s corporate headquarters in Baltimore, Maryland to discuss the combined business.
From July 12, 2021 through July 16, 2021, multiple virtual, intensive
diligence sessions occurred between representatives of ZeroFox, IDX and L&F and their advisors, Jefferies and Stifel, in order to provide each party’s advisors with background on the industry, company operating models, and plans for future
growth. Included in these sessions was discussion of ZeroFox’s and IDX’s core technologies, intellectual property, customer relationships, margin profiles, sales pipelines, and key contracts by type and size. Additionally, these sessions included
a presentation of the pro forma financial model by ZeroFox. During this period, Jefferies provided diligence request lists prepared by Jefferies and L&F to ZeroFox, ZeroFox provided key documents pertaining to ZeroFox’s and IDX’s businesses
and contracts, and Jefferies was provided access to a detailed virtual data room with underlying documents relevant to the discussion for the purpose of L&F and Jefferies conducting business and finance diligence of each of ZeroFox and IDX.
On July 14, 2021, L&F contacted an independent research firm to
perform background checks on key management at both ZeroFox and IDX.
On July 15, 2021, Venable LLP (“Venable”),
counsel to ZeroFox, and K&E, counsel to L&F, held an introductory conference call to meet and discuss the transaction and form of Business Combination Agreement. Tim Bender, CFO of ZeroFox, and Tom FitzGerald, General Counsel of ZeroFox,
also joined the call.
On July 16, 2021, Venable and Wilson Sonsini Goodrich & Rosati (“WSGR”), counsel to IDX, held an introductory conference call to meet and discuss the transaction and form of Business Combination Agreement. Adam Mishcon, General Counsel of IDX, and Tom FitzGerald, General
Counsel of ZeroFox, also joined the call.
On July 20, 2021, Venable and K&E had another conference call to
discuss the basic form and structure of the Business Combination Agreement.
On July 21, 2021, K&E received access to the ZeroFox and IDX data
rooms and K&E began performing legal diligence regarding ZeroFox. On July 23, 2021, Venable was granted access to the IDX data room and Venable assumed the lead role in performing legal diligence regarding IDX pursuant to the Replacement IDX
LOI, with K&E simultaneously reviewing and verifying the key diligence findings identified by Venable throughout the diligence process, including by conducting an independent review of the material Office of Personnel Management government
contract of IDX and regulatory matters related thereto. K&E first delivered a diligence request list regarding ZeroFox to Venable on July 26, 2021.
On July 22, 2021, the IDX Board held a virtual meeting, which DBO
attended, and discussed updates on the progress of the transaction and undertook an overview of the transaction documents, expected timing of the signing of the transaction documents and closing of the transaction.
On July 28, 2021, Venable and WSGR had a kick-off call regarding the
due diligence process of IDX. ZeroFox instructed Venable to conduct an in-depth legal review of IDX’s governance documents, debt instruments, material contracts, employment practices and employee benefits, real property rights, intellectual
154
property rights, privacy and data security practices and export controls, sanctions,
anti-bribery and anti-corruption practices. Venable also requested and obtained lien and judgment searches in Delaware against IDX. Venable corresponded with the IDX management team, and more particularly with IDX’s general counsel, who
coordinated responses to Venable’s due diligence requests.
On August 4, 2021, K&E held a legal diligence call with
representatives of ZeroFox and on which Venable participated that covered corporate and material contracts, technology, intellectual property and trademarks, executive compensation, labor, employee benefits, real estate, international trade,
anti-corruption and national security and environmental, social and governance topics.
On that same day, Venable led a legal diligence call with
representatives of IDX and on which K&E participated that covered the same topics as the K&E/ZeroFox diligence call. On August 13, 2021, Venable led a follow-up management call on cybersecurity and privacy with representatives of IDX and
on which K&E participated. During the month of August, K&E and Venable exchanged various drafts of the diligence request list for ZeroFox in which ZeroFox and Venable responded to K&E’s diligence requests. K&E also prepared a
legal diligence memo covering each of the topics from the legal diligence call.
From July 19, 2021 through August 11, 2021, representatives of L&F,
ZeroFox and IDX, and their respective advisors met to discuss and draft the PIPE presentation materials to be provided to potential investors. Throughout these meetings, the parties discussed the overall timeline, allocation of drafting
responsibility and certain other topics. Additionally during this period, representatives of L&F, ZeroFox and IDX, and their advisors drafted non-disclosure agreements and constructed a wall-cross procedure to provide potential PIPE investors
with material nonpublic information related to the investment.
On July 21, 2021, Venable sent an initial tax structure presentation to
K&E and WSGR for review. On July 26, 2021, Venable, K&E and WSGR tax representatives attended a call to discuss the tax structure of the Business Combination Agreement. On July 27, 2021, Venable circulated a revised tax structure
presentation to K&E and WSGR. On July 30, 2021, Venable, K&E and WSGR tax representatives attended a call to further discuss the tax structure of the Business Combination Agreement. On August 1, 2021, Venable circulated a revised tax
structure presentation to K&E and WSGR. On August 2, 2021, WSGR provided comments to the presentation and on August 4, 2021, K&E provided additional comments to the presentation as well. K&E, WSGR and Venable continued to have
intermittent informal discussions regarding the structure, and on November 29, 2021, the parties finalized the tax structure of the Business Combination Agreement.
On August 18, 2021, the L&F Board held a virtual meeting to
discuss the PIPE financing. The L&F Board discussed the PIPE outreach process, in which the parties would seek to raise up to $150 million in external financing for the deal at a post-money, pro forma enterprise valuation of approximately
$1.3 billion, representing approximately 6.7x Fiscal Year 2023 Revenue, and a reasonable discount to established comparable public companies. Fiscal year 2023 revenue was used to better compare against other public companies with similar fiscal
year ends. Based on a summary of the discussions among representatives of L&F, ZeroFox and IDX, the L&F Board determined the $150 million external financing amount based on, among other things, the minimum cash condition under the
Business Combination Agreement and the desired amount of cash to the balance sheet of New ZeroFox following consummation of the Business Combination, including following payment of transaction expenses in connection with the Business
Combination.
From August 18, 2021 through September 17, 2021, L&F, ZeroFox and
IDX, and their advisors held numerous meetings with potential PIPE investors regarding a common stock equity investment in connection with the Business Combination. During this period, management met with potential PIPE investors for initial
management presentations and held additional meetings with select investors to provide more detail on the proposed business combination.
Additionally during this period, representatives of L&F, ZeroFox
and IDX, and their advisors held regular process update calls to discuss the status of the PIPE financing and feedback received from investors.
During the month of August, K&E and Venable continued their review
of diligence materials in the virtual data rooms and submitted supplemental requests to ZeroFox’s and IDX’s advisors on August 7, 2021, August 11, 2021, and August 20, 2021 addressing the various questions raised by L&F, ZeroFox and their
respective advisors.
155
On August 19, 2021, Venable and K&E held a status update call
regarding the Business Combination Agreement.
On August 25, 2021, L&F and ZeroFox extended exclusivity under
their LOI for 30-days and the extension also provided that if the parties continued working in good faith toward execution of the Business Combination Agreement, the exclusivity automatically extended for successive periods of 30-days until the
LOI was terminated by the parties in writing.
On September 1, 2021, Venable provided a written report of its findings
regarding IDX to ZeroFox’s management team and K&E.
On September 2, 2021, Venable sent K&E and WSGR an initial draft of
the Business Combination Agreement for the proposed transaction. The initial draft of the Business Combination Agreement reflected the various business points from the LOI, as well as additional enhanced representations, warranties and covenants
of ZeroFox and IDX as a result of the due diligence completed to date.
On September 9, 2021, IDX provided responses to Venable regarding
certain questions posed by Venable in the initial draft of the Business Combination Agreement regarding the treatment of IDX warrants, IDX options and IDX convertible notes at closing and the availability of certain IDX financial statements.
On September 15, 2021 and September 16, 2021, representatives of
Jefferies hosted a virtual meeting with L&F regarding the possibility of issuing convertible note securities as additional financing in connection with the proposed business combination. Discussion ensued regarding the merits and
considerations of issuing convertible note securities and the prospective terms of such securities based on market reception.
Following the discussion with their respective advisors, L&F,
ZeroFox and IDX decided to pursue the issuance of convertible notes securities as additional financing in connection with the proposed business combination.
From September 20, 2021 through November 9, 2021, representatives of
L&F, ZeroFox and IDX, and their advisors held meetings with a select group of potential convertible notes investors regarding an investment in connection with the proposed business combination. The initial list of prospective investors was
prepared by Stifel and Jefferies and approved by both representatives of L&F and ZeroFox during their regularly scheduled virtual meetings. This list of prospective investors included Monarch Alternative Capital (“Monarch”) among other prospective investors sourced by Jefferies. During this period, management met with both potential common equity and convertible notes investors for initial management presentations and held additional
meetings with select investors. Included in these meetings were multiple virtual meetings with Monarch. During this period, L&F, ZeroFox and IDX, and their respective advisors, continued to hold regular process update calls to discuss the
capital raise process and feedback received from investors.
On September 28, 2021, K&E sent Venable and WSGR a revised draft of
the Business Combination Agreement. The revised draft addressed matters such as the merger consideration, adjustments to the representations and warranties, covenants and closing conditions, and included the insertion of a right for the L&F
Board to consider a superior offer prior to Closing.
On September 30, 2021, WSGR sent Venable and K&E a revised draft of
the Business Combination Agreement. The WSGR revised draft also addressed matters such as the merger consideration, adjustments to the representations and warranties, covenants and closing conditions, and included the insertion of a right for the
IDX Board to consider a superior offer prior to Closing.
During the months of October, November and December, the parties
negotiated the ancillary agreements with respect to the transaction while the parties continued to discuss optimal financing for the transaction.
On October 1, 2021, October 7, 2021, and October 11, 2021, Venable
discussed the K&E and WSGR changes to the Business Combination Agreement with ZeroFox management.
On October 12, 2021, Venable hosted a conference call with WSGR to
discuss K&E’s and WSGR’s changes to the Business Combination Agreement and to confirm the overall structure of the representations and warranties to be given by ZeroFox and IDX.
156
On October 15, 2021, the IDX Board held a virtual meeting, which DBO
attended, to discuss progress of the transaction, outstanding material terms of the Business Combination Agreement, the PIPE market and the proposed convertible note PIPE financing.
On October 18, 2021, Venable sent a revised version of the Business
Combination Agreement to WSGR for review. The revised draft addressed the addition of provisions regarding the convertible note PIPE financing, the merger consideration, structural and substantive adjustments to the representations and
warranties, covenants, closing conditions, and termination rights, and removed the need for a ZeroFox Support Agreement or IDX Support Agreement or any right of the L&F Board, ZeroFox Board or IDX Board to consider a superior offer prior to
Closing.
On October 22, 2021, Venable sent K&E and WSGR a revised draft of
the Business Combination Agreement. The revised draft addressed matters such as the convertible note PIPE financing, consideration, structural and substantive adjustments to the representations and warranties, covenants and closing conditions,
and termination rights, and removed the need for a ZeroFox Support Agreement or IDX Support Agreement or any right of the L&F Board, ZeroFox Board or IDX Board to consider a superior offer prior to Closing.
On October 30, 2021, Venable provided ZeroFox’s management team and
K&E with a supplemental report regarding its additional due diligence findings regarding IDX.
On November 2, 2021, K&E discussed the changes to the Business
Combination Agreement with L&F. On November 5, 2021, K&E sent a revised draft of the Business Combination Agreement to Venable and WSGR, which reflected the convertible note PIPE financing and equity subscription agreements, and the
divergent views on certain matters, including the certainty of closing, breadth of representations and warranties, materiality thresholds, interim operating covenants and termination rights. K&E also reinserted the requirement for a ZeroFox
Support Agreement and IDX Support Agreement and a right of the L&F Board to consider a superior offer prior to Closing.
On November 8, 2021, Venable prepared and delivered a summary of issues
for ZeroFox to review regarding K&E’s revisions to the Business Combination Agreement. As an initial matter, on November 9, 2021, K&E, Venable and WSGR attended a conference call to discuss the support agreement structure of the Business
Combination Agreement and the right of each party to consider a superior offer prior to Closing.
On November 9, 2021, L&F, ZeroFox and IDX, and their advisors held
a virtual meeting to evaluate term sheets received as a result of the convertible notes outreach process. Discussion ensued, and after carefully reviewing multiple offers of indicative terms from convertible notes investors, L&F, ZeroFox and
IDX decided to pursue a convertible note financing with majority funding from Monarch.
On November 10, 2021, Venable and WSGR attended a conference call to
further discuss the November 5, 2021 K&E revisions to the Business Combination Agreement. On November 11, 2021, K&E, Venable and WSGR attended a second conference call to review the November 5, 2021 K&E revisions to the Business
Combination Agreement in greater detail regarding changes to provisions that addressed the support agreement-superior offer structure, certain representations and warranties, operations of L&F, ZeroFox and IDX prior to closing, claims against
the L&F trust account and closing conditions. Later that day, Venable sent a mark-up of the Business Combination Agreement to WSGR for further review. WSGR then sent comments back to Venable on November 15, 2021.
On November 15, 2021, ZeroFox and IDX extended exclusivity under the
Replacement IDX LOI from October 30, 2021 to December 15, 2021.
On November 15, based on a summary of the discussions among
representatives of L&F, ZeroFox and IDX, the L&F Board determined to increase the amount of external financing to $170 million from the original proposed $150 million in order to accommodate an expressed desire for further investment in
New ZeroFox by affiliates of, and existing investors in, the Sponsor, ZeroFox and IDX, to ensure there was sufficient cash at closing to cover the minimum cash condition under the Business Combination Agreement, to provide sufficient cash to
the balance sheet of New ZeroFox upon consummation of the Business Combination, and to cover expenses related to the transactions contemplated by the Business Combination.
On November 15, 2021, the L&F Board held a virtual meeting to
discuss a term sheet from Monarch and a summary of the $170 million of new financing in connection with the proposed Business Combination.
157
Representatives of L&F conveyed to the L&F Board at such meeting that, of
the $170 million, Monarch would subscribe for $120 million of 7.00% cash or 8.75% PIK, at L&F’s option, of convertible notes, affiliates of the Sponsor would subscribe for $30 million of the same convertible notes, and certain ZeroFox
insiders would subscribe for $5 million of ZeroFox PIK Promissory Notes, which would become part of the $20 million of common stock equity funded at transaction close by affiliates of the Sponsor, ZeroFox and IDX. While no formal action was
taken at such L&F Board meeting, the L&F Board generally agreed for representatives of L&F to continue negotiating the transaction structure as outlined in the materials provided at such meeting.
Between November 15, 2021 and December 2, 2021, representatives of
K&E, Venable, WSGR, and Stroock & Stroock & Lavan, counsel to Monarch, with input from representatives of L&F, ZeroFox, IDX, and Monarch, respectively, exchanged multiple drafts of the Business Combination Agreement and the
related transaction agreements including the PIPE and convertible notes subscription agreements and negotiated key terms in the documents. The material terms of the Business Combination Agreement were substantially reflective of the terms of the
LOI, though incorporating the inclusion of convertible notes in the committed transaction financing and decreasing the minimum cash closing condition to $170 million, inclusive of all committed transaction financing and ZeroFox PIK Promissory
Notes.
On November 16, 2021, following Venable’s review of K&E’s and
WSGR’s comments to the Business Combination Agreement and multiple conference calls between Venable and ZeroFox to review these changes, Venable sent K&E and WSGR a revised draft of the Business Combination Agreement that reflected resolution
of many of the matters mentioned above in the November 5, 2021 K&E revisions to the Business Combination Agreement, again removing the support agreement-superior offer structure, further revising defined terms relating to consideration,
confirming the structure of the representations and warranties issued by ZeroFox and IDX, revising the conduct of business by L&F, ZeroFox and IDX prior to closing, clarifying claims against the L&F trust account, revising the timing of
employee benefits following closing, and reinstating certain tax provisions.
On November 17, 2021, K&E discussed the changes to the Business
Combination Agreement with L&F. K&E sent a revised draft of the Business Combination Agreement to Venable and WSGR on November 19, 2021. In such draft, K&E reinstated the provisions regarding the support agreement-superior offer
structure, introduced the potential for L&F to be traded on Nasdaq instead of NYSE, revised some of the organizational procedural approvals by L&F, revised the minimum cash requirement, made revisions to the consideration provisions,
added reference to many of the governing document exhibits and revised the governing documents section, made minor revisions to the representations and warranties, revised pay-offs of ZeroFox and IDX debt, revised the required company party
approvals, and introduced revisions to the L&F organizational documents to extend the time that L&F has to consummate a business combination.
On November 18, 2021, the IDX CEO provided an update to the IDX Board
via videoconference, which DBO attended, on the outstanding issues in the Business Combination Agreement. WSGR attended the meeting and discussed the proposed structure and written consents required from certain IDX shareholders shortly after the
signing of the Business Combination Agreement and the implications of such structure on registration rights and the ability to accept a superior offer.
On November 22, 2021, Venable, WSGR and K&E, together with
representatives from IDX, ZeroFox and L&F, conducted a telephonic conference meeting during which the parties reviewed the status of various ancillary documents and discussed certain open negotiation points regarding the transaction generally
and the Business Combination Agreement specifically.
On November 23, 2021, Venable sent an interim mark-up of the Business
Combination Agreement to WSGR and on the same day incorporated feedback from WSGR and ZeroFox into a revised draft of the Business Combination Agreement.
On November 23, 2021, L&F and K&E also formed each of ZF Merger
Sub, Inc., IDX Merger Sub, Inc., IDX Forward Merger Sub, LLC and L&F Acquisition Holdings, LLC in Delaware, all of the subsidiaries required under the tax structure of the Business Combination Agreement.
On November 24, 2021, Venable sent K&E and WSGR a revised draft of
the Business Combination Agreement. The draft bracketed the provisions regarding the support agreement-superior offer structure for each
158
party’s further consideration and further revised certain definitions that impacted
consideration, the governing documents section, the representations and warranties, the covenants regarding operation of the business prior to closing, management of debt pay-offs by ZeroFox and IDX at closing, the closing conditions, and rights
of termination.
On November 30, 2021, K&E sent a further revised draft of the
Business Combination Agreement to Venable and WSGR. The mark-up kept the provisions regarding the support agreement-superior offer structure bracketed for further discussion and made further revision to the provisions addressing the merger
consideration, representations and warranties, operation of the business prior to closing, management of debt pay-offs by ZeroFox and IDX at closing, provisions regarding the L&F organizational documents to extend the time that L&F has to
consummate a business combination, and rights of termination.
On December 1, 2021, K&E sent L&F a supplemental summary of its
due diligence findings. The scope of the summary report focused on updates that had occurred since K&E’s delivery of its initial diligence findings on November 10, 2021, specifically relating to changes to ZeroFox’s capitalization table,
employee benefits, executive compensation and intellectual property.
Also on December 1, 2021, L&F formally engaged Jefferies as its
co-placement agent and capital markets advisor.
On December 2, 2021, Venable sent K&E and WSGR a revised draft of
the Business Combination Agreement. Later in the day on December 2, 2021, WSGR sent a further revised draft of the Business Combination Agreement to K&E and Venable. These marks-up kept the provisions regarding the support agreement-superior
offer structure bracketed for further discussion and made further revision to description of the convertible notes, the definition of material adverse effect as applied to each of the parties, consideration, representations and warranties,
operation of the business prior to closing, and conditions to closing.
On December 2, 2021, the IDX CEO updated the IDX Board on the
transaction via videoconference with WSGR and DBO present. At that meeting, WSGR provided an overview of the outstanding issues in the Business Combination Agreement and status of the PIPE transaction, the convertible notes transaction and other
ancillary documents.
Also, beginning on December 2, 2021 and until December 17, 2021,
K&E, Venable and WSGR began conducting regular telephonic conference meetings during which the parties reviewed the status of various ancillary documents and discussed certain open negotiation points regarding the Business Combination
Agreement.
On December 3, 2021, L&F management provided the L&F Board, via
email, with an interim diligence update slideshow presentation, jointly prepared with Jefferies, Maples Group, and K&E and included findings with respect to certain legal diligence matters as well as transaction structure, anticipated
timeline to closing, and a summary of the L&F Board resolutions to be passed. Additionally, a similar report prepared by Venable was provided to the L&F Board detailing Venable’s diligence findings with respect to IDX and its business.
Additionally, a representative of the Maples Group presented to the L&F Board regarding their fiduciary duties as directors of a Cayman Islands exempted corporation.
On December 4, 2021, K&E sent Venable and WSGR a revised draft of
the Business Combination Agreement. The provisions regarding the support agreement-superior offer structure were ultimately removed and K&E made further revisions to the provisions regarding the merger consideration, the definition of
material adverse effect as applied to each of the parties, representations and warranties, operation of the business prior to closing, management of debt pay-offs by ZeroFox and IDX at closing, certain approval requirements and certain tax
provisions.
On December 6, 2021, Venable sent K&E and WSGR a revised draft of
the Business Combination Agreement. Later in the day on December 6, 2021, WSGR sent a further revised draft of the Business Combination Agreement to K&E and Venable. The revisions addressed the provisions regarding the merger consideration,
the definition of material adverse effect as applied to each of the parties, representations and warranties, management of debt pay-offs by ZeroFox and IDX at closing, certain approval requirements, certain tax provisions and rights of
termination.
159
On December 7, 2021, the L&F Board met and received updates
regarding certain diligence items. Representatives from K&E were present. At that meeting, K&E provided an overview of diligence findings regarding ZeroFox’s governmental permits, licenses and clearances, particularly in the context of a
historical investment by a foreign investor, Redline Capital, into ZeroFox and the investor’s right to appoint a director to the ZeroFox Board. The L&F Board asked several questions and discussion ensued, but no formal action was taken.
On December 7, 2021, following prior discussions among the parties,
ZeroFox entered into a letter agreement with its investor Redline Capital, pursuant to which Redline Capital irrevocably waived its right to designate a member of the ZeroFox Board and its board observer rights and pursuant to which Redline
Capital granted to ZeroFox’s chief executive officer an irrevocable proxy to vote all of its shares. For more information about the Redline Capital letter, see the section entitled “Certain Relationships and
Related Party Transactions - ZeroFox Related Party Transactions - Redline Letter Agreement.”
On December 8, 2021, K&E sent a revised draft of the Business
Combination Agreement to Venable and WSGR, and Venable and WSGR sent further revised drafts of the Business Combination Agreement to the parties later that same day. The revisions consisted of changes to provisions regarding merger consideration,
required approvals regarding the L&F domestication, the definition of material adverse effect as applied to each of the parties, management of debt pay-offs by ZeroFox at closing, certain approval requirements, and certain tax provisions.
On December 11, 2021, K&E sent a revised draft of the Business
Combination Agreement to Venable and WSGR. K&E made revisions to provisions regarding the merger consideration, representations and warranties, certain approval requirements, management of debt pay-offs by ZeroFox at closing, and timing of
the listing application on Nasdaq.
On December 13, 2021, Venable sent revisions to the Business
Combination Agreement, which included input from WSGR, to K&E and WSGR. Venable made revisions to the provisions regarding debt pay-offs by ZeroFox at closing. Later that same day, K&E sent a revised draft of the Business Combination
Agreement to Venable and WSGR revising the provisions addressing the closing cash requirement and the debt pay-offs by ZeroFox at closing.
On December 14, 2021, following an all-hands call with K&E,
Venable, WSGR and the principals, Venable sent a revised draft of the Business Combination Agreement to K&E and WSGR, and later that same day, K&E sent a further revised draft of the Business Combination Agreement to Venable and WSGR
addressing rights of termination.
On December 15, 2021, K&E sent three further revised drafts of the
Business Combination Agreement to Venable and WSGR, following additional comments from Venable and WSGR, to further revise the provisions regarding the closing cash requirement and termination rights.
On December 15, 2021, the L&F Board held a virtual meeting with its
advisors and representatives to discuss the Business Combination Agreement and the transaction agreements. Among other topics, the L&F Board reviewed an update of the proposed transaction since the date of the meeting of the L&F Board on
December 3, 2021 and updates with respect to certain key diligence findings.
Additionally discussed was the potential to appoint a new independent
director to join the L&F Board, including the audit committee. Kurt Summers Jr. was discussed as a candidate given his background as a director of public companies and financial expertise. At the close of the meeting, the L&F Board
determined that it was in the best interests of L&F to appoint Mr. Summers as an independent board member.
Also at the December 15, 2021 meeting of the L&F Board, the L&F
Board reaffirmed their support for the transaction, with written consents to be provided approving the transaction.
Also on December 15, 2021, L&F formalized its engagement with
Stifel to act as its co-placement agent.
On December 15, 2021, the ZeroFox Board held a virtual meeting with
Venable and Stifel to discuss the Business Combination Agreement and related transaction agreements. Among other topics, the ZeroFox Board reviewed an updated version of the Business Combination Agreement and related transaction agreements,
employee matters following the closing of the proposed transaction, the PIPE transaction, and the convertible notes transaction, and reaffirmed their support for each of them.
160
On December 15, 2021, the IDX Board also held a virtual meeting with
WSGR to discuss the Business Combination Agreement and related transaction agreements. Among other topics, the IDX Board reviewed an updated version of the Business Combination Agreement and related transaction agreements, the PIPE transaction,
and the convertible notes transaction, and reaffirmed their support for each of them.
On December 16, 2021, in connection with an amendment of the ZeroFox
Loan and Security Agreement with Stifel Bank, certain ZeroFox insiders purchased the ZeroFox PIK Promissory Notes for an aggregate purchase price of $5.0 million. The ZeroFox PIK Promissory Notes accrue interest that will be paid-in-kind at a
rate of 5.0% per annum. If the closing occurs, the repayment of the original principal amount of the ZeroFox PIK Promissory Notes may be offset against amounts owed by the relevant ZeroFox insiders under their PIPE subscription agreements.
Following discussion by the L&F Board and based on the factors
cited in “Proposal No. 2 - The Business Combination Proposal - The L&F Board’s Reasons for the Approval of the Business Combination” and in light of the fact that the fair market value of ZeroFox and
IDX was equal to at least 80% of the funds held in the trust account and that the transaction was in the best interest of L&F’s shareholders, the Business Combination Agreement and related documents and agreements were unanimously approved by
the L&F Board by unanimous written consent the evening of December 17, 2021, and the L&F Board determined to recommend the approval of the Business Combination Agreement to the shareholders of L&F.
On December 17, 2021, the parties finalized the transaction documents
(or forms thereof) with respect to the proposed Business Combination based on the terms agreed upon by the parties and approved by their respective boards of directors, including an Amended and Restated Sponsor Support Letter Agreement, the
Subscription Agreements with each of the PIPE Investors and Convertible Notes Investors, and the Business Combination Agreement and the exhibits thereto. Also, K&E sent final transaction documents to Venable and WSGR on December 17, 2021, and
the parties confirmed via email on December 17, 2021 and the morning of December 18, 2021 that all final transaction documents had been exchanged and the transaction documents were executed.
On December 18, 2021, the requisite number of ZeroFox and IDX
shareholders executed written consents approving, among other things, the Business Combination and related transaction agreements.
On December 20, 2021, L&F, ZeroFox and IDX issued a joint press
release publicly announcing the Business Combination.
The parties have continued and expect to continue regular discussions
regarding the timing to consummate the Business Combination and necessary preparation in connection therewith.
Summary of L&F Financial Analysis
In connection with the valuation of the Target Companies, L&F
reviewed certain financial information of certain publicly-traded companies, particularly, cybersecurity software-as-a-service companies, selected based on the experience and the professional judgment of L&F’s management team, as compared to
the historical and projected financial information of the Target Companies. Below is a summary of the material comparable company analysis prepared by L&F and reviewed by the L&F Board at its December 3, 2021 meeting.
In performing its analysis, L&F’s management team made certain
assumptions with respect to, among other things, the ability of the Target Companies to attract and retain subscribers, the ability of the Target Companies to continue to compete in the cybersecurity software-as-a-service industry globally, that
the Target Companies continue to be able to develop and properly market new cybersecurity software, and general business, market, political and economic conditions. L&F also assumed baseline growth consistent with the Target Companies’
historical trends and as adjusted in the Target Companies’ projections due to the benefits of the combination of ZeroFox and IDX, such as increased annual revenue by calendar year 2022 of approximately $195 million and by calendar year 2023 of
approximately $253 million, as well as achieving approximately 45% gross margin by calendar year 2022.
Many of these assumptions are beyond the control of L&F, ZeroFox,
IDX or any other parties to the Business Combination. None of L&F, ZeroFox, IDX, or any other person assumes responsibility if future results are materially different from those discussed. Any estimates contained in this analysis are not
necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, the analysis relating to the value of the Target Companies does not
161
purport to be an appraisal or reflect the prices at which New ZeroFox’s securities may
actually be valued or trade in the open market after the consummation of the Business Combination. Accordingly, the assumptions and estimates used in, and the results derived from, the below analysis are inherently subject to substantial
uncertainty. The quantitative information presented below, to the extent that it is based on market data, is not necessarily indicative of current market conditions.
Comparable Company Analysis
L&F considered certain financial and operating data for certain
publicly-traded companies, particularly, similar cybersecurity software-as-a-service companies, which are highlighted below. None of the selected companies has characteristics identical to ZeroFox or IDX. L&F reviewed the equity value,
enterprise value (“EV”), revenue multiples (EV divided by revenue), revenues and revenue growth, capitalization profiles, and gross margins of each of the comparable companies, which L&F management deemed relevant based on its professional
judgment and expertise, and compared the same to the revenue and growth projections of ZeroFox and IDX combined, determined in accordance with the valuation analysis described below:
|
|
| |
Trading Metrics
|
||||||||||||||||||
|
|
| |
Price at
11/26/2021
|
| |
Percent of
|
| |
Equity
Value
|
| |
Enterprise
Value
|
| |
EV / Revenue
|
||||||
|
($ in Millions, except for per share)
|
| |
52-Week High
|
| |
52-Week Low
|
| |
2022E
|
| |
2023E
|
|||||||||
|
CrowdStrike Holdings, Inc.
|
| |
$232.64
|
| |
78%
|
| |
168%
|
| |
$56,316
|
| |
$55,170
|
| |
28.5x
|
| |
21.3x
|
|
Okta, Inc.(1)
|
| |
$222.69
|
| |
76%
|
| |
112%
|
| |
$37,427
|
| |
$37,155
|
| |
21.6x
|
| |
16.2x
|
|
Tyler Technologies, Inc.(2)
|
| |
$501.43
|
| |
90%
|
| |
135%
|
| |
$21,547
|
| |
$22,106
|
| |
11.9x
|
| |
10.7x
|
|
Rapid7, Inc.(3)
|
| |
$124.42
|
| |
86%
|
| |
177%
|
| |
$7,684
|
| |
$8,032
|
| |
12.3x
|
| |
10.2x
|
|
Tenable, Inc.(4)
|
| |
$50.08
|
| |
86%
|
| |
144%
|
| |
$5,999
|
| |
$5,347
|
| |
8.4x
|
| |
7.0x
|
|
SailPoint Technologies Inc.
|
| |
$51.89
|
| |
81%
|
| |
133%
|
| |
$5,176
|
| |
$4,754
|
| |
9.8x
|
| |
8.1x
|
|
Ping Identity Corporation
|
| |
$23.56
|
| |
63%
|
| |
114%
|
| |
$2,117
|
| |
$2,186
|
| |
6.5x
|
| |
5.7x
|
|
Mean
|
| |
|
| |
80%
|
| |
140%
|
| |
$19,466
|
| |
$19,250
|
| |
14.2x
|
| |
11.3x
|
|
Median
|
| |
|
| |
81%
|
| |
135%
|
| |
$7,684
|
| |
$8,032
|
| |
11.9x
|
| |
10.2x
|
|
ZeroFox Pro Forma(5)
|
| |
|
| |
|
| |
|
| |
$1,391
|
| |
$1,310
|
| |
6.7x
|
| |
5.1x
|
|
(1)
|
Shown pro forma for the acquisition of Townsend Street Labs.
|
|
(2)
|
Shown pro forma for the acquisition of Arx.
|
|
(3)
|
Shown pro forma for the acquisition of IntSights.
|
|
(4)
|
Shown pro forma for the acquisition of Accurics.
|
|
(5)
|
ZeroFox CY metrics approximated using fiscal year end Jan 31.
|
|
|
| |
Operating Metrics
|
||||||||||||||||||||||||
|
($ in Millions, except for per share)
|
| |
Cash
|
| |
Total
Debt
|
| |
% Recurring
Revenue
|
| |
Revenue
|
| |
Revenue Growth
|
| |
Gross Margin
|
|||||||||
| |
2022E
|
| |
2023E
|
| |
2022E
|
| |
2023E
|
| |
2022E
|
| |
2023E
|
|||||||||||
|
CrowdStrike Holdings, Inc.
|
| |
$1,908
|
| |
$750
|
| |
93%
|
| |
$1,934
|
| |
$2,581
|
| |
38%
|
| |
33%
|
| |
77%
|
| |
77%
|
|
Okta, Inc.(1)
|
| |
$2,482
|
| |
$2,210
|
| |
96%
|
| |
$1,717
|
| |
$2,284
|
| |
37%
|
| |
33%
|
| |
77%
|
| |
78%
|
|
Tyler Technologies, Inc.(2)
|
| |
$283
|
| |
$843
|
| |
73%
|
| |
$1,856
|
| |
$2,061
|
| |
16%
|
| |
11%
|
| |
48%
|
| |
49%
|
|
Rapid7, Inc.(3)
|
| |
$259
|
| |
$608
|
| |
90%
|
| |
$652
|
| |
$791
|
| |
23%
|
| |
21%
|
| |
73%
|
| |
74%
|
|
Tenable, Inc.(4)
|
| |
$1,027
|
| |
$375
|
| |
94%
|
| |
$639
|
| |
$760
|
| |
19%
|
| |
19%
|
| |
82%
|
| |
82%
|
|
SailPoint Technologies Inc.
|
| |
$422
|
| |
$0
|
| |
87%
|
| |
$486
|
| |
$585
|
| |
17%
|
| |
20%
|
| |
77%
|
| |
77%
|
|
Ping Identity Corporation
|
| |
$51
|
| |
$120
|
| |
94%
|
| |
$334
|
| |
$382
|
| |
13%
|
| |
14%
|
| |
80%
|
| |
80%
|
|
Mean
|
| |
$919
|
| |
$701
|
| |
90%
|
| |
$1,088
|
| |
$1,349
|
| |
23%
|
| |
22%
|
| |
74%
|
| |
74%
|
|
Median
|
| |
$422
|
| |
$608
|
| |
93%
|
| |
$652
|
| |
$791
|
| |
19%
|
| |
20%
|
| |
77%
|
| |
77%
|
|
ZeroFox Pro Forma(5)
|
| |
|
| |
|
| |
90%
|
| |
$195
|
| |
$253
|
| |
30%
|
| |
30%
|
| |
45%
|
| |
50%
|
|
(1)
|
Shown pro forma for the acquisition of Townsend Street Labs.
|
|
(2)
|
Shown pro forma for the acquisition of Arx.
|
|
(3)
|
Shown pro forma for the acquisition of IntSights.
|
|
(4)
|
Shown pro forma for the acquisition of Accurics.
|
|
(5)
|
ZeroFox CY metrics approximated using fiscal year end Jan 31.
|
162
The L&F Board’s Reasons for the Approval of the Business
Combination
The L&F Board, in evaluating the transaction with the Target
Companies, consulted with L&F’s management, K&E, and Jefferies. In reaching its unanimous resolution (a) that the terms and conditions of the Business Combination Agreement and the transactions contemplated thereby, including the Business
Combination and Domestication, are advisable, fair to and in the best interests of L&F and its shareholders and (b) to recommend that the shareholders approve the transactions contemplated by the Business Combination Agreement, the Board
considered a wide variety of factors in connection with its evaluation of the Business Combination. In light of the complexity of those factors, the Board, as a whole, did not consider it practicable to, nor did it attempt to, quantify or
otherwise assign relative weights to the specific factors it took into account in reaching its decision. Individual members of the Board may have given different weight to different factors. This explanation of the reasons for the Board’s
approval of the Business Combination, and all other information presented in this section, is forward-looking in nature and, therefore, should be read in light of the factors discussed under “Cautionary Note
Regarding Forward-Looking Statements.”
Before reaching its decision, the L&F Board reviewed the results of
the due diligence conducted by L&F’s management and advisors, which included:
|
•
|
extensive meetings and calls with ZeroFox and IDX management to understand and analyze ZeroFox’s and IDX’s respective businesses;
|
|
•
|
review of diligence materials and interviews conducted by K&E and L&F’s other advisors and, with respect to IDX, Venable
and ZeroFox’s other advisors;
|
|
•
|
review of contracts, material liabilities and other material matters;
|
|
•
|
consultation with L&F management and legal counsel and financial advisor;
|
|
•
|
review of ZeroFox’s and IDX’s respective consolidated financial statements;
|
|
•
|
research on industry trends;
|
|
•
|
research on comparable companies;
|
|
•
|
research on comparable transactions; and
|
|
•
|
reviews of certain projections provided by the Target Companies.
|
The factors considered by the L&F Board included, but were not limited to, the
following:
|
•
|
the consideration to be offered in connection with the Business Combination, including the amount and type thereof;
|
|
•
|
the Target Companies’ management teams and experience running cybersecurity businesses with a track record of success in
driving growth;
|
|
•
|
the Target Companies’ ability to scale their combined platform and provide unique solutions that create barriers to entry with
defensible, market-leading positions;
|
|
•
|
the Target Companies’ industry, being a large and expanding market with significant whitespace opportunities, where unmet market
needs may be uncovered to create opportunities for innovation;
|
|
•
|
industry tailwinds that drive accelerated growth and further adoption of the Target Companies’ products and solutions;
|
|
•
|
the Target Companies’ financial characteristics, including consistent organic revenue growth with recurring subscription
revenue bases and the ability to generate attractive unit economics and returns on capital as New ZeroFox; and
|
|
•
|
the Target Companies’ ability to capitalize on operating leverage and improve margins while executing on numerous, tangible growth
initiatives.
|
163
In the course of its deliberations, the L&F Board considered a
variety of uncertainties, risks and other potentially negative reasons relevant to the Business Combination, including the below:
|
•
|
the risk that the potential benefits of the Business Combination and Domestication may not be fully achieved, or may not be
achieved within the expected timeframe and the significant fees, expenses and time and effort of management associated with completing the Business Combination and Domestication;
|
|
•
|
the risk that the Business Combination and transactions contemplated thereby might not be consummated or completed in a timely
manner or that the closing might not occur despite our best efforts, including by reason of a failure to obtain the approval of our shareholders, litigation challenging the Business Combination or that an adverse judgment granting
permanent injunctive relief could indefinitely enjoin the consummation of the Business Combination;
|
|
•
|
the risk that the cost savings and growth initiatives of each Target Company’s long-term growth strategy may not be fully achieved
or may not be achieved within the expected timeframe;
|
|
•
|
the risk that changes in the regulatory and legislative landscape or new industry developments may adversely affect the business
benefits anticipated to result from the Business Combination;
|
|
•
|
the potential that a significant number of L&F shareholders elect to redeem their Class A Ordinary Shares prior to the
consummation of the Business Combination and pursuant to the Existing Governing Documents, which would potentially make the Business Combination more difficult or impossible to complete;
|
|
•
|
the risks and costs to L&F 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 L&F being unable to effect an initial business combination by May 23, 2022;
|
|
•
|
competition in the cybersecurity software-as-a-service industry is intense and, as a result, ZeroFox may fail to attract and
retain users, which may negatively impact ZeroFox’s operations and growth prospects;
|
|
•
|
economic downturns and market conditions beyond the Target Companies’ control, including a reduction in spending which could
adversely affect each Target Company’s business, financial condition, results of operations and prospects;
|
|
•
|
the requirements of being a public company, including compliance with the SEC’s requirements regarding internal controls over
financial reporting, may strain New ZeroFox’s resources and divert management’s attention, and the increases in legal, accounting and compliance expenses that will result from the Business Combination may be greater than the Target
Companies anticipate;
|
|
•
|
ZeroFox’s cybersecurity software-as-a-service business may be subject to regulatory scrutiny;
|
|
•
|
each Target Company may invest in or acquire other businesses, or may invest or spend the proceeds of the Business Combination
in ways with which the investors may not agree or which may not yield a return, and each Target Company’s business may suffer if it is unable to successfully integrate acquired businesses into its company or otherwise manage the growth
associated with multiple acquisitions; and
|
|
•
|
ZeroFox’s history of net losses in combination with the pro forma expectation that New ZeroFox would be cash flow positive.
|
After considering the foregoing potentially negative and potentially
positive reasons, the L&F Board concluded, in its business judgment, that the potentially positive reasons relating to the Business Combination, Domestication and the other related transactions outweighed the potentially negative reasons.
Certain Projected Financial Information
In connection with its consideration of the potential business
combination, the L&F Board was provided with the projections set forth below prepared by management of ZeroFox with input from management of IDX (collectively, the “Projections”).
ZeroFox and IDX do not as a matter of course make public projections as
to future sales, earnings, or other results. However, the management of ZeroFox with input from management of IDX has prepared the Projections
164
to provide L&F’s shareholders access to information made available in connection
with the L&F Board’s consideration of the proposed Business Combination. The Projections should not be viewed as public guidance. Furthermore, the Projections do not take into account any circumstances or events occurring after the date on
which the Projections were updated. The Projections were first shared in June 2021 and last updated in November 2021. Furthermore, the Projections do not take into account any circumstances or events occurring after the date they were prepared.
The Projections were not prepared with a view toward public disclosure
or with a view toward complying with the guidelines established by the SEC or the American Institute of Certified Public Accountants with respect to prospective financial information.
None of the independent auditors of ZeroFox, IDX or L&F, nor any
other independent accountants, have compiled, examined, or performed any procedures with respect to the Projections, nor 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 Projections. See “Cautionary Note Regarding Forward-Looking Statements.”
The Projections were prepared in good faith by ZeroFox management
with input from IDX management, and are based on estimates and assumptions considered by them to be reasonable with respect to the expected combined future financial performance of ZeroFox and IDX at the time the Projections were prepared and
speak only as of that time. While presented with numerical specificity, the Projections are forward-looking and reflect numerous estimates and assumptions including, but not limited to, future industry performance under various industry
scenarios as well as assumptions for competition, general business, economic, market and financial conditions and matters specific to the businesses of ZeroFox and IDX, all of which are inherently uncertain and difficult to predict and many of
which are beyond the preparing parties’ control including, among other things, the matters described in the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.” The Projections are 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 Projections. New ZeroFox will not refer back to the Projections in its future periodic reports filed under the Exchange Act.
The Projections were prepared solely for internal use to assist L&F
in its evaluation of the Target Companies and the Business Combination. ZeroFox and IDX have not warranted the accuracy, reliability, appropriateness or completeness of the projections to anyone, including L&F. Neither ZeroFox’s management,
IDX’s management, nor any of their respective representatives has made or makes any representations to any person regarding the ultimate performance of New ZeroFox relative to the Projections. The Projections are not fact. The Projections are not
a guarantee of actual future performance. The future financial results of the Target Companies may differ materially from those expressed in the Projections due to factors beyond either of their ability to control or predict.
The Projections are not included in this proxy statement/prospectus in
order to induce any L&F shareholders to vote in favor of any of the proposals at the Shareholder Meeting.
We encourage you to review the financial statements of ZeroFox and IDX
included in this proxy statement/ prospectus, as well as the financial information in the sections titled “Summary Historical Financial Information of ZeroFox”, “Summary
Historical Financial Information of IDX” and “Unaudited Pro Forma Combined Financial Information” in this proxy statement/prospectus and to not rely on any single financial measure.
Neither L&F, ZeroFox not IDX nor any of their respective
affiliates intends to, and, except to the extent required by applicable law (including a registrant’s responsibility to make full and prompt disclosure of material facts, both favorable and unfavorable, regarding its financial condition, which
responsibility may extend to situations where management knows, or has reason to know, that its previously disclosed projections no longer have a reasonable basis), each of them expressly disclaims any obligation to, update, revise or correct
the Projections to reflect circumstances existing or arising after the date such Projections were generated or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying the Projections are shown
to be in error or any of the Projections otherwise would not be realized.
165
The key elements of the projections provided by ZeroFox
management to the L&F Board are as follows:
|
(US$ in millions)
|
| |
2022(1)
|
| |
2023(1)
|
| |
2024(1)
|
| |
2025(1)
|
| |
2026(1)
|
|
Revenue
|
| |
$150
|
| |
$195
|
| |
$253
|
| |
$329
|
| |
$428
|
|
Gross Profit(2)
|
| |
$58
|
| |
$88
|
| |
$127
|
| |
$179
|
| |
$255
|
|
Free Cash Flow(3)
|
| |
($12)
|
| |
$3
|
| |
$31
|
| |
$58
|
| |
$105
|
|
(1)
|
These are projected results that include the results of both ZeroFox and IDX for each fiscal year ended January 31.
|
|
(2)
|
Gross Profit is defined as total revenue less total cost of services.
|
|
(3)
|
Free Cash Flow is defined as Gross Profit less capitalized software expense and other operating expenses, interest expense on
existing debt (assuming all outstanding debt obligations are repaid as part of the closing of the Business Combination), interest expense on the Notes to be issued in the Convertible Notes Financing (assuming the Notes are settled as
equity in 2025), income taxes (assuming the use of net operating loss carryforwards to offset future taxable income) and capital expenditures, plus certain non-cash reconciling items and changes in operating assets and liabilities.
|
The material assumptions underlying the Projections include:
|
•
|
assumptions related to expansion of services from existing, estimated market share growth from new customers and new product
introduction and adoption and cross-selling opportunities from the companies’ customer bases, all of which are expected to result in an implied revenue compounded annual growth rate of 30% from 2022 through 2026;
|
|
•
|
other general business and market assumptions, which are based on ZeroFox’s and IDX’s ability to continue to develop and foster
strong relationships with their channel partners, maintain the historical performance of ZeroFox and IDX, benefit from economic and market growth consistent with recent years, continue to develop new products and improvements thereto,
and capitalize on other future prospects;
|
|
•
|
an implied revenue compounded annual growth rate of approximately 50% for ZeroFox subscription revenue, which is lower than
ZeroFox’s historical annual growth rate over the past four years. Net dollar retention from existing customers is projected to be 105%;
|
|
•
|
an implied revenue compounded annual growth rate of approximately 50% for IDX’s breach response revenue, which approximates
IDX’s historical annual growth rate over the past four years. The OPM contract provides a fixed value throughout the contract term of June 2024, and therefore, no growth is assumed from OPM through the contract term and the remaining
forecast period;
|
|
•
|
assumptions related to cost of sales and gross profit margins are based on ZeroFox’s and IDX’s investments in research and
development to provide new revenue producing products and services and achieve greater platform cost efficiencies to improve upon ZeroFox’s non-GAAP gross margin of 67% for the year ended January 31, 2021 to approximately 79% for the
year ended January 31, 2026;
|
|
•
|
assumptions related to operating expenses and other costs and expenses, which are based on management’s current expectations
for long term scale efficiencies in operating costs and estimated general and administrative expenses related to being a public company;
|
|
•
|
assumptions related to free cash flow reflect the estimated revenue growth and operating efficiencies. The cash interest option
of 7% is applied to the convertible note balance, which is expected to be converted into common equity at its 3-year maturity; and
|
|
•
|
the assumption that New ZeroFox will grow organically, not have any material divestitures or make any other material changes in
its business or operations.
|
ZeroFox management believes its revenue projections are reasonable
because they are based on the combined company’s historical financial data, third party market data, and data inputs from multiple internal ZeroFox and IDX personnel. ZeroFox’s historical revenue growth rate over the preceding four years
approximates 75%; while IDX’s revenue, excluding the impact of revenue from the OPM contract, has grown at a compound rate of approximately 50%.
Actual pro forma combined revenue of $153 million for fiscal year
2022 exceeded the projected revenue of $150 million. Actual pro forma combined gross profit and cash flow were $54 million and ($14 million), respectively, versus projected gross profit and cash flow of $58 million and ($12 million),
respectively.
166
Additionally, as of the date of this proxy statement/prospectus, the combined
company’s operating expenses were slightly higher than projected as a result of higher general and administrative expenses related to the timing of the Business Combination and public company readiness, increased research, development and
threat intelligence activities and interest expense from additional borrowings under our debt facilities. We expect that these expenses, as well as rising compensation levels, will continue to be incurred through fiscal year 2023.
Management of ZeroFox selected a five-year period for the
Projections because such period would allow the combined company to fully integrate operations to capture cross-selling opportunities between the two customer bases, as well as to demonstrate a business model that does not depend on revenue and
cash flow from a single customer.
Interests of Certain Persons in the Business Combination
In considering the recommendation of the L&F Board to vote in favor
of the Business Combination, shareholders should be aware that, aside from their interests as shareholders, our Sponsor and our directors, officers and advisors and the Target Companies’ current owners have interests in the Business Combination
that are different from, or in addition to, those of our other shareholders generally. Our directors were aware of and considered these interests, among other matters, in evaluating the Business Combination, and in recommending to our
shareholders that they approve the Business Combination. Shareholders should take these interests into account in deciding whether to approve the Business Combination. These interests include, among other things:
|
•
|
the fact that Sponsor and L&F’s directors and officers have agreed not to redeem any Class A Ordinary Shares held by them in
connection with a shareholder vote to approve the Business Combination and the Sponsor Holders are obligated to vote in favor of the Business Combination;
|
|
•
|
the fact that our Sponsor has irrevocably waived the anti-dilution adjustments set forth in L&F’s organizational documents, or
any other anti-dilution or similar adjustment rights to which the Sponsor may otherwise be entitled related to or arising from the Business Combination;
|
|
•
|
the fact that the Sponsor Holders paid an aggregate amount of $25,000 for the Founder Shares, which will convert into 4,312,500
shares of New ZeroFox Common Stock in accordance with the terms of L&F’s organizational documents and such securities will have a significantly higher value at the time of the Business Combination;
|
|
•
|
the fact that our Sponsor paid $5,450,000 for 5,450,000 L&F Private Placement Warrants, each of which is exercisable
commencing on the later of 12 months from the closing of the L&F IPO and 30 days following the Closing for one Class A Ordinary Share at $11.50 per share; if we do not consummate an initial business combination by May 23, 2022 (or
such later date as may be approved by L&F’s shareholders), then the proceeds from the sale of the L&F Private Placement Warrants will be part of the liquidating distribution to the Public Shareholders and the warrants held by
our Sponsor will be worthless;
|
|
•
|
the fact that the L&F Initial Shareholders, including the Sponsor (and certain of L&F’s officers and directors who are
members of the Sponsor), have invested in L&F an aggregate of $5,475,000, comprised of the $25,000 purchase price for 4,312,500 Founder Shares and the $5,450,000 purchase price for 5,450,000 L&F Private Placement Warrants.
Subsequent to the initial purchase of the Founder Shares by the Sponsor, the Sponsor transferred 20,000 Founder Shares to Mr. Albert Goldstein and 50,000 Founder Shares to Senator Joseph Lieberman at a nominal purchase price of $0.004
per Founder Share prior to the closing of the L&F IPO and 39,733 Founder Shares to Mr. Kurt Summers shortly after his being appointed to the L&F Board in December 2021 for no cash consideration. Assuming a trading price of
$10.11 per Class A Ordinary Share and $0.3612 per L&F Public Warrant (based upon the respective closing prices of the Class A Ordinary Shares and the L&F Public Warrants on the NYSE on April 4, 2022), the 4,312,500 Founder
Shares and 5,450,000 Private Placement Warrants would have an implied aggregate market value of $45,567,915. Even if the trading price of the shares of New ZeroFox Common Stock were as low as $1.27 per share, the aggregate market value
of the Founder Shares alone (without taking into account the value of the L&F Private Placement Warrants) would be approximately equal to the initial investment in L&F by the L&F Initial Shareholders. As a result, the
L&F Initial Shareholders are likely to be able to make a substantial profit on their investment in L&F at a time when shares of New ZeroFox Common Stock have lost
|
167
significant value. On the other hand, if L&F liquidates without completing a
business combination before May 23, 2022 (or such later date as may be approved by L&F’s shareholders), the Initial Shareholders will lose their entire investment in L&F;
|
•
|
the fact that the Sponsor and L&F’s officers and directors will benefit from the completion of a business combination and may
be incentivized to complete an acquisition of a less favorable target company or on terms less favorable to shareholders rather than liquidate;
|
|
•
|
the fact that the L&F Initial Shareholders including the Sponsor (and the L&F’s officers and directors who are members of
the Sponsor) can earn a positive rate of return on their investment, even if other L&F shareholders experience a negative rate of return in New ZeroFox;
|
|
•
|
the fact that the L&F Initial Shareholders and L&F’s other current officers and directors have agreed to waive their
rights to liquidating distributions from the Trust Account with respect to any L&F Ordinary Shares (other than Public Shares) held by them if L&F fails to complete an initial business combination by May 23, 2022 (or such later
date as may be approved by L&F shareholders);
|
|
•
|
the fact that, at the option of the Sponsor, any amounts outstanding under any loan made by the Sponsor or any of its
affiliates to L&F in an aggregate amount of up to $1,500,000 may be converted into L&F Private Placement Warrants in connection with the consummation of the Business Combination;
|
|
•
|
the fact that the Sponsor and L&F’s officers and directors will lose their entire investment in L&F and will not be
reimbursed for any loans extended, fees due or out-of-pocket expenses if an initial business combination is not consummated by May 23, 2022 (or such later date as may be approved by L&F shareholders). As of the date of this proxy
statement/prospectus there are no loans extended, fees due or outstanding out-of-pocket expenses for which the Sponsor and L&F’s officers and directors are awaiting reimbursement;
|
|
•
|
the fact that if the Trust Account is liquidated, including in the event L&F is unable to complete an initial business
combination within the required time period, Sponsor has agreed to indemnify L&F to ensure that the proceeds in the Trust Account are not reduced below $10.15 per L&F 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 L&F has entered into an acquisition agreement or claims of any third party for services rendered or products sold to L&F, 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 fact that L&F may be entitled to distribute or pay over funds held by L&F outside the Trust Account to Sponsor or any
of its affiliates prior to the Closing;
|
|
•
|
the fact that (i) L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity
affiliated with Richard Levy, a director of L&F), GCP-OI I, LLC (an entity affiliated with Adam Gerchen, our chief executive officer and a director of L&F), JCH Investments LLC (an entity affiliated with Jeffrey C. Hammes, the
chairman of the L&F Board) and an affiliate of Corbin Capital Partners, LP, a significant security holder of L&F, have executed and delivered Common Equity Subscription Agreements for an aggregate amount of $10,000,000,
(ii) L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F) and an affiliate of Corbin Capital Partners, LP, a significant security
holder of L&F, have executed and delivered Convertible Notes Subscription Agreements for an aggregate principal amount of $30,000,000, and (iii) Adam Gerchen (our chief executive officer and director of L&F) is a limited partner
in funds managed by Monarch Capital, and that Monarch Capital has executed and delivered a Convertible Notes Subscription Agreement for an aggregate principal amount of $120,000,000;
|
|
•
|
L&F has agreed to pay Jefferies, L&F’s co-PIPE placement agent and financial advisor, and sole underwriter in the
L&F IPO: (i) a cash fee for their services in connection with the L&F IPO in an aggregate amount equal to 5.5% of the gross proceeds of the L&F IPO, with 2.0% of the gross proceeds being paid to the underwriters at the time
the L&F IPO was completed and 3.5% of the gross proceeds (i.e., the deferred underwriting fee) being payable, and conditioned, upon consummating an initial business combination; the aggregate underwriting fee is fixed at 5.5% of the
gross proceeds from
|
168
the L&F IPO and will not be adjusted based on the number of shares that are
redeemed in connection with the Business Combination; the aggregate underwriting fee of $6,037,500 represents approximately 3.5%, 4.7%, 7.0% and 14.0% of the aggregate proceeds from the L&F IPO, net of redemptions, in the no redemption, 25%
redemption, 50% redemption and 75% redemption scenarios, respectively; (ii) a placement agency fee as a percentage of the aggregate gross proceeds received or to be received from the sale of L&F’s equity securities and split with Stifel
(defined below); and (iii) financial advisory fees as a fixed amount related to capital markets financial advice and assistance in connection with the Business Combination, as applicable, upon completion of the Business Combination;
|
•
|
the fact that, Stifel, Nicolaus & Company, Incorporated (“Stifel”),
co-PIPE placement agent for the Common Equity PIPE Financing and a creditor of ZeroFox, will be entitled to receive a placement agency fee as a percentage of the aggregate gross proceeds received or to be received from the one or more
commitments for financing the Business Combination from sources other than any affiliates of ZeroFox, IDX or L&F, and split with Jefferies, upon completion of the Business Combination;
|
|
•
|
the fact that (i) James C. Foster, Peter Barris, Corey Mulloy, Samskriti King, and Todd Headley, current directors of ZeroFox,
(ii) Thomas F. Kelly and Sean Cunningham, current directors of IDX and (iii) Adam Gerchen, current officer of the Sponsor, are each expected to be directors of New ZeroFox after the consummation of the Business Combination. As such, in
the future each of the aforementioned will receive any cash fees, stock options, stock awards or other remuneration that New ZeroFox’s board of directors determines to pay them and any applicable compensation as described under the
section titled “Executive and Director Compensation”; and
|
|
•
|
the fact that the Sponsor Group will have paid an aggregate of approximately $15,475,000 for its investment in New ZeroFox,
including the investment of L&F Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F), GCP-OI I, LLC (an entity affiliated with Adam
Gerchen, our chief executive officer and a director of L&F), JCH Investments LLC (an entity affiliated with Jeffrey C. Hammes, the chairman of the L&F Board) in the Common Equity PIPE Financing, and the investment of L&F
Acquisition Holdings Fund, LLC (an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard Levy, a director of L&F) in the Convertible Notes Financing), as summarized in the table below, and, following the
consummation of the Business Combination, the aggregate value of the Sponsor Group’s investment will be $48,095,415, based upon the respective closing prices of the Class A Ordinary Shares and the L&F Public Warrants on the NYSE on
April 4, 2022.
|
Sponsor Group Beneficial Ownership of L&F Prior to Closing
|
|
| |
Securities held by
Sponsor Group
|
| |
Sponsor Cost at L&F’s
Initial Public Offering ($)
|
|
Class A Ordinary Shares
|
| |
—
|
| |
—
|
|
Founder Shares
|
| |
4,312,500
|
| |
$25,000
|
|
L&F Private Placement Warrants
|
| |
5,450,000
|
| |
$5,450,000
|
|
Total
|
| |
|
| |
$5,475,000
|
Sponsor Group Ownership of New ZeroFox Following the Closing(1)
|
|
| |
Securities held by
Sponsor Group at
Closing
|
| |
Value per
Security ($)
|
| |
Sponsor
Group Cost
at Closing ($)
|
| |
Total Value ($)
|
|
New ZeroFox Common Stock Issued Pursuant to the Common
Equity PIPE Financing
|
| |
250,000
|
| |
$10.11
|
| |
$2,500,000
|
| |
$2,527,500
|
|
New ZeroFox Common Stock Issued to Holders of Founder
Shares
|
| |
4,312,500(1)
|
| |
$10.11
|
| |
—
|
| |
$43,599,375
|
|
New ZeroFox Private Placement Warrants
|
| |
5,450,000
|
| |
$0.3612
|
| |
—
|
| |
$1,968,540
|
|
Total
|
| |
|
| |
|
| |
$2,500,000
|
| |
$48,095,415
|
169
|
(1)
|
Does not include New ZeroFox Common Stock issuable upon conversion of the Notes that are convertible at an initial conversion
price of $11.50 per share.
|
|
(2)
|
Includes 1,293,750 shares of New ZeroFox Common Stock which will be subject to an earnout, whereby such shares will be forfeited
unless certain volume-weighted average share price thresholds are met in trading or are deemed to occur in connection with a Change of Control (as defined in the Business Combination Agreement) within five years from the Closing. See “Proposal No. 2 — Business Combination Proposal — Related Agreements — The Sponsor Support Letter Agreement” for more information related to the Sponsor Support Letter
Agreement.
|
At any time prior to the Shareholder Meeting, during a period when they
are not then aware of any material non-public information regarding L&F or our securities, the L&F Initial Shareholders, the Target Companies and/or their respective affiliates may purchase shares and/or warrants from investors, or they
may enter into transactions with such investors and others to provide them with incentives to acquire Class A Ordinary Shares 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 that the proposals presented to shareholders for approval at the Shareholder Meeting are approved or to provide additional equity financing. Any such share purchases and other transactions may
thereby increase the likelihood of obtaining shareholder approval of the Business Combination. This may result in the completion of our Business Combination that may not otherwise have been possible. 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.
Entering into any such incentive arrangements may have a depressive
effect on Class A Ordinary Shares. 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 it owns,
either prior to or immediately after the Shareholder 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 proposals to be
presented at the Shareholder Meeting and would likely increase the chances that such proposals would be approved. As of the date of this proxy statement/prospectus, there have been no such discussions and no agreements to such effect have been
entered into with any such investor or holder. L&F will file a Current Report on Form 8-K to disclose any arrangements entered into or significant purchases made by any of the aforementioned persons that would affect the vote on the proposals
to be voted on at the Shareholder Meeting. Any such report will include descriptions of any arrangements entered into or significant purchases by any of the aforementioned persons.
The existence of financial and personal interests of our directors and
officers may result in conflicts of interest, including a conflict between what may be in the best interests of L&F and its shareholders and what may be best for a director’s personal interests when determining to recommend that shareholders
vote for the proposals. See the sections titled “Risk Factors”, “Beneficial Ownership of Securities” for more information and other risks.
Conflicts of Interest and Waiver of Corporate Opportunity Doctrine
Under Cayman Islands law, directors and officers of a Cayman Islands
company owe certain duties to the company, including, but not limited to, the following fiduciary duties:
|
•
|
duty to act in good faith in what the director or officer believes to be in the best interests of the company as a whole;
|
|
•
|
duty to exercise powers for the purposes for which those powers were conferred and not for a collateral purpose;
|
|
•
|
directors should not improperly fetter the exercise of future discretion;
|
|
•
|
duty to exercise powers fairly as between different classes of shareholders;
|
|
•
|
duty not to put themselves in a position in which there is a conflict between their duty to the company and their personal
interests; and
|
|
•
|
duty to exercise independent judgment.
|
170
In addition to the above, directors also owe a duty of care which
is not fiduciary in nature. This duty has been defined as a requirement to act as a reasonably diligent person having both the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions
as are carried out by that director in relation to the company and the general knowledge skill and experience of that director.
As set out above, directors have a duty not to put themselves in a
position of conflict and this includes a duty not to engage in self-dealing, or to otherwise benefit as a result of their position. However, in some instances what would otherwise be a breach of this duty can be forgiven or authorized in
advance by the shareholders provided that there is full disclosure by the directors. This can be done by way of permission granted in the Existing Governing Documents or alternatively by shareholder approval at general meetings. As detailed
below, our Existing Governing Documents provide such permission through a waiver of the corporate opportunities doctrine. The Existing Governing Documents provide that (a) we renounce any interest or expectancy in, or in being offered an
opportunity to participate in, any potential transaction or matter which may be a corporate opportunity for our directors and officers, on the one hand, and us, on the other and (b) our directors and officers shall have no duty to communicate
or offer any such corporate opportunity to us and shall not be liable to us for breach of any fiduciary duty as a member, director and/or officer solely by reason of the fact that such party pursues or acquires such corporate opportunity for
itself, himself or herself, directs such corporate opportunity to another person, or does not communicate information regarding such corporate opportunity to us. We do not believe that the fiduciary duties or contractual obligations of our
officers or directors will materially affect our ability to complete the Business Combination.
While the Existing Governing Documents included the waiver of
corporate opportunities as described in the preceding sentence, our compliance with such provision did not affect or otherwise limit L&F’s search for an acquisition target. Given the large target universe considered by L&F’s management
team, which included initial contact with more than 120 companies and non-disclosure agreements with approximately 15 companies, the L&F Board does not believe that the other fiduciary duties or contractual obligations of L&F’s officers
and directors materially affected L&F’s ability to source a potential business combination. Please see “Proposal No. 2 - Business Combination Proposal - Background to the Business Combination”
for more information about L&F’s search for targets in the potential business combination.
In addition to those interests of certain persons in the Business
Combination listed above, investors should also be aware of the following other conflicts of interest:
|
•
|
Our Sponsor, 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 (including Victory Park Capital Advisors, LLC) or any of our officers or directors to finance transaction costs in connection with the
Business Combination. In particular, affiliate funds associated with Victory Park Capital Advisors, LLC, including (a) L&F Acquisition Holdings Fund, LLC, (b) Corbin ERISA Opportunity Fund, (c) JCH Investments LLC, and (d) GCP-OI I,
LLC are participants in the Common Equity PIPE Financing and Convertible Notes Financing. L&F Acquisition Holdings Fund, LLC is affiliated with Richard Levy, a director of L&F. Corbin ERISA Opportunity Fund is an affiliate of
Corbin Capital Partners, LP and such entity is an equityholder of our Sponsor. JCH Investments LLC is an entity affiliated with Jeffrey C. Hammes, chairman of the L&F Board. GCP-OI I, LLC is an entity affiliated with L&F’s CEO,
Adam Gerchen.
|
|
•
|
Additionally, L&F’s CEO, Adam Gerchen, has a passive and immaterial interest in funds affiliate with Monarch Alternative
Capital LP, a participant in the Convertible Notes Financing. For more information on the affiliate financing arrangements in connection with the Business Combination please see “Certain
Relationships and Related Party Transactions - L&F Related Party Transactions.”
|
None of us, our Sponsor, nor any of our officers or directors are
affiliated with either ZeroFox or IDX prior to the consummation of the Business Combination. We cannot assure you that any of the above-mentioned conflicts will be resolved in our favor.
Certain Other Interests in the Business Combination
In addition to the interests of L&F’s directors and officers in the
Business Combination, shareholders should be aware that Jefferies has financial interests that are different from, or in addition to, the interests of our shareholders.
171
Jefferies was the sole underwriter in the L&F IPO, and, upon
consummation of the Business Combination, Jefferies is entitled to $6,037,500 of deferred underwriting commission. Jefferies have agreed to waive its rights to the deferred underwriting commission held in the Trust Account in the event L&F
does not complete an initial business combination within 18 months of the closing of the L&F IPO (as such date may be extended by approval of the L&F shareholders). Accordingly, if the Business Combination, or any other initial business
combination, is not consummated by that time and L&F is therefore required to be liquidated, the underwriter of the L&F IPO, will not receive any of the deferred underwriting commission and such funds will be returned to L&F’s
Public Shareholders upon its liquidation.
As described further below, Jefferies is also providing certain
services in connection with the Business Combination and will receive compensation in connection therewith. Jefferies’ receipt of the deferred underwriting commission of $6,037,500 is not dependent on its provision of such services but instead
is only conditioned on the completion of an initial business combination within 18 months of the closing of the L&F IPO (as such date may be extended by approval of the L&F shareholders).
Furthermore, Jefferies and Stifel were engaged by L&F as
co-placement agents with respect to the Common Equity PIPE Financing and Convertible Notes Financing and solely as relating to Jefferies, as one of L&F’s financial advisors. L&F decided to retain each of Jefferies and Stifel as
co-placement agents for the Common Equity PIPE Financing and Convertible Notes Financing based primarily on each of Jefferies’ and Stifel’s extensive knowledge, strong market position and positive reputation in equity capital and convertible
notes markets and its experienced and capable investment banking team. Similarly, L&F decided to retain Jefferies as its lead financial advisor based primarily on its leading investment banking franchise with a strong track record of
advising on complex, transformational transactions. In connection with Jefferies’ and Stifel’s services as co-placement agents, Jefferies and Stifel’s collective placement fee is equal to 3.0% of the aggregate gross proceeds received or to be
received from the sale of securities through the Common Equity PIPE Financing or the Convertible Note Financing. The sale of an aggregate of $50,000,000 of securities pursuant to the Common Equity Subscription Agreements and Convertible Notes
Subscription Agreements to affiliates of L&F, Zerofox and IDX is not subject to the 3.0% placement fee.
In addition, under the terms of each of Jefferies’ engagements, L&F
agreed to reimburse Jefferies for its reasonable out-of-pocket expenses, including the fees and disbursements of its outside attorneys, and to indemnify Jefferies and certain related parties against liabilities, including liabilities under
federal securities laws, in each case, in connection with, as a result of, or relating to its respective engagements.
Jefferies therefore has an interest in L&F completing a business
combination that will result in the payment of the deferred underwriting commission to Jefferies as the underwriter of the L&F IPO. In considering approval of the Business Combination, our shareholders should consider the different roles of
Jefferies in light of the deferred underwriting commission Jefferies is entitled to receive if the Business Combination is consummated within 18 months of the closing of the L&F IPO (or such later date as may be approved by L&F’s
shareholders).
Satisfaction of 80% Test
It is a requirement under the Existing Governing Documents and NYSE
rules that we complete one or more business combinations having an aggregate fair market value of at least 80% of the value of the assets held in the Trust Account (excluding the deferred underwriting commissions and taxes payable on the
interest earned on the Trust Account) at the time of our signing a definitive agreement in connection with our initial business combination.
As of the date of the execution of the Business Combination
Agreement, the balance of funds in the Trust Account was approximately $175,100,000 and L&F had $6,037,500 of deferred underwriting commissions plus taxes payable on the income earned on the Trust Account. In reaching its conclusion that
the Business Combination meets the 80% test, the L&F Board looked at the Target Companies’ pre-money equity value of approximately $1.2 billion. In determining whether the pre-money equity value represents the fair market value of Target
Companies, the L&F Board considered all of the factors described in the section titled “Proposal No. 2 — The Business Combination Proposal — The L&F Board’s Reasons for the
Approval of the Business Combination,” and the fact that the purchase price for the Target Companies was the result of an arm’s length negotiation. As a result, the L&F Board concluded that the fair market value of
the businesses acquired was significantly in excess of 80% of the assets held in the Trust Account. In light of the financial background and experience of the members of our management team and the L&F Board, the L&F Board believes that
the
172
members of our management team and the board of directors are qualified to determine
whether the Business Combination meets the 80% test. The L&F Board did not seek or obtain an opinion of an outside fairness or valuation advisor as to whether the 80% test has been met.
Anticipated Accounting Treatment of the Business Combination
The anticipated accounting treatment for the Business Combination may
be different under the varying redemption assumptions with a combining entity being an accounting acquirer in one scenario and an accounting acquiree in another scenario.
Scenario 1, No Redemption Scenario
With respect to the Business Combination, under a no redemption
scenario, ZeroFox will be treated as the accounting acquirer and L&F and IDX will be treated as acquired companies for accounting purposes. This determination is primarily based on the facts that subsequent to the Business Combination:
|
•
|
ZeroFox shareholders will have a majority of the voting power of New ZeroFox;
|
|
•
|
ZeroFox will designate a majority of the governing body of New ZeroFox;
|
|
•
|
ZeroFox’s senior management will comprise all of the senior management of New ZeroFox; and
|
|
•
|
the largest single shareholder of the combined company will be a legacy owner of ZeroFox.
|
As a result of ZeroFox being considered the accounting acquirer in the
Business Combination, the business combination between ZeroFox and L&F represents a reverse merger and will be accounted for as a reverse recapitalization in accordance with U.S. GAAP. Accordingly, for accounting purposes, the business
combination between ZeroFox and L&F will be treated as the equivalent of ZeroFox issuing shares for the net assets of L&F, accompanied by a recapitalization. The net assets of ZeroFox will be stated at historical cost. No goodwill or
other intangible assets will be recorded.
As ZeroFox is determined to be the accounting acquirer in the Business
Combination, the acquisition of IDX will be considered a business combination under ASC 805, Business Combinations, and will be accounted for using the acquisition method of accounting. The consideration
transferred to effect the acquisition will be allocated to the assets acquired and liabilities assumed based on their estimated acquisition-date fair values. The excess of consideration transferred over the fair values of assets acquired and
liabilities assumed will be recorded as goodwill.
Scenario 2, Maximum Redemption Scenario
With respect to the Business Combination, under a maximum redemption
scenario, L&F will be treated as the accounting acquirer and ZeroFox and IDX as acquired companies for accounting purposes.
Upon consummation of the Business Combination, ZeroFox is considered
a variable interest entity and L&F will be considered the primary beneficiary as its ownership will provide the power to direct the activities that most significantly impact ZeroFox’s performance and the obligation to absorb the losses
and/or receive the benefits of ZeroFox that could potentially be significant to ZeroFox.
We assessed the possibility that IDX could be the accounting acquirer
upon consummation of the Business Combination. IDX is considered a business under ASC 805, Business Combinations. IDX is not considered the accounting acquirer in the Business Combination based on evaluation of the following factors:
|
•
|
IDX shareholders will not have the largest voting interest in New ZeroFox;
|
|
•
|
IDX will not comprise all of the ongoing operations of New ZeroFox;
|
|
•
|
IDX will not designate a majority of the governing body of New ZeroFox;
|
|
•
|
IDX senior management will not have a substantive role in the senior management of New ZeroFox; and
|
|
•
|
the largest single owner of the combined company will not be a legacy owner of IDX.
|
L&F’s acquisitions of ZeroFox and IDX will be considered
business combinations under ASC 805, Business Combinations, and will be accounted for using the acquisition method of accounting. The consideration
173
transferred will be allocated to the assets acquired and liabilities assumed based on
their estimated acquisition-date fair values. The excess of consideration transferred to effect the acquisitions over the fair values of assets acquired and liabilities assumed will be recorded as goodwill.
Exchange Listing
The L&F Public Units (each consisting of one Class A Ordinary
Share and one-half of one L&F Public Warrant), Class A Ordinary Shares and L&F Public Warrant (each to purchase one Class A Ordinary Share) are currently traded on the NYSE under the symbols “LNFA.U”,” “LNFA” and “LNFA WS.” At the
closing of the Business Combination, the L&F Public Units will separate into their component Class A Ordinary Shares and L&F Public Warrants so that the units will no longer trade separately under “LNFA.U.” L&F intends to apply for
listing, to be effective at the time of the Business Combination, of the New ZeroFox Common Stock and the New ZeroFox Public Warrants on Nasdaq under the proposed symbols “ZFOX” and “ZFOXW.”
Potential Purchases of Public Shares and/or Warrants
At any time prior to the Shareholder Meeting, during a period when they
are not then aware of any material nonpublic information regarding L&F or our securities, L&F’s Initial Shareholders, the Target Companies and/or their respective affiliates may purchase shares and/or warrants from investors, or they may
enter into transactions with such investors and others to provide them with incentives to acquire shares of L&F Ordinary Shares 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 that the proposals presented to Public Shareholders for approval at the Shareholder Meeting are approved or to provide additional equity financing. Any such share purchases and other transactions
may thereby increase the likelihood of obtaining Public Shareholder approval of the Business Combination. This may result in the completion of our Business Combination that may not otherwise have been possible. 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.
Entering into any such incentive arrangements may have a depressive
effect on the Class A Ordinary Shares. 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 he
owns, either prior to or immediately after the Shareholder 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 Class A Ordinary Shares by the persons described above would allow them to exert more influence over the approval of the
proposals to be presented at the Shareholder Meeting and would likely increase the chances that such proposals would be approved. As of the date of this proxy statement/prospectus, there have been no such discussions and no agreements to such
effect have been entered into with any such investor or holder. L&F will file a Current Report on Form 8-K to disclose any arrangements entered into or significant purchases made by any of the aforementioned persons that would affect the vote
on the proposals to be voted on at the Shareholder Meeting. Any such report will include descriptions of any arrangements entered into or significant purchases by any of the aforementioned persons.
The existence of financial and personal interests of our directors and
officers may result in conflicts of interest, including a conflict between what may be in the best interests of New ZeroFox and its shareholders and what may be best for a director’s personal interests when determining to recommend that Public
Shareholders vote for the proposals. See the sections titled “Risk Factors” and “Beneficial Ownership of Securities” for more information and other risks.
174
Sources and Uses of Funds for the Business Combination
The following table summarizes the sources and uses for funding the
Business Combination, assuming (i) none of L&F’s Class A Ordinary Shares held by the Public Shareholders are redeemed in connection with the Business Combination and (ii) all of the outstanding Class A Ordinary Shares are redeemed in
connection with the Business Combination. Where actual amounts are not known or knowable, the figures below represent L&F’s good faith estimate of such amounts. For more information, see “Unaudited Pro Forma
Condensed Combined Financial Information.”
|
(U.S. dollars in millions)
|
| |
|
| |
|
|
|
| |
Assuming
No
Redemptions(1)
|
| |
Assuming
Maximum
Redemptions(2)
|
|
Sources
|
| |
|
| |
|
|
Cash and investments held in Trust Account(3)
|
| |
$175
|
| |
$175
|
|
Issuance to ZeroFox and IDX Shareholders(4)
|
| |
$1,112
|
| |
$1,112
|
|
Convertible Notes
|
| |
$150
|
| |
$150
|
|
PIPE Investment
|
| |
$20
|
| |
$20
|
|
Total Sources
|
| |
$1,457
|
| |
$1,457
|
|
|
| |
|
| |
|
|
Uses
|
| |
|
| |
|
|
ZeroFox and IDX Shareholders equity consideration(4)
|
| |
$1,112
|
| |
$1,112
|
|
Cash Consideration to IDX Shareholders(5)
|
| |
$50
|
| |
$50
|
|
Fees and Expenses
|
| |
$32
|
| |
$32
|
|
Redemptions by Public Shareholders
|
| |
$—
|
| |
$175
|
|
Cash to Balance Sheet
|
| |
$263
|
| |
$88
|
|
Total Uses
|
| |
$1,457
|
| |
$1,457
|
|
(1)
|
Assumes that no Public Shareholder exercises redemption rights with respect to its Class A Ordinary Shares for a pro rata portion
of the Trust Account.
|
|
(2)
|
Assumes that all 17,250,000 Class A Ordinary Shares held by the Public Shareholders are redeemed for an aggregate payment of
approximately $175,100,000 (based on the estimated per share redemption price of approximately $10.15 per share) from the Trust Account. As the proceeds (without taking into account offering expenses) from the Common Equity PIPE Financing
and the Convertible Notes Financing are expected to satisfy the Available Closing Acquiror Cash Condition, the maximum redemption scenario reflects the redemption of 100% of the Class A Ordinary Shares held by the Public Shareholders.
|
|
(3)
|
Cash held in the Trust Account as of December 31, 2021.
|
|
(4)
|
Assumes that (A) 83,371,892 shares of New ZeroFox Common Stock are issued to the holders of ZeroFox Common Stock in connection
with the Business Combination based on a per share consideration of 0.2872 of a share of New ZeroFox Common Stock, (B) 27,815,924 shares of New ZeroFox Common Stock are issued to the holders of IDX Capital Stock in connection with the
Business Combination based on a per share consideration of 0.6174 of a share of New ZeroFox Common Stock, (C) all outstanding ZeroFox warrants and IDX warrants will be exercised immediately prior to the Closing, and (D) all outstanding
vested and unvested ZeroFox options and IDX options are converted into New ZeroFox Options exercisable for shares of New ZeroFox Common Stock.
|
|
(5)
|
This amount is subject to a working capital adjustment. Includes amounts to be used to discharge certain IDX indebtedness and
transaction expenses (which otherwise would reduce cash consideration).
|
Board and Management of New ZeroFox Following the Business Combination
Following the Closing, the New ZeroFox Board of directors will consist
of nine (8) directors, who will be divided into three (3) classes, which directors will include five (5) directors designated by ZeroFox, two (2) directors designated by IDX, and one (1) independent director designated by the Sponsor.
Additionally, the current ZeroFox management team will move to New ZeroFox in their current roles and titles.
Name; Headquarters of New ZeroFox
Concurrently with the Domestication and immediately prior to the
Closing, L&F will file a certificate of incorporation with the Secretary of State of Delaware under the name ZeroFox Holdings, Inc. and New ZeroFox will continue to operate under the ZeroFox tradename. New ZeroFox’s headquarters will remain
ZeroFox’s current headquarters at 1834 S. Charles Street, Baltimore, MD 21230.
175
Redemption Rights
Pursuant to the Existing Governing Documents, holders of Class A
Ordinary Shares may seek to redeem their shares for cash, regardless of whether they vote for or against, or whether they abstain from voting on, the Business Combination Proposal. Any shareholder holding Class A Ordinary Shares may demand that
L&F redeem such shares for a full pro rata portion of the Trust Account (which, for illustrative purposes, was $10.15 per share as of , 2022, the record date for the meeting), 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, L&F 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.
As a holder of Class A Ordinary Shares, you will be entitled to receive
cash for any Class A Ordinary Shares to be redeemed only if you:
|
(i)
|
hold Class A Ordinary Shares;
|
|
(ii)
|
submit a written request to Continental, L&F’s transfer agent, in which you (i) request that L&F redeem all or a portion
of your Class A Ordinary Shares for cash, and (ii) identify yourself as the beneficial holder of the Class A Ordinary Shares and provide your legal name, phone number and address; and
|
|
(iii)
|
deliver your Class A Ordinary Shares to Continental, L&F’s transfer agent, physically or electronically through DTC.
|
Holders must complete the procedures for electing to
redeem their Class A Ordinary Shares in the manner described above prior to 5:00 p.m., Eastern Time, on , 2022 (two business days before the Shareholder Meeting) in order for their shares to be redeemed.
The redemption rights include the requirement that a holder must
identify itself in writing as a beneficial holder and provide its legal name, phone number and address to Continental in order to validly redeem its shares. If the Business Combination is not consummated, the Class A Ordinary Shares will be
returned to the respective holder, broker or bank.
If you hold the shares in “street name,” you will have to coordinate
with your broker to have your shares certificated or delivered electronically. Shares of L&F 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 DTC’s DWAC system. The Transfer Agent will typically charge the tendering broker $80 and it would be up to the broker whether
or not to pass this cost on to the redeeming shareholder. In the event the proposed Business Combination is not consummated this may result in an additional cost to shareholders for the return of their shares.
Any request for redemption, once made by a holder of Class A Ordinary
Shares, may not be withdrawn following the Redemption Deadline, unless the L&F Board determines (in its sole discretion) to permit such redemption request (which it may do in whole or in part).
Any corrected or changed written exercise of redemption rights must be
received by Continental, L&F’s transfer agent, at least two business days prior to the Shareholder Meeting. No request for redemption will be honored unless the holder’s Class A Ordinary Shares have been delivered (either physically or
electronically) to Continental, L&F’s transfer agent, prior to 5:00 p.m., Eastern Time, on , 2022 (two business days before the Shareholder Meeting).
Notwithstanding the foregoing, a Public Shareholder, together with any
affiliate of such Public Shareholder or any other person with whom such Public Shareholder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from redeeming its Class A Ordinary Shares
with respect to more than an aggregate of 15% of the outstanding Class A Ordinary Shares, without our prior consent. Accordingly, if a Public Shareholder, alone or acting in concert or as a group, seeks to redeem more than 15% of the outstanding
Class A Ordinary Shares, then any such shares in excess of that 15% limit would not be redeemed for cash, without our prior consent.
176
If the Business Combination is not approved or completed for any
reason, then the Public Shareholders who elected to exercise their redemption rights will not be entitled to redeem their shares for a full pro rata portion of the Trust Account, as applicable. In such case, L&F will promptly return any
shares delivered by Public Shareholders.
The closing price of Class A Ordinary Shares on , 2022, the record
date for the Shareholder Meeting, was $ per share. The cash held in the Trust Account on such date was approximately $ (net of taxes payable) ($ per Class A Ordinary Share). Prior to exercising redemption rights, shareholders should verify
the market price of Class A Ordinary Shares as they may receive higher proceeds from the sale of their ordinary shares in the public market than from exercising their redemption rights if the market price per share is higher than the redemption
price. L&F cannot assure its shareholders that they will be able to sell their Class A Ordinary Shares 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 shareholders wish to sell their shares.
If a holder of Class A Ordinary Shares exercises his, her or its
redemption rights, then he, she or it will be exchanging his, her or its Class A Ordinary Shares 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 by
delivering your stock certificate (either physically or electronically) to L&F’s transfer agent prior to the vote at the Shareholder Meeting, and the Business Combination is consummated.
For a discussion of the material U.S. federal income tax
considerations for shareholders with respect to the exercise of these redemption rights, see “Certain Material United States Federal Income Tax Considerations.” The
consequences of a redemption to any particular shareholder will depend on that shareholder’s particular facts and circumstances. Accordingly, you are urged to consult your tax advisor to determine your tax consequences from the exercise of your
redemption rights, including the applicability and effect of U.S. federal, state, local and non-U.S. income and other tax laws in light of your particular circumstances.
Vote Required for Approval
The Business Combination Proposal is conditioned on the approval of
each of the Condition Precedent Proposals at the Shareholder Meeting.
The approval of the Business Combination Proposal requires an
ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote
thereon at the Shareholder Meeting. Abstentions will be considered present for the purposes of establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no
effect on the approval of the Business Combination Proposal.
As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders have agreed to vote any L&F Ordinary Shares owned by them in favor of the Business Combination Proposal. As of the date hereof, the L&F Initial Shareholders own 20% of the issued and outstanding L&F Ordinary
Shares and have not purchased any Public Shares, but may do so at any time, subject to certain requirements discussed under “Shareholder Meeting — Potential Purchases of Public
Shares and/or Warrants.” As a result, in addition to the L&F Initial Shareholders, approval of the Business Combination Proposal will require the affirmative vote of at least 6,468,751 L&F Ordinary Shares held by Public
Shareholders (or approximately 37.5% of the Class A Ordinary Shares) if all L&F Ordinary Shares are represented at the Shareholder Meeting and cast votes, and the affirmative vote of at least 1,078,126 L&F Ordinary Shares held by Public
Shareholders (or approximately 6.3% of the Class A Ordinary Shares) if only such shares as are required to establish a quorum are represented at the Shareholder Meeting and cast votes.
Resolution
The full text of the resolution to be voted upon is as follows:
“RESOLVED, as an ordinary
resolution, that L&F’s entry into the Business Combination Agreement, dated as of December 17, 2021 (as amended, supplemented or otherwise modified from time to time, the “Business Combination Agreement”),
by and among L&F, L&F Acquisition Holdings, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of L&F (“L&F Holdings”), ZF Merger Sub, Inc., a Delaware corporation
and direct, wholly-owned subsidiary of L&F Holdings (“ZF Merger Sub”), IDX Merger Sub, Inc.,
177
a Delaware corporation and direct, wholly-owned subsidiary of L&F Holdings (“IDX Merger Sub”), IDX Forward Merger Sub, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of L&F Holdings (“IDX Forward Merger
Sub”), ZeroFox, Inc., a Delaware corporation (“ZeroFox”), and ID Experts Holdings, Inc., a Delaware corporation (“IDX”),
a copy of which is attached to the accompanying proxy statement/prospectus as Annex A, pursuant to which, among other things, following the de-registration of L&F as an exempted company in the Cayman Islands and the transfer by way of
continuation and domestication of L&F as a corporation in the State of Delaware (i) ZF Merger Sub will merge with and into ZeroFox (the “ZF Merger”), with ZeroFox being the
surviving entity in the ZF Merger and continuing (immediately following the ZF Merger) as a direct, wholly-owned subsidiary of L&F Holdings, (ii) immediately following the ZF Merger, IDX Merger Sub will merge with and into IDX (the “IDX Merger”), with IDX being the surviving entity in the IDX Merger (referred to herein as “Transitional IDX Entity”) and continuing (immediately
following the IDX Merger) as a direct, wholly-owned subsidiary of L&F Holdings, and (iii) immediately following the IDX Merger, Transitional IDX Entity will merge with and into IDX Forward Merger Sub (the “IDX Forward Merger”), with IDX Forward Merger Sub being the surviving entity in the IDX Forward Merger and continuing (immediately following the IDX Forward Merger) as a direct, wholly-owned subsidiary of L&F
Holdings, and the transactions contemplated thereby (collectively, the “Business Combination”), be approved, ratified and confirmed in all respects.
Recommendation of the Board
THE BOARD UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR” THE
APPROVAL OF THE BUSINESS COMBINATION PROPOSAL.
The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to recommend that shareholders vote for the proposals. See the section titled “Proposal No. 2 - The Business Combination Proposal —
Interests of Certain Persons in the Business Combination” for a further discussion of these considerations.
178
Overview
As discussed in this proxy statement/prospectus, L&F is asking its
shareholders to approve the Domestication Proposal. Under the Business Combination Agreement, the approval of the Domestication Proposal is also a condition to the consummation of the Business Combination.
As a condition to closing the Business Combination, the L&F Board
has unanimously approved, and L&F shareholders are being asked to consider and vote upon a proposal to approve, a change of L&F’s jurisdiction of incorporation by deregistering as a Cayman Islands exempted company and registering by way
of continuation and domesticating as a corporation incorporated under the laws of the State of Delaware. To effect the Domestication, L&F will file an application to deregister with the Cayman Islands Registrar of Companies, together with the
necessary accompanying documents, and file a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which L&F will be domesticated and continue as a Delaware
corporation.
In connection with the Domestication, on the Closing Date prior to the
ZF Effective Time and the IDX Effective Time, among other things, (i) each issued and outstanding L&F Ordinary Share will be converted automatically, on a one-for-one basis, into a share of New ZeroFox Common Stock; (ii) each issued and
outstanding whole warrant exercisable for one Class A Ordinary Share will be converted automatically into a warrant exercisable for one share of New ZeroFox Common Stock at an exercise price of $11.50 per share on the terms and conditions set
forth in the Warrant Agreement; and (iii) each issued and outstanding L&F Public Unit that has not been previously separated into the underlying Class A Ordinary Share and underlying one-half of one L&F Public Warrant upon the request of
the holder thereof will be cancelled and will entitle the holder thereof to one share of New ZeroFox Common Stock and one-half of one New ZeroFox Public Warrant.
The Domestication Proposal, if approved, will approve a change of
L&F’s jurisdiction of incorporation from the Cayman Islands to the State of Delaware. Accordingly, while L&F is currently incorporated as an exempted company under the Cayman Islands Companies Act, upon the Domestication, New ZeroFox will
be governed by the DGCL. We encourage shareholders to carefully consult the information on the Proposed Governing Documents set out under “Comparison of Corporate Governance and Shareholder Rights.” The
Proposed Certificate of Incorporation and Proposed Bylaws differ in certain material respects from the Existing Governing Documents and we encourage shareholders to carefully consult the information set out below under “Advisory Governing Documents Proposals,” the Existing Governing Documents of L&F and the Proposed Certificate of Incorporation and Proposed Bylaws of New ZeroFox, attached hereto as Annex B and Annex C, respectively.
Reasons for the Domestication
The L&F Board believes that there are significant advantages to us
that will arise as a result of a change of our domicile to Delaware. Further, the L&F Board believes that any direct benefit that the DGCL provides to a corporation also indirectly benefits its shareholders, who are the owners of the
corporation. The board of directors believes that there are several reasons why a reincorporation in Delaware is in the best interests of L&F and its shareholders. As explained in more detail below, these reasons can be summarized as follows:
|
•
|
Prominence, Predictability, and Flexibility of Delaware Law. For many years Delaware has
followed a policy of encouraging incorporation in its state and, in furtherance of that policy, has been a leader in adopting, construing, and implementing comprehensive, flexible corporate laws responsive to the legal and business needs
of corporations organized under its laws. Many corporations have chosen Delaware initially as a state of incorporation or have subsequently changed corporate domicile to Delaware. Because of Delaware’s prominence as the state of
incorporation for many major corporations, both the legislature and courts in Delaware have demonstrated the ability and a willingness to act quickly and effectively to meet changing business needs. The DGCL is frequently revised and
updated to accommodate changing legal and business needs and is more comprehensive, widely used and interpreted than other state corporate laws. This favorable corporate and regulatory environment is attractive to businesses such as ours.
|
|
•
|
Well-Established Principles of Corporate Governance. There is substantial judicial
precedent in the Delaware courts as to the legal principles applicable to measures that may be taken by a corporation
|
179
and to the conduct of a company’s board of directors, such as under the business
judgment rule and other standards. Because the judicial system is based largely on legal precedents, the abundance of Delaware case law provides clarity and predictability to many areas of corporate law. We believe such clarity would be
advantageous to New ZeroFox, and its board of directors and management in making corporate decisions and taking corporate actions with greater assurance as to the validity and consequences of those decisions and actions. Further, investors and
securities professionals are generally more familiar with Delaware corporations, and the laws governing such corporations, increasing their level of comfort with Delaware corporations relative to other jurisdictions. The Delaware courts have
developed considerable expertise in dealing with corporate issues, and a substantial body of case law has developed construing Delaware law and establishing public policies with respect to corporate legal affairs. Moreover, Delaware’s vast body
of law on the fiduciary duties of directors provides appropriate protection for New ZeroFox’s shareholders from possible abuses by directors and officers.
|
•
|
Increased Ability to Attract and Retain Qualified Directors. Deregistration from the
Cayman Islands and registration by way of continuation in Delaware is attractive to directors, officers, and shareholders alike. New ZeroFox’s incorporation in Delaware may make New ZeroFox more attractive to future candidates for the New
ZeroFox Board, because many such candidates are already familiar with Delaware corporate law from their past business experience. To date, we have not experienced difficulty in retaining directors or officers, but directors of public
companies are exposed to significant potential liability. Thus, candidates’ familiarity and comfort with Delaware laws — especially those relating to director indemnification (as discussed below) — draw such qualified candidates to
Delaware corporations. The L&F Board therefore believes that providing the benefits afforded directors by Delaware law will enable New ZeroFox to compete more effectively with other public companies in the recruitment of talented and
experienced directors and officers.
|
The frequency of claims and litigation pursued against directors and
officers has greatly expanded the risks facing directors and officers of corporations in carrying out their respective duties. The amount of time and money required to respond to such claims and to defend such litigation can be substantial. While
both Cayman and Delaware law permit a corporation to include a provision in its governing documents to reduce or eliminate the monetary liability of directors for breaches of fiduciary duty in certain circumstances, we believe that, in general,
Delaware law is more developed and provides more guidance than Cayman law on matters regarding a company’s ability to limit director liability. As a result, we believe that the corporate environment afforded by Delaware will enable the surviving
corporation to compete more effectively with other public companies in attracting and retaining new directors.
Expected Accounting Treatment of the Domestication
There will be no accounting effect or change in the carrying amount of
the consolidated assets and liabilities of L&F as a result of the Domestication. The business, capitalization, assets and liabilities and financial statements of New ZeroFox immediately following the Domestication will be the same as those of
L&F immediately prior to the Domestication.
Vote Required for Approval
The Domestication Proposal is conditioned on the approval of each of
the Condition Precedent Proposals at the Shareholder Meeting.
The approval of the Domestication Proposal requires a special
resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to
vote thereon at the Shareholder Meeting. Abstentions will be considered present for the purposes of establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have
no effect on the approval of the Domestication Proposal.
As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders have agreed to vote any L&F Ordinary Shares owned by them in favor of the Domestication Proposal. As of the date hereof, the L&F Initial Shareholders own 20% of the issued and outstanding L&F Ordinary Shares and
have not purchased any Public Shares, but may do so at any time, subject to certain requirements discussed under “Shareholder Meeting
180
— Potential Purchases of Public Shares and/or Warrants.” As a result, in addition to the L&F Initial Shareholders, approval of the Domestication Proposal will require the affirmative vote of at least 10,062,500 L&F
Ordinary Shares held by Public Shareholders (or approximately 58.3% of the Class A Ordinary Shares) if all L&F Ordinary Shares are represented at the Shareholder Meeting and cast votes, and the affirmative vote of at
least 2,875,001 L&F Ordinary Shares held by Public Shareholders (or approximately 16.7% of the Class A Ordinary Shares) if only such shares as are required to establish a quorum are represented at the Shareholder
Meeting and cast votes.
Resolution
The full text of the resolution to be voted upon is as follows:
“RESOLVED, as a special
resolution, that L&F be transferred by way of continuation to Delaware pursuant to Part XII of the Companies Act (As Revised) of the Cayman Islands and Section 388 of the General Corporation Law of the State of Delaware and, immediately upon
being de-registered in the Cayman Islands, L&F be continued and domesticated as a corporation under the laws of the State of Delaware and, conditional upon, and with effect from, the registration of L&F as a corporation in the State of
Delaware, the name of L&F be changed from “L&F Acquisition Corp.” to “ZeroFox Holdings, Inc.””
Recommendation of the Board
THE L&F BOARD UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE
“FOR” THE APPROVAL OF THE DOMESTICATION PROPOSAL.
The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to recommend that shareholders vote for the proposals. See the section titled “Proposal No. 2 - The Business Combination Proposal — Interests
of Certain Persons in the Business Combination” for a further discussion of these considerations.
181
Overview
As discussed in this proxy statement/prospectus, L&F is asking its
shareholders to approve the Governing Documents Proposal. Under the Business Combination Agreement, the approval of the Governing Documents Proposal is also a condition to the consummation of the Business Combination.
Reasons for the Amendments
L&F shareholders are being asked to adopt the Proposed Certificate
of Incorporation and Proposed Bylaws, in the forms attached hereto as Annex B and Annex C, respectively, which, in the judgment of the L&F Board, are necessary to adequately address the needs of New ZeroFox following the Domestication and the
consummation of the Business Combination. Each of the Proposed Certificate of Incorporation and Proposed Bylaws was negotiated as part of the proposed Business Combination and related transactions. The L&F Board’s specific reasons for each of
the Advisory Governing Documents Proposals are set forth below in the section titled “Proposal No. 5(A)-(G) — The Advisory Governing Documents Proposals.”
For a summary of the key differences between the Existing Governing
Documents under Cayman Islands law and the Proposed Certificate of Incorporation and Proposed Bylaws under the DGCL, please see “Comparison of Corporate Governance and Shareholder Rights.”
Vote Required for Approval
The Governing Documents Proposal is conditioned on the approval of
each of the Condition Precedent Proposals at the Shareholder Meeting. The approval of the Governing Documents Proposal requires a special resolution under Cayman Islands law, being the affirmative vote of at least a two-thirds (2/3) majority of
the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder Meeting. Abstentions will be considered present for the purposes of
establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no effect on the approval of the Governing Documents Proposal.
As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders have agreed to vote any L&F Ordinary Shares owned by them in favor of the Governing Documents Proposal. As of the date hereof, the L&F Initial Shareholders own 20% of the issued and outstanding L&F Ordinary
Shares and have not purchased any Public Shares, but may do so at any time, subject to certain requirements discussed under “Shareholder Meeting — Potential Purchases of Public Shares and/or
Warrants.” As a result, in addition to the L&F Initial Shareholders, approval of the Governing Documents Proposal will require the affirmative vote of at least 10,062,500 L&F Ordinary Shares held by Public Shareholders
(or approximately 58.3% of the Class A Ordinary Shares) if all L&F Ordinary Shares are represented at the Shareholder Meeting and cast votes, and the affirmative vote of at least 2,875,001 L&F Ordinary Shares held by Public Shareholders
(or approximately 16.7% of the Class A Ordinary Shares) if only such shares as are required to establish a quorum are represented at the Shareholder Meeting and cast votes.
Resolution
The full text of the resolution to be voted upon is as follows:
“RESOLVED, as
a special resolution, that the amended and restated memorandum and articles of association of L&F Acquisition Corp. currently in effect be amended and restated by the deletion in their entirety and the substitution in their place of the
proposed new Certificate of Incorporation and proposed new Bylaws (copies of each of which are attached to the proxy statement/prospectus as Annex B and Annex C, respectively), including, without limitation, the authorization of the change in
authorized share capital as indicated therein and the change of name to ‘‘ZeroFox Holdings, Inc.’’
Recommendation of the Board
THE BOARD UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR” THE
APPROVAL OF THE GOVERNING DOCUMENTS PROPOSAL.
182
The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to recommend that shareholders vote for the proposals. See the section titled “Proposal No. 2 - The Business Combination Proposal — Interests
of Certain Persons in the Business Combination” for a further discussion of these considerations.
183
Overview
L&F is requesting that our shareholders vote upon, on a
non-binding advisory basis, a proposal to approve certain governance provisions in the Proposed Certificate of Incorporation and Proposed Bylaws, which are separately being presented in accordance with SEC guidance to give shareholders the
opportunity to present their separate views on important corporate governance provisions. This separate vote is not otherwise required by Cayman Islands law separate and apart from the Governing Documents Proposal, but pursuant to SEC guidance,
L&F is required to submit these provisions to our shareholders separately for approval. However, the shareholder vote regarding these proposals are advisory votes, and are not binding on L&F or L&F’s Board (separate and apart from
the approval of the Governing Documents Proposal). Furthermore, the Business Combination is not conditioned on the separate approval of the Advisory Governing Documents Proposals (separate and apart from approval of the Governing Documents
Proposal). Accordingly, regardless of the outcome of the non-binding advisory vote on these proposals, L&F intends that the Proposed Certificate of Incorporation and Proposed Bylaws will take effect upon the Closing (assuming approval of
the Governing Documents Proposal). While the vote is non-binding, we highly value the opinions of our shareholders and we intend to consider the outcome of this advisory vote in connection with future decisions regarding our corporate
governance policies and practices.
Advisory Governing Documents Proposals
The following list sets forth a summary of the governance provisions
applicable to the Advisory Governing Documents Proposals. This summary is qualified by reference to the complete text of the Proposed Certificate of Incorporation and Proposed Bylaws, a copy of each of which is attached to this proxy
statement/prospectus as Annex B and Annex C, respectively. All shareholders are encouraged to read the Proposed Certificate of Incorporation and Proposed Bylaws in their entirety for a more complete description of their terms.
|
•
|
Proposal No. 5(A): A proposal to increase authorized share capital of L&F from
(i) 500,000,000 Class A Ordinary Shares, par value $0.0001 per share, 50,000,000 Class B Ordinary Shares, par value $0.0001 per share, and 1,000,000 preference shares, par value $0.0001 per share, to (ii) 1,000,000,000 shares of New
ZeroFox Common Stock, par value $0.0001 per share, and 100,000,000 shares of New ZeroFox Preferred Stock, par value $0.0001 per share.
|
|
•
|
Proposal No. 5(B): A proposal to authorize the New ZeroFox Board to issue any or all
shares of New ZeroFox Preferred Stock in one or more classes or series, with such terms and conditions as may be expressly determined by the New ZeroFox Board and as may be permitted by the DGCL.
|
|
•
|
Proposal No. 5(C): A proposal to adopt Delaware as the exclusive forum for certain
shareholder litigation and the federal district courts of the United States of America as the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, unless New ZeroFox consents in writing
to the selection of an alternative forum.
|
|
•
|
Proposal No. 5(D): A proposal to require that any action required or permitted to be taken
by the shareholders of New ZeroFox must be effected at a duly called annual or special meeting of shareholders of New ZeroFox and may not be effected by any consent in writing by such shareholders.
|
|
•
|
Proposal No. 5(E): A proposal to require that, subject to the
rights of holders of New ZeroFox Preferred Stock, any director or the entire New ZeroFox Board may be removed from office at any time, but only for cause.
|
|
•
|
Proposal No. 5(F): A proposal to approve the amendment provisions in the Proposed
Certificate of Incorporation and Proposed Bylaws, which set forth the voting standards by which shareholders of New ZeroFox may approve certain amendments to the Proposed Certificate of Incorporation and Proposed Bylaws, respectively.
|
|
•
|
Proposal No. 5(G): A proposal to remove provisions in L&F’s current Existing Governing
Documents related to L&F’s status as a blank check company that will no longer apply upon the consummation of the Business Combination.
|
184
Reasons for the Approval of the Advisory Governing Documents Proposals
The Proposed Certificate of Incorporation and Proposed Bylaws were each
negotiated as part of the Business Combination Agreement. The Board’s reasons for proposing the Advisory Governing Documents Proposals are set forth below.
Advisory Governing Documents Proposal 5(A) — Changes in Share Capital
This amendment would increase the authorized share capital of
L&F from (i) 500,000,000 Class A Ordinary Shares, par value $0.0001 per share, 50,000,000 Class B Ordinary Shares, par value $0.0001 per share, and 1,000,000 preference shares, par value $0.0001 per share, to (ii) 1,000,000,000 shares of
New ZeroFox Common Stock, par value $0.0001 per share, and 100,000,000 shares of New ZeroFox Preferred Stock, par value $0.0001 per share.
As of the date of this proxy statement/prospectus, there are
17,250,000 Class A Ordinary Shares and 4,312,500 Class B Ordinary Shares issued and outstanding. In addition, as of the date of this proxy statement/prospectus, there are outstanding an aggregate of 16,213,430 L&F Warrants, comprised of
8,625,000 L&F Public Warrants and, 7,588,430 L&F Private Placement Warrants.
In connection with the Domestication, (i) each then issued and
outstanding Class A Ordinary Share and each Class B Ordinary Share of L&F will convert automatically by operation of law, on a one-for-one basis, into a share of New ZeroFox Common Stock and (ii) each then issued and outstanding whole warrant
of L&F exercisable for one Class A Ordinary Share will automatically convert into a whole warrant exercisable for one share of New ZeroFox Common Stock on the terms and conditions set forth in the Warrant Agreement. See “Proposal No. 3—The Domestication Proposal.”
In accordance with the terms and subject to the conditions of the
Business Combination Agreement, (i) at the ZF Effective Time, each outstanding share of ZeroFox Common Stock (including shares of common stock issued upon the mandatory conversion of shares of preferred stock) of ZeroFox, other than ZF Dissenting
Shares and ZF Cancelled Shares, will be automatically cancelled and converted into a right to receive a fraction of a share of New ZeroFox Common Stock determined in accordance with the Business Combination Agreement on the basis of a pre-money
enterprise value of ZeroFox of $866,250,000 on a fully-diluted basis and a price of $10.00 per share of New ZeroFox Common Stock (as described further in this proxy statement/prospectus) and (ii) at the IDX Effective Time, each outstanding share
of IDX Common Stock and IDX Preferred Stock, other than IDX Dissenting Shares and IDX Cancelled Shares, will be automatically cancelled and converted into a right to receive (x) for common stock and series A-1 and series A-2 preferred stock, a
fraction of a share of New ZeroFox Common Stock, (y) for common stock and series A-1 and series A-2 preferred stock, a portion of $50,000,000 in cash consideration (subject to certain adjustments for cash, working capital, debt and transaction
expenses, and net of liquidation preferences, as provided in the Business Combination Agreement), and (z) for series A-1, series A-2 and series B preferred stock, a liquidation preference amount of $0.361 per share, in each case, in accordance
with the Business Combination Agreement and on the basis of a pre-money enterprise value of IDX of $338,750,000 on a fully-diluted basis and a price of $10.00 per share of New ZeroFox Common Stock (as described in further detail in this proxy
statement/prospectus).
Accordingly, up to 172,358,229 shares of New ZeroFox Common Stock
may be issued in connection with the Business Combination, representing the maximum number of shares that may be issued to holders of shares and equity awards of the Target Companies, together with the shares issued or issuable to the existing
shareholders and warrant holders of L&F in connection with the Business Combination. For further details, see “Proposal No. 2—The Business Combination Proposal.”
In order to ensure that New ZeroFox has sufficient authorized
capital for future issuances, the L&F Board has approved, subject to shareholder approval, that the Proposed Certificate of Incorporation of New ZeroFox change the authorized share capital of L&F from (i) 500,000,000 Class A Ordinary
Shares, par value $0.0001 per share, 50,000,000 Class B Ordinary Shares, par value $0.0001 per share, and 1,000,000 preference shares, par value $0.0001 per share, to (ii) 1,000,000,000 shares of New ZeroFox Common Stock, par value $0.0001 per
share, and 100,000,000 shares of New ZeroFox Preferred Stock, par value $0.0001 per share. This amendment provides for the increase necessary to consummate the Business Combination and also provides flexibility for future issuances of New
ZeroFox Common Stock, including for future acquisitions, capital raising transactions,
185
stock dividends, issuances under the Incentive Equity Plan and for any other proper
corporate purpose, if determined by the New ZeroFox Board to be in the best interests of New ZeroFox without incurring the risk, delay and potential expense incident to obtaining shareholder approval for a particular issuance.
Advisory Governing Documents Proposal 5(B) — Authorization of the Board
to Issue New ZeroFox Preferred Stock
This amendment will authorize the New ZeroFox Board to issue any or
all shares of New ZeroFox Preferred Stock in one or more classes or series, with such terms and conditions as may be expressly determined by the New ZeroFox Board and as may be permitted by the DGCL. The L&F Board believes that these shares
of preferred stock will provide New ZeroFox with needed flexibility to issue shares of New ZeroFox Preferred Stock in the future in a timely manner and under circumstances the New ZeroFox Board considers favorable without incurring the risk,
delay and potential expense incident to obtaining shareholder approval for a particular issuance.
Issuing shares of preferred stock is a well-recognized and
commonly-employed financing tool that could be used by New ZeroFox, instead of common stock or debt, to raise capital for future acquisitions or other business purposes. Having the flexibility to issue the full range of securities, including
shares of common stock, preferred stock, debt and other securities, is crucial to ensuring that New ZeroFox can competitively finance future acquisitions and other business needs with the same tools employed by its competitors. The issuance of
New ZeroFox Preferred Stock may, depending on market conditions, provide New ZeroFox with a lower cost of capital than alternative means of financing, which, in turn, can positively affect earnings available to its common shareholders. In
addition, time-sensitive and constantly changing capital markets make it virtually impossible for a company to delay an offering in order to obtain shareholder approval of specific terms of a series of preferred stock. Obtaining shareholder
approval is a process that generally takes a minimum of six to eight weeks, as the required steps include setting a record date, preparing and delivering preliminary and final proxy materials, providing shareholders with time to review proxy
materials, soliciting proxies, holding a meeting, tabulating results and filing a charter amendment. Since interest rates may change dramatically over a six- to eight-week period, it would be highly unlikely for the terms of a preferred share
offering (particularly the dividend rate) to remain static over the period required to obtain shareholder approval.
Authorized but unissued shares of New ZeroFox Preferred Stock may
enable the New ZeroFox Board to render it more difficult or to discourage an attempt to obtain control of New ZeroFox and thereby protect the continuity of or entrench its management, which may adversely affect the market price of New ZeroFox
Common Stock. If, in the due exercise of its fiduciary duties, for example, the New ZeroFox Board was to determine that a takeover proposal was not in the best interests of New ZeroFox, such preferred stock could be issued by the Board without
shareholder approval in one or more private placements or other transactions that might prevent or render more difficult or make more costly the completion of any attempted takeover transaction by diluting voting or other rights of the proposed
acquirer or insurgent shareholder group, by creating a substantial voting bloc in institutional or other hands that might support the position of the New ZeroFox Board, by effecting an acquisition that might complicate or preclude the takeover,
or otherwise. Allowing the New ZeroFox Board to issue the authorized shares of New ZeroFox Preferred Stock without further approvals will enable New ZeroFox to have the flexibility to issue such preferred stock in the future for financing its
business, for acquiring other businesses, for forming strategic partnerships and alliances and for stock dividends and stock splits. New ZeroFox currently has no such plans, proposals, or arrangements, written or otherwise, to issue any of the
additional authorized shares of New ZeroFox Preferred Stock for such purposes.
Advisory Governing Documents Proposal 5(C) — Affirming the Court of
Chancery of the State of Delaware as Exclusive Forum for Certain Shareholder Litigation and the U.S. Federal District Courts as Exclusive Forum for Proceedings Arising Under the Securities Act
This amendment will provide that, unless otherwise consented to by New
ZeroFox in writing, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in 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 the following types of actions or proceedings: (i) any derivative action or proceeding brought on behalf of New ZeroFox; (ii) any action asserting a claim of breach of a duty (including any
fiduciary duty) owed by any current or former director, officer, shareholder, employee or agent of New ZeroFox to New ZeroFox or its shareholders; (iii) any action asserting a claim against New ZeroFox or any
186
current or former director, officer, shareholder, employee or agent of New ZeroFox
relating to any provision of the DGCL or the Proposed Certificate of Incorporation or the Proposed Bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; and (iv) any action asserting a claim
against New ZeroFox or any current or former director, officer, shareholder, employee or agent of New ZeroFox governed by the internal affairs doctrine of the State of Delaware, in each such case unless the Court of Chancery (or such other
state or federal court located within the State of Delaware, as applicable) has dismissed a prior action by the same plaintiff asserting the same claims because such court lacked personal jurisdiction over an indispensable party named as a
defendant therein. The amendment will further provide that, unless otherwise consented to by New ZeroFox in writing to the selection of an alternative forum, the federal district courts of the United States will, to the fullest extent permitted
by law, be the sole and exclusive forum for the resolution of any complaint against any person in connection with any offering of New ZeroFox’s securities, asserting a cause of action arising under the Securities Act. Any person or entity
purchasing or otherwise acquiring any interest in New ZeroFox’s securities will be deemed to have notice of and consented to this provision.
Although the Proposed Certificate of Incorporation contains the choice
of forum provisions described above, it is possible that a court could rule that such provisions are inapplicable for a particular claim or action or that such provisions are unenforceable. For example, under the Securities Act, federal courts
have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. In addition, the
exclusive forum provisions described above do not apply to any actions brought under the Exchange Act.
We believe these provisions will benefit New ZeroFox by limiting
costly and time-consuming litigation in multiple forums regarding the same matter and by providing increased consistency in the application of applicable law. In addition, we believe that the Delaware courts are best suited to address disputes
involving Delaware corporate law given that the company intends to incorporate in Delaware (pending approval of the Domestication Proposal discussed above), Delaware law generally applies to such matters, and the Delaware courts have a
reputation for expertise in corporate law matters. Delaware offers a specialized Court of Chancery to address corporate law matters, with streamlined procedures and processes to accelerate the timeline of legal decisions. This accelerated
schedule can minimize the time, cost and uncertainty of litigation for all parties. The Court of Chancery has developed considerable expertise with respect to corporate law issues, as well as a substantial and influential body of case law
construing Delaware’s corporate law and long-standing precedent regarding corporate governance. This provides shareholders and New ZeroFox with more predictability regarding the outcome of intra-corporate disputes. In addition, this amendment
is intended to promote judicial fairness and avoid conflicting results, as well as make New ZeroFox’s defense of applicable claims less disruptive and more economically feasible, principally by avoiding multiple lawsuits in multiple
jurisdictions regarding the same matter and potentially duplicative discovery. At the same time, we believe that New ZeroFox should retain the ability to consent to an alternative forum on a case-by-case basis where New ZeroFox determines that
its interests and those of its shareholders are best served by permitting such a dispute to proceed in an alternative forum. However, these exclusive forum provisions may limit the ability of our shareholders to bring a claim in a judicial
forum that such shareholders find favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers and other employees.
Advisory Governing Documents Proposal 5(D) — Elimination of Provision
Permitting Shareholder Action by Unanimous Written Consent
L&F’s Existing Governing Documents permit shareholders to act by
unanimous written resolution or to vote in person or, where proxies are allowed, by proxy at a general meeting of shareholders. This amendment eliminates the provision that permits action by unanimous written resolution, and requires that any
action required or permitted to be taken by the shareholders of New ZeroFox must be effected at a duly called annual or special meeting of shareholders of New ZeroFox and may not be effected by any written consent by such shareholders. The
Company believes that requiring shareholder action at a meeting ensures that the pros and cons of any proposed shareholder action will be able to be debated and discussed. For example, providing shareholders with the power to act by written
consent would limit the New ZeroFox Board’s ability to inform shareholders of its views on the matter in question as well as depriving shareholders of the opportunity for a real-time discussion over the pros and cons of any such action. In
addition, action by unanimous written consent is generally impracticable for a public company.
187
Advisory Governing Documents Proposal 5(E) — Requirement that, in
General, Directors may Only be Removed for Cause
L&F’s Existing Governing Documents provide that, prior to the
completion of an initial business combination, holders of a majority of the Class B Ordinary Shares may remove a member of the L&F Board for any reason. Pursuant to this amendment, subject to the rights of holders of preferred stock, any
director or the entire New ZeroFox Board may be removed from office at any time, but only for cause, and only by the affirmative vote of the holders of a majority of the issued and outstanding capital stock of New ZeroFox entitled to vote in the
election of directors, voting together as a single class.
The Proposed Certificate of Incorporation provides for a classified
board of directors, such that only one class of directors is to be elected each year with directors serving staggered three-year terms. Under the DGCL, unless a company’s certificate of incorporation provides otherwise, removal of a director
only for cause is automatic with a classified board. Consistent with this statutory default under the DGCL, the Proposed Certificate of Incorporation will require that directors may only be removed for cause. The company believes that such a
standard will, in conjunction with the classified nature of New ZeroFox’s Board, increase board continuity and the likelihood that experienced board members with familiarity of our business operations would serve on the New ZeroFox Board at any
given time. Requiring that directors may only be removed for cause may make it more difficult or expensive for a third party to acquire control of New ZeroFox without the approval of the New ZeroFox Board.
Advisory Governing Documents Proposal 5(F) — Amendments to the
Proposed Governing Documents
L&F’s Existing Governing Documents provide that certain
amendments may only be made pursuant to a special resolution under the Cayman Islands Companies Act, which would require the affirmative vote of the holders of at least a two-thirds (2/3) majority of the L&F Ordinary Shares who, being
present and entitled to vote on the amendment, vote on such amendment, or unanimous written resolution, including amendments to (i) change L&F’s name, (ii) alter or add to the articles of association, (iii) alter or add to the memorandum of
association with respect to any objects, powers or other matters specified therein, and (iv) reduce L&F’s share capital or any capital redemption reserve fund. The Proposed Certificate of Incorporation will allow for amendments by the
affirmative vote of holders of at least a majority of the total voting power of all the then outstanding shares of stock entitled to vote thereon, voting together as a single class; provided, that (i) holders of shares of each class of common
stock will have no voting power with respect to, and will not be entitled to vote on, any amendment to the Proposed Certificate of Incorporation that relates solely to the terms of any outstanding preferred stock if the holders of such
preferred stock are entitled to vote as a separate class thereon under the Proposed Certificate of Incorporation or under DGCL; and (ii) certain amendments will require the affirmative vote of the holders of two-thirds of the total voting power
of the outstanding shares of capital stock entitled to vote thereon, voting together as a single class, at a meeting of the shareholders called for that purpose. As set forth by the Proposed Certificate of Incorporation, such two-thirds votes
are required to amend provisions that relate to (i) the classified board structure, (ii) board composition, (iii) removal of directors, (iv) indemnification and exculpation, (v) cumulative voting rights, (vi) preferred stock, (vii) exclusive
forum provisions, (viii) provisions related to shareholder action and advance notice, (ix) corporate opportunities and (x) amendments provisions of the charter.
In addition, the Proposed Bylaws will allow for amendments with the
approval by the holders of a majority of the voting power of the shares present in person or by proxy at the meeting of shareholders and entitled to vote on the matter. Any amendment of certain provisions in the Proposed Bylaws will require
approval by holders of at least two-thirds of the voting power of the then-outstanding voting securities of New ZeroFox entitled to vote thereon, voting together as a single class, including, among others, provisions related to (i) meetings of
shareholders, (ii) the powers and composition of the board of directors, (iii) removal of directors, (iv) indemnification of directors and officers and (v) amendments to the Proposed Bylaws.
The company believes that the vote thresholds to amend the Proposed
Certificate of Incorporation and Proposed Bylaws contemplated by Proposal 5(F) are more appropriate for a Delaware-incorporated public operating company with sponsor investors and are typical of governance provisions commonly included in the
organizational documents of companies immediately following a transaction similar to the proposed Business Combination.
188
Advisory Governing Documents Proposal 5(G) — Elimination of
Provisions Related to Our Status as a Blank Check Company
L&F’s Existing Governing Documents (as proposed to be amended by
the Articles Amendment Proposal) contain various provisions applicable only to blank check companies. This amendment eliminates certain provisions related to L&F’s status as a blank check company, which is desirable because these provisions
will serve no purpose following the Business Combination. For example, these proposed amendments remove the requirement to dissolve L&F and allows it to continue as a corporate entity with perpetual existence following consummation of the
Business Combination. Perpetual existence is the usual period of existence for corporations, and we believe it is the most appropriate period for New ZeroFox following the Business Combination. In addition, certain other provisions in L&F’s
Existing Governing Documents require that proceeds from the IPO be held in the Trust Account until a business combination or liquidation or merger has occurred. These provisions would cease to apply once the Business Combination is consummated.
Vote Required for Approval
Approval of each Advisory Governing Documents Proposal requires an
ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote
thereon at the Shareholder Meeting. Abstentions will be considered present for the purposes of establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no
effect on the approval of the Advisory Governing Documents Proposals.
A vote to approve the Advisory Governing Documents Proposals is an
advisory vote, and, therefore, is not binding on L&F or L&F’s Board. Accordingly, regardless of the outcome of the non-binding advisory vote, we intend that the Proposed Certificate of Incorporation and Proposed Bylaws, in the forms set
forth on Annex B and Annex C, respectively, and containing the provisions noted above, will take effect at consummation of the Business Combination, assuming adoption of the Governing Documents Proposal. While the vote is non-binding, we highly
value the opinions of our shareholders and the New ZeroFox Board intends to consider the outcome of this advisory vote in connection with future decisions regarding New ZeroFox’s corporate governance policies and practices.
As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders have agreed to vote any L&F Ordinary Shares owned by them in favor of the Advisory Governing Documents Proposal. As of the date hereof, the L&F Initial Shareholders own 20% of the issued and outstanding L&F
Ordinary Shares and have not purchased any Public Shares, but may do so at any time, subject to certain requirements discussed under “Shareholder Meeting—Potential Purchases of Public Shares and/or
Warrants”. As a result, in addition to the L&F Initial Shareholders, approval of each Advisory Governing Documents Proposal will require the affirmative vote of at least 6,468,751 L&F Ordinary Shares held by Public
Shareholders (or approximately 37.5% of the Class A Ordinary Shares) if all L&F Ordinary Shares are represented at the Shareholder Meeting and cast votes, and the affirmative vote of at least 1,078,126 L&F Ordinary Shares held by Public
Shareholders (or approximately 6.3% of the Class A Ordinary Shares) if only such shares as are required to establish a quorum are represented at the Shareholder Meeting and cast votes.
Resolutions
The full text of the resolutions to be voted upon are as follows:
“RESOLVED, as
an ordinary resolution, on an advisory non-binding basis, that the authorized share capital of L&F is increased from (i) 500,000,000 Class A Ordinary Shares, par value $0.0001 per share, 50,000,000 Class B Ordinary Shares, par value $0.0001
per share, and 1,000,000 preference shares, par value $0.0001 per share, to (ii) 1,000,000,000 shares of ZeroFox Holdings, Inc. common stock, par value $0.0001 per share, and 100,000,000 shares of ZeroFox Holdings, Inc. preferred stock, par
value $0.0001 per share.”
“RESOLVED, as
an ordinary resolution, on an advisory non-binding basis, that the ZeroFox Holdings, Inc. board is authorized to issue any or all shares of ZeroFox Holdings, Inc. preferred stock in one or more classes or series, with such terms and conditions
as may be expressly determined by the ZeroFox Holdings, Inc. board and as may be permitted by the Delaware General Corporation Law.”
“RESOLVED, as an
ordinary resolution, on an advisory non-binding basis, that the Court of Chancery of the State of Delaware will be the exclusive forum for certain shareholder litigation and the federal district courts
189
of the United States of America will be the exclusive forum for resolving any
complaint asserting a cause of action arising under the Securities Act of 1933, as amended, unless ZeroFox Holdings, Inc. consents in writing to the selection of an alternative forum.”
“RESOLVED,
as an ordinary resolution, on an advisory non-binding basis, that any action required or permitted to be taken by the shareholders of ZeroFox Holdings, Inc. must be effected at a duly called annual or special
meeting of shareholders of ZeroFox Holdings, Inc. and may not be effected by any consent by such shareholders.”
“RESOLVED,
as an ordinary resolution, on an advisory non-binding basis, that, subject to the rights of holders of preferred stock of ZeroFox Holdings, Inc., any director or the entire ZeroFox Holdings, Inc.
board may be removed from office at any time, but only for cause, and only by the affirmative vote of the holders of a majority of the issued and outstanding capital stock of ZeroFox Holdings, Inc.
entitled to vote in the election of directors, voting together as a single class.”
“RESOLVED,
as an ordinary resolution, on an advisory non-binding basis, that the proposed new certificate of incorporation may be amended by shareholders in accordance with the voting standards set forth in Article
XI, Section 1 of the proposed new certificate of incorporation and the proposed new bylaws may be amended by shareholders in accordance with the voting
standards set forth in Article X of the proposed new bylaws.”
“RESOLVED,
as an ordinary resolution, on an advisory non-binding basis, the removal of provisions in L&F’s existing amended and restated memorandum and articles of association related to its status as a blank check company that
will no longer apply upon the consummation of the Business Combination be approved.”
Recommendation of the Board
THE BOARD UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR” THE
APPROVAL OF EACH OF THE ADVISORY GOVERNING DOCUMENTS PROPOSALS.
The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to recommend that shareholders vote for the proposals. See the section titled “Proposal No. 2 - The Business Combination Proposal — Interests
of Certain Persons in the Business Combination” for a further discussion of these considerations.
190
Overview
As discussed in this proxy statement/prospectus, L&F is asking its
shareholders to consider and vote upon a proposal to approve by ordinary resolution for the purposes of complying with the applicable provisions of NYSE Listing Rule 312.03, the issuance of shares of New ZeroFox Common Stock in connection with
the Business Combination, the Common Equity PIPE Financing and the Convertible Notes Financing (such proposal, the “Listing Proposal”).
Reasons for the Approval of the Listing Proposal
Under NYSE Listing Rule 312.03(c), a company is required to obtain
shareholder approval prior to the issuance of common stock, or of securities convertible into or exercisable for common stock, if the number of shares of common stock to be issued is, or will be upon issuance, equal to or in excess of 20% of
the number of shares of common stock outstanding before the issuance of the common stock or of securities convertible into or exercisable for common stock. In connection with the Business Combination, the Common Equity PIPE Financing and the
Convertible Notes Financing, L&F currently expects to issue up to an estimated 134,582,299 shares of New ZeroFox Common Stock (including shares of New ZeroFox Common Stock to be issued upon the exercise, exchange or conversion of securities
to be outstanding upon consummation of the Business Combination). Additionally, pursuant to the NYSE Listing Rule 312.03(b), a NYSE-listed company is required to obtain shareholder approval when such company proposes to issue securities to a
director, officer or substantial security holder, if the number of shares of common stock to be issued, or the number of shares of common stock into which the securities may be convertible or exercisable, exceeds 1% of the number of shares of
common stock outstanding before the issuance. The NYSE Listing Rule 312.04(e) defines a substantial stockholder as the holder of an interest of 5% or more of either the number of shares of common stock or the voting power outstanding of a
NYSE-listed company. As the Sponsor currently owns greater than 5% of L&F’s ordinary shares, the Sponsor is considered a substantial security holder of L&F under the NYSE Listing Rule 312.04(e) and the Sponsor will be receiving New
ZeroFox Common Stock, or securities convertible into or exercisable for New ZeroFox Common Stock, in an amount exceeding 1% of the number of ordinary shares outstanding.
In the event that this proposal is not approved by L&F’s
shareholders, the Business Combination cannot be consummated. In the event that this proposal is approved by L&F’s shareholders, but the Business Combination Agreement is terminated (without the Business Combination being consummated) prior
to the issuance of shares of New ZeroFox Common Stock pursuant to the Business Combination Agreement, New ZeroFox will not issue such shares of New ZeroFox Common Stock.
Vote Required for Approval
The Listing Proposal is conditioned on the approval of each of the
Condition Precedent Proposals at the Shareholder Meeting.
The approval of the Listing Proposal requires an ordinary resolution
under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the Shareholder
Meeting. Abstentions will be considered present for the purposes of establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no effect on the approval of the
Listing Proposal.
As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders have agreed to vote any L&F Ordinary Shares owned by them in favor of the Listing Proposal. As of the date hereof, the L&F Initial Shareholders own 20% of the issued and outstanding L&F Ordinary Shares and have
not purchased any Public Shares, but may do so at any time, subject to certain requirements discussed under “Shareholder Meeting — Potential Purchases of Public Shares and/or Warrants.”
As a result, in addition to the L&F Initial Shareholders, approval of the Listing Proposal will require the affirmative vote of at least 6,468,751 L&F Ordinary Shares held by Public Shareholders (or approximately 37.5% of the Class A
Ordinary Shares) if all L&F Ordinary Shares are represented at the Shareholder Meeting and cast votes, and the affirmative vote of at least 1,078,126 L&F Ordinary Shares held by Public Shareholders (or approximately 6.3% of the Class A
Ordinary Shares) if only such shares as are required to establish a quorum are represented at the Shareholder Meeting and cast votes.
191
Resolution
The full text of the resolution to be voted upon is as follows:
“RESOLVED, as
an ordinary resolution, that for the purposes of complying with the applicable provisions of NYSE Listing Rule 312.03, the issuance of shares of ZeroFox Holdings, Inc. common stock in connection with the Business Combination, the Common Equity
PIPE Financing and the Convertible Notes Financing (as such terms are defined in the proxy statement/prospectus) be approved.”
Recommendation of the Board
THE BOARD UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR” THE
APPROVAL OF THE LISTING PROPOSAL.
The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to recommend that shareholders vote for the proposals. See the section titled “Proposal No. 2 - The Business Combination Proposal — Interests
of Certain Persons in the Business Combination” for a further discussion of these considerations.
192
Overview
We are asking our shareholders to approve by ordinary resolution the
ZeroFox Holdings, Inc. 2022 Incentive Equity Plan (the “Incentive Equity Plan”) and the material terms thereunder. The L&F Board approved the Incentive Equity Plan, prior to the Shareholder Meeting,
subject to shareholder approval at the Shareholder Meeting. The Incentive Equity Plan will become effective as of Closing, subject to approval by the L&F shareholders.
The Incentive Equity Plan is described in more detail below. A copy of
the Incentive Equity Plan is attached to this proxy statement/prospectus as Annex H.
The Incentive Equity Plan
The principal purpose of the Incentive Equity Plan is to enhance New
ZeroFox’s ability to attract, retain and motivate selected employees, consultants and directors through the granting of stock-based and cash-based awards. Equity awards and equity-linked compensatory opportunities are intended to motivate high
levels of performance and align the interests of directors, employees and consultants with those of shareholders by giving directors, employees and consultants the perspective of an owner with an equity or equity-linked stake in New ZeroFox and
providing a means of recognizing their contributions to New ZeroFox’s success. The L&F Board believes that equity awards are necessary for New ZeroFox to remain competitive in its industry and are essential to recruiting and retaining highly
qualified employees.
Description of Material Features of the Incentive Equity Plan
This section summarizes certain material features of the Incentive
Equity Plan. The summary is qualified in its entirety by reference to the complete text of the Incentive Equity Plan.
Eligibility and Administration
Stock-based and cash-based awards (“Awards”) under the Incentive Equity Plan may be granted to individuals who are then New ZeroFox employees, consultants or directors, or are employees or consultants of certain of its subsidiaries. Only employees of New
ZeroFox or certain of its subsidiaries may be granted incentive stock options (“ISOs”). Following the consummation of the Business Combination, New ZeroFox and its subsidiaries are expected
to have approximately 600 employees, 5 consultants and 6 non-employee directors who will be eligible to receive Awards under the Incentive Equity Plan.
The Incentive Equity Plan will be administered by the New ZeroFox
Board, which may delegate its duties and responsibilities to one or more committees of its directors and/or executive officers (referred to collectively as the “administrator”), subject to
the limitations imposed under the Incentive Equity Plan, Section 16 of the Exchange Act, stock exchange rules and other applicable laws. The administrator will have the authority to take all actions and make all determinations under the
Incentive Equity Plan, to interpret the Incentive Equity Plan and award agreements and to adopt, amend and repeal rules for the administration of the Incentive Equity Plan as it deems advisable. The administrator will also have the authority to
determine which eligible service providers receive Awards, grant Awards and set the terms and conditions of all Awards under the Incentive Equity Plan, subject to the conditions and limitations in the Incentive Equity Plan.
Shares Available for Awards
Under the Incentive Equity Plan, the number of shares equal to ten
percent (10%) of the shares of New ZeroFox Common Stock issued and outstanding at the Effective Time will be initially reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation
rights (“SARs”), restricted stock awards, restricted stock unit awards, dividend equivalents and other stock or cash-based awards. The number of shares of New ZeroFox Common Stock initially
reserved for issuance or transfer pursuant to awards under the Incentive Equity Plan will be increased, on an annual basis on the first day of each calendar year beginning January 1, 2023 and ending on (and including) January 1, 2031, by a
number of shares of New ZeroFox Common Stock equal to the lesser of (i) the number of shares equal to five percent (5%) of the shares of New ZeroFox Common Stock issued and outstanding on the last day of the immediately
193
preceding calendar year and (ii) such smaller number of shares of New ZeroFox Common
Stock as determined by the New ZeroFox Board; provided, however, that the maximum number of shares of New ZeroFox Common Stock that may be issued upon the exercise of ISOs shall not exceed ten percent (10%) of the shares of New ZeroFox Common
Stock issued and outstanding at the Effective Time.
The following counting provisions will be in effect for the share
reserve under the Incentive Equity Plan:
|
•
|
to the extent that an Award or any of the 2013 ZeroFox, Inc. Equity Incentive Plan, the IDX 2016 Stock Option and Grant Plan,
and the IDX 2017 Equity Incentive Plan, in each case, as amended (collectively, the “Prior Plans”), expires, lapses or is terminated, or is exchanged for or settled in cash without
the delivery of shares, or is surrendered, repurchased or cancelled without having been fully exercised or forfeited, in any case in a manner that results in us: (i) acquiring shares covered by an Award or an award outstanding under any
of the Prior Plans (each, a “Prior Plan Award”) at a price not greater than the price paid by the Participant (taking into account certain equity
restructurings), or (ii) not issuing any shares covered by the Award or Prior Plan Award, then the unused shares covered by the Award or Prior Plan Award will be available for future grants under the Incentive Equity Plan;
|
|
•
|
to the extent shares are tendered or withheld to satisfy the tax withholding obligation with respect to any Award or Prior Plan
Award, such shares will be available for future grants under the Incentive Equity Plan;
|
|
•
|
to the extent shares are tendered or withheld in payment of the exercise or purchase price of an Award or a Prior Plan Award,
such shares will be available for future grants under the Incentive Equity Plan;
|
|
•
|
to the extent shares subject to a SAR are not issued in connection with stock settlement of the SAR upon exercise of the SAR, such
shares will not be available for future grants under the Incentive Equity Plan;
|
|
•
|
shares purchased on the open market with cash proceeds from the exercise of options shall not be available for future grants under
the Incentive Equity Plan;
|
|
•
|
the payment of dividend equivalents in cash in conjunction with any outstanding Awards or Prior Plan Awards will not be counted
against the shares available for issuance under the Incentive Equity Plan;
|
|
•
|
to the extent permitted by applicable law or any exchange rule, shares issued in assumption of, or in substitution for, any
outstanding awards of any entity acquired in any form of combination by New ZeroFox or any of its subsidiaries will not be counted against the shares available for issuance under the Incentive Equity Plan (and will not be available as
recycled shares under the rules above), except that if such assumed or substituted awards are incentive stock options, such awards shall count against the incentive stock option limit under the Incentive Equity Plan; and
|
|
•
|
other than with respect to the Prior Plans, if New ZeroFox acquires or merges with another entity that has shares available under
an incentive equity plan, the shares available under such plan generally may be used for grants under the Incentive Equity Plan (within certain parameters) without reducing the shares available for grant under the Incentive Equity Plan
(but will not be available as recycled shares under the rules above).
|
The Incentive Equity Plan also provides that the sum of any cash
compensation or other compensation, and the grant date fair value of all equity or equity-based awards, that may be granted to any individual for services as a non-employee director during any fiscal year may not exceed $750,000. (However, for
a non-employee director who also serves in another capacity, the $750,000 limit shall not apply to compensation earned in such other capacity.)
The closing price of the Class A Ordinary Shares on the NYSE as of
April 4, the most recent practicable date prior to the date of this proxy statement/prospectus, was $10.11 per share.
194
Types of Awards
The Incentive Equity Plan provides that the administrator may grant or
issue stock options, restricted stock, restricted stock units, SARs, other stock- or cash-based Awards and dividend equivalents, or any combination thereof. Each Award will be set forth in a separate agreement with the person receiving the Award
and will indicate the type, terms and conditions of the Award.
|
•
|
Non-Qualified Stock Options (“NSOs”) provide for
the right to purchase shares of New ZeroFox Common Stock at a specified price that may not be less than the fair market value of a share of New ZeroFox Common Stock on the date of grant (unless it is a substitute award and the exercise
price is determined in compliance with Section 409A of the Code) and may become exercisable (at the discretion of the administrator) in one or more installments after the grant date, subject to the participant’s continued employment or
service with New ZeroFox and/or subject to the satisfaction of corporate performance targets and individual performance targets established by the administrator. NSOs may be granted for any term specified by the administrator that does
not exceed ten years.
|
|
•
|
Incentive Stock Options will be designed in a manner intended to comply with the
provisions of Section 422 of the Code, and will be subject to specified restrictions contained in the Code. Among such restrictions, ISOs must have an exercise price of not less than the fair market value of a share of New ZeroFox Common
Stock on the date of grant, may only be granted to employees, and must not be exercisable after a period of ten years measured from the date of grant. In the case of an ISO granted to an individual who owns (or is deemed to own) at least
10% of the total combined voting power of all classes of New ZeroFox capital stock, the exercise price must be at least 110% of the fair market value of a share of New ZeroFox Common Stock on the date of grant and the ISO must not be
exercisable after a period of five years measured from the date of grant.
|
|
•
|
Restricted Stock may be granted to any eligible individual and made subject to such
restrictions as may be determined by the administrator. Restricted stock, typically, may be forfeited for no consideration or repurchased by New ZeroFox at the original purchase price if the conditions or restrictions on vesting are not
met. In general, restricted stock may not be sold or otherwise transferred until restrictions are removed or expire. Except as otherwise provided in an award agreement, holders of restricted stock, unlike recipients of options, will have
the right to receive dividends paid to shareholders, if any, prior to the time when the restrictions lapse. However, dividends will not be released unless and until restrictions are removed or expire. If dividends are paid in stock or
other property, the stock or other property shall be subject to the same vesting restrictions as the restricted stock, except as otherwise provided in an award agreement.
|
|
•
|
Restricted Stock Units may be awarded to any eligible individual, typically without
payment of consideration, but subject to vesting conditions based on continued employment or service or on performance criteria established by the administrator. Restricted stock units may not be sold, or otherwise transferred or
hypothecated. Stock underlying restricted stock units will not be issued until the restricted stock units have vested, and recipients of restricted stock units generally will have no voting or dividend rights prior to the time shares are
delivered in settlement of the restricted stock units. Restricted stock units may be structured to meet an exemption from Code Section 409A of the Code (with settlement during the “short-term deferral” period), or to meet the requirements
of Section 409A of the Code (with settlement deferred beyond vesting).
|
|
•
|
Stock Appreciation Rights will provide for payments to the holder based upon increases in
the price of New ZeroFox Common Stock over a set exercise price. The exercise price of any SAR granted under the Incentive Equity Plan must be at least 100% of the fair market value of a share of New ZeroFox Common Stock on the date of
grant (unless it is a substitute award and the exercise price is determined in compliance with Code Section 409A of the Code). SARs under the Incentive Equity Plan will be settled in cash or shares of New ZeroFox Common Stock, or in a
combination of both, at the election of the administrator.
|
|
•
|
Other Stock or Cash-Based Awards are Awards of cash, shares of
New ZeroFox Common Stock and other Awards valued wholly or partially by referring to, or otherwise based on, shares of New ZeroFox Common Stock. Other stock or cash-based awards may be granted to participants and may also be available
as a payment form in the settlement of other Awards, as standalone payments and as payment in lieu of base salary, bonus, fees or other cash compensation otherwise payable to any individual who
|
195
is eligible to receive Awards. The administrator will determine the terms and
conditions of other stock or cash-based awards, which may include vesting conditions based on continued service, performance and/or other conditions. Any Award may be granted as a performance award, meaning that the Award will be subject to
vesting and/or payment based on the attainment of specified performance goals.
|
•
|
Dividend Equivalents represent the right to receive the equivalent value of
dividends paid on shares of New ZeroFox Common Stock and may be granted in tandem with Awards other than stock options or SARs. Dividend equivalents are converted into cash or shares by such formula and at such time as determined by the
administrator, and if permitted by the administrator, may be paid on a deferred basis in a manner compliant with Code Section 409A. In addition, dividend equivalents with respect to an Award subject to vesting will be accumulated and
subject to vesting to the same extent as the related Award, and only paid if and to the extent the vesting conditions are satisfied.
|
Certain Transactions
As determined by the administrator, in the event of any
non-reciprocal transaction between New ZeroFox and its shareholders, such as a stock dividend, stock split, spin-off or recapitalization through a large, nonrecurring cash dividend or other large non-recurring cash dividend, that affects its
share price and/or outstanding shares, the administrator will equitably adjust each outstanding Award to reflect the action taken.
As determined by the administrator, in the event of any dividend or
other distribution (regardless of form), reorganization, merger, consolidation, combination, amalgamation, repurchase, recapitalization, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of
New ZeroFox’s assets, or sale or exchange of New ZeroFox Common Stock or other securities, change in control, issuance of warrants or other rights to purchase New ZeroFox Common Stock or other securities, or other similar corporate transaction
or event, or unusual or nonrecurring transaction or event affecting New ZeroFox or its financial statements, or changes in laws or accounting principles, the administrator may take various actions to prevent dilution or enlargement of benefits
under the Award, facilitate the transaction or event, or give effect to change in the law or accounting principles as follows: (i) cancel the Award in exchange for the amount that would have been due upon exercise or settlement of the Award;
(ii) provide for vesting and exercisability of the Award; (iii) provide for assumption or substitution of the Award by a successor entity; (iv) make adjustments in the number and type of shares or other property subject to the Award or other
terms and conditions of the Award; (v) replace the Award with other rights or property; or (vi) provide that the Award will terminate and cannot vest, be exercised or become payable after the event.
In the event of a change in control (as defined in the Incentive
Equity Plan), to the extent that New ZeroFox or a successor entity does not assume an Award or substitute another substantially similar award for an outstanding Award, then all such Awards held by grantees who remain in New ZeroFox’s service
will become fully vested, and exercisable and/or payable (as applicable) in connection with the transaction, and all forfeiture, repurchase and other restrictions on the Awards shall lapse, in which case the Awards shall be cancelled upon
consummation of the change in control in exchange for the right to receive change in control consideration (if any amount is due) determined by the number of shares subject to each such Award and net of any exercise price, subject to the
requirements of Section 409A of the Code.
Repricing
The administrator may not reduce the exercise price per share of
outstanding options or SARs, or cancel outstanding options or SARs in exchange for cash, other Awards, or options or SARs with an exercise price lower than the original exercise price, without shareholder approval.
Plan Amendment and Termination; Duration of Awards under Plan
The administrator may amend, suspend or terminate the Incentive
Equity Plan at any time. However, New ZeroFox must obtain shareholder approval for such action to the extent required by applicable law, rule or regulation (including any applicable stock exchange rule). No amendments to the Incentive Equity
Plan that materially and adversely affect a participant’s rights under an outstanding Award may be made without participant consent (other than an increase in shares authorized under the Incentive Equity Plan), except as described above in the
section above entitled “Certain Transactions”. No ISOs may be granted pursuant to the Incentive Equity Plan after the tenth anniversary of the date the L&F Board approved the Incentive
Equity Plan.
196
Other types of Awards may not be granted after the tenth anniversary of the
effective date of the Incentive Equity Plan. Any Award that is outstanding on the termination date of the Incentive Equity Plan will remain in force according to the terms of the Incentive Equity Plan and the applicable award agreement.
Foreign Participants, Claw-back Provisions, Transferability and
Participant Payments
The administrator may modify Awards granted to participants who are
foreign nationals or employed outside the United States or establish subplans or procedures to address differences in laws, rules, regulations or customs of such foreign jurisdictions. All Awards (including any proceeds, gains or other economic
benefit received in connection with any Awards) will be subject to any company claw-back policy as set forth in such claw-back policy or the applicable award agreement. Except as the administrator may determine or provide in an award agreement,
Awards under the Incentive Equity Plan are generally non-transferrable, except by will or the laws of descent and distribution, or, subject to the administrator’s consent, pursuant to a domestic relations order, and are generally exercisable
only by the participant. With regard to tax withholding obligations arising in connection with Awards under the Incentive Equity Plan, and exercise price obligations arising in connection with the exercise of stock options under the Incentive
Equity Plan, the administrator may, in its discretion, accept cash, wire transfer or check, shares of common stock that meet specified conditions, a promissory note, a broker assisted cashless exercise, a net exercise, or any combination of the
foregoing.
Material U.S. Federal Income Tax Consequences
The following is a general summary under current law of the
principal United States federal income tax consequences related to Awards under the Incentive Equity Plan. This summary deals with the general federal income tax principles that apply and is provided only for general information. Some kinds of
taxes, such as state, local and foreign income taxes and federal employment taxes, are not discussed. This summary is not intended as tax advice to participants, who should consult their own tax advisors.
|
•
|
Non-Qualified Stock Options. If an optionee is granted an NSO under the Incentive Equity
Plan, the optionee should not have taxable income on the grant of the option. Generally, the optionee should recognize ordinary income at the time of exercise in an amount equal to the fair market value of the shares acquired on the date
of exercise, less the exercise price paid for the shares. The optionee’s basis in the shares for purposes of determining gain or loss on a subsequent sale or disposition of such shares generally will be the fair market value of the shares
on the date the optionee exercises such option. Any subsequent gain or loss will be taxable as a long-term or short-term capital gain or loss. New ZeroFox or its subsidiaries or affiliates generally should be entitled to a federal income
tax deduction at the time and for the same amount as the optionee recognizes ordinary income.
|
|
•
|
Incentive Stock Options. A participant will generally not recognize taxable income upon
grant or exercise of an ISO. However, the excess of the fair market value of the shares of our common stock received upon exercise over the option exercise price is an item of tax preference income potentially subject to the alternative
minimum tax. If stock acquired upon exercise of an ISO is held for a minimum of two years from the date of grant and one year from the date of exercise and otherwise satisfies the ISO requirements, the gain or loss (in an amount equal to
the difference between the fair market value on the date of disposition and the exercise price) upon disposition of the stock will be treated as a long-term capital gain or loss, and New ZeroFox will not be entitled to any deduction. If
the holding period requirements are not met, the ISO will be treated as a stock option that does not meet the requirements of the Code for ISOs and the participant will recognize ordinary income at the time of the disposition equal to the
excess of the fair market value of the shares at the time of exercise over the exercise price (or if less, the amount realized in the disposition over the exercise price), with any remaining gain or loss being treated as capital gain or
capital loss. New ZeroFox or its or affiliates generally are not entitled to a federal income tax deduction upon either the exercise of an ISO or upon disposition of the shares acquired pursuant to such exercise, except to the extent that
the participant recognizes ordinary income on disposition of the shares.
|
|
•
|
Other Awards. The current federal income tax consequences of other Awards
authorized under the Incentive Equity Plan generally follow certain basic patterns: SARs are taxed and deductible in substantially the same manner as NSOs; nontransferable restricted stock subject to a substantial risk of forfeiture
results in income recognition equal to the excess of the fair market value over the price paid,
|
197
if any, only at the time the restrictions lapse (unless the recipient elects to
accelerate income recognition as of the date of grant through an election under Section 83(b) of the Code, in which case ordinary income is recognized on the date of grant in an amount equal to the excess of the fair market value of the shares on
the date of grant over the price paid, if any); restricted stock units, dividend equivalents and other stock- or cash-based awards are generally subject to tax at the time of payment. New ZeroFox or its subsidiaries or affiliates generally should
be entitled to a federal income tax deduction at the time and for the same amount as the participant recognizes ordinary income.
Limitation on the Employer’s Compensation Deduction
Section 162(m) of the Code limits the deduction New ZeroFox may take
for otherwise deductible compensation payable to certain of our executive officers to the extent the compensation paid to such an officer for the year exceeds $1,000,000.
Section 409A of the Code
Certain types of Awards under the Incentive Equity Plan may
constitute, or provide for, a deferral of compensation subject to Section 409A of the Code. Unless certain requirements set forth in Section 409A of the Code are complied with, holders of such Awards may be taxed earlier than would otherwise be
the case (e.g., at the time of vesting instead of the time of payment) and may be subject to an additional 20% penalty tax (and, potentially, certain interest, penalties and additional state taxes). To the extent applicable, the Incentive
Equity Plan and Awards granted under the Incentive Equity Plan are intended to be structured and interpreted in a manner intended to either comply with or be exempt from Section 409A of the Code and the Department of Treasury Regulations and
other interpretive guidance that may be issued under Section 409A of the Code.
Plan Benefits
The benefits or amounts that may be received by or allocated to
participants under the Incentive Equity Plan will be determined at the discretion of the administrator and are not currently determinable. The value of future Awards granted under the Incentive Equity Plan will depend on a number of factors,
including the fair market value of New ZeroFox Common Stock on future dates, the exercise decisions made by the participants and the extent to which any applicable service requirements or performance goals necessary for vesting or payment are
achieved.
Vote Required for Approval
The Incentive Award Plan Proposal is conditioned on the approval of
each of the Condition Precedent Proposals at the Shareholder Meeting.
The approval of the Incentive Equity Plan Proposal requires an
ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote
thereon at the Shareholder Meeting. Abstentions will be considered present for the purposes of establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no
effect on the approval of the Incentive Equity Plan Proposal.
As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders have agreed to vote any L&F Ordinary Shares owned by them in favor of the Incentive Award Plan Proposal. As of the date hereof, the L&F Initial Shareholders own 20% of the issued and outstanding L&F Ordinary
Shares and have not purchased any Public Shares, but may do so at any time, subject to certain requirements discussed under “Shareholder Meeting—Potential Purchases of Public Shares and/or
Warrants”. As a result, in addition to the L&F Initial Shareholders, approval of the Incentive Award Plan Proposal will require the affirmative vote of at least 6,468,751 L&F Ordinary Shares held by Public Shareholders
(or approximately 37.5% of the Class A Ordinary Shares) if all L&F Ordinary Shares are represented at the Shareholder Meeting and cast votes, and the affirmative vote of at least 1,078,126 L&F Ordinary Shares held by Public Shareholders
(or approximately 6.3% of the Class A Ordinary Shares) if only such shares as are required to establish a quorum are represented at the Shareholder Meeting and cast votes.
198
Resolution
The full text of the resolution to be passed is as follows:
“RESOLVED, as
an ordinary resolution, that L&F’s adoption of the ZeroFox Holdings, Inc. 2022 Incentive Equity Plan be approved, ratified and confirmed in all respects.”
Recommendation of the L&F Board
THE L&F BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE APPROVAL
OF THE INCENTIVE EQUITY PLAN PROPOSAL.
The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to recommend that shareholders vote for the proposals. See the section titled “Proposal No. 2 - The
Business Combination Proposal — Interests of Certain Persons in the Business Combination” for a further discussion of these considerations.
199
Overview
We are asking our shareholders to approve by ordinary resolution and
adopt the ZeroFox Holdings, Inc. 2022 Employee Stock Purchase Plan (the “ESPP”) and the material terms thereunder. The L&F Board approved the ESPP, prior to the Shareholder Meeting, subject to
shareholder approval at the Shareholder Meeting. The ESPP will become effective as of Closing, subject to approval by the L&F shareholders.
The ESPP is described in more detail below. A copy of the ESPP is
attached to this proxy statement/prospectus as Annex I.
The ESPP
The ESPP is designed to allow eligible employees of New ZeroFox and its
subsidiaries to purchase shares of New ZeroFox Common Stock with their accumulated payroll deductions. The ESPP is intended to qualify under Section 423 of the Code. The material terms of the ESPP are summarized below. The purpose of the ESPP is
to assist such employees in acquiring a stock ownership interest in New ZeroFox, to help such employees provide for their future security and to encourage such employees to remain in the employment of New ZeroFox. The L&F Board believes that
the ESPP is necessary for New ZeroFox to remain competitive in its industry and is essential to recruiting and retaining the highly qualified employees who New ZeroFox needs to meet its goals.
Description of the Material Features of the ESPP
This section summarizes certain material features of the ESPP. The
summary is qualified in its entirety by reference to the complete text of the ESPP.
Administration
Unless otherwise determined by the New ZeroFox Board, the compensation
committee of the New ZeroFox Board, or another committee or subcommittee of the New ZeroFox Board to which the New ZeroFox Board delegates administrative authority, will administer and will have authority to interpret the terms of the ESPP and
determine eligibility of participants. The administrator may designate certain New ZeroFox subsidiaries as participating subsidiaries in the ESPP and may change these designations from time to time.
Shares Available for Awards
Under the ESPP, the number of shares equal to two percent (2%) of
the shares of New ZeroFox Common Stock issued and outstanding at the Effective Time will be initially reserved for issuance under the ESPP. The number of shares of New ZeroFox Common Stock initially reserved for issuance under the ESPP will be
increased annually on the first day of each calendar year beginning January 1, 2023 and ending (and including) January 1, 2031, in an amount equal to the lesser of (i) one percent (1%) of the shares of New ZeroFox Common Stock issued and
outstanding on the last day of the immediately preceding calendar year, and (ii) such number of shares of New ZeroFox Common Stock as determined by the New ZeroFox Board; provided, however, no more than 25,000,000 shares of New ZeroFox Common
Stock may be issued under the ESPP. If any right granted under the ESPP terminates for any reason without being exercised, the shares not purchased under such right shall again become available for issuance under the Plan.
The closing price of the Class A Ordinary Shares on the NYSE as of ,
the most recent practicable date prior to the date of this proxy statement/prospectus, was $ per share.
Eligibility
Employees eligible to participate in the ESPP for a given offering
period generally include employees who are employed by New ZeroFox or one of its designated subsidiaries on the first day of the offering period, or the enrollment date. To the extent provided in an offering document, New ZeroFox employees (and,
if applicable, any employees of its designated subsidiaries) who are highly compensated employees, who have not satisfied a minimum service requirement (not in excess of two years) imposed by the administrator, who customarily work less than five
months in a calendar year, who are customarily scheduled to work less than 20 hours per week or who are citizens or residents of foreign countries where the grant of a right to purchase shares under the ESPP
200
would be prohibited or the grant would cause the ESPP to violate the requirements of
Section 423 of the Code, in each case, will not be eligible to participate in the ESPP. Finally, an employee who owns (or is deemed to own through attribution) 5% or more of the combined voting power or value of all classes of stock of ZeroFox or
of one of its subsidiaries will not be allowed to participate in the ESPP. Following the consummation of the Business Combination, New ZeroFox is expected to have approximately 600 employees who will be eligible to receive awards under the ESPP.
Consultants and non-employee directors are not eligible to participate in the ESPP.
Participation
Employees will enroll under the ESPP by completing a payroll deduction
form permitting the deduction from their compensation of at least 1% of their compensation but not more than 15% of their compensation (unless otherwise determined by the administrator). Such payroll deductions shall be expressed as a whole
number percentage, and the accumulated deductions will be applied to the purchase of shares on each purchase date.
Offering
Under the ESPP, participants are offered the option to purchase shares
at a discount during a series of successive offering periods, the duration and timing of which will be determined by the ESPP administrator. However, in no event may an offering period be longer than 27 months in length.
The option purchase price will be designated by the administrator in
the offering document, and it shall not be less than the lower of 85% of the closing trading price per share of ZeroFox Common Stock on the first trading date of an offering period in which a participant is enrolled or 85% of the closing trading
price per share on the purchase date.
Unless a participant has previously canceled his or her
participation in the ESPP before the purchase date, the participant will be deemed to have exercised his or her option in full as of each purchase date. Upon exercise, the participant will purchase the number of whole shares that his or her
accumulated payroll deductions will buy at the option purchase price, subject to ESPP terms and the Code purchase limit of $25,000 per calendar year.
A participant may cancel his or her payroll deduction authorization at
any time prior to the end of the offering period and withdraw from the ESPP for the offering period, subject to any advance notice requirements established by the administrator. Upon cancellation, the participant will receive a refund of the
participant’s account balance in cash without interest. A participant may also decrease (but not increase) his or her payroll deduction authorization during any offering period. If a participant wants to increase or decrease the rate of payroll
withholding for the next offering period, he or she may do so by making a new election before the offering period for which such change is to be effective.
A participant may not assign, transfer, pledge or otherwise dispose of
(other than by will or the laws of descent and distribution) payroll deductions credited to a participant’s account or any rights to exercise an option or to receive shares under the ESPP, and during a participant’s lifetime, options in the ESPP
generally shall be exercisable only by such participant. Any such attempt at assignment, transfer, pledge or other disposition will not be given effect.
Certain Transactions
In the event of certain transactions or events affecting New ZeroFox
Common Stock, such as any stock dividend or other distribution, change in control, reorganization, merger, consolidation or other corporate transaction, the ESPP administrator may make equitable adjustments to the ESPP and outstanding rights to
prevent dilution or enlargement of benefits. In addition, in the event of the foregoing transactions or events or certain significant transactions, including a change in control or changes in laws or accounting principles, the plan administrator
may provide for (i) either the replacement of outstanding rights with other rights or property or termination of outstanding rights in exchange for cash, (ii) the assumption or substitution of outstanding rights by the successor or survivor
corporation or parent or subsidiary thereof, (iii) the adjustment in the number and type of shares of stock or other property subject to outstanding rights or in the terms and conditions of outstanding or future rights, (iv) the use of
participants’ accumulated payroll deductions to purchase stock on a new purchase date prior to the next scheduled purchase date and termination of any rights under ongoing offering periods, or (v) the termination of all outstanding rights without
exercise thereof.
201
Amendment and Termination
The administrator may amend, suspend or terminate the ESPP at any time.
However, the New ZeroFox Board may not amend the ESPP without obtaining shareholder approval if the amendment would (i) increase the number or change the type of shares issuable under the ESPP, (ii) change the ESPP in a manner considered to
result in adoption of a new plan under Section 423 of the Code, or (iii) cause the ESPP to lose its qualified status under Section 423 of the Code.
Foreign Participants, Claw-Back Provisions, Transferability
The administrator may provide special terms, establish supplements to,
or amendments, restatements or alternative versions of, the ESPP, subject to the share limits described above, in order to facilitate grants of awards subject to the laws and/or stock exchange rules of countries outside of the United States. Such
special terms may not be more favorable than the terms of rights granted under the ESPP to employees who are residents of the United States.
The ESPP does not provide for clawback of shares obtained under the
ESPP.
A participant may not transfer rights granted under the ESPP other than
by will or the laws of descent and distribution, and rights granted under the ESPP are, during the lifetime of the participant, generally exercisable only by the participant.
Material U.S. Federal Income Tax Consequences
The following is a general summary under current law of the principal
United States federal income tax consequences related to the purchase of shares under the ESPP. This summary deals with the general federal income tax principles that apply and is provided only for general information. Some kinds of taxes, such
as state, local and foreign income taxes and federal employment taxes, are not discussed. This summary is not intended as tax advice to participants, who should consult their own tax advisors.
The ESPP, and the right of participants to make purchases thereunder,
is intended to qualify under the provisions of Section 423 of the Code. Under the applicable Code provisions, no income will be recognized by a participant until the sale or other disposition of the shares purchased under the ESPP. This means
that an eligible employee will not recognize taxable income on the date the employee is granted an option under the ESPP. In addition, the employee will not recognize taxable income upon the purchase of shares. Upon such sale or disposition, the
participant generally will be subject to tax in an amount that depends upon the length of time such shares are held by the participant prior to disposing of them. If the shares are sold or disposed of more than two years from the date of grant
and more than one year from the date of purchase, or if the participant dies while holding the shares, the participant (or his or her estate) will recognize ordinary income measured as the lesser of (i) the excess of the fair market value of the
shares at the time of such sale or disposition (or death) over the purchase price or (ii) an amount equal to the applicable discount from the fair market value of the shares as of the date of grant. Any additional gain will be treated as
long-term capital gain. If the shares are held for the holding periods described above but are sold for a price that is less than the purchase price, there is no ordinary income and the participating employee has a long-term capital loss for the
difference between the sale price and the purchase price.
If the shares are sold or otherwise disposed of before the expiration
of the holding periods described above, the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price and New ZeroFox will be
entitled to a tax deduction for compensation expense in the amount of ordinary income recognized by the employee. Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on how long
the shares were held following the date they were purchased by the participant prior to disposing of them. If the shares are sold or otherwise disposed of before the expiration of the holding periods described above but are sold for a price that
is less than the purchase price, the participant will recognize ordinary income equal to the excess of the fair market value of the shares on the date of purchase over the purchase price (and New ZeroFox will be entitled to a corresponding
deduction), but the participant generally will be able to report a capital loss equal to the difference between the sales price of the shares and the fair market value of the shares on the date of purchase.
202
Section 409A of the Code
Section 409A of the Code does not apply to the ESPP, to the extent it
meets the requirements of Section 423 of the Code as intended.
New Plan Benefits
Because participation in the ESPP is voluntary and benefits under the
ESPP depend on the employees’ enrollment and contribution elections and the fair market value of the shares of New ZeroFox Common Stock on various future dates, the benefits or amounts that will be received by or allocated to any individual or
group of individuals under the ESPP in the future are not determinable.
Vote Required for Approval
The Employee Stock Purchase Plan Proposal is conditioned on the
approval of each of the Condition Precedent Proposals at the Shareholder Meeting.
The approval of the Employee Stock Purchase Plan Proposal requires
an ordinary resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote
thereon at the Shareholder Meeting. Abstentions will be considered present for the purposes of establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no
effect on the approval of the Employee Stock Purchase Plan Proposal.
As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders have agreed to vote any L&F Ordinary Shares owned by them in favor of the Employee Stock Purchase Plan Proposal. As of the date hereof, the L&F Initial Shareholders own 20% of the issued and outstanding L&F
Ordinary Shares and have not purchased any Public Shares, but may do so at any time , subject to certain requirements discussed under “Shareholder Meeting—Potential Purchases of Public Shares and/or
Warrants”. As a result, in addition to the L&F Initial Shareholders, approval of the Employee Stock Purchase Plan Proposal will require the affirmative vote of at least 6,468,751 L&F Ordinary Shares held by Public
Shareholders (or approximately 37.5% of the Class A Ordinary Shares) if all L&F Ordinary Shares are represented at the Shareholder Meeting and cast votes, and the affirmative vote of at least 1,078,126 L&F Ordinary Shares held by Public
Shareholders (or approximately 6.3% of the Class A Ordinary Shares) if only such shares as are required to establish a quorum are represented at the Shareholder Meeting and cast votes.
Resolution
The full text of the resolution to be passed is as follows:
“RESOLVED, as
an ordinary resolution, that L&F’s adoption of the ZeroFox Holdings, Inc. 2022 Employee Stock Purchase Plan be approved, ratified and confirmed in all respects.”
Recommendation of the L&F Board
THE L&F BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE APPROVAL
OF THE EMPLOYEE STOCK PURCHASE PLAN PROPOSAL.
The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to recommend that shareholders vote for the proposals. See the section titled “Proposal No. 2 - The
Business Combination Proposal — Interests of Certain Persons in the Business Combination” for a further discussion of these considerations.
203
Overview
L&F is asking holders of its Class B Ordinary Shares to consider
and vote upon a proposal, assuming the Business Combination Proposal, the Domestication Proposal and the Governing Documents Proposals are approved, to elect eight directors, effective upon the Closing, to serve staggered three-year terms on the
New ZeroFox Board as set forth in the Proposed Certificate of Incorporation, and until their successors have been duly elected and qualified, or until their earlier death, resignation, retirement or removal (“Director
Election Proposal”).
Director Nominees
As contemplated by the Business Combination Agreement, the New ZeroFox
Board following consummation of the transaction will consist of eight directors:
|
(i)
|
James C. Foster from ZeroFox as Chairman;
|
|
(ii)
|
four directors that are existing board members of ZeroFox designated by ZeroFox;
|
|
(iii)
|
Thomas F. Kelly from IDX;
|
|
(iv)
|
one director that is an existing board member of IDX designated by IDX; and
|
|
(v)
|
one independent director nominee designated by the Sponsor.
|
Accordingly, the L&F Board has nominated each of James C. Foster
(ZeroFox), Peter Barris (ZeroFox), Corey Mulloy (ZeroFox), Samskriti King (ZeroFox), Todd Headley (ZeroFox), Thomas F. Kelly (IDX), Sean Cunningham (IDX), and Adam Gerchen (Sponsor) to serve as our directors upon the consummation of the Business
Combination, with James C. Foster to serve as the Chairman of the New ZeroFox Board, in each case, in accordance with the terms and subject to the conditions of the Proposed Certificate of Incorporation and Proposed Bylaws. For more information
on the experience of each of these director nominees, please see the section titled “Management of the Company Following the Business Combination” of this proxy statement/prospectus.
Under the Proposed Certificate of Incorporation and Proposed Bylaws,
we will have a classified board of directors following the Business Combination, with three directors in Class I (with Peter Barris, Corey Mulloy and Sean Cunningham, each to initially serve for a term expiring at the first annual meeting of
shareholders following the Closing), two directors in Class II (with Samskriti King and Thomas F. Kelly, each to initially serve for a term expiring at the second annual meeting of shareholders following the Closing) and three directors in
Class III (with James C. Foster, Todd Headley, and Adam Gerchen, each to initially serve for a term expiring at the third annual meeting of shareholders following the Closing). At each such annual meeting and each succeeding annual meeting,
directors shall be elected for a term of three years.
Vote Required for Approval
The Director Election Proposal is conditioned on the approval of each
of the Condition Precedent Proposals at the Shareholder Meeting.
The approval of the Director Election Proposal requires an ordinary
resolution under the Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at
the Shareholder Meeting. Under the terms of the Existing Governing Documents, only the holders of Class B Ordinary Shares are entitled to vote on the election of directors to the L&F Board. Therefore, only holders of Class B Ordinary Shares
will vote on the election of directors at the Shareholder Meeting. Pursuant to the Sponsor Support Letter Agreement, the L&F Initial Shareholders have agreed to vote their Class B Ordinary Shares in favor of the Director Election Proposal.
204
Resolution
The full text of the resolution to be voted upon is as follows:
“RESOLVED, as
an ordinary resolution, that the persons named below be elected to serve on the ZeroFox Holdings, Inc. board of directors upon the consummation of the Business Combination to serve initial terms as provided in the proposed new certificate of
incorporation.”
|
Name of Director
|
| |
Class of Directorship
|
|
Peter Barris
|
| |
I
|
|
Corey M. Mulloy
|
| |
I
|
|
Sean Cunningham
|
| |
I
|
|
Samskriti King
|
| |
II
|
|
Thomas F. Kelly
|
| |
II
|
|
James C. Foster
|
| |
III
|
|
Todd Headley
|
| |
III
|
|
Adam Gerchen
|
| |
III
|
Recommendation of the Board
THE BOARD UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR” EACH
OF THE DIRECTOR NOMINEES.
The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to recommend that shareholders vote for the proposals. See the section titled “Proposal No. 2 - The
Business Combination Proposal — Interests of Certain Persons in the Business Combination” for a further discussion of these considerations.
205
The Adjournment Proposal asks shareholders to approve the adjournment
of the Shareholder Meeting to a later date or dates if necessary to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Shareholder Meeting, there are insufficient L&F Ordinary Shares
represented (either in person or by proxy) to constitute a quorum necessary to conduct business at the Shareholder Meeting or to approve any of the Proposals presented to shareholders.
Consequences if the Adjournment Proposal is Not Approved
If the Adjournment Proposal is presented to the Shareholder Meeting and
is not approved by the shareholders, the Board may not be able to adjourn the Shareholder Meeting to a later date or dates, if necessary or appropriate, to permit further solicitation of proxies in the event that there are insufficient votes for,
or otherwise in connection with, the approval of the Articles Amendment Proposal or any of the Condition Precedent Proposals. In such events, the Business Combination would not be completed.
Vote Required for Approval
The Adjournment Proposal is not conditioned on any other proposal.
The approval of the Adjournment Proposal requires an ordinary
resolution under Cayman Islands law, being the affirmative vote of at least a majority of the votes cast by the holders of the issued L&F Ordinary Shares who are present in person or represented by proxy and entitled to vote thereon at the
Shareholder Meeting. Abstentions will be considered present for the purposes of establishing a quorum but, as a matter of Cayman Islands law, will not constitute votes cast at the Shareholder Meeting and therefore will have no effect on the
approval of the Adjournment Proposal.
As of the date of this proxy statement/prospectus, the L&F
Initial Shareholders have agreed to vote any L&F Ordinary Shares owned by them in favor of the Adjournment Proposal. As of the date hereof, the L&F Initial Shareholders own 20% of the issued and outstanding L&F Ordinary Shares and
have not purchased any Public Shares, but may do so at any time, subject to certain requirements discussed under “Shareholder Meeting — Potential Purchases of Public Shares and/or Warrants”.
As a result, in addition to the L&F Initial Shareholders, approval of the Adjournment Proposal will require the affirmative vote of at least 6,468,751 L&F Ordinary Shares held by Public Shareholders (or approximately 37.5% of the Class
A Ordinary Shares) if all L&F Ordinary Shares are represented at the Shareholder Meeting and cast votes, and the affirmative vote of at least 1,078,126 L&F Ordinary Shares held by Public Shareholders (or approximately 6.3% of the Class
A Ordinary Shares) if only such shares as are required to establish a quorum are represented at the Shareholder Meeting and cast votes.
Resolution
The full text of the resolution to be voted upon is as follows:
“RESOLVED, as
an ordinary resolution, that the adjournment of the Shareholder Meeting to a later date or dates if necessary, to permit further solicitation and votes of proxies if, based upon the tabulated votes at the time of the Shareholder Meeting, there
are insufficient L&F ordinary shares represented (either in person or by proxy) to constitute a quorum necessary to conduct business at the Shareholder Meeting or to approve the Articles Amendment Proposal, the Business Combination
Proposal, the Domestication Proposal, the Governing Documents Proposal, the Advisory Governing Documents Proposals, the Listing Proposal, the Incentive Equity Plan Proposal, the Employee Stock Purchase Plan Proposal or the Director Election
Proposal be approved, ratified and confirmed in all respects.”
Recommendation of the Board
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE
APPROVAL OF THE ADJOURNMENT PROPOSAL.
The existence of financial and personal interests of L&F’s
directors and officers may result in a conflict of interest on the part of one or more of the directors between what, he or they may believe is in the best interests of L&F and its shareholders and what he or they may believe is best for
himself or themselves in determining to recommend that shareholders vote for the proposals. See the section titled “Proposal No. 2 - The
Business Combination Proposal — Interests of Certain Persons in the Business Combination” for a further discussion of these considerations.
206
The following is a discussion of certain material U.S. federal
income tax considerations generally applicable to holders of our Public Shares or public warrants (“our securities”) (other than our Sponsor or any of its affiliates) of the (i) exercise of redemption rights, (ii) Domestication and (iii)
ownership and disposition of shares of New ZeroFox Common Stock and New ZeroFox Public Warrants (together, the “New ZeroFox securities”) after the Business Combination. This section applies only to investors that hold our securities, and that
will hold their New ZeroFox securities, as capital assets for U.S. federal income tax purposes (generally, property held for investment). This discussion does not address all aspects of U.S. federal income taxation that may be relevant to
particular holders in light of their particular circumstances or status including:
|
•
|
financial institutions or financial services entities;
|
|
•
|
broker-dealers;
|
|
•
|
S corporations;
|
|
•
|
taxpayers that are subject to the mark-to-market accounting rules;
|
|
•
|
tax-exempt entities;
|
|
•
|
governments or agencies or instrumentalities thereof;
|
|
•
|
tax-qualified retirement plans;
|
|
•
|
insurance companies;
|
|
•
|
regulated investment companies or real estate investment trusts;
|
|
•
|
expatriates or former long-term residents or citizens of the United States;
|
|
•
|
persons that directly or constructively own five percent or more of our voting shares or five percent or more of the total value
of all classes of our shares or that will, following the Business Combination, directly or constructively own five percent or more of all New ZeroFox voting shares or five percent or more of the total value of all classes of New ZeroFox
shares (except as specifically addressed below);
|
|
•
|
persons that acquired our securities pursuant to an exercise of employee share options, in connection with employee share
incentive plans or otherwise as compensation;
|
|
•
|
persons that hold our securities or who will hold New ZeroFox securities as part of a straddle, constructive sale, hedging,
conversion, synthetic security or other integrated or similar transaction;
|
|
•
|
persons subject to the alternative minimum tax;
|
|
•
|
persons whose functional currency is not the U.S. dollar;
|
|
•
|
controlled foreign corporations;
|
|
•
|
corporations that accumulate earnings to avoid U.S. federal income tax;
|
|
•
|
“qualified foreign pension funds” (within the meaning of Section 897(l)(2) of the Code) and entities whose interests are held by
qualified foreign pension funds;
|
|
•
|
persons that purchase shares of New ZeroFox Common Stock as part of the PIPE Financing;
|
|
•
|
accrual method taxpayers that file applicable financial statements as described in Section 451(b) of the Code;
|
|
•
|
foreign corporations with respect to which there are one or more United States shareholders within the meaning of Treasury
Regulation Section 1.367(b)-3(b)(1)(ii); or
|
|
•
|
passive foreign investment companies or their shareholders.
|
This discussion is based on current U.S. federal income tax laws as in
effect on the date hereof, which is subject to change, possibly on a retroactive basis, which may affect the U.S. federal income tax consequences described herein. Furthermore, this discussion does not address any aspect of U.S. federal
non-income tax laws, such as gift, estate or Medicare net investment income tax laws, or state, local or non-U.S. laws. In addition, this discussion does not address any tax consequences to investors that directly or indirectly hold equity
interests in
207
ZeroFox or IDX prior to the Business Combination, including holders of our securities
that also hold, directly or indirectly, equity interests in ZeroFox or IDX. With respect to the consequences of holding New ZeroFox securities, this discussion is limited to our holders that acquire New ZeroFox securities in connection with the
Business Combination or that acquire shares of New ZeroFox Common Stock as a result of the exercise of New ZeroFox Public Warrants received in connection with the Business Combination. L&F has not sought, and neither L&F nor New ZeroFox
intends to seek, a ruling from the U.S. Internal Revenue Service (“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.
This discussion does not consider the U.S. federal income tax treatment
of entities or arrangements treated as partnerships or other pass-through entities (including branches) for U.S. federal income tax purposes (any such entity or arrangement, a “Flow-Through Entity”) or investors that hold our securities or New
ZeroFox securities through Flow-Through Entities. If a Flow-Through Entity is the beneficial owner of our securities, or will be the beneficial owner of New ZeroFox securities, the U.S. federal income tax treatment of an investor holding our
securities or New ZeroFox securities through a Flow-Through Entity generally will depend on the status of such investor and the activities of such investor and such Flow-Through Entity.
If you hold our securities, or will hold New ZeroFox securities,
through a Flow-Through Entity, we urge you to consult your tax advisor.
THE FOLLOWING IS FOR INFORMATIONAL PURPOSES ONLY.
EACH HOLDER SHOULD CONSULT ITS TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE DOMESTICATION, AN EXERCISE OF REDEMPTION RIGHTS, AND THE OWNERSHIP AND DISPOSITION OF NEW ZEROFOX SECURITIES, INCLUDING THE EFFECTS
OF U.S. FEDERAL, STATE AND LOCAL AND NON-U.S. TAX LAWS.
For purposes of this discussion, because any unit consisting of one
Class A Ordinary Share and one half of one warrant (with a whole warrant representing the right to acquire one Class A Ordinary Share) is separable at the option of the holder, L&F is treating any Class A Ordinary Share and one half of one
warrant to acquire one Class A Ordinary Share held by a holder in the form of a single unit as separate instruments and is assuming that the unit itself will not be treated as an integrated instrument. Accordingly, the cancellation or separation
of the units in connection with the consummation of the Domestication or in connection with the exercise of redemption rights generally should not be a taxable event for U.S. federal income tax purposes. This position is not free from doubt, and
no assurance can be given that the IRS would not assert, or that a court would not sustain, a contrary position.
U.S. Holders
As used herein, a “U.S. Holder” is a beneficial owner of our securities
or New ZeroFox securities, as applicable, and is, for U.S. federal income tax purposes:
|
•
|
an individual citizen or resident of the United States;
|
|
•
|
a corporation (or other entity that is treated as a corporation for U.S. federal income tax purposes) that is created or organized
(or treated as created or organized) in or under the laws of the United States or any state thereof or the District of Columbia;
|
|
•
|
an estate the income of which is subject to U.S. federal income tax regardless of its source; or
|
|
•
|
a trust if (i) a U.S. court can exercise primary supervision over the administration of such trust and one or more United States
persons (within the meaning of the Code) have the authority to control all substantial decisions of the trust or (ii) it has a valid election in place to be treated as a United States person.
|
Effects to U.S. Holders of Exercising Redemption
Rights
Subject to the PFIC rules under “— PFIC Considerations” below, the U.S. federal income tax consequences to a U.S. Holder of Public Shares that exercises its Redemption rights to receive cash from the trust account in exchange for all or a portion of
its Public Shares will depend on whether the Redemption qualifies as a sale of
208
the Public Shares redeemed under Section 302 of the Code or is treated as a
distribution under Section 301 of the Code. If the Redemption qualifies as a sale of such U.S. Holder’s Public Shares, such U.S. Holder will generally be required to recognize gain or loss in an amount equal to the difference, if any, between
the amount of cash received and the tax basis of the Public Shares redeemed. Such gain or loss should be treated as capital gain or loss if such shares were held as a capital asset on the date of the Redemption. Any such capital gain or loss
generally will be long-term capital gain or loss if the U.S. Holder’s holding period for such Public Shares exceeds one year at the time of the Redemption. A U.S. Holder’s tax basis in such U.S. Holder’s Public Shares generally will equal the
cost of such shares.
The Redemption generally will qualify as a sale of such Public
Shares if the Redemption either (i) is “substantially disproportionate” with respect to the redeeming U.S. Holder, (ii) results in a “complete redemption” of such U.S. Holder’s interest in L&F or (iii) is “not essentially equivalent to a
dividend” with respect to such U.S. Holder. These tests are explained more fully below.
For purposes of such tests, a U.S. Holder takes into account not
only Public Shares directly owned by such U.S. Holder, but also Public Shares that are constructively owned by such U.S. Holder. A redeeming U.S. Holder may constructively own, in addition to Public Shares owned directly, Public Shares owned by
certain related individuals and entities in which such U.S. Holder has an interest or that have an interest in such U.S. Holder, as well as any Public Shares such U.S. Holder has a right to acquire by exercise of an option, which would
generally include Public Shares which could be acquired pursuant to the exercise of the public warrants.
The Redemption generally will be “substantially disproportionate”
with respect to a redeeming U.S. Holder if the percentage of L&F’s outstanding voting shares that such U.S. Holder directly or constructively owns immediately after the Redemption is less than 80 percent of the percentage of L&F’s
outstanding voting shares that such U.S. Holder directly or constructively owned immediately before the Redemption, and such U.S. Holder immediately after the Redemption actually and constructively owns less than 50 percent of the total
combined voting power of L&F. There will be a complete redemption of such U.S. Holder’s interest if either (i) all of the Public Shares directly or constructively owned by such U.S. Holder are redeemed or (ii) all of the Public Shares
directly owned by such U.S. Holder are redeemed and such U.S. Holder is eligible to waive, and effectively waives in accordance with specific rules, the attribution of the Public Shares owned by certain family members and such U.S. Holder does
not constructively own any other Public Shares. The Redemption will not be essentially equivalent to a dividend if it results in a “meaningful reduction” of such U.S. Holder’s proportionate interest in L&F. Whether the Redemption will
result in a “meaningful reduction” in such U.S. Holder’s proportionate interest will depend on the particular facts and circumstances applicable to it. The IRS has indicated in a published ruling that even a small reduction in the proportionate
interest of a small minority shareholder in a publicly held corporation that exercises no control over corporate affairs may constitute such a “meaningful reduction.”
If none of the above tests is satisfied, the Redemption will be
treated as a distribution with respect to the Public Shares under Section 302 of the Code, in which case the U.S. Holder will be treated as receiving a corporate distribution. Such distribution generally will constitute a dividend for U.S.
federal income tax purposes to the extent paid from current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Such dividends will be taxable to a corporate U.S. Holder at regular rates and will not be
eligible for the dividends-received deduction generally allowed to domestic corporations in respect of dividends received from other domestic corporations. Assuming L&F is a PFIC (as discussed below under “— PFIC Considerations,” such dividends will be taxable to an individual U.S. Holder at regular rates and will not be eligible for the reduced rates of taxation on certain dividends received from a “qualified
foreign corporation.” Distributions in excess of current and accumulated earnings and profits will constitute a return of capital that will be applied against and reduce (but not below zero) the U.S. Holder’s adjusted tax basis in such U.S.
Holder’s Public Shares. Any remaining excess will be treated as gain realized on the sale or other disposition of such U.S. Holder’s Public Shares. After the application of those rules, any remaining tax basis of the U.S. Holder in the redeemed
Public Shares will be added to the U.S. Holder’s adjusted tax basis in its remaining Public Shares, or, if it has none, to the U.S. Holder’s adjusted tax basis in its public warrants or possibly in other shares constructively owned by it.
ALL U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS AS TO THE TAX CONSEQUENCES TO THEM OF A REDEMPTION OF ALL OR A PORTION OF THEIR PUBLIC SHARES PURSUANT TO AN EXERCISE OF REDEMPTION RIGHTS.
209
Effects of the Domestication on U.S. Holders
The discussion under this heading “Effects of the Domestication on U.S. Holders” constitutes the opinion of Kirkland & Ellis LLP, United States tax counsel to L&F, insofar as it discusses the material U.S. federal income tax considerations
applicable to U.S. Holders of L&F Public Shares as a result of the Domestication, based on, and subject to, customary assumptions, qualifications and limitations, and the assumptions, qualifications and limitations herein and in the opinion
included as Exhibit 8.1 hereto, as well as representations of L&F.
The U.S. federal income tax consequences of the Domestication will
depend primarily upon whether the Domestication qualifies as a “reorganization” within the meaning of Section 368 of the Code.
Under Section 368(a)(1)(F) of the Code, a reorganization is a “mere
change in identity, form, or place of organization of one corporation, however effected” (an “F Reorganization”). Pursuant to the Domestication, we will change our jurisdiction of incorporation by deregistering as an exempted company in the
Cayman Islands and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware.
The Domestication generally should constitute an F Reorganization.
However, L&F has not requested, and does not intend to request, a ruling from the IRS as to the U.S. federal income tax consequences of the Domestication. Consequently, no assurance can be given that the IRS will not assert, or that a court
would not sustain, a contrary position. Accordingly, each U.S. Holder of our securities is urged to consult its tax advisor with respect to the particular tax consequence of the Domestication to such U.S. Holder.
Assuming the Domestication qualifies as an F Reorganization, U.S.
Holders of our securities should not recognize gain or loss for U.S. federal income tax purposes on the Domestication, except as provided under “— Effects of Section 367(b) to U.S. Holders” below and “— PFIC Considerations” below, and the Domestication should be treated for U.S. federal income tax purposes as if L&F (i) transferred all of its assets and liabilities to a Delaware corporation (“L&F
Delaware”) in exchange for all L&F Delaware public shares and public warrants and then (ii) distributed such L&F Delaware public shares and public warrants to the shareholders and warrant holders, respectively, of L&F in liquidation
of L&F. The taxable year of L&F should be deemed to end on the date of the Domestication.
If the Domestication qualifies as an F Reorganization, subject to the
PFIC rules under “— PFIC Considerations” below, (i) a U.S. Holder’s tax basis in each L&F Delaware public share and each L&F Delaware public warrant received in the Domestication should be the same
as its tax basis in the L&F public share or L&F public warrant, as applicable, surrendered in exchange therefor, increased by any amount included in the income of such U.S. Holder under Section 367(b) of the Code (as discussed below) and
(ii) the holding period for each L&F Delaware public share and each L&F Delaware public warrant should include such U.S. Holder’s holding period for the L&F public share or L&F public warrant, as applicable, surrendered in
exchange therefor.
If the Domestication fails to qualify as an F Reorganization, subject
to the PFIC rules under “— PFIC Considerations” below, a U.S. Holder may recognize gain or loss with respect to its L&F public share or L&F public warrant in an amount equal to the difference, if
any, between (a) the fair market value of the corresponding L&F Delaware public share or L&F Delaware public warrant, as applicable, received in the Domestication and (b) the U.S. Holder’s adjusted tax basis in its L&F public share or
L&F public warrant, as applicable, surrendered in exchange therefor. In such event, the U.S. Holder’s basis in its L&F Delaware public share or L&F Delaware public warrant would be equal to the fair market value of such L&F
Delaware public share or such L&F Delaware public warrant on the date of the Domestication, and the U.S. Holder’s holding period for its L&F Delaware public share or L&F Delaware public warrant would begin on the day following the
date of the Domestication.
Because the Domestication will occur after the Redemption, U.S.
Holders exercising Redemption rights will not be subject to the potential tax consequences of the Domestication with respect to any Public Shares redeemed in the Redemption.
Effects of Section 367(b) to U.S. Holders
Section 367(b) of the Code applies to certain transactions involving
foreign corporations, including an inbound domestication of a foreign corporation in an F Reorganization. Section 367(b) of the Code imposes U.S. federal income tax on certain U.S. persons in connection with transactions that would otherwise
qualify as a “reorganization” within the meaning of Section 368 of the Code. Section 367(b) of the Code will generally
210
apply to U.S. Holders on the date of the Domestication. Because the Domestication
will occur after the Redemption, U.S. Holders exercising Redemption rights will not be subject to the potential tax consequences of Section 367(b) of the Code as a result of the Domestication with respect to any Public Shares redeemed in the
Redemption.
A. U.S. Holders That Hold 10 Percent or More of L&F
A U.S. Holder that on the date of the Domestication beneficially
owns (directly or constructively) 10% or more of the total combined voting power of all classes of our stock entitled to vote or 10% or more of the total value of all classes of our stock (a “U.S. Shareholder”) must include in income as a
dividend the “all earnings and profits amount” (within the meaning of Treasury Regulations under Section 367(b) of the Code) attributable to the Public Shares it directly owns. A U.S. Holder’s ownership of public warrants will be taken into
account in determining whether such U.S. Holder is a U.S. Shareholder. Complex attribution rules apply in determining whether a U.S. Holder is a U.S. Shareholder and all U.S. Holders are urged to consult their tax advisors with respect to these
attribution rules.
A U.S. Shareholder’s “all earnings and profits amount” with respect
to its Public Shares is the net positive earnings and profits of L&F (as determined under Treasury Regulations under Section 367 of the Code) attributable to such Public Shares (as determined under Treasury Regulations under Section 367 of
the Code) through the date of the Domestication but without regard to any gain that would be realized on a sale or exchange of such Public Shares. Treasury Regulations under Section 367 of the Code provide that earnings and profits amount
attributable to a shareholder’s stock is determined according to the principles of Section 1248 of the Code and the Treasury Regulations thereunder. In general, Section 1248 of the Code and the Treasury Regulations thereunder provide that the
amount of earnings and profits attributable to a “block of stock” (as defined in Treasury Regulations under Section 1248 of the Code) in a foreign corporation is the ratably allocated portion of the foreign corporation’s earnings and profits
generated during the period the shareholder held the block of stock.
L&F does not expect to have significant cumulative earnings and
profits through the date of the Domestication. If L&F’s cumulative earnings and profits through the date of the Domestication are less than or equal to zero, then a U.S. Holder should not be required to include in gross income an “all
earnings and profits amount” with respect to its Public Shares. If L&F’s cumulative net earnings and profits are greater than zero through the date of the Domestication, a U.S. Shareholder would be required to include its “all earnings and
profits amount” in income as a deemed dividend under Treasury Regulations under Section 367(b) of the Code as a result of the Domestication. Such dividend will be taxable to an individual U.S. Holder at regular rates and will not be eligible
for the reduced rates of taxation on certain dividends received from a “qualified foreign corporation.” Any such U.S. Holder that is a corporation may, under certain circumstances, effectively be exempt from taxation on a portion or all of the
deemed dividend pursuant to Section 245A of the Code (commonly referred to as the participation exemption). Such U.S. Holders that are C corporations should consult their own tax advisors as to the applicability of Section 245A of the Code in
their particular circumstances.
B. U.S. Holders That Own Less Than 10 Percent of L&F
A U.S. Holder that, on the date of the Domestication, beneficially
owns (actually and constructively) Public Shares with a fair market value of $50,000 or more, but is not a U.S. Shareholder, will recognize gain (but not loss) with respect to the Domestication or, in the alternative, may elect to recognize the
“all earnings and profits amount” attributable to such U.S. Holder as described below.
Unless a U.S. Holder makes the election described below, such U.S.
Holder generally must recognize gain (but not loss) with respect to shares of New ZeroFox Common Stock received in the Domestication in an amount equal to the excess of the fair market value of such shares of New ZeroFox Common Stock over the
U.S. Holder’s adjusted tax basis in the Public Shares deemed surrendered in exchange therefor.
In lieu of recognizing any gain as described in the preceding
paragraph, a U.S. Holder may elect to include in income the “all earnings and profits amount” attributable to its Public Shares under Section 367(b) of the Code.
211
There are, however, strict conditions for making this election. This
election must comply with applicable Treasury Regulations and generally must include, among other things, a “section 367(b) notice” in accordance with Section 367(b) of the Code and the Treasury Regulations thereunder, which includes, among other
things:
|
(i)
|
a statement that the Domestication is a “section 367(b) exchange” (within the meaning of the applicable Treasury Regulations);
|
|
(ii)
|
a complete description of the Domestication;
|
|
(iii)
|
a description of any stock, securities or other consideration transferred or received in the Domestication;
|
|
(iv)
|
a statement that describes any amount (or amounts) required, under the Treasury Regulations under Section 367(b), to be taken into
account as income or loss or as an adjustment to basis, earnings and profits, or other tax attributes as a result of the Domestication;
|
|
(v)
|
a statement that (A) the U.S. Holder is making the election and (B) includes (1) a copy of the information that the U.S. Holder
received from L&F (or New ZeroFox) establishing and substantiating the U.S. Holder’s “all earnings and profits amount” with respect to the U.S. Holder’s Public Shares and (2) a representation that the U.S. Holder has notified
L&F (or New ZeroFox) that the U.S. Holder is making the election; and
|
|
(vi)
|
certain other information required to be furnished with the U.S. Holder’s tax return or otherwise furnished pursuant to the Code
or the Treasury Regulations.
|
In addition, the “section 367(b) notice” must be attached to such
electing U.S. Holder’s timely filed U.S. federal income tax return for the taxable period in which the Domestication occurs, and such electing U.S. Holder must send notice of the election to L&F (or New ZeroFox) no later than the date such
“section 367(b) notice” and tax return is filed. In connection with this election, we intend to provide each U.S. Holder eligible to make such an election with information regarding L&F’s earnings and profits upon written request.
L&F does not expect to have significant cumulative earnings and
profits through the date of the Domestication. However, as noted above, if it were determined that L&F had positive earnings and profits through the date of the Domestication, a U.S. Holder that makes the election described herein could
have an “all earnings and profits amount” with respect to its Public Shares, and thus could be required to include that amount in income as a deemed dividend under applicable Treasury Regulations as a result of the Domestication. Such dividend
would be subject to the same tax consequences as described above under “— U.S. Holders That Hold 10 Percent or More of L&F.”
EACH U.S. HOLDER IS URGED TO CONSULT ITS TAX ADVISOR
REGARDING THE CONSEQUENCES TO IT OF MAKING THE ELECTION DESCRIBED HEREIN AND THE APPROPRIATE FILING REQUIREMENTS WITH RESPECT TO SUCH ELECTION.
C. U.S. Holders that Own Public Shares with a Fair Market Value of Less
Than $50,000
A U.S. Holder that, on the date of the Domestication, beneficially
owns (actually and constructively) Public Shares with a fair market value of less than $50,000 generally should not be required to recognize any gain or loss under Section 367(b) of the Code in connection with the Domestication, and generally
should not be required to include any part of the “all earnings and profits amount” in income.
D. Tax Consequences for U.S. Holders of Public Warrants
Subject to the considerations described above relating to a U.S.
Holder’s ownership of public warrants being taken into account in determining whether such U.S. Holder is a U.S. Shareholder for purposes of Section 367(b) of the Code, and the PFIC considerations described under “— PFIC Considerations” below, a U.S. Holder of public warrants should not be subject to U.S. federal income tax with respect to the exchange of L&F public warrants for L&F Delaware public warrants in the Domestication.
ALL U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE EFFECT OF SECTION 367(b) OF THE CODE TO THEIR PARTICULAR CIRCUMSTANCES.
212
PFIC Considerations
In addition to the discussion under “—
Effects of Section 367(b) to U.S. Holders” above, the Domestication could be a taxable event to U.S. Holders under the PFIC provisions of the Code.
A. Definition of a PFIC
A foreign (i.e., non-U.S.) corporation will be classified as a PFIC for
U.S. federal income tax purposes if either (i) at least 75% of its gross income in a taxable year, including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by value, is
passive income or (ii) at least 50% of its assets in a taxable year (ordinarily, but subject to exceptions, determined based on fair market value and averaged quarterly over the year), including its pro rata share of the assets of any corporation
in which it is considered to own at least 25% of the shares by value, are held for the production of, or produce, passive income. Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived
from the active conduct of a trade or business) and gains from the disposition of assets giving rise to passive income. For purposes of these rules, which may apply to L&F prior to the Domestication, interest income earned by L&F would be
considered passive income and cash held by L&F would generally be considered a passive asset.
B. PFIC Status of L&F
Because L&F is a blank check company with no current active
business, based upon the composition of its income and assets, and upon a review of its financial statements, L&F believes that it likely was a PFIC for its most recent taxable year ended on December 31, 2021 and likely will be considered a
PFIC for its current taxable year which ends as a result of the Domestication.
C. Effects of PFIC Rules on the Domestication
As discussed above, L&F believes that it is likely classified as a
PFIC for U.S. federal income tax purposes.
Section 1291(f) of the Code requires that, to the extent provided in
Treasury Regulations, a United States person that disposes of stock of a PFIC recognizes gain notwithstanding any other provision of the Code. No final Treasury Regulations are currently in effect under Section 1291(f) of the Code. However,
proposed Treasury Regulations under Section 1291(f) of the Code have been promulgated with a retroactive effective date. If finalized in their current form, those proposed Treasury Regulations may require gain recognition to U.S. Holders of
Public Shares or public warrants upon the Domestication if (i) L&F were classified as a PFIC at any time during such U.S. Holder’s holding period for such Public Shares or public warrants and (ii) the U.S. Holder had not timely made (a) a
QEF Election (as described below) for the first taxable year in which the U.S. Holder owned such Public Shares or in which L&F was a PFIC, whichever is later, or (b) a mark-to-market election (as described below) with respect to such Public
Shares. Generally, neither election is available with respect to the public warrants. The tax on any such recognized gain would be imposed based on a complex set of computational rules.
Under these rules:
|
•
|
the U.S. Holder’s gain will be allocated ratably over the U.S. Holder’s holding period for such U.S. Holder’s Public Shares or
public warrants;
|
|
•
|
the amount of gain allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized the gain, or to the period in
the U.S. Holder’s holding period before the first day of the first taxable year in which L&F was a PFIC, will be taxed as ordinary income;
|
|
•
|
the amount of gain allocated to other taxable years (or portions thereof) of the U.S. Holder and included in such U.S. Holder’s
holding period would be taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder; and
|
|
•
|
an additional tax equal to the interest charge generally applicable to underpayments of tax will be imposed on the U.S. Holder in
respect of the tax attributable to each such other taxable year described in the immediately preceding clause of such U.S. Holder.
|
In addition, the proposed Treasury Regulations provide coordinating
rules with Section 367(b) of the Code, whereby, if the gain recognition rule of the proposed Treasury Regulations under Section 1291(f) of the Code
213
applies to a disposition of PFIC stock that results from a transfer with respect to
which Section 367(b) of the Code requires the shareholder to recognize gain or include an amount in income as discussed under “— Effects of Section 367(b) to U.S. Holders” above, the gain realized on the
transfer is taxable under the PFIC rules discussed above, and the excess, if any, of the amount to be included in income under Section 367(b) of the Code over the gain realized under Section 1291 of the Code is taxable as provided under Section
367(b) of the Code.
It is difficult to predict whether, in what form and with what
effective date, final Treasury Regulations under Section 1291(f) of the Code will be adopted. Therefore, if L&F is a PFIC, U.S. Holders of Public Shares that have not made a timely QEF Election or a mark-to-market election (both as defined
and described below) and U.S. Holders of public warrants may, pursuant to the proposed Treasury Regulations, be subject to taxation on the Domestication to the extent their Public Shares or public warrants have a fair market value in excess of
their tax basis therein. An Electing Shareholder (as defined below) generally would not be subject to the adverse PFIC rules discussed above with respect to its Public Shares but rather would include annually in gross income its pro rata share
of the ordinary earnings and net capital gain of L&F, whether or not such amounts are actually distributed to such shareholders in any taxable year.
D. QEF Election and Mark-to-Market Election
The impact of the PFIC rules on a U.S. Holder of Public Shares would
depend on whether the U.S. Holder makes a timely and effective election to treat L&F as a “qualified electing fund” under Section 1295 of the Code for the taxable year that is the first year in the U.S. Holder’s holding period of Public
Shares during which L&F qualified as a PFIC (a “QEF Election”). The QEF Election is made on a shareholder-by-shareholder basis and, once made, can be revoked only with the consent of the IRS. A U.S. Holder generally makes a QEF election by
attaching a completed IRS Form 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund), including the information provided in a “PFIC Annual Information Statement,” to a timely filed U.S. federal income
tax return for the tax year to which the election relates. Retroactive QEF Elections generally may be made only by filing a protective statement with such return and if certain other conditions are met or with the consent of the IRS. If
applicable, U.S. Holders should consult their tax advisors regarding the availability and tax consequences of a retroactive QEF Election under their particular circumstances. A U.S. Holder’s ability to make a QEF Election with respect to
L&F is contingent upon, among other things, the provision by L&F of a “PFIC Annual Information Statement” to such U.S. Holder. Upon written request, we will endeavor to provide to a U.S. Holder such information as the IRS may require,
including a PFIC Annual Information Statement, in order to enable the U.S. Holder to make and maintain a QEF Election. There is no assurance, however, that we would timely provide such required information. A U.S. Holder that makes a QEF
Election may be referred to as an “Electing Shareholder” and a U.S. Holder that does not make a QEF Election may be referred to as a “Non-Electing Shareholder.” A QEF Election is not available with respect to public warrants. An Electing
Shareholder generally would not be subject to the adverse PFIC rules discussed above with respect to their Public Shares. As a result, such a U.S. Holder should not recognize gain or loss as a result of the Domestication except to the extent
described under “— Effects of Section 367(b) to U.S. Holders” above.
The impact of the PFIC rules on a U.S. Holder of Public Shares may
also depend on whether the U.S. Holder has made an election under Section 1296 of the Code. U.S. Holders that hold (directly or constructively) stock of a foreign corporation that is classified as a PFIC may annually elect to mark such stock to
its market value if such stock is regularly traded on an established exchange (a “mark-to-market election”). No assurance can be given that the Public Shares are considered to be regularly traded for purposes of the mark-to-market election or
whether the other requirements of this election are satisfied. If such an election is available and has been made, such U.S. Holders will generally not be subject to the special taxation rules of Section 1291 of the Code discussed herein.
However, if the mark-to-market election is made by a Non-Electing Shareholder after the beginning of the holding period for the PFIC stock, then the Section 1291 rules will apply to certain dispositions of, distributions on and other amounts
taxable with respect to Public Shares. A mark-to-market election is not available with respect to public warrants.
ALL U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE CONSEQUENCES TO THEM OF THE PFIC RULES, INCLUDING, WITHOUT LIMITATION WHETHER A QEF ELECTION, A MARK-TO-MARKET ELECTION OR ANY OTHER ELECTION IS AVAILABLE AND THE CONSEQUENCES TO THEM OF ANY SUCH ELECTION.
214
Distributions on Shares of New ZeroFox Common
Stock
A U.S. Holder generally will be required to include in gross income as
dividends the amount of any cash distribution paid with respect to shares of New ZeroFox Common Stock, to the extent the distribution is paid out of New ZeroFox’s current or accumulated earnings and profits (as determined under U.S. federal
income tax principles). Distributions in excess of current and accumulated earnings and profits will constitute a return of capital that will be applied against and reduce (but not below zero) the U.S. Holder’s adjusted tax basis in its shares of
New ZeroFox Common Stock. Any remaining excess will be treated as gain realized on the sale or other disposition of the shares of New ZeroFox Common Stock and will be treated as described under “— Sale, Exchange
or Other Taxable Disposition of Shares of New ZeroFox Common Stock and New ZeroFox Public Warrants” below.
Dividends that New ZeroFox pays to a U.S. Holder that is a taxable
corporation generally will qualify for the dividends received deduction if the requisite holding period is satisfied. With certain exceptions (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 that New ZeroFox pays to a non-corporate U.S. Holder may be taxed as “qualified dividend income” at the preferential tax rate accorded to
long-term capital gains.
Sale, Exchange or Other Taxable Disposition of
Shares of New ZeroFox Common Stock and New ZeroFox Public Warrants
Upon a sale, exchange or other taxable disposition of shares of New
ZeroFox Common Stock or New ZeroFox Public Warrants which, in general, would include a redemption of shares of New ZeroFox Common Stock or New ZeroFox Public Warrants that is treated as a sale of such securities as described above and below, a
U.S. Holder generally will recognize capital gain or loss. 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 shares of New ZeroFox Common Stock or New ZeroFox Public
Warrants so disposed of exceeds one year. Long-term capital gains recognized by non-corporate U.S. Holders will be eligible to be taxed at reduced rates. The deductibility of capital losses is subject to limitations.
Generally, the amount of such gain or loss recognized by a U.S. Holder
will be 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 shares of New ZeroFox Common Stock or
New ZeroFox Public Warrants so disposed of. See “— Effects of the Domestication on U.S. Holders” above for discussion of a U.S. Holder’s adjusted tax basis in its New ZeroFox securities following the
Domestication. See “— Exercise, Lapse or Redemption of New ZeroFox Public Warrants” below for a discussion regarding a U.S. Holder’s tax basis in shares of New ZeroFox Common Stock acquired pursuant to the
exercise of a New ZeroFox Public Warrant.
Exercise, Lapse or Redemption of New ZeroFox
Public Warrants
Except as discussed below with respect to the cashless exercise of a
New ZeroFox Public Warrant, a U.S. Holder generally will not recognize taxable gain or loss as a result of the acquisition of shares of New ZeroFox Common Stock upon exercise of a New ZeroFox Public Warrant for cash. The U.S. Holder’s tax basis
in the share of New ZeroFox Common Stock received upon exercise of a New ZeroFox Public Warrant generally will be an amount equal to the sum of the U.S. Holder’s tax basis in the New ZeroFox Public Warrant, and the exercise price of such New
ZeroFox Public Warrant. It is unclear whether a U.S. Holder’s holding period for the shares of New ZeroFox Common Stock received upon exercise of the New ZeroFox Public Warrant will commence on the date of exercise of the New ZeroFox Public
Warrant or the day following the date of exercise of the New ZeroFox Public Warrant; in either case, the holding period will not include the period during which the U.S. Holder held the New ZeroFox Public Warrant. If a New ZeroFox Public Warrant
is allowed to lapse unexercised, a U.S. Holder generally will recognize a capital loss equal to such U.S. Holder’s adjusted tax basis in the New ZeroFox Public Warrant. See “— Effects of the Domestication on U.S.
Holders” above for a discussion of a U.S. Holder’s adjusted tax basis in its New ZeroFox Public Warrant following the Domestication.
The tax consequences of a cashless exercise of a New ZeroFox Public
Warrant are not clear under current tax law. A cashless exercise may not be taxable, either because the exercise is not a realization event or because the exercise is treated as a recapitalization for U.S. federal income tax purposes. In either
situation, a
215
U.S. Holder’s tax basis in the shares of New ZeroFox Common Stock received generally
should equal the U.S. Holder’s tax basis in the New ZeroFox Public Warrants. If the cashless exercise was not a realization event, it is unclear whether a U.S. Holder’s holding period for the shares of New ZeroFox Common Stock would be treated as
commencing on the date of exercise of the New ZeroFox Public Warrant or the day following the date of exercise of the New ZeroFox Public Warrant. If the cashless exercise were treated as a recapitalization, the holding period of the shares of New
ZeroFox Common Stock received would include the holding period of the New ZeroFox Public Warrants that were exercised.
It is also possible that a cashless exercise may be treated in part as
a taxable exchange in which gain or loss would be recognized. In such event, a U.S. Holder may be deemed to have surrendered a number of New ZeroFox Public Warrants having a value equal to the exercise price for the total number of New ZeroFox
Public Warrants to be exercised. The U.S. Holder would recognize capital gain or loss in an amount equal to the difference between the fair market value of the New ZeroFox Public Warrants deemed surrendered and the U.S. Holder’s tax basis in the
New ZeroFox Public Warrants deemed surrendered. In this case, a U.S. Holder’s tax basis in the shares of New ZeroFox Common Stock received would equal the sum of the U.S. Holder’s tax basis in the New ZeroFox Public Warrants exercised, and the
exercise price of such New ZeroFox Public Warrants. It is unclear whether a U.S. Holder’s holding period for the shares of New ZeroFox Common Stock would commence on the date of exercise of the New ZeroFox Public Warrants or the day following the
date of exercise of the New ZeroFox Public Warrants; in either case, the holding period would not include the period during which the U.S. Holder held the New ZeroFox Public Warrants.
Due to the absence of authority on the U.S. federal income tax
treatment of a cashless exercise, including when a U.S. Holder’s holding period would commence with respect to the shares of New ZeroFox Common Stock received, there can be no assurance as to which, if any, of the alternative tax consequences
described above would be adopted by the IRS or a court of law. Accordingly, U.S. Holders should consult their tax advisors regarding the tax consequences of a cashless exercise.
The U.S. federal income tax consequences of exercising a New ZeroFox
Public Warrant after New ZeroFox gives notice of an intention to redeem New ZeroFox Public Warrants, as described in “Description of Securities — Warrants — New ZeroFox Public Warrants,” are unclear under
current law. In the case of a cashless exercise, the exercise may be treated either as if New ZeroFox redeemed such New ZeroFox Public Warrant for shares of New ZeroFox Common Stock or as an exercise of the New ZeroFox Public Warrant. If the
cashless exercise of New ZeroFox Public Warrants for shares of New ZeroFox Common Stock is treated as a redemption, then such redemption generally should be treated as a tax-deferred recapitalization for U.S. federal income tax purposes, in which
case a U.S. Holder should not recognize any gain or loss on such redemption, and accordingly, a U.S. Holder’s tax basis in the shares of New ZeroFox Common Stock received should equal the U.S. Holder’s tax basis in the New ZeroFox Public Warrants
treated as redeemed and the holding period of the shares of New ZeroFox Common Stock should include the holding period of the New ZeroFox Public Warrants. Alternatively, if the cashless exercise of a New ZeroFox Public Warrant is treated as such,
the U.S. federal income tax consequences generally should be as described above in the second and third paragraphs under the heading “— Exercise, Lapse or Redemption of New ZeroFox Public Warrants.” In the
case of an exercise of a New ZeroFox Public Warrant for cash, the U.S. federal income tax treatment generally should be as described above in the first paragraph under the heading “— Exercise, Lapse or Redemption
of New ZeroFox Public Warrants.” Due to the lack of clarity under current law regarding the treatment described in this paragraph, there can be no assurance as to which, if any, of the alternative tax consequences described above would
be adopted by the IRS or a court of law. Accordingly, U.S. Holders should consult their tax advisors regarding the tax consequences of exercising a New ZeroFox Public Warrant occurring after New ZeroFox gives notice of an intention to redeem New
ZeroFox Public Warrants as described above.
If New ZeroFox redeems New ZeroFox Public Warrants for cash or if New
ZeroFox purchases New ZeroFox Public Warrants in an open market transaction, such redemption or purchase generally will be treated as a taxable disposition to the U.S. Holder, taxed as described above under “—
Sale, Exchange or Other Taxable Disposition of Shares of New ZeroFox Common Stock and New ZeroFox Public Warrants.”
Possible Constructive Distributions
The terms of each New ZeroFox Public Warrant provide for an adjustment
to the exercise price of the New ZeroFox Public Warrant or an increase in the shares of New ZeroFox Common Stock issuable on exercise in certain circumstances discussed in “Description of Securities — Warrants — New ZeroFox Public Warrants.” An
216
adjustment which has the effect of preventing dilution generally is not taxable. The
U.S. Holders of the New ZeroFox Public Warrants would, however, be treated as receiving a constructive distribution from New ZeroFox if, for example, the adjustment increases the U.S. Holder’s proportionate interest in New ZeroFox’ assets or
earnings and profits (e.g., through a decrease to the exercise price or an increase in the number of shares of New ZeroFox Common Stock that would be obtained upon exercise) as a result of a distribution of cash or other property to the U.S.
Holders of shares of New ZeroFox Common Stock which is taxable to them as described under “— Distributions on Shares of New ZeroFox Common Stock” above. For example, U.S. Holders of New ZeroFox Public
Warrants would generally be treated as receiving a constructive distribution from New ZeroFox where the exercise price of the New ZeroFox Public Warrants is reduced in connection with the payment of certain dividends as described in “Description
of Securities — Warrants — New ZeroFox Public Warrants.” Such constructive distribution received by a U.S. Holder would be subject to U.S. federal income tax in the same manner as if the U.S. Holders of the New ZeroFox Public Warrant received a
cash distribution from New ZeroFox equal to the fair market value of such increased interest. The rules governing constructive distributions as a result of certain adjustments with respect to a New ZeroFox Public Warrant are complex, and U.S.
Holders are urged to consult their tax advisors on the tax consequences of any such constructive distribution with respect to a New ZeroFox Public Warrant.
Non-U.S. Holders
As used herein, a “non-U.S. Holder” is a beneficial owner (other than a
Flow-Through Entity) of our securities or New ZeroFox securities, as applicable, that is not a U.S. Holder.
The following describes U.S. federal income tax considerations relating
to the (i) exercise of redemption rights, (ii) Domestication, and (iii) ownership and disposition of New ZeroFox securities by a non-U.S. Holder after the Business Combination.
Effects of Exercising Redemption Rights to Non-U.S.
Holders
The characterization for U.S. federal income tax purposes of the
Redemption generally will correspond to the U.S. federal income tax characterization of the Redemption with respect to U.S. Holders, as described above. However, notwithstanding such characterization, any redeemed non-U.S. Holder generally will
not be subject to U.S. federal income tax on any gain recognized or dividends received as a result of the Redemption unless the gain or dividends is effectively connected with such non-U.S. Holder’s conduct of a trade or business within the
United States (and if an income tax treaty applies, is attributable to a U.S. permanent establishment or fixed base maintained by the non-U.S. Holder).
Effects of the Domestication on Non-U.S. Holders
L&F does not expect the Domestication to result in any U.S.
federal income tax consequences to non-U.S. Holders of Public Shares or public warrants.
Distributions on Shares of New ZeroFox Common Stock
In general, any distributions made to a non-U.S. Holder with respect to
shares of New ZeroFox Common Stock, to the extent paid out of New ZeroFox’ current or accumulated earnings and profits (as determined under U.S. federal income tax principles), will constitute dividends for U.S. federal income tax purposes and,
provided such dividends are not effectively connected with such non-U.S. Holder’s conduct of a trade or business within the United States, will be subject to withholding tax from the gross amount of the dividend at a rate of 30%, unless such
non-U.S. Holder is eligible for a reduced rate of withholding tax under an applicable income tax treaty and provides proper certification of its eligibility for such reduced rate (usually on an IRS Form W-8BEN or W-8BEN-E, as applicable). 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 New ZeroFox Common Stock and then, 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 such shares of New ZeroFox Common Stock, which will be treated as described under “— Sale, Exchange or Other Taxable Disposition
of Shares of New ZeroFox Common Stock and New ZeroFox Public Warrants.” Dividends paid by New ZeroFox to a non-U.S. Holder that are effectively connected with such non-U.S. Holder’s conduct of a trade or business within the United States
(and if an income tax treaty applies, are attributable to a U.S. permanent establishment or fixed base maintained by the non-U.S. Holder) will
217
generally not be subject to U.S. withholding tax, provided such non-U.S. Holder
complies with certain certification and disclosure requirements (usually by providing an IRS Form W-8ECI). Instead, such dividends will generally be subject to U.S. federal income tax, net of certain deductions, at the same graduated individual
or corporate rates applicable to U.S. Holders. If the non-U.S. Holder is a corporation, dividends that are effectively connected income may also be subject to a “branch profits tax” at a rate of 30% (or such lower rate as may be specified by an
applicable income tax treaty).
Sale, Exchange or Other Taxable Disposition of Shares of New ZeroFox
Common Stock and New ZeroFox Public Warrants
A non-U.S. Holder will generally not be subject to U.S. federal income
tax on gain realized on a sale, exchange or other taxable disposition of shares of New ZeroFox Common Stock or New ZeroFox Public Warrants unless:
|
(i)
|
such non-U.S. Holder is an individual that was present in the United States for 183 days or more in the taxable year of such
disposition (subject to certain exceptions as a result of the COVID-19 pandemic) and certain other requirements are met, in which case any gain realized will generally be subject to a flat 30% U.S. federal income tax;
|
|
(ii)
|
the gain is effectively connected with a trade or business of such non-U.S. Holder in the United States (and if an income tax
treaty applies, is attributable to a U.S. permanent establishment or fixed base maintained by such non-U.S. Holder), in which case such gain will be subject to U.S. federal income tax, net of certain deductions, at the same graduated
individual or corporate rates applicable to U.S. Holders, and, if the non-U.S. Holder is a corporation, an additional “branch profits tax” may also apply; or
|
|
(iii)
|
New ZeroFox is or has been a “U.S. real property holding corporation” at any time during the shorter of the five-year period
preceding such disposition and such non-U.S. Holder’s holding period.
|
If paragraph (iii) above applies to a non-U.S. Holder, subject to
certain exceptions in the case of interests that are regularly traded on an established securities market, gain recognized by such non-U.S. Holder on the sale, exchange or other taxable disposition of shares of New ZeroFox Common Stock or New
ZeroFox Public Warrants will be subject to tax at generally applicable U.S. federal income tax rates. In addition, a buyer of shares of New ZeroFox Common Stock or New ZeroFox Public Warrants from a non-U.S. Holder may be required to withhold
U.S. federal income tax at a rate of 15% of the amount realized upon such disposition. New ZeroFox will be classified as a “U.S. real property holding corporation” if the fair market value of its “United States real property interests” equals or
exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business, as determined for U.S. federal income tax purposes. We do not expect New ZeroFox to be
classified as a “U.S. real property holding corporation” following the Business Combination. However, such determination is factual in nature and subject to change and no assurance can be provided as to whether New ZeroFox will be a U.S. real
property holding corporation following the Business Combination or at any future time.
Exercise, Lapse or Redemption of New ZeroFox Public
Warrants
The U.S. federal income tax treatment of a non-U.S. Holder’s exercise
of a New ZeroFox Public Warrant, or the lapse of a New ZeroFox Public Warrant held by a non-U.S. Holder, generally will correspond to the U.S. federal income tax treatment of the exercise or lapse of a warrant held by a U.S. Holder, as described
above under “— U.S. Holders — Exercise, Lapse or Redemption of New ZeroFox Public Warrants,” although to the extent a cashless exercise results in a taxable exchange, the consequences would be similar to
those described above under “— Sale, Exchange or Other Taxable Disposition of Shares of New ZeroFox Common Stock and New ZeroFox Public Warrants.” If New ZeroFox redeems New ZeroFox Public Warrants for
cash or if it purchases New ZeroFox Public Warrants in an open market transaction, such redemption or purchase generally will be treated as a disposition to the non- U.S. Holder, the consequences of which would be similar to those described above
under “— Sale, Exchange or Other Taxable Disposition of Shares of New ZeroFox Common Stock and New ZeroFox Public Warrants.”
Possible Constructive Distributions
The terms of each New ZeroFox Public Warrant provide for an adjustment
to the exercise price of the New ZeroFox Public Warrant or an increase in the shares of New ZeroFox Common Stock issuable on exercise in
218
certain circumstances discussed in “Description of
Securities — Warrants — New ZeroFox Public Warrants.” As described above under “— U.S. Holders — Possible Constructive Distributions,” certain adjustments with respect to the New ZeroFox Public
Warrants can give rise to a constructive distribution. Any constructive distribution received by a non-U.S. Holder would be subject to U.S. federal income tax (including any applicable withholding) in the same manner as if such non-U.S. holder
received a cash distribution from New ZeroFox equal to the fair market value of such increased interest. If withholding applies to any constructive distribution received by a non-U.S. Holder, it is possible that the tax would be withheld from any
amount paid to or held on behalf of the non- U.S. Holder by the applicable withholding agent. The rules governing constructive distributions as a result of certain adjustments with respect to a New ZeroFox Public Warrant are complex, and non-U.S.
Holders are urged to consult their tax advisors on the tax consequences of any such constructive distribution with respect to a New ZeroFox Public Warrant.
Information Reporting Requirements and Backup
Withholding
Information returns will be filed with the IRS in connection with
payments of distributions on and the proceeds from a sale or other disposition of shares of New ZeroFox Common Stock. A non-U.S. Holder may have to comply with certification procedures to establish that it is not a United States person for U.S.
federal income tax purposes or otherwise establish an exemption in order to avoid information reporting and backup withholding requirements or to claim a reduced rate of withholding under an applicable income tax treaty. The amount of any backup
withholding from a payment to a non-U.S. Holder will be allowed as a credit against such non-U.S. Holder’s U.S. federal income tax liability and may entitle such non-U.S. Holder to a refund, provided that the required information is furnished by
such non-U.S. Holder to the IRS in a timely manner.
Foreign Account Tax Compliance Act
Sections 1471 through 1474 of the Code and the Treasury Regulations and
administrative guidance promulgated thereunder (“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 New ZeroFox securities) 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 to withhold on certain payments, or (ii) if required under an intergovernmental agreement between the United States 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 United States and an applicable foreign country may modify these requirements. Accordingly, the entity through which New ZeroFox securities are held will
affect the determination of whether such withholding is required. Similarly, dividends in respect of New ZeroFox securities 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 United States owners” or (ii) provides certain information regarding the
entity’s “substantial United States 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 will generally apply to payments of dividends in respect of New ZeroFox securities. While withholding under FATCA generally would also apply to payments of gross proceeds from the sale or other disposition of securities
(including New ZeroFox securities), proposed Treasury Regulations eliminate FATCA withholding on payments of gross proceeds entirely. 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 New ZeroFox securities.
219
Defined terms included below shall have the same
meaning as terms defined and included elsewhere in this proxy statement/prospectus.
The following unaudited pro forma condensed combined financial
statements are provided to aid you in your analysis of the financial aspects of the Business Combination involving L&F, ZeroFox, and IDX, the consummation of the Common Equity PIPE Investment Financing and the Convertible Notes Financing,
and adjustments for other material events (“Adjustments for Material Events”), which are collectively referred to as the “Transactions.” For purposes of these unaudited pro forma condensed combined financial statements, the entity surviving the
Business Combination is referred to as “New ZeroFox.”
The unaudited pro forma condensed combined financial statements are
based on L&F’s historical financial statements and ZeroFox’s and IDX’s historical consolidated financial statements, as adjusted to give effect to the Transactions. The historical financial statements of L&F and IDX were prepared based
on a December 31 fiscal year-end and the historical financial statements of ZeroFox were prepared based on a January 31 fiscal year-end. Following the consummation of the Business Combination, New ZeroFox will have a January 31 fiscal year-end.
The historical balance sheets presented in the unaudited pro forma
condensed combined financial statements reflect balances as of January 31, 2022 for ZeroFox and December 31, 2021 for L&F and IDX. The unaudited pro forma condensed combined balance sheet gives pro forma effect to the Transactions as if
they had been consummated on January 31, 2022.
The historical statements of operations presented in the unaudited
pro forma condensed combined financial statements reflect ZeroFox’s activity for the year ended January 31, 2022. The historical statements of operations presented in the unaudited pro forma condensed combined financial statements reflect
L&F’s and IDX’s activity for the year ended December 31, 2021. The unaudited pro forma condensed combined statements of operations give pro forma effect to the Transactions as if they had been consummated on February 1, 2021.
The unaudited pro forma condensed combined financial statements have
been derived from the historical financial statements and should be read in conjunction with:
|
•
|
the historical audited financial statements of L&F as of and for the year ended December 31, 2021 and the related notes
included elsewhere in this proxy statement/prospectus;
|
|
•
|
the historical audited consolidated financial statements of ZeroFox as of and for the year ended January 31, 2022 and the
related notes included elsewhere in this proxy statement/ prospectus;
|
|
•
|
the historical audited consolidated financial statements of IDX as of and for the year ended December 31, 2021 and the related
notes included elsewhere in this proxy statement/ prospectus;
|
|
•
|
the accompanying notes to the unaudited pro forma condensed combined financial statements;
|
|
•
|
the sections entitled “Management’s Discussion and Analysis of Financial Condition and
Results of Operations of L&F,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of ZeroFox,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of IDX,” and other financial information relating to L&F, ZeroFox, and IDX included elsewhere
in this proxy statement/prospectus.
|
220
The unaudited pro forma condensed combined financial statements
present two redemption scenarios as follows:
|
•
|
Assuming No Redemptions (Scenario 1): This presentation assumes that no Public
Shareholders exercise their right to redeem their Class A Ordinary Shares for their pro rata share of the Trust Account and thus the full amount held in the Trust Account as of immediately prior to the Closing is available for the
post-Business Combination company; and
|
|
•
|
Assuming Maximum Redemptions (Scenario 2): This presentation assumes that all
Public Shareholders exercise their rights to redeem their Class A Ordinary Shares for their pro rata share of the Trust Account and thus none of the amount held in the Trust Account as of immediately prior to the Closing is available
for the Business Combination. Scenario 2 assumes all 17,250,000 issued and outstanding Class A Ordinary Shares are redeemed by the Public Shareholders. It is a condition to the parties’ obligations to close under the Business
Combination Agreement that the aggregate net cash proceeds from the Trust Account (after deducting any amounts paid to Public Shareholders that exercise their redemption rights in connection with the Business Combination), together with
the net cash proceeds from the Common Equity PIPE Financing and the Convertible Notes Financing, be equal to no less than $170.0 million. As the cash proceeds (without taking into account offering expenses, as agreed by the parties)
from the Common Equity PIPE Financing and the Convertible Notes Financing are expected to satisfy this requirement, the maximum redemption scenario assumes that all 17,250,000 Class A Ordinary Shares are redeemed. The unaudited pro
forma financial information also has been prepared on the basis that L&F’s shareholders approve the Articles Amendment Proposal.
|
The presentation of pro forma financial statements is dependent upon
which entity in the Business Combination is considered the accounting acquirer. A combining entity can be considered an accounting acquirer in one scenario and an accounting acquiree in another.
Scenario 1
Assuming no Redemptions, the Business Combination will be accounted
for as a reverse recapitalization in accordance with U.S. GAAP, with ZeroFox as the accounting acquirer and L&F and IDX as the accounting acquirees. Accordingly, for accounting purposes, the Business Combination will be treated as the
equivalent of ZeroFox issuing stock for the net assets of L&F, accompanied by a recapitalization. The net assets of L&F will be stated at historical cost, with no goodwill or other intangible assets recorded.
Under Scenario 1, ZeroFox has been determined to be the accounting
acquirer based on evaluation of the following factors:
|
•
|
ZeroFox shareholders will have a majority of the voting power of New ZeroFox;
|
|
•
|
ZeroFox will designate a majority of the governing body of New ZeroFox;
|
|
•
|
ZeroFox senior management will comprise all of the senior management of New ZeroFox; and
|
|
•
|
the largest single shareholder of the combined company will be a legacy owner of ZeroFox.
|
As ZeroFox is determined to be the accounting acquirer in the
Business Combination, the acquisition of IDX will be considered a business combination under ASC 805, Business Combinations, and will be accounted for using the acquisition method of
accounting. The consideration transferred to acquire IDX will be allocated to the assets acquired and liabilities assumed based on the estimated acquisition-date fair values. The excess of consideration transferred to effect the acquisition
over the fair values of assets acquired and liabilities assumed will be recorded as goodwill. Transaction costs will be expensed as if the Business Combination had occurred on February 1, 2021.
Scenario 2
Assuming maximum Redemptions, the Business Combination will be
accounted for in accordance with the acquisition method of accounting under the provisions of ASC 805, Business Combinations, with L&F as the accounting acquirer and ZeroFox and IDX
as the accounting acquirees.
Upon consummation of the Business Combination, ZeroFox is considered
a variable interest entity as the equity at risk for ZeroFox is not sufficient to fund expected future cash flow needs, including funding future
221
projected losses, and servicing existing debt obligations. L&F will hold a
variable interest in ZeroFox as it will own 100% of ZeroFox’s equity. L&F will be considered the primary beneficiary as its ownership will provide the power to direct the activities that most significantly impact ZeroFox’s performance and
the obligation to absorb the losses and/or receive the benefits of ZeroFox that could potentially be significant to ZeroFox. L&F will be treated as the accounting acquirer.
IDX is considered a business under ASC 805, Business Combinations. IDX is not considered the accounting acquirer in the Business Combination based on evaluation of the following factors:
|
•
|
IDX shareholders will not have the largest voting interest in New ZeroFox;
|
|
•
|
IDX will not comprise all of the ongoing operations of New ZeroFox;
|
|
•
|
IDX will not designate a majority of the governing body of New ZeroFox;
|
|
•
|
IDX senior management will not have a substantive role in the senior management of New ZeroFox; and
|
|
•
|
the largest single owner of the combined company will not be a legacy owner of IDX;
|
L&F is determined to be the accounting acquirer as it will be
ZeroFox’s primary beneficiary and it will own 100% of IDX’s equity. L&F’s acquisitions of ZeroFox and IDX will be considered business combinations under ASC 805, Business Combinations,
and will be accounted for using the acquisition method of accounting. The consideration transferred will be allocated to the assets acquired and liabilities assumed based on their estimated acquisition-date fair values. The excess of
consideration transferred to effect the acquisitions over the fair values of assets acquired and liabilities assumed will be recorded as goodwill. Transaction costs will be expensed as if the Business Combination had occurred on January 1,
2021.
The unaudited pro forma condensed combined financial statements are
provided for illustrative purposes only and are not necessarily indicative of what the actual results of operations and financial position would have been had the Transactions taken place on the dates indicated, nor are they indicative of the
future consolidated results of operations or financial position of the combined company.
222
SCENARIO 1
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JANUARY 31, 2022
(in thousands, except share amounts)
|
|
| |
Historical
December 31,
2021
|
| |
Historical
January 31,
2022
|
| |
Historical
December 31,
2021
|
| |
Transaction Accounting Adjustments
|
| |
|
| |
|
||||||||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments for
Material
Events
|
| |
|
| |
Adjustments
Related to
IDX
|
| |
|
| |
Additional
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Balance Sheet
|
|
ASSETS
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Current assets:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Cash and cash equivalents
|
| |
$576
|
| |
$10,274
|
| |
$17,986
|
| |
$7,425
|
| |
5(a)
|
| |
$(47,180)
|
| |
5(aa)
|
| |
$169,072
|
| |
5(A)
|
| |
$240,132
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(3,079)
|
| |
5(bb)
|
| |
(11,739)
|
| |
5(B)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(350)
|
| |
5(C)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(15,000)
|
| |
5(D)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(30,900)
|
| |
5(D)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
149,806
|
| |
5(F)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
15,000
|
| |
5(G)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(14,002)
|
| |
5(H)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(7,725)
|
| |
5(I)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(32)
|
| |
5(M)
|
| |
|
|
Accounts receivable, net of allowance for doubtful accounts
|
| |
—
|
| |
17,046
|
| |
9,997
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
27,043
|
|
Deferred contract acquisitions costs, current
|
| |
—
|
| |
4,174
|
| |
825
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
4,999
|
|
Prepaid expenses and other assets
|
| |
9
|
| |
1,276
|
| |
953
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(9)
|
| |
5(B)
|
| |
2,229
|
|
Total current assets
|
| |
585
|
| |
32,770
|
| |
29,761
|
| |
7,425
|
| |
|
| |
(50,259)
|
| |
|
| |
254,121
|
| |
|
| |
274,403
|
|
Marketable investments held in Trust Account
|
| |
175,110
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(169,072)
|
| |
5(A)
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(6,038)
|
| |
5(J)
|
| |
|
|
Property and equipment, net of accumulated depreciation
|
| |
—
|
| |
694
|
| |
127
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
821
|
|
Capitalized software, net of accumulated amortization
|
| |
—
|
| |
914
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
914
|
|
Deferred contract acquisition costs, net of current portion
|
| |
—
|
| |
7,481
|
| |
263
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
7,744
|
|
Acquired intangible assets, net of accumulated amortization
|
| |
—
|
| |
14,210
|
| |
—
|
| |
—
|
| |
|
| |
94,900
|
| |
5(aa)
|
| |
—
|
| |
|
| |
109,110
|
|
Goodwill
|
| |
—
|
| |
35,002
|
| |
—
|
| |
—
|
| |
|
| |
226,289
|
| |
5(aa)
|
| |
—
|
| |
|
| |
261,291
|
|
Deferred tax asset
|
| |
—
|
| |
—
|
| |
1,229
|
| |
—
|
| |
|
| |
(1,229)
|
| |
5(aa)
|
| |
—
|
| |
|
| |
—
|
|
Other assets
|
| |
—
|
| |
319
|
| |
37
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
356
|
|
Total assets
|
| |
$175,695
|
| |
$91,390
|
| |
$31,417
|
| |
$7,425
|
| |
|
| |
$269,701
|
| |
|
| |
$79,011
|
| |
|
| |
$654,639
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
223
|
|
| |
Historical
December 31,
2021
|
| |
Historical
January 31,
2022
|
| |
Historical
December 31,
2021
|
| |
Transaction Accounting Adjustments
|
| |
|
| |
|
||||||||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments for
Material
Events
|
| |
|
| |
Adjustments
Related to
IDX
|
| |
|
| |
Additional
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Balance Sheet
|
|
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK, AND STOCKHOLDERS' EQUITY (DEFICIT)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Current liabilities:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Accounts payable
|
| |
—
|
| |
4,276
|
| |
7,286
|
| |
—
|
| |
|
| |
(204)
|
| |
5(bb)
|
| |
—
|
| |
|
| |
11,358
|
|
Accrued liabilities
|
| |
2,785
|
| |
7,020
|
| |
6,606
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(2,785)
|
| |
5(B)
|
| |
10,105
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(3,521)
|
| |
5(H)
|
| |
|
|
Accrued offering costs
|
| |
350
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(350)
|
| |
5(C)
|
| |
—
|
|
Deferred revenue, current
|
| |
—
|
| |
29,532
|
| |
7,560
|
| |
|
| |
|
| |
(2,091)
|
| |
5(aa)
|
| |
—
|
| |
|
| |
35,001
|
|
Related party convertible debt, carried at fair value
|
| |
—
|
| |
—
|
| |
2,445
|
| |
—
|
| |
|
| |
(2,445)
|
| |
5(aa)
|
| |
—
|
| |
|
| |
—
|
|
Current portion of long-term debt
|
| |
—
|
| |
5,970
|
| |
1,667
|
| |
—
|
| |
|
| |
(1,667)
|
| |
5(aa)
|
| |
(5,032)
|
| |
5(M)
|
| |
938
|
|
Total current liabilities
|
| |
3,135
|
| |
46,798
|
| |
25,564
|
| |
—
|
| |
|
| |
(6,407)
|
| |
|
| |
(11,688)
|
| |
|
| |
57,402
|
|
Deferred underwriting fee payable
|
| |
6,038
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(6,038)
|
| |
5(J)
|
| |
—
|
|
Deferred revenue—net of current portion
|
| |
—
|
| |
9,299
|
| |
2,116
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
11,415
|
|
Accrued liabilities, long-term
|
| |
—
|
| |
—
|
| |
750
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
750
|
|
Long term debt—net of current portion
|
| |
—
|
| |
45,503
|
| |
8,319
|
| |
6,865
|
| |
5(a)
|
| |
(8,319)
|
| |
5(aa)
|
| |
(14,330)
|
| |
5(D)
|
| |
2,130
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(29,043)
|
| |
5(D)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(6,865)
|
| |
5(I)
|
| |
|
|
Convertible debt
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
149,806
|
| |
5(F)
|
| |
149,806
|
|
Warrants
|
| |
18,637
|
| |
10,709
|
| |
—
|
| |
560
|
| |
5(a)
|
| |
—
|
| |
|
| |
(4,040)
|
| |
5(E)
|
| |
18,637
|
|
|
| |
|
| |
|
| |
|
| |
(560)
|
| |
5(b)
|
| |
|
| |
|
| |
(4,260)
|
| |
5(P)
|
| |
|
|
|
| | | | | | | | | |
|
| | | |
|
| |
(2,409)
|
| |
5(Q)
|
| | ||||||
|
Total liabilities
|
| |
27,810
|
| |
112,309
|
| |
36,749
|
| |
6,865
|
| |
|
| |
(14,726)
|
| |
|
| |
71,133
|
| |
|
| |
240,140
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
224
|
|
| |
Historical
December 31,
2021
|
| |
Historical
January 31,
2022
|
| |
Historical
December 31,
2021
|
| |
Transaction Accounting Adjustments
|
| |
|
| |
|
||||||||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments for
Material
Events
|
| |
|
| |
Adjustments
Related to
IDX
|
| |
|
| |
Additional
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Balance Sheet
|
|
ZeroFox redeemable convertible preferred stock
|
| |
—
|
| |
132,229
|
| |
—
|
| |
566
|
| |
5(b)
|
| |
—
|
| |
|
| |
2,950
|
| |
5(E)
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(135,745)
|
| |
5(K)
|
| |
|
|
IDX redeemable convertible preferred stock
|
| |
—
|
| |
—
|
| |
64,902
|
| |
—
|
| |
|
| |
202
|
| |
5(cc)
|
| |
—
|
| |
|
| |
—
|
|
|
| | | | | | | | | |
|
| |
(65,104)
|
| |
5(dd)
|
| | | |
|
| | ||||||
|
Total redeemable convertible preferred stock
|
| |
—
|
| |
132,229
|
| |
64,902
|
| |
566
|
| |
|
| |
(64,902)
|
| |
|
| |
(132,795)
|
| |
|
| |
—
|
|
L&F Class A ordinary shares subject to possible
redemption (pre-Domestication)
|
| |
175,088
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(175,088)
|
| |
5(L)
|
| |
—
|
|
L&F Class A ordinary shares subject to possible
redemption (Domesticated)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
175,088
|
| |
5(L)
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(175,088)
|
| |
5(M)
|
| |
|
|
Stockholders' equity (deficit):
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
L&F Class A ordinary shares (pre-Domestication)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
|
L&F Class B ordinary shares (pre-Domestication)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
|
L&F Class A ordinary shares (Domesticated)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
3
|
| |
5(aa)
|
| |
2
|
| |
5(N)
|
| |
13
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
8
|
| |
5(O)
|
| |
|
|
ZeroFox common stock
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
|
IDX common stock
|
| |
—
|
| |
—
|
| |
1
|
| |
—
|
| |
|
| |
(4)
|
| |
5(aa)
|
| |
—
|
| |
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
3
|
| |
5(dd)
|
| |
|
| |
|
| |
|
|
Additional paid-in capital
|
| |
—
|
| |
3,873
|
| |
—
|
| |
—
|
| |
|
| |
217,058
|
| |
5(aa)
|
| |
(8,963)
|
| |
5(B)
|
| |
574,408
|
|
|
| |
|
| |
|
| |
|
| |
(6)
|
| |
5(b)
|
| |
(2,875)
|
| |
5(bb)
|
| |
1,090
|
| |
5(E)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
—
|
| |
|
| |
(202)
|
| |
5(cc)
|
| |
15,000
|
| |
5(G)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
65,101
|
| |
5(dd)
|
| |
(10,967)
|
| |
5(H)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
10
|
| |
5(ee)
|
| |
135,745
|
| |
5(K)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
5,000
|
| |
5(M)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
175,086
|
| |
5(N)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(27,211)
|
| |
5(O)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
4,260
|
| |
5(P)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2,409
|
| |
5(Q)
|
| |
|
|
Accumulated deficit
|
| |
(27,203)
|
| |
(156,820)
|
| |
(70,235)
|
| |
—
|
| |
|
| |
70,245
|
| |
5(aa)
|
| |
(670)
|
| |
5(D)
|
| |
(159,721)
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(10)
|
| |
5(ee)
|
| |
(1,857)
|
| |
5(D)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
486
|
| |
5(H)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(860)
|
| |
5(I)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
27,203
|
| |
5(O)
|
| |
|
|
Accumulated other comprehensive loss
|
| |
—
|
| |
(201)
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(201)
|
|
Total stockholders' equity (deficit)
|
| |
(27,203)
|
| |
(153,148)
|
| |
(70,234)
|
| |
(6)
|
| |
|
| |
349,329
|
| |
|
| |
315,761
|
| |
|
| |
414,499
|
|
Total liabilities, redeemable convertible preferred stock,
L&F Class A redeemable stock, and stockholders' equity (deficit)
|
| |
175,695
|
| |
91,390
|
| |
31,417
|
| |
7,425
|
| |
|
| |
269,701
|
| |
|
| |
79,011
|
| |
|
| |
654,639
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
225
SCENARIO 1
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED JANUARY 31, 2022
(in thousands, except share and per share amounts)
|
|
| |
Historical
Year Ended
December31,
2021
|
| |
Historical
Year Ended
January 31,
2022
|
| |
Historical
Year Ended
December 31,
2021
|
| |
Transaction
Accounting
Adjustments
|
| |
|
| |
|
| |
|
||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments
Related to
IDX
|
| |
|
| |
Additonal
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Statement of
Operations
|
| |
|
|
Revenue
|
| |
$—
|
| |
$47,433
|
| |
$106,072
|
| |
$(2,091)
|
| |
6(aa)
|
| |
$—
|
| |
|
| |
$151,414
|
| |
|
|
Cost of revenue
|
| |
—
|
| |
16,357
|
| |
82,745
|
| |
2,800
|
| |
6(bb)
|
| |
—
|
| |
|
| |
101,902
|
| |
|
|
Gross profit
|
| |
—
|
| |
31,076
|
| |
23,327
|
| |
(4,891)
|
| |
|
| |
—
|
| |
|
| |
49,512
|
| |
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Research and development
|
| |
—
|
| |
12,810
|
| |
4,941
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
17,751
|
| |
|
|
Sales and marketing
|
| |
—
|
| |
29,873
|
| |
7,182
|
| |
13,667
|
| |
6(bb)
|
| |
—
|
| |
|
| |
50,722
|
| |
|
|
General and administrative
|
| |
3,848
|
| |
16,408
|
| |
6,872
|
| |
6,180
|
| |
6(bb)
|
| |
—
|
| |
|
| |
33,318
|
| |
|
|
|
| | | | | | | |
10
|
| |
6(cc)
|
| | | |
|
| | | |
|
|||||
|
Total operating expenses
|
| |
3,848
|
| |
59,091
|
| |
18,995
|
| |
19,857
|
| |
|
| |
—
|
| |
|
| |
101,791
|
| |
|
|
(Loss) / income from operations
|
| |
(3,848)
|
| |
(28,015)
|
| |
4,332
|
| |
(24,748)
|
| |
|
| |
—
|
| |
|
| |
(52,279)
|
| |
|
|
Other income (expense):
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest expense, net
|
| |
—
|
| |
(3,585)
|
| |
(483)
|
| |
483
|
| |
6(dd)
|
| |
3,459
|
| |
6(A)
|
| |
(13,178)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(10,565)
|
| |
6(B)
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(1,627)
|
| |
6(C)
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(860)
|
| |
6(F)
|
| |
|
| |
|
|
Fair value adjustments
|
| |
9,426
|
| |
(7,375)
|
| |
(1,944)
|
| |
(1,944)
|
| |
6(gg)
|
| |
7,375
|
| |
6(D)
|
| |
9,426
|
| |
|
|
Other expense
|
| |
—
|
| |
—
|
| |
(716)
|
| |
169
|
| |
6(ee)
|
| |
|
| |
|
| |
—
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
25
|
| |
6(dd)
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
522
|
| |
6(ff)
|
| |
|
| |
|
| |
|
| |
|
|
Interest earned on marketable securities held in Trust
Account
|
| |
20
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
(20)
|
| |
6(E)
|
| |
—
|
| |
|
|
Total other income (expense)
|
| |
9,446
|
| |
(10,960)
|
| |
(3,143)
|
| |
3,143
|
| |
|
| |
(2,238)
|
| |
|
| |
(3,752)
|
| |
|
|
Income / (loss) before taxes
|
| |
5,598
|
| |
(38,975)
|
| |
1,189
|
| |
(21,605)
|
| |
|
| |
(2,238)
|
| |
|
| |
(56,031)
|
| |
|
|
Income taxes
|
| |
—
|
| |
(536)
|
| |
1,716
|
| |
(1,300)
|
| |
7(b)
|
| |
309
|
| |
7(c)
|
| |
189
|
| |
7(a)
|
|
Net income / (loss) after taxes
|
| |
$5,598
|
| |
$(38,439)
|
| |
$(527)
|
| |
$(20,305)
|
| |
|
| |
$(2,547)
|
| |
|
| |
$(56,220)
|
| |
|
|
Net (loss) / income attributable to common
stockholders (basic)
|
| |
|
| |
$(38,439)
|
| |
$(32,978)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net (loss) / income attributable to common
stockholders (diluted)
|
| |
|
| |
$(38,439)
|
| |
$(32,978)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income attributable to Class A redeemable ordinary
shares (basic and diluted)
|
| |
$4,478
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income attributable to Class B non-redeemable
ordinary shares (basic and diluted)
|
| |
$1,120
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net loss attributable to Class A non-redeemable
ordinary shares (basic and diluted)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$(56,220)
|
| |
|
|
Net (loss) / income per share attributable to common
stockholders (basic)
|
| |
|
| |
$(0.91)
|
| |
$(2.80)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net (loss) / income per share attibutable to common
stockholders (diluted)
|
| |
|
| |
$(0.91)
|
| |
$(2.80)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
226
|
|
| |
Historical
Year Ended
December31,
2021
|
| |
Historical
Year Ended
January 31,
2022
|
| |
Historical
Year Ended
December 31,
2021
|
| |
Transaction
Accounting
Adjustments
|
| |
|
| |
|
| |
|
||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments
Related to
IDX
|
| |
|
| |
Additonal
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Statement of
Operations
|
| |
|
|
Net income per share attributable to Class A
redeemable ordinary shares (basic and diluted)
|
| |
$0.26
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income per share attributable to Class B
non-redeemable ordinary shares (basic and diluted)
|
| |
$0.26
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net loss per share attributable to Class A
non-redeemable ordinary shares (basic and diluted)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$(0.42)
|
| |
|
|
Weighted-average average shares used in computing net
(loss) / income per share attributable to common stockholders (basic)
|
| |
|
| |
42,073,351
|
| |
11,777,989
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares used in computing net (loss) /
|
| ||||||||||||||||||||||||||
|
income per share attributable to common stockholders
(diluted)
|
| |
|
| |
42,073,351
|
| |
11,777,989
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares outstanding of Class A
redeemable ordinary shares used in computing net income per share attributable to stockholders of Class A redeemable ordinary shares (basic and diluted)
|
| |
17,250,000
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares outstanding of Class B
non-redeemable ordinary shares used in computing net income per share attributable to stockholders of Class B non-redeemable ordinary shares (basic and diluted)
|
| |
4,312,500
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares outstanding of Class A
non-redeemable ordinary shares used in computing net loss per share attributable to stockholders of Class A non-redeemable ordinary shares (basic and diluted)
|
| |
4,312,500
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
133,888,106
|
| |
6(G)
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
227
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. Description of the Transactions
Business Combination, Common Equity PIPE Financing, and Convertible
Notes Financing
On December 17, 2021, L&F, ZeroFox and IDX entered into a
definitive business combination agreement (the “Business Combination Agreement”). Under the terms of the Business Combination Agreement, following the domestication of L&F as a Delaware
corporation, (i) ZF Merger Sub, Inc., an indirect wholly-owned subsidiary of L&F, will merge with and into ZeroFox (the “ZF Merger”), with ZeroFox being the surviving company in the ZF
Merger and continuing (immediately following the ZF Merger) as an indirect, wholly-owned subsidiary of L&F, (ii) immediately following the ZF Merger, IDX Merger Sub, Inc., an indirect wholly-owned subsidiary of L&F, will merge with and
into IDX (the “IDX Merger”), with IDX being the surviving company in the IDX Merger (referred to herein as “Transitional IDX Entity”)
and continuing (immediately following the IDX Merger) as an indirect, wholly-owned subsidiary of L&F, and (iii) immediately following the IDX Merger, Transitional IDX Entity will merge with and into IDX Forward Merger Sub, LLC, an indirect
wholly-owned subsidiary of L&F (the “IDX Forward Merger,” and together with the ZF Merger and IDX Merger, the “Mergers”), with IDX
Forward Merger Sub, LLC being the surviving company in the IDX Forward Merger and continuing (immediately following the IDX Forward Merger) as an indirect, wholly-owned subsidiary of L&F. The cash components of the transaction will be
funded by L&F’s cash in trust of approximately $175.1 million (assuming no Redemptions), the $20.0 million Common Equity PIPE Financing, and the $150.0 million Convertible Notes Financing. The Notes will mature three years from issuance and
accrue cash interest at 7.00% per annum payable quarterly with an option for the issuer to accrue paid-in-kind interest at an annual rate of 8.75%. The Business Combination is expected to close during the first half of 2022 and remains subject
to customary closing conditions.
Adjustments for Material Events
In December 2021, ZeroFox received a commitment of no less than
$7.5 million in loans from Orix Growth Capital, LLC (“Orix”) under the terms of an existing loan agreement. As of the date of these unaudited pro forma condensed combined financial statements, ZeroFox has borrowed the entire $7.5 million.
Interest on any advances under the loan agreement will be payable monthly at a rate of 10.00% per annum. Unpaid principal and accrued interest on any borrowings will be due in January 2026. In connection with the loan amendment, Orix was issued
a warrant to purchase up to 161,112 shares of ZeroFox Series E redeemable convertible preferred stock at an exercise price of $1.86205 per share. No amounts under the commitment with Orix described above have been reflected in ZeroFox’s
historical consolidated financial statements as of January 31, 2022. Immediately prior to the Closing, the warrant is expected to be exercised for shares of ZeroFox Series E redeemable convertible preferred stock, which shares will mandatorily
convert into shares of ZeroFox Common Stock immediately prior to the Closing and subsequently convert into the right to receive shares of New ZeroFox Common Stock as a result of the ZF Merger.
Subsequent to January 31, 2022, certain holders of ZeroFox and IDX
stock options exercised their options for ZeroFox Common Stock. The common stock resulting from the exercise of these options is included in the exchange of shares of ZeroFox Common Stock for shares of New ZeroFox Common Stock under the
Business Combination Agreement (see Note 4).
2. Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial statements were
prepared in accordance with Article 11 of SEC 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 Transactions (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other
transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). Management has elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the
unaudited pro forma condensed combined financial information. The adjustments presented in the unaudited pro forma condensed combined financial statements have been identified and presented to provide relevant information necessary for an
understanding of the combined company reflecting the Transactions.
228
The unaudited pro forma condensed combined financial statements
are based on L&F’s historical financial statements and ZeroFox’s and IDX’s historical consolidated financial statements, as adjusted to give effect to the Transactions. The historical financial statements of L&F and IDX were prepared
based on a December 31 fiscal year-end and the historical financial statements of ZeroFox were prepared based on a January 31 fiscal year-end. Following the consummation of the Business Combination, New ZeroFox will have a January 31 fiscal
year-end.
The unaudited pro forma condensed combined balance sheet gives pro
forma effect to the Transactions as if they had been consummated on January 31, 2022. The unaudited pro forma condensed combined statements of operations for the year ended January 31, 2022 give effect to the Transactions as if they had
occurred on February 1, 2021.
Management has made significant estimates and assumptions in its
determination of the pro forma adjustments. The pro forma adjustments reflecting the Transactions are based on certain currently available information and certain assumptions and methodologies that management believes are reasonable under the
circumstances. The 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 pro
forma adjustments, and it is possible the difference may be material. Management believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Transactions based on information
available to management at this 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 statements.
The unaudited pro forma condensed combined financial statements do
not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Business Combination. L&F and ZeroFox have not had any historical relationship prior to the Business
Combination. L&F and IDX have not had any historical relationship prior to the Business Combination. Prior to the Business Combination, IDX was a customer of ZeroFox.
This presentation assumes that no Public Shareholders exercise their
right to redeem their Class A Ordinary Shares for their pro rata share of the Trust Account and thus the full amount held in the Trust Account as of immediately prior to the Closing is available for the post-Business Combination company; and
shares outstanding as presented in the unaudited pro forma condensed combined financial statements include 82,446,660 shares of New ZeroFox Common Stock to be issued to ZeroFox’s shareholders, 27,878,946 shares of New ZeroFox Common Stock to be
issued to IDX’s shareholders, 21,562,500 shares of New ZeroFox Common Stock issued to L&F shareholders (including the 1,293,750 shares of New ZeroFox Common Stock to be issued to the Sponsor Holders that are subject to forfeiture if certain
earnout conditions are not satisfied (the “Sponsor Holders Earnout Shares”)) (assuming there are no Public Shareholders who exercise their redemption rights), and 2,000,000 shares of
New ZeroFox Common Stock to be issued in connection with the Common Equity PIPE Financing.
As a result of the Transactions, assuming no Public Shareholders
elect to redeem their shares for cash, ZeroFox’s shareholders will own approximately 62% of the shares of New ZeroFox Common Stock,
IDX’s shareholders will own approximately 21% of the shares of New ZeroFox Common
Stock, the Public Shareholders will own approximately 14% of the shares of New ZeroFox Common Stock, and the Sponsor Holders will own approximately 3% of the shares of New ZeroFox Common Stock, based on the number of Class A Ordinary Shares
outstanding as of December 31, 2021 (in each case, not giving effect to any shares issuable upon the exercise of any L&F Warrants, or the conversion of any of the Notes).
|
|
| |
Scenario 1
Assuming No Redemptions
|
|||||||||
|
|
| |
Shares from
Recapitalization
|
| |
Shares from
PIPE
Investment
|
| |
Total Shares
|
| |
%
|
|
Stockholder
|
| |
|
| |
|
| |
|
| |
|
|
ZF shareholders
|
| |
82,446,660
|
| |
500,000
|
| |
82,946,660
|
| |
62%
|
|
IDX shareholders
|
| |
27,878,946
|
| |
500,000
|
| |
28,378,946
|
| |
21%
|
|
Public shareholders
|
| |
17,250,000
|
| |
1,000,000
|
| |
18,250,000
|
| |
14%
|
|
SPAC Sponsor
|
| |
4,312,500
|
| |
—
|
| |
4,312,500
|
| |
3%
|
|
Total
|
| |
131,888,106
|
| |
2,000,000
|
| |
133,888,106
|
| |
100%
|
229
The L&F Public Warrants and L&F Private Placement
Warrants of L&F have been reported as liability-classified instruments that will be subsequently remeasured at fair value in future reporting periods, with changes in fair value recognized in earnings. The 1,293,750 Sponsor Holders Earnout
Shares that are subject to an earnout pursuant to the Sponsor Support Letter Agreement have been reported as equity-classified as they are indexed to the entity’s own stock and meet the additional criteria for equity classification. The final
accounting for the Business Combination, including L&F Warrants and Sponsor Holders Earnout Shares, is expected to be determined at Closing.
These unaudited pro forma condensed combined financial statements
and related notes have been derived from and should be read in conjunction with:
|
•
|
the historical unaudited condensed financial statements of L&F as and for the year ended December 31, 2021 and the related
notes included elsewhere in this proxy statement/prospectus;
|
|
•
|
the historical audited consolidated financial statements of ZeroFox as of and for the year ended January 31, 2022 and the
related notes included elsewhere in this proxy statement/ prospectus;
|
|
•
|
the historical audited consolidated financial statements of IDX as of and for the year ended December 31, 2021 and the related
notes included elsewhere in this proxy statement/ prospectus;
|
|
•
|
the accompanying notes to the unaudited pro forma condensed combined financial statements;
|
|
•
|
the sections entitled “Management’s Discussion and Analysis of Financial Condition and
Results of Operations of L&F,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of ZeroFox,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of IDX,” and other financial information relating to L&F, ZeroFox, and IDX included elsewhere
in this proxy statement/prospectus.
|
The unaudited pro forma condensed combined financial statements are
provided for illustrative purposes only and are not necessarily indicative of what the actual results of operations and financial position would have been had the Transactions taken place on the dates indicated, nor are they indicative of the
future consolidated results of operations or financial position of New ZeroFox.
3. Accounting Treatment for the Business Combination
With respect to the Business Combination, ZeroFox will be treated as
the accounting acquirer and L&F and IDX will be treated as acquired companies for accounting purposes. This determination is primarily based on the facts that subsequent to the Business Combination:
|
•
|
ZeroFox shareholders will have a majority of the voting power of New ZeroFox;
|
|
•
|
ZeroFox will designate a majority of the governing body of New ZeroFox;
|
|
•
|
ZeroFox’s senior management will comprise all of the senior management of New ZeroFox; and
|
|
•
|
the largest single shareholder of the combined company will be a legacy owner of ZeroFox.
|
As a result of ZeroFox being considered the accounting acquirer in
the Business Combination, the business combination between ZeroFox and L&F represents a reverse merger and will be accounted for as a reverse recapitalization in accordance with U.S. GAAP. Accordingly, for accounting purposes, the business
combination between ZeroFox and L&F will be treated as the equivalent of ZeroFox issuing shares for the net assets of L&F, accompanied by a recapitalization. The net assets of ZeroFox will be stated at historical cost. No goodwill or
other intangible assets will be recorded.
As ZeroFox is determined to be the accounting acquirer in the
Business Combination, the acquisition of IDX will be considered a business combination under ASC 805, Business Combinations, and will be accounted for using the acquisition method of
accounting. The consideration transferred to effect the acquisition will be allocated to the assets acquired and liabilities assumed based on their estimated acquisition-date fair values. The excess of consideration transferred over the fair
values of assets acquired and liabilities assumed will be recorded as goodwill. Transaction costs will be expensed as if the acquisition of IDX had occurred on February 1, 2021.
230
4. Exchange of Shares of ZeroFox for Shares of New ZeroFox Common
Stock
Exchange of ZeroFox Shares for New ZeroFox Common Stock
Based on 287,039,450 shares of ZeroFox Common Stock outstanding as
of January 31, 2022 after the assumed net exercise of certain warrants and the ZF Mandatory Conversion immediately prior to the Closing, and the ZF Closing Stock per Share Consideration, determined in accordance with the terms of the Business
Combination Agreement, of approximately 0.2872, holders of ZeroFox Common Stock (excluding holders of certain options) are expected to receive 82,446,660 shares of New ZeroFox Common Stock in the Business Combination, determined as follows:
|
|
| |
ZeroFox Shares
Outstanding as of
January 31, 2022
(Historical)
|
| |
Net Exercise of Stock
Warrants
|
| |
Conversion of
ZeroFox Redeemable
Convertible
Preferred Stock into
ZeroFox Common
Stock
|
| |
ZeroFox common s
tock assumed
outstanding prior to
Closing
|
|
Series Seed, par value $0.00001 per share
|
| |
9,198,372
|
| |
—
|
| |
(9,198,372)
|
| |
—
|
|
Series A, par value $0.00001 per share
|
| |
15,997,285
|
| |
110,976
|
| |
(16,108,261)
|
| |
—
|
|
Series B, par value $0.00001 per share
|
| |
26,914,949
|
| |
125,401
|
| |
(27,040,350)
|
| |
—
|
|
Series C, par value $0.00001 per share
|
| |
21,124,699
|
| |
—
|
| |
(21,124,699)
|
| |
—
|
|
Series C-1, par value $0.00001 per share
|
| |
11,376,115
|
| |
—
|
| |
(11,376,115)
|
| |
—
|
|
Series D, par value $0.00001 per share
|
| |
13,871,547
|
| |
—
|
| |
(13,871,547)
|
| |
—
|
|
Series D-1, par value $0.00001 per share
|
| |
5,878,303
|
| |
—
|
| |
(5,878,303)
|
| |
—
|
|
Series D-2, par value $0.00001 per share
|
| |
993,868
|
| |
—
|
| |
(993,868)
|
| |
—
|
|
Series E, par value $0.00001 per share
|
| |
15,227,437
|
| |
725,930
|
| |
(15,953,367)
|
| |
—
|
|
Common stock, par value $0.00001 per share
|
| |
42,892,927
|
| |
—
|
| |
244,146,523
|
| |
287,039,450
|
|
Total
|
| |
163,475,502
|
| |
962,307
|
| |
122,601,641
|
| |
287,039,450
|
|
ZeroFox common stock assumed outstanding prior to Closing
|
| |
287,039,450
|
|||||||||
|
ZF Closing Stock Per Share Consideration
|
| |
0.2872
|
|||||||||
|
Estimated shares of New ZeroFox Common Stock issued to ZeroFox stockholders upon Closing
|
| |
82,446,660
|
|||||||||
231
Exchange of Shares of IDX Capital Stock for Shares of New ZeroFox
Common Stock
Based on 43,897,622 shares of IDX Capital Stock outstanding as of
December 31, 2021 after the net exercise of a common stock warrant immediately prior to the Closing, and the IDX Closing Stock Per Share Consideration, determined in accordance with the terms of the Business Combination Agreement, of
approximately 0.6174, holders of IDX Capital Stock are expected to receive 27,102,896 shares of New ZeroFox Common Stock in the Business Combination, determined as follows:
|
|
| |
IDX Capital Stock
outstanding as of
December 31, 2021
(Historical)
(assuming net
exercise)
|
| |
Net Exercise of IDX
Common Stock
Warrants
|
| |
Conversion of IDX
Redeemable
Convertible Preferred Stock into
IDX Common Stock
|
| |
IDX Common Stock
assumed outstanding
prior to Closing
|
|
Series A-1, par value $0.0001 per share
|
| |
5,882,350
|
| |
—
|
| |
(5,882,350)
|
| |
—
|
|
Series A-2, par value $0.0001 per share
|
| |
26,069,330
|
| |
—
|
| |
(26,069,330)
|
| |
—
|
|
Common stock, par value $0.0001 per share
|
| |
11,671,845
|
| |
274,097
|
| |
31,951,680
|
| |
43,897,622
|
|
|
| |
43,623,525
|
| |
274,097
|
| |
—
|
| |
43,897,622
|
|
|
| |
|
| |
|
| |
|
| |
|
|
IDX Common Stock assumed outstanding prior to closing
|
| |
43,897,622
|
|||||||||
|
IDX Closing Stock Per Share Consideration
|
| |
0.6174
|
|||||||||
|
Estimated shares of New ZeroFox Common Stock issued to IDX stockholders upon Closing
|
| |
27,102,896
|
|||||||||
Immediately prior to the Closing, the holder of series A-2 preferred
stock warrants is expected to net exercise the warrants resulting in the purchase of 124,998 shares of IDX series A-2 preferred stock. Based on 124,998 shares of IDX Capital Stock from the conversion of preferred stock and the IDX Total
Preferred Per Share Consideration, determined in accordance with the terms of the Business Combination Agreement, of approximately 0.7340, the holder of series A-2 preferred stock warrants is expected to receive 91,750 shares of New ZeroFox
Common Stock in the Business Combination, determined as follows:
|
|
| |
Outstanding
Warrants to
purchase IDX series
A-2 stock as of
December 31, 2021
(Historical)
(assuming net
exercise)
|
| |
Net Exercise of IDX
series A-2 Warrants
|
| |
Conversion of IDX
Redeemable
Convertible
Preferred Stock into
IDX Capital Stock
|
| |
IDX Common Stock
assumed outstanding
prior to Closing
|
|
Series A-2 Stock Warrant
|
| |
124,998
|
| |
(124,998)
|
| |
—
|
| |
—
|
|
Series A-2, par value $0.0001 per share
|
| |
—
|
| |
124,998
|
| |
(124,998)
|
| |
—
|
|
Common stock, par value $0.0001 per share
|
| |
—
|
| |
—
|
| |
124,998
|
| |
124,998
|
|
|
| |
124,998
|
| |
—
|
| |
—
|
| |
124,998
|
|
|
| |
|
| |
|
| |
|
| |
|
|
IDX Common Stock assumed outstanding prior to Closing
|
| |
124,998
|
|||||||||
|
IDX Total Preferred Per Share Consideration
|
| |
0.7340
|
|||||||||
|
Estimated shares of New ZeroFox Common Stock issued to IDX stockholders upon Closing
|
| |
91,750
|
|||||||||
Immediately prior to the Closing, the holder of common stock
warrants is expected to net exercise the warrants resulting in the purchase of 980,492 shares of IDX Capital Stock. Based on 980,492 shares of IDX
232
Capital Stock from the net exercise of the common stock warrant and the IDX Total
Per Share Consideration, determined in accordance with the terms of the Business Combination Agreement, of approximately 0.6979, the holder of common stock warrants is expected to receive 684,300 shares of New ZeroFox Common Stock in the
Business Combination, determined as follows:
|
|
| |
Outstanding
Warrants to
purchase IDX
Common Stock as of
December 31, 2021
(Historical)
(assuming net
exercise)
|
| |
Net Exercise of IDX
Common Stock
Warrants
|
| |
IDX Common Stock
assumed outstanding
prior to Closing
|
|
Common Stock Warrant
|
| |
980,492
|
| |
(980,492)
|
| |
—
|
|
Common stock, par value $0.0001 per share
|
| |
—
|
| |
980,492
|
| |
980,492
|
|
|
| |
980,492
|
| |
—
|
| |
980,492
|
|
|
| |
|
| |
|
| |
|
|
IDX Common Stock assumed outstanding prior to Closing
|
| |
980,492
|
||||||
|
IDX Closing Stock Per Share Consideration
|
| |
0.6979
|
||||||
|
Estimated shares of New ZeroFox Common Stock issued to IDX stockholders upon Closing
|
| |
684,300
|
||||||
As a result of the exchanges of IDX shares for New ZeroFox Common
Stock described above, IDX shareholders are expected to exchange a total of approximately 45,003,112 shares of IDX Common Stock for a total of approximately 27,878,946 shares of New ZeroFox Common Stock.
5. Adjustments to the Unaudited Pro Forma Condensed Combined Balance
Sheet
The pro forma adjustments, based on preliminary estimates that could
change materially as additional information is obtained, are as follows:
Pro Forma Adjustments for Material Events:
|
(a)
|
In connection with the additional $5.0 million of borrowings under its loan and security agreement with Stifel, ZeroFox
received a commitment of not less than $7.5 million in loans from Orix. As of the date of the preparation of these pro forma financial statements, all $7.5 million in potential loans has been drawn. In connection with the commitment for
up to $7.5 million in additional loans from Orix, ZeroFox incurred debt issuance costs of $0.1 million. In addition, Orix was issued a warrant with an estimated fair value of $0.6 million. Under the terms of the warrant, Orix will have
the right to purchase up to 161,112 shares of ZeroFox Series E redeemable convertible preferred stock at an exercise price of $1.86205 per share. The pro forma adjustments reflect an increase of $7.4 million of cash ($7.5 million, net
of $0.1 million in debt issuance costs), an increase of $6.8 million in long-term debt ($7.5 million, net of a $0.7 million debt discount, comprised of a $0.6 million discount due to warrants and a $0.1 million discount due to debt
issuance costs), and an increase of $0.6 million in warrant liabilities.
|
|
(b)
|
To reflect the assumed net exercise of Orix’s warrant to purchase up to 161,112 shares of ZeroFox Series E redeemable
convertible preferred stock (see Note 5(a)). This adjustment reduces the warrant liability by $0.6 million and increases ZeroFox’s redeemable convertible preferred stock by $0.6 million.
|
Pro Forma Adjustments Related to IDX:
The adjustments below relate to IDX and include adjustments to
record the allocation of the purchase price for the acquisition of IDX and additional adjustments related to the Business Combination.
|
(aa)
|
Upon the Closing, all of the outstanding shares of IDX Capital Stock will be exchanged for shares of New ZeroFox Common Stock.
IDX believes it is a leading consumer privacy platform built for agility in the digital age. IDX provides privacy, identity protection, and data breach response services to its
|
233
government and commercial customers. The IDX acquisition will allow New ZeroFox to
further scale its digital risk protection services and expand its customer base. The acquisition will be accounted for as a business combination in accordance with ASC 805, Business Combinations.
The following table summarizes the preliminary estimate of the consideration
transferred to effect the IDX acquisition (in thousands, except share and share price amounts):
|
Cash consideration(1)
|
| |
$29,540
|
|
Repayment of IDX's estimated transaction costs(2)
|
| |
4,756
|
|
Repayment of IDX's debt(3)
|
| |
12,884
|
|
Total cash consideration and repayment of IDX's debt and estimated transaction
costs
|
| |
$47,180
|
|
Shares of New ZeroFox Common Stock transferred(4)
|
| |
278,789
|
|
New ZeroFox Common Stock share price(4)
|
| |
$10.00
|
|
New ZeroFox Common Stock consideration transferred
|
| |
$ 278,789
|
|
Total consideration transferred
|
| |
$ 325,969
|
|
(1)
|
Total consideration transferred will include cash consideration of $47.2 million, adjusted for IDX’s closing working capital,
debt, and cash.
|
|
(2)
|
Total consideration transferred will include transaction costs incurred by IDX that are not deemed to be direct and incremental
costs of the Business Combination that will be reimbursed by New ZeroFox.
|
|
(3)
|
Total consideration transferred will include payment of IDX’s debt by New ZeroFox.
|
|
(4)
|
Total consideration transferred will include 27,878,946 shares of New ZeroFox with an estimated fair value of $10.00 per share.
|
Adjustment 5(aa) reflects the following:
|
•
|
The adjustment reflects consideration transferred in the adjustments to cash and cash equivalents of $47.2 million, L&F
Class A ordinary shares (Domesticated) of $3,000, and additional paid-in capital of $278.8 million.
|
|
•
|
The adjustment reflects the elimination of IDX’s historical equity as well as its equity arising from the other Adjustments
Related to Acquisition of IDX (see Notes 5(bb) through 5(ee)). These eliminations of IDX’s equity include the elimination of IDX’s historical additional paid-in capital of $0.7 million as well as the elimination of its additional
paid-in capital arising from the other Adjustments Related to Acquisition of IDX of $65.1 million. The eliminations of IDX’s equity also include the elimination of historical common stock of $1,000 and the elimination of $3,000 of
common stock arising from the other Adjustments Related to Acquisition of IDX. These eliminations also include the elimination of IDX’s historical accumulated deficit of $70.2 million and the elimination of $10,000 of accumulated
deficit arising from the Adjustments Related to Acquisition of IDX.
|
|
•
|
The adjustment reflects fair value adjustments to record IDX’s identifiable intangible assets and goodwill of $94.9 million and
$226.3 million, respectively. In addition, adjustment 5(aa) reflects a fair value adjustment to reduce deferred revenue, current by $2.1 million and a reduction to accrued liabilities of $1.9 million related to the fair value of
warrants.
|
|
•
|
The adjustment reflects the payment of IDX’s current portion of long-term debt, long-term debt—net of current portion, and
related party convertible debt of $1.7 million, $8.3 million, and $2.4 million, respectively.
|
The following table summarizes the allocation of the preliminary estimate of the
purchase price to the assets acquired and liabilities assumed (in thousands):
|
Cash and cash equivalents(5)
|
| |
$14,907
|
|
Accounts receivable
|
| |
9,997
|
|
Deferred contract acquisitions costs, current
|
| |
825
|
|
Prepaid expenses and other assets
|
| |
953
|
|
Property and equipment
|
| |
127
|
|
Deferred contract acquisition costs, net of current portion
|
| |
263
|
|
Goodwill
|
| |
226,289
|
|
Intangible assets
|
| |
94,900
|
|
Other assets
|
| |
37
|
|
Total assets acquired
|
| |
348,298
|
|
Accounts payable
|
| |
7,286
|
|
Accrued liabilities
|
| |
4,617
|
|
Deferred revenue, current
|
| |
7,560
|
|
Deferred revenue, net of current portion
|
| |
2,116
|
|
Accrued liabilities, long-term
|
| |
750
|
|
Total liabilities assumed
|
| |
22,329
|
|
Total consideration transferred
|
| |
$325,969
|
|
(5)
|
Cash in the table above is presented net of the $3.1 million payment of IDX’s transaction costs that are direct and incremental
to the Business Combination (see Note 5(bb)).
|
234
The excess of the purchase price over the fair values of the net identifiable
tangible and intangible assets acquired will be assigned to goodwill. Goodwill represents the future benefits as a result of the acquisition that will enhance the services available to both new and existing customers and increase the New
ZeroFox’s competitive position. Goodwill will not be amortized, but instead will be tested for impairment at least annually or more frequently if certain indicators are present. In the event that management determines that the value of goodwill
has been impaired, an accounting charge for the amount of impairment during the quarter in which the determination is made may be recognized. Goodwill attributable to the IDX acquisition is not expected to be deductible for tax purposes.
The fair value of deferred revenue was determined using the adjusted fulfillment cost
method. Deferred revenue will be recognized as performance obligations are satisfied.
The following table sets forth the amounts allocated to the intangible assets
identified, the estimated useful lives of those intangible assets, and the methodologies used to determine the fair values of those intangible assets (dollars in thousands):
|
|
| |
Fair value
|
| |
Useful Life
(in years)
|
| |
Fair Value Methodology
|
|
Trade name
|
| |
$30,900
|
| |
5
|
| |
Relief from Royalty method
|
|
Developed technology
|
| |
14,000
|
| |
5
|
| |
Replacement Cost method
|
|
Breach-related contracts
|
| |
2,300
|
| |
1
|
| |
Multi-period Excess Earnings Method of the Income Approach
|
|
Office of Personnel Management contract
|
| |
43,600
|
| |
6
|
| |
Multi-period Excess Earnings Method of the Income Approach
|
|
Customer relationships
|
| |
4,100
|
| |
1
|
| |
Multi-period Excess Earnings Method of the Income Approach
|
|
|
| |
$94,900
|
| |
|
| |
|
As part of the IDX acquisition, ZeroFox incurred negligible acquisition-related costs
and therefore no adjustment is reflected in these pro forma financial statements.
|
(bb)
|
To reflect the payment of IDX’s total estimated advisory, legal, accounting, auditing, and other professional fees of
$3.1 million that are deemed to be direct and incremental costs of the Business Combination.
|
|
(cc)
|
To reflect the net exercise of all IDX warrants outstanding and unexercised as of December 31, 2021. This adjustment increases
IDX redeemable convertible preferred stock by $0.2 million and reduces additional paid-in capital by $0.2 million.
|
|
(dd)
|
To reflect the conversion of all of IDX’s redeemable convertible preferred stock into IDX Common Stock due to the Business
Combination. Each share of all series of IDX redeemable convertible preferred stock converts into one share of IDX common stock.
|
|
(ee)
|
To reflect stock-based compensation for stock options that are subject to accelerated vesting upon the Business Combination.
|
|
(ff)
|
To reflect the elimination of the change in fair value of IDX’s warrant liabilities. It is assumed that the warrants to
purchase IDX’s capital stock will be net exercised on February 1, 2021.
|
Additional Pro Forma Adjustments
The adjustments below include adjustments related to the Common Equity PIPE
Financing, the Convertible Notes Financing, and the Business Combination, which include additional adjustments related to ZeroFox and L&F.
|
(A)
|
To reflect the release of cash from the Trust Account to cash and cash equivalents, assuming no Public Shareholders exercise
their right to have their Class A Ordinary Shares redeemed for their pro rata share of the Trust Account.
|
|
(B)
|
To reflect the payment of L&F’s total estimated advisory, legal, accounting, auditing, and other professional fees of
$11.7 million that are deemed to be direct and incremental costs of the Business Combination. The adjustment reduces prepaid expenses by $9,000, accrued liabilities by $2.8 million, and additional paid-in capital by $9.8 million.
|
|
(C)
|
To reflect the payment of L&F’s accrued offering costs of $0.4 million upon consummation of the Business Combination.
|
|
(D)
|
To reflect ZeroFox’s payment of its long-term debt of $15.0 million with Stifel and $30.0 million with Orix. This adjustment
eliminates the long-term debt carrying values of $14.3 million and $29.0 million with Stifel and Orix, respectively. In addition, this adjustment eliminates unamortized debt discounts of $0.7 million for Stifel and $1.0 million for
Orix. The unamortized debt discounts are related to unamortized debt issuance costs and warrants. The debt with Orix is subject to a prepayment penalty of
|
235
3.00% of the outstanding balance of $30.0 million, or $0.9 million. The prepayment
penalty is reflected in the reduction to cash of $30.9 million and the increase to accumulated deficit of $2.6 million.
|
(E)
|
To reflect the net exercise of warrants to purchase ZeroFox Series A, B, and E redeemable convertible preferred stock that were
outstanding and unexercised as of January 31, 2022. This adjustment reduces the warrant liability by $4.0 million and increases redeemable convertible preferred stock and additional paid-in capital by $3.0 million and $1.0 million,
respectively.
|
|
(F)
|
To reflect the issuance of the Notes for $150.0 million. This adjustment records an increase of cash from the convertible note
issuance of $149.8 million ($150.0 million, net of debt issuance costs of $0.2 million) and a corresponding increase in the carrying value of convertible debt. The Notes contain a provision whereby, in the case of an event of default,
the obligation will bear additional interest at a rate equal to 2.00% per annum. Management evaluated events of default and determined the non-credit related events of default represent an embedded derivative that must be bifurcated and
accounted for separately from the Notes. The default rate derivative is treated as a liability, initially measured at fair value with subsequent changes in fair value recorded in earnings. Management has assessed the probability of
occurrence for a non-credit default event and determined the likelihood of a referenced event to be remote. Therefore, the estimated fair value of the default rate derivative is negligible and no amount was recorded.
|
|
(G)
|
To reflect the issuance of an aggregate of 1,500,000 shares of New ZeroFox Common Stock in the Common Equity PIPE Financing
(excludes the 500,000 Common Equity PIPE Financing shares to be issued to holders of the ZeroFox PIK Promissory Notes, see Note 5(M)) at a price of $10.00 per share, for an aggregate purchase price of $15.0 million.
|
|
(H)
|
To reflect the payment of ZeroFox’s total estimated advisory, legal, accounting, auditing, and other professional fees of
$14.0 million that are deemed to be direct and incremental costs of the Business Combination. Approximately $4.0 million of these costs have been expensed in the historical financial statements. Any remaining costs are assumed to be
deferred. This adjustment reduces additional paid-in capital by $11.0 million, accrued liabilities by $3.5 million, and accumulated deficit by $0.5 million.
|
|
(I)
|
To reflect ZeroFox’s payment of its long-term debt of $7.7 million with Orix (see Note 5(a)). This adjustment eliminates the
long-term debt carrying value of $6.9 million and the unamortized debt discount of $0.6 million that includes a discount due to unamortized debt issuance costs and warrants. The debt with Orix is subject to a prepayment penalty of 3.00%
of the outstanding balance of $7.5 million, or $0.2 million. The prepayment penalty is reflected in the reduction to cash of $7.7 million and the increase to accumulated deficit of $0.8 million.
|
|
(J)
|
To reflect the settlement of the $6.0 million deferred underwriting fee payable that was incurred during L&F’s initial
public offering, which is required to be settled upon completion of the Business Combination.
|
|
(K)
|
To reflect the conversion of all of ZeroFox’s redeemable convertible preferred stock into ZeroFox Common Stock in the ZF
Mandatory Conversion immediately prior to the Closing. Each share of all series of ZeroFox redeemable convertible preferred stock converts into two shares of ZeroFox Common Stock.
|
|
(L)
|
To reflect the conversion of the Class A Ordinary Shares into shares of New ZeroFox Common Stock in connection with the
Domestication.
|
|
(M)
|
To reflect the issuance of an aggregate of 500,000 shares of New ZeroFox Common Stock in the Common Equity PIPE Financing to be
issued to holders of the ZeroFox PIK Promissory Notes at a price of $10.00 per share. The issuance of these shares results in a reduction to the ZeroFox PIK Promissory Notes liability and an increase to additional paid-in-capital of
$5.0 million.
|
|
(N)
|
To reflect the reclassification of Class A Ordinary Shares of $175.1 million to common stock of $2,000 and additional paid-in
capital $175.1 million.
|
|
(O)
|
To reflect the recapitalization of ZeroFox through the cancelation of all outstanding common stock of ZeroFox and the issuance
of 82,446,660 shares of New ZeroFox Common Stock and the elimination of the accumulated deficit of L&F, the accounting acquiree. As a result of the recapitalization, ZeroFox
|
236
common stock of $2,000 and L&F’s accumulated deficit of $27.2 million are
derecognized. The shares of New ZeroFox Common Stock issued in exchange for shares of ZeroFox common stock are recorded as an increase to common stock of $8,000 and a decrease to additional paid-in capital of $27.2 million.
|
(P)
|
To reflect the reclassification of Silver Lake’s warrant to purchase up to 1,924,790 shares of ZeroFox common stock from a
liability to additional paid-in-capital. Upon the Business Combination, using the estimated Exchange Ratio ZF Closing Stock Per Share Consideration of 0.2872, this warrant is expected to be exchanged for a warrant to purchase up to
552,859 shares of New ZeroFox Common Stock. The terms of the warrant to purchase New ZeroFox Common Stock are expected to result in the warrant being classified as equity.
|
|
(Q)
|
To reflect the reclassification of Hercules Capital, Inc.’s (“Hercules”) warrant to purchase up to 648,350 shares of ZeroFox’s
Series C-1 redeemable convertible preferred stock from a liability to additional paid-in-capital. Upon the Business Combination, the warrant is expected to be converted into a warrant to purchase up to 1,296,700 shares of ZeroFox Common
Stock. Immediately subsequent to this conversion, using the estimated Exchange Ratio ZF Closing Stock Per Share Consideration of 0.2872, the converted warrant is expected to be exchanged for a warrant to purchase up to 372,452 shares of
New ZeroFox Common Stock. The terms of the warrant to purchase New ZeroFox Common Stock are expected to result in the warrant being classified as equity.
|
6. Adjustments to the Unaudited Pro Forma Condensed Combined
Statements of Operations
The pro forma adjustments, based on preliminary estimates that could
change materially as additional information is obtained, are as follows:
Pro Forma Adjustments Related to IDX:
The adjustments below relate to IDX and include adjustments related to the allocation
of the purchase price for the acquisition of IDX and additional adjustments related to the Business Combination.
|
(aa)
|
To reflect an adjustment to revenue as a result of the fair value adjustment to IDX’s deferred revenue.
|
|
(bb)
|
To reflect incremental amortization expense as a result of the fair value adjustment to intangible assets. Amortization expense
related to developed technology is recorded as cost of revenue. Amortization expense related to the trade name is recorded as general and administrative expense. Amortization expense related to the Office of Personnel Management
contract, breach-related contract, and customer relationships is recorded as sales and marketing expense.
|
|
(cc)
|
To reflect stock-based compensation for stock options that are subject to accelerated vesting upon the Business Combination.
|
|
(dd)
|
To reflect the elimination of interest expense and amortization of deferred debt issuance costs on IDX’s loan with Comerica
Bank as it is assumed that this debt balance is paid off upon the Closing.
|
|
(ee)
|
To reflect the elimination of interest expense on IDX’s related party convertible debt as it is assumed that this debt balance
would have been paid off upon the Closing.
|
|
(ff)
|
To reflect the elimination of the change in fair value of IDX’s related party convertible debt as it is assumed that this debt
balance would have been paid off upon the Closing.
|
|
(gg)
|
To reflect the elimination of the change in fair value of IDX’s warrant liabilities. It is assumed that the warrants to
purchase IDX’s capital stock will be net exercised on February 1, 2021.
|
Additional Pro-Forma Adjustments:
The adjustments below include adjustments related to the Common Equity PIPE
Financing, the Convertible Notes Financing and the Business Combination, which include additional adjustments related to ZeroFox and L&F.
|
(A)
|
To reflect an adjustment to eliminate interest expense, amortization of discount and debt issuance costs on the Stifel and Orix
loans as it is assumed that the related debt balances would have been paid off by ZeroFox on February 1, 2021.
|
237
|
(B)
|
To reflect an adjustment to record cash interest expense of 7.00% and amortization of debt issuance costs on the Notes (see
Note 5(F)).
|
The Notes bear interest at a rate of 7.00% per annum, payable quarterly in cash;
provided, that the issuer may elect to pay interest in kind at a rate of 8.75% per annum. The preparation of the unaudited pro forma condensed combined financials statements assumes the cash interest option was elected consistently throughout
the reporting period. The following table summarizes the impact of selecting the interest in kind option on unaudited pro forma condensed combined financials statements (in thousands, except share and share price amounts):
|
|
| |
Cash Interst
Option
|
| |
PIK Option
|
|
Convertible debt
|
| |
$149,806
|
| |
$163,470
|
|
Total liabilities
|
| |
$240,140
|
| |
$253,804
|
|
Accumulated deficit
|
| |
$ (159,721)
|
| |
$ (173,385)
|
|
Total stockholders' equity
|
| |
$414,499
|
| |
$400,835
|
|
|
| |
|
| |
|
|
Interest expense
|
| |
$13,178
|
| |
$16,342
|
|
Net loss after taxes
|
| |
$(56,220)
|
| |
$(59,384)
|
|
|
| |
|
| |
|
|
Net loss per share
|
| |
$(0.42)
|
| |
$(0.44)
|
|
(C)
|
To reflect an adjustment to write-off the unamortized debt discounts related to ZeroFox loans with Orix and Stifel. The
unamortized debt discounts include discounts due to unamortized debt issuance costs and warrants.
|
|
(D)
|
To reflect the elimination of the change in fair value of ZeroFox’s warrant liabilities. It is assumed that the warrants to
purchase ZeroFox’s Series A, B, and E redeemable convertible preferred stock will be net exercised on February 1, 2021. In addition, it is assumed that the warrants to purchase ZeroFox’s common stock (see Note 5(P)) and Series C-1
redeemable convertible preferred stock (see Note 5(Q)) will be exchanged for warrants to purchase New ZeroFox Common Stock on February 1, 2021 and that the exchanged warrants will be classified as equity.
|
|
(E)
|
To reflect the elimination of interest income related to the marketable securities held in the trust account.
|
|
(F)
|
To reflect write-down of the unamortized debt issuance costs and warrants and the prepayment penalty associated with the
payment of its long-term debt with Orix (see Note 5(I)).
|
|
(G)
|
The pro forma basic and diluted net loss per share amounts presented in the unaudited pro forma condensed combined statements
of operations are based upon the number of New ZeroFox shares outstanding as if the Transactions occurred on February 1, 2020. The calculation of weighted-average shares outstanding for pro forma basic and diluted net loss per share
assumes that the shares issuable in connection with the Transactions have been outstanding for the entirety of the periods presented. The 1,293,750 Sponsor Holders Earnout Shares are participating securities that contractually entitle
the holders of such shares to participate in nonforfeitable dividends but do not contractually obligate the holders of such shares to participate in losses. The unaudited pro forma condensed combined statements of operations reflect net
losses for the periods presented and, accordingly, no loss amounts have been allocated to the Sponsor Holders Earnout Shares. The Sponsor Holders Earnout Shares have also been excluded from basic and diluted pro forma net loss per share
as such shares are subject to forfeiture until certain specified earnout triggering events have occurred.
|
238
Pro Forma weighted-average common shares outstanding—basic and diluted is
calculated as follows for the year ended January 31, 2022:
|
Weighted-average shares calculation - basic and diluted
|
| |
Assuming No
Redemptions into
Cash
|
|
Assume conversion of Class B ordinary shares into Class A
ordinary shares effective January 1, 2021 as a result of assuming closing of the Business Combination on January 1, 2021
|
| |
4,312,500
|
|
Assume reclassification of L&F Class A ordinary
shares subject to redemption to L&F Class A ordinary shares not subject to redemption effective January 1, 2021 under Scenario 1 as a result of assuming closing of the Business Combination on January 1, 2021
|
| |
17,250,000
|
|
Assume January 1, 2021 issuance of L&F Class A
ordinary shares in connection with the closing of the Common Equity PIPE Investment Financing
|
| |
2,000,000
|
|
Assume January 1, 2021 issuance of L&F Class A
ordinary shares to ZeroFox shareholders as a result of assuming closing of the Business Combination on January 1, 2021
|
| |
82,446,660
|
|
Assume January 1, 2021 issuance of L&F Class A
ordinary shares to IDX shareholders as a result of assuming closing of the Business Combination on January 1, 2021
|
| |
27,878,946
|
|
Pro forma weighted-average shares outstanding—basic and diluted
|
| |
133,888,106
|
7. Income Taxes
|
(a)
|
The following tables represents the income tax impact of the pro forma adjustments using effective tax rate of -0.34% for the
year ended January 31, 2022 (in thousands):
|
|
|
| |
Year Ended January
31, 2022
|
|
Current tax expense:
|
| |
|
|
Federal
|
| |
$—
|
|
Foreign
|
| |
100
|
|
State and local
|
| |
89
|
|
|
| |
189
|
|
|
| |
|
|
Deferred tax (benefit) expense:
|
| |
|
|
Federal
|
| |
(10,353)
|
|
State and local
|
| |
(550)
|
|
Foreign
|
| |
—
|
|
|
| |
(10,903)
|
|
Less change in valuation allowance
|
| |
10,903
|
|
Income tax provision
|
| |
$189
|
239
Deferred income taxes reflect temporary differences in the recognition of revenue
and expenses between financial statement and income tax reporting. Deferred income taxes as of January 31, 2022 consisted of the following (in thousands):
|
|
| |
January 31, 2022
|
|
Deferred tax assets:
|
| |
|
|
Depreciation and amortization
|
| |
$538
|
|
Deferred revenue
|
| |
2,122
|
|
Stock-based compensation
|
| |
112
|
|
Accruals
|
| |
1,509
|
|
Charitable contributions
|
| |
3
|
|
Allowance for doubtful accounts
|
| |
57
|
|
Tax credits
|
| |
12
|
|
Limitation on business interest expense
|
| |
2,781
|
|
Net operating losses- federal and state
|
| |
30,006
|
|
Credit carryforward
|
| |
36
|
|
Deferred rent
|
| |
10
|
|
Total deferred tax asset before valuation allowance
|
| |
37,186
|
|
Valuation allowance
|
| |
(14,866)
|
|
Total deferred tax asset
|
| |
22,320
|
|
Deferred tax liabilities:
|
| |
|
|
Prepaid commissions
|
| |
(2,907)
|
|
Intangibles from ZeroFox's acquisition of a business
|
| |
(541)
|
|
IDX intangibles
|
| |
(18,796)
|
|
Other, net
|
| |
(76)
|
|
Total deferred tax liability before valuation allowance
|
| |
(22,320)
|
|
Valuation allowance
|
| |
—
|
|
Total deferred tax liability
|
| |
(22,320)
|
|
Net deferred tax
|
| |
$—
|
|
(c)
|
The adjustment primarily reflects changes in deferred taxes attributable to IDX.
|
|
(d)
|
The adjustment primarily reflects changes in deferred taxes attributable to ZeroFox.
|
The pro forma tax adjustments are based on the assumption that the
acquired deferred tax liabilities will be a source of income for our net operating losses. We will complete our analysis relating to the availability of the deferred tax liabilities as a source of income and evaluate any limitations on the use
of our net operating losses when the merger is complete.
240
SCENARIO 2
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JANUARY 31, 2022
(in thousands, except share amounts)
|
|
| |
Historical
December 31,
2021
|
| |
Historical
January 31,
2022
|
| |
Historical
December 31,
2021
|
| |
Transaction Accounting Adjustments
|
| |
|
| |
|
||||||||||||||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments for
Material
Events
|
| |
|
| |
Adjustments
Related to
ZF
|
| |
|
| |
Adjustments
Related to
IDX
|
| |
|
| |
Additional
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Balance Sheet
|
|
ASSETS
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Current assets:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Cash and cash equivalents
|
| |
$576
|
| |
$ 10,274
|
| |
$ 17,986
|
| |
7,425
|
| |
5(a)
|
| |
$(45,975)
|
| |
5(aa)
|
| |
$(47,180)
|
| |
5(A)
|
| |
$169,072
|
| |
5(A)
|
| |
$67,557
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(14,002)
|
| |
5(cc)
|
| |
(3,079)
|
| |
5(B)
|
| |
(11,739)
|
| |
5(B)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(7,725)
|
| |
5(dd)
|
| |
|
| |
|
| |
(350)
|
| |
5(C)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
149,806
|
| |
5(D)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
15,000
|
| |
5(D)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(172,500)
|
| |
5(GG)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(32)
|
| |
5(HH)
|
| |
|
|
Accounts receivable, net of allowance for doubtful accounts
|
| |
—
|
| |
17,046
|
| |
9,997
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
27,043
|
|
Deferred contract acquisitions costs, current
|
| |
—
|
| |
4,174
|
| |
825
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
4,999
|
|
Prepaid expenses and other assets
|
| |
9
|
| |
1,276
|
| |
953
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(9)
|
| |
5(BB)
|
| |
2,229
|
|
Total current assets
|
| |
585
|
| |
32,770
|
| |
29,761
|
| |
7,425
|
| |
|
| |
(67,702)
|
| |
|
| |
(50,259)
|
| |
|
| |
149,248
|
| |
|
| |
101,828
|
|
Marketable investments held in Trust Account
|
| |
175,110
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(169,072)
|
| |
5(AA)
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(6,038)
|
| |
5(FF)
|
| |
|
|
Property and equipment, net of accumulated depreciation
|
| |
—
|
| |
694
|
| |
127
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
821
|
|
Capitalized software, net of accumulated amortization
|
| |
—
|
| |
914
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
914
|
|
Deferred contract acquisition costs, net of current portion
|
| |
—
|
| |
7,481
|
| |
263
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
7,744
|
|
Acquired intangible assets, net of accumulated amortization
|
| |
—
|
| |
14,210
|
| |
—
|
| |
—
|
| |
|
| |
172,000
|
| |
5(aa)
|
| |
94,900
|
| |
5(A)
|
| |
—
|
| |
|
| |
281,110
|
|
Goodwill
|
| |
—
|
| |
35,002
|
| |
—
|
| |
—
|
| |
|
| |
675,432
|
| |
5(aa)
|
| |
226,289
|
| |
5(A)
|
| |
—
|
| |
|
| |
936,723
|
|
Deferred tax asset
|
| |
—
|
| |
—
|
| |
1,229
|
| |
—
|
| |
|
| |
32,909
|
| |
5(aa)
|
| |
(1,229)
|
| |
5(A)
|
| |
—
|
| |
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(32,909)
|
| |
5(hh)
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Other assets
|
| |
—
|
| |
319
|
| |
37
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
356
|
|
Total assets
|
| |
$ 175,695
|
| |
$ 91,390
|
| |
$ 31,417
|
| |
$ 7,425
|
| |
|
| |
$ 779,730
|
| |
|
| |
$269,701
|
| |
|
| |
$(25,862)
|
| |
|
| |
$1,329,496
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
241
|
|
| |
Historical
December 31,
2021
|
| |
Historical
January 31,
2022
|
| |
Historical
December 31,
2021
|
| |
Transaction Accounting Adjustments
|
| |
|
| |
|
||||||||||||||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments for
Material
Events
|
| |
|
| |
Adjustments
Related to
ZF
|
| |
|
| |
Adjustments
Related to
IDX
|
| |
|
| |
Additional
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Balance Sheet
|
|
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK, AND STOCKHOLDERS' EQUITY (DEFICIT)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Current liabilities:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Accounts payable
|
| |
$—
|
| |
$4,276
|
| |
$7,286
|
| |
$—
|
| |
|
| |
$—
|
| |
|
| |
$(204)
|
| |
5(B)
|
| |
$—
|
| |
|
| |
$11,358
|
|
Contingent consideration related to business combination
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
|
Accrued liabilities
|
| |
2,785
|
| |
7,020
|
| |
6,606
|
| |
—
|
| |
|
| |
(3,521)
|
| |
5(cc)
|
| |
—
|
| |
|
| |
(2,785)
|
| |
5(BB)
|
| |
10,105
|
|
Accrued offering costs
|
| |
350
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(350)
|
| |
5(CC)
|
| |
—
|
|
Deferred revenue, current
|
| |
—
|
| |
29,532
|
| |
7,560
|
| |
—
|
| |
|
| |
(14,906)
|
| |
5(aa)
|
| |
(2,091)
|
| |
5(A)
|
| |
—
|
| |
|
| |
20,095
|
|
Current installments of obligations under capital leases
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
|
Related party convertible debt, carried at fair value
|
| |
—
|
| |
—
|
| |
2,445
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(2,445)
|
| |
5(A)
|
| |
—
|
| |
|
| |
—
|
|
Current portion of long-term debt
|
| |
—
|
| |
5,970
|
| |
1,667
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(1,667)
|
| |
5(A)
|
| |
(5,032)
|
| |
5(HH)
|
| |
938
|
|
Total current liabilities
|
| |
3,135
|
| |
46,798
|
| |
25,564
|
| |
—
|
| |
|
| |
(18,427)
|
| |
|
| |
(6,407)
|
| |
|
| |
(8,167)
|
| |
|
| |
42,496
|
|
Deferred underwriting fee payable
|
| |
6,038
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(6,038)
|
| |
5(FF)
|
| |
—
|
|
Deferred revenue—net of current portion
|
| |
—
|
| |
9,299
|
| |
2,116
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
11,415
|
|
Accrued liabilities, long-term
|
| |
—
|
| |
—
|
| |
750
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
750
|
|
Deferred tax liability
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
43,666
|
| |
5(aa)
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
10,757
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(32,909)
|
| |
5(hh)
|
| |
—
|
| |
|
| |
|
| |
|
| |
|
|
Long term debt—net of current portion
|
| |
—
|
| |
45,503
|
| |
8,319
|
| |
6,865
|
| |
5(a)
|
| |
(43,373)
|
| |
5(aa)
|
| |
(8,319)
|
| |
5(A)
|
| |
—
|
| |
|
| |
2,130
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(6,865)
|
| |
5(dd)
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| ||
|
Convertible debt
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
149,806
|
| |
5(DD)
|
| |
149,806
|
|
Warrants
|
| |
18,637
|
| |
10,709
|
| |
—
|
| |
560
|
| |
5(a)
|
| |
(4,040)
|
| |
5(bb)
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
18,637
|
|
|
| |
|
| |
|
| |
|
| |
(560)
|
| |
5(b)
|
| |
(2,409)
|
| |
5(gg)
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(4,260)
|
| |
5(ff)
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Other liabilities
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
|
Total liabilities
|
| |
27,810
|
| |
112,309
|
| |
36,749
|
| |
6,865
|
| |
|
| |
(68,617)
|
| |
|
| |
(14,726)
|
| |
|
| |
135,601
|
| |
|
| |
235,991
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
242
|
|
| |
Historical
December 31,
2021
|
| |
Historical
January 31,
2022
|
| |
Historical
December 31,
2021
|
| |
Transaction Accounting Adjustments
|
| |
|
| ||||||||||||||||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments for
Material
Events
|
| |
|
| |
Adjustments
Related to
ZF and
Acquisition of
ZF
|
| |
|
| |
Adjustments
Related to
IDX and
Acquisition of
IDX
|
| |
|
| |
Additional
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Balance Sheet
|
|
ZeroFox redeemable convertible preferred stock
|
| |
—
|
| |
132,229
|
| |
—
|
| |
566
|
| |
5(d)
|
| |
2,950
|
| |
5(bb)
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
—
|
| |
|
| |
(135,745)
|
| |
5(ee)
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
IDX redeemable convertible preferred stock
|
| |
—
|
| |
—
|
| |
64,902
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
202
|
| |
5(C)
|
| |
—
|
| |
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(65,104)
|
| |
5(D)
|
| |
|
| |
|
| |
|
|
Total redeemable convertible preferred stock
|
| |
—
|
| |
132,229
|
| |
64,902
|
| |
566
|
| |
|
| |
(132,795)
|
| |
|
| |
(64,902)
|
| |
|
| |
—
|
| |
|
| |
—
|
|
L&F Class A ordinary shares subject to possible
redemption (pre-Domestication)
|
| |
175,088
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(175,088)
|
| |
5(GG)
|
| |
—
|
|
L&F Class A ordinary shares subject to possible
redemption (Domesticated)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
|
Stockholders' equity (deficit):
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
L&F Class A ordinary shares (pre-Domestication)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
|
L&F Class B ordinary shares (pre-Domestication)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
|
| |
|
| |
—
|
|
L&F Class A ordinary shares (Domesticated)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
8
|
| |
5(aa)
|
| |
3
|
| |
5(A)
|
| |
—
|
| |
|
| |
11
|
|
ZeroFox common stock
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
—
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
IDX common stock
|
| |
—
|
| |
—
|
| |
1
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(4)
|
| |
5(A)
|
| |
—
|
| |
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
3
|
| |
5(D)
|
| |
|
| |
|
| |
|
|
Additional paid-in capital
|
| |
—
|
| |
3,873
|
| |
—
|
| |
—
|
| |
|
| |
689,553
|
| |
5(aa)
|
| |
217,058
|
| |
5(A)
|
| |
(8,963)
|
| |
5(BB)
|
| |
1,129,641
|
|
|
| |
|
| |
|
| |
|
| |
(6)
|
| |
5(b)
|
| |
1,090
|
| |
5(bb)
|
| |
(2,875)
|
| |
5(B)
|
| |
15,000
|
| |
5(EE)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
—
|
| |
|
| |
135,745
|
| |
5(ee)
|
| |
(202)
|
| |
5(C)
|
| |
5,000
|
| |
5(HH)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
4,260
|
| |
5(ff)
|
| |
65,101
|
| |
5(D)
|
| |
2,588
|
| |
5(GG)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2,409
|
| |
5(gg)
|
| |
10
|
| |
5(E)
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Accumulated deficit
|
| |
(27,203)
|
| |
(156,820)
|
| |
(70,325)
|
| |
—
|
| |
|
| |
159,217
|
| |
5(aa)
|
| |
70,245
|
| |
5(A)
|
| |
—
|
| |
|
| |
(36,147)
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(10,481)
|
| |
5(cc)
|
| |
(10)
|
| |
5(E)
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(860)
|
| |
5(dd)
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Accumulated other comprehensive loss
|
| |
—
|
| |
(201)
|
| |
—
|
| |
—
|
| |
|
| |
201
|
| |
5(aa)
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
|
Total stockholders' equity (deficit)
|
| |
(27,203)
|
| |
(153,148)
|
| |
(70,234)
|
| |
(6)
|
| |
|
| |
981,142
|
| |
|
| |
349,329
|
| |
|
| |
13,625
|
| |
|
| |
1,093,505
|
|
Total liabilities, redeemable convertible preferred stock,
L&F Class A ordinary shares, and stockholders' equity (deficit)
|
| |
$ 175,695
|
| |
$91,390
|
| |
$31,417
|
| |
$ 7,425
|
| |
|
| |
$779,730
|
| |
|
| |
$ 269,701
|
| |
|
| |
$ (25,862)
|
| |
|
| |
$1,329,496
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
243
SCENARIO 2
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED JANUARY 31, 2022
(in thousands, except share and per share amounts)
|
|
| |
Historical
Year Ended
December 31,
2021
|
| |
Historical
Year Ended
January 31,
2022
|
| |
Historical
Year Ended
December 31,
2021
|
| |
Transaction Accounting Adjustments
|
| |
|
| |
|
| |
|
||||||||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments
Related to
ZF
|
| |
|
| |
Adjustments
Related to
IDX
|
| |
|
| |
Additional
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Statement of
Operations
|
| |
|
|
Revenue
|
| |
$—
|
| |
$47,433
|
| |
$ 106,072
|
| |
$(14,906)
|
| |
6(aa)
|
| |
$(2,091)
|
| |
6(A)
|
| |
$—
|
| |
|
| |
$136,508
|
| |
|
|
Cost of revenue
|
| |
—
|
| |
16,357
|
| |
82,745
|
| |
19,800
|
| |
6(bb)
|
| |
2,800
|
| |
6(B)
|
| |
—
|
| |
|
| |
121,702
|
| |
|
|
Gross profit
|
| |
—
|
| |
31,076
|
| |
23,327
|
| |
(34,706)
|
| |
|
| |
(4,891)
|
| |
|
| |
—
|
| |
|
| |
14,806
|
| |
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| ||
|
Research and development
|
| |
—
|
| |
12,810
|
| |
4,941
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
17,751
|
| |
|
|
Sales and marketing
|
| |
—
|
| |
29,873
|
| |
7,182
|
| |
9,000
|
| |
6(bb)
|
| |
13,667
|
| |
6(B)
|
| |
—
|
| |
|
| |
59,722
|
| |
|
|
General and administrative
|
| |
3,848
|
| |
16,408
|
| |
6,872
|
| |
3,800
|
| |
6(bb)
|
| |
6,180
|
| |
6(B)
|
| |
—
|
| |
|
| |
48,085
|
| ||
|
|
| | | | | | | |
10,967
|
| |
6(ff)
|
| |
10
|
| |
6(C)
|
| | | |
|
| | | |
|
|||||
|
Total operating expenses
|
| |
3,848
|
| |
59,091
|
| |
18,995
|
| |
23,767
|
| |
|
| |
19,857
|
| |
|
| |
—
|
| |
|
| |
125,558
|
| |
|
|
(Loss) / income from operations
|
| |
(3,848)
|
| |
(28,015)
|
| |
4,332
|
| |
(58,473)
|
| |
|
| |
(24,748)
|
| |
|
| |
—
|
| |
|
| |
(110,752)
|
| |
|
|
Other income (expense):
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| ||
|
Interest expense, net
|
| |
—
|
| |
(3,585)
|
| |
(483)
|
| |
3,459
|
| |
6(cc)
|
| |
483
|
| |
6(D)
|
| |
(10,565)
|
| |
6(AA)
|
| |
(13,178)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
(1,627)
|
| |
6(dd)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| ||
|
|
| |
|
| |
|
| |
|
| |
(860)
|
| |
6(gg)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| ||
|
Fair value adjustments
|
| |
9,426
|
| |
(7,375)
|
| |
(1,944)
|
| |
7,375
|
| |
6(ee)
|
| |
1,944
|
| |
6(G)
|
| |
—
|
| |
|
| |
9,426
|
| |
|
|
Other expense
|
| |
—
|
| |
—
|
| |
(716)
|
| |
—
|
| |
|
| |
25
|
| |
6(D)
|
| |
—
|
| |
|
| |
—
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
169
|
| |
6(E)
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
522
|
| |
6(F)
|
| |
|
| |
|
| |
|
| |
|
|
Interest earned on marketable securities held in Trust
Account
|
| |
20
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
|
| |
(20)
|
| |
6(CC)
|
| |
—
|
| |
|
|
Total other income (expense)
|
| |
9,446
|
| |
(10,960)
|
| |
(3,143)
|
| |
8,347
|
| |
|
| |
3,143
|
| |
|
| |
(10,585)
|
| |
|
| |
(3,752)
|
| |
|
|
Income / (loss) before taxes
|
| |
5,598
|
| |
(38,975)
|
| |
1,189
|
| |
(50,126)
|
| |
|
| |
(21,605)
|
| |
|
| |
(10,585)
|
| |
|
| |
(114,504)
|
| |
|
|
Income tax expense (benefit)
|
| |
—
|
| |
(536)
|
| |
1,716
|
| |
(10,624)
|
| |
7(b)
|
| |
(5,837)
|
| |
7(c)
|
| |
(391)
|
| |
7(d)
|
| |
(15,672)
|
| |
7(a)
|
|
Net income / (loss) after taxes
|
| |
$5,598
|
| |
$
(38,439)
|
| |
$ (527)
|
| |
$(39,502)
|
| |
|
| |
$(15,768)
|
| |
|
| |
$
(10,194)
|
| |
|
| |
$(98,832)
|
| |
|
|
Net (loss) / income attributable to common stockholders
(basic)
|
| |
|
| |
$
(38,439)
|
| |
$(32,978)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net (loss) / income attributable to common stockholders
(diluted)
|
| |
|
| |
$
(38,439)
|
| |
$(32,978)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income attributable to Class A redeemable ordinary
shares (basic and diluted)
|
| |
$4,478
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income attributable to Class B non-redeemable ordinary
shares (basic and diluted)
|
| |
$1,120
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net loss attributable to Class A non-redeemable ordinary
shares (basic and diluted)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$(98,832)
|
| |
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
244
|
|
| |
Historical
Year Ended
December 31,
2021
|
| |
Historical
Year Ended
January 31,
2022
|
| |
Historical
Year Ended
December 31,
2021
|
| |
Transaction Accounting Adjustments
|
| |
|
| |
|
| |
|
||||||||||||
|
|
| |
L&F
|
| |
ZF
|
| |
IDX
|
| |
Adjustments
Related to
ZF
|
| |
|
| |
Adjustments
Related to
IDX
|
| |
|
| |
Additional
Pro Forma
Adjustments
|
| |
|
| |
Pro Forma
Statement of
Operations
|
| |
|
|
Net (loss) / income per share attributable to common
stockholders (basic)
|
| |
|
| |
$(0.91)
|
| |
$(2.80)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net (loss) / income per share attibutable to common
stockholders (diluted)
|
| |
|
| |
$(0.91)
|
| |
$(2.80)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income per share attributable to Class A redeemable
ordinary shares (basic and diluted)
|
| |
$0.26
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income per share attributable to Class B non-redeemable
ordinary shares (basic and diluted)
|
| |
$0.26
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net loss per share attributable to Class A non-redeemable
ordinary shares (basic and diluted)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$(0.85)
|
| |
|
|
Weighted-average average shares used in computing net (loss)
/ income per share attributable to common stockholders (basic)
|
| |
|
| |
42,073,351
|
| |
11,777,989
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares used in computing net (loss) /
income per share attributable to common stockholders (diluted)
|
| |
|
| |
42,073,351
|
| |
11,777,989
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares outstanding of Class A redeemable
ordinary shares used in computing net income per share attributable to stockholders of Class A redeemable ordinary shares (basic and diluted)
|
| |
17,250,000
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares outstanding of Class B
non-redeemable ordinary shares used in computing net income per share attributable to stockholders of Class B non-redeemable ordinary shares (basic and diluted)
|
| |
4,312,500
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares outstanding of Class A
non-redeemable ordinary shares used in computing net loss per share attributable to stockholders of Class A non-redeemable ordinary shares (basic and diluted)
|
| |
4,312,500
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
116,638,106
|
| |
6(CC)
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
245
SCENARIO 2
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. Description of the Transactions
Business Combination, Common Equity PIPE Financing, and Notes
On December 17, 2021, L&F, ZeroFox and IDX entered into a
definitive business combination agreement (the “Business Combination Agreement”). Under the terms of the Business Combination Agreement, following the domestication of L&F as a Delaware
corporation, (i) ZF Merger Sub, Inc., an indirect wholly-owned subsidiary of L&F, will merge with and into ZeroFox (the “ZF Merger”), with ZeroFox being the surviving company in the ZF
Merger and continuing (immediately following the ZF Merger) as an indirect, wholly-owned subsidiary of L&F, (ii) immediately following the ZF Merger, IDX Merger Sub, Inc., an indirect wholly-owned subsidiary of L&F, will merge with and
into IDX (the “IDX Merger”), with IDX being the surviving company in the IDX Merger (referred to herein as “Transitional IDX Entity”)
and continuing (immediately following the IDX Merger) as an indirect, wholly-owned subsidiary of L&F, and (iii) immediately following the IDX Merger, Transitional IDX Entity will merge with and into IDX Forward Merger Sub, LLC, an indirect
wholly-owned subsidiary of L&F (the “IDX Forward Merger,” and together with the ZF Merger and IDX Merger, the “Mergers”), with IDX
Forward Merger Sub, LLC being the surviving company in the IDX Forward Merger and continuing (immediately following the IDX Forward Merger) as an indirect, wholly-owned subsidiary of L&F. The cash components of the transaction will be
funded by L&F’s cash in trust of approximately $175.1 million (assuming no Redemptions), the $20.0 million Common Equity PIPE Financing, and $150.0 million Convertible Notes Financing. The Notes will mature three years from issuance and
accrue cash interest at 7.00% per annum payable quarterly with an option for the issuer to accrue paid-in-kind interest at an annual rate of 8.75%.The Business Combination is expected to close during the first half of 2022 and remains subject
to customary closing conditions.
Adjustments for Material Events
In December 2021, ZeroFox received a commitment of no less than
$7.5 million in loans from Orix Growth Capital, LLC (“Orix”) under the terms of an existing loan agreement. As of the date of these unaudited pro forma condensed combined financial statements, ZeroFox has borrowed the entire $7.5 million
available under the loan. Interest on any advances under the loan agreement will be payable monthly at rate of 10.00% per annum. Unpaid principal and accrued interest on any borrowings will be due in January 2026. In connection with the loan
amendment, Orix was issued a warrant to purchase up to 161,112 shares of ZeroFox Series E redeemable convertible preferred stock at an exercise price of $1.86205 per share. No amounts under the commitment with Orix described above have been
reflected in ZeroFox’s historical consolidated financial statements as of January 31, 2022. Immediately prior to the Closing, the warrant is expected to be exercised for shares of ZeroFox Series E redeemable convertible preferred stock, which
shares will mandatorily convert into shares of ZeroFox Common Stock immediately prior to the Closing and subsequently convert into the right to receive shares of New ZeroFox Common Stock as a result of the ZF Merger.
2. Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial statements were
prepared in accordance with Article 11 of SEC 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 Transactions (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or are
reasonably expected to occur (“Management’s Adjustments”). Management has elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the unaudited pro forma condensed combined financial
information. The adjustments presented in the unaudited pro forma condensed combined financial statements have been identified and presented to provide relevant information necessary for an understanding of the combined company reflecting the
Transactions.
The unaudited pro forma condensed combined financial statements are
based on L&F’s historical financial statements and ZeroFox’s and IDX’s historical consolidated financial statements, as adjusted to give effect to the
246
Transactions. The historical financial statements of L&F and IDX were prepared
based on a December 31 fiscal year-end and the historical financial statements of ZeroFox were prepared based on a January 31 fiscal year-end. Following the consummation of the Business Combination, New ZeroFox will have a January 31 fiscal
year-end.
The unaudited pro forma condensed combined balance sheet gives pro
forma effect to the Transactions as if they had been consummated on January 31, 2022. The unaudited pro forma condensed combined statements of operations for the year ended January 31, 2022 give effect to the Transactions as if they had
occurred on February 1, 2021.
Management has made significant estimates and assumptions in its
determination of the pro forma adjustments. The pro forma adjustments reflecting the Transactions are based on certain currently available information and certain assumptions and methodologies that management believes are reasonable under the
circumstances. The 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 pro
forma adjustments, and it is possible the difference may be material. Management believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Transactions based on information
available to management at this 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 statements.
The unaudited pro forma condensed combined financial statements do
not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Business Combination. L&F and ZeroFox have not had any historical relationship prior to the Business
Combination. L&F and IDX have not had any historical relationship prior to the Business Combination. Prior to the Business Combination, IDX was a customer of ZeroFox.
This presentation assumes that all Public shareholders redeem their
Class A Ordinary Shares for their pro rata share of the Trust Account and thus none of the amount held in the Trust Account as of immediately prior to the Closing is available for the post-Business Combination company. As there is no minimum
L&F cash on hand required to consummate the Business Combination, Scenario 2 assumes all 17,250,000 issued and outstanding shares of L&F Class A Ordinary Shares are redeemed by the L&F Public Shareholders. It is a condition to the
parties’ obligations to close under the Business Combination Agreement that the aggregate net cash proceeds from the Trust Account (after deducting any amounts paid to Public Shareholders that exercise their redemption rights in connection with
the Business Combination), together with the net cash proceeds from the Common Equity PIPE Financing and the Convertible Notes Financing, be equal to no less than $170.0 million. As the cash proceeds (without taking into account offering
expenses, as agreed by the parties) from the Common Equity PIPE Financing and the Convertible Notes Financing are expected to satisfy this requirement, the maximum redemption scenario assumes that all 17,250,000 Class A Ordinary Shares are
redeemed. The unaudited pro forma financial information also has been prepared on the basis that L&F’s shareholders approve the Articles Amendment Proposal.
Shares outstanding as presented in the unaudited pro forma condensed
combined financial statements include 82,446,660 shares of New ZeroFox Common Stock to be issued to ZeroFox’s shareholders, 27,878,946 shares of New ZeroFox Common Stock to be issued to IDX’s shareholders, 4,312,500 shares of New ZeroFox Common
Stock issued to L&F shareholders (including the 1,293,750 shares of New ZeroFox Common Stock to be issued to the Sponsor Holders that are subject to forfeiture if certain earnout conditions are not satisfied (the “Sponsor Holders Earnout Shares”)), and 2,000,000 shares of New ZeroFox Common Stock to be issued in connection with the Common Equity PIPE Financing.
After giving effect to the maximum redemption of L&F Class A
Ordinary Shares, ZeroFox’s shareholders will own approximately 71% of the shares of New ZeroFox Common Stock, IDX’s shareholders will own approximately 24% of the shares of New ZeroFox Common Stock, L&F public shareholders will own 1% of
the shares of New ZeroFox Common Stock, and the Sponsor will own approximately 4% of the shares of New ZeroFox Common Stock, based on the number of Class A Ordinary Shares outstanding as of December 31, 2021 (in each case, not giving effect to
any shares issuable upon exercise of any L&F warrants, L&F options, or conversion of the Notes).
247
|
|
| |
Assuming No Redemptions
|
|||||||||
|
|
| |
Shares from
Recapitalization
|
| |
Shares from
PIPE Investment
|
| |
Total Shares
|
| |
%
|
|
Stockholder
|
| |
|
| |
|
| |
|
| |
|
|
ZF shareholders
|
| |
82,446,660
|
| |
500,000
|
| |
82,946,660
|
| |
71%
|
|
IDX shareholders
|
| |
27,878,946
|
| |
500,000
|
| |
28,378,946
|
| |
24%
|
|
Public shareholders
|
| |
—
|
| |
1,000,000
|
| |
1,000,000
|
| |
1%
|
|
SPAC Sponsor
|
| |
4,312,500
|
| |
—
|
| |
4,312,500
|
| |
4%
|
|
Total
|
| |
114,638,106
|
| |
2,000,000
|
| |
116,638,106
|
| |
100%
|
The L&F Public Warrants and the L&F Private Placement
Warrants have been reported as liability-classified instruments that will be subsequently remeasured at fair value in future reporting periods, with changes in fair value recognized in earnings. The 1,293,750 Sponsor Holders Earnout Shares that
are subject to an earnout pursuant to the Sponsor Support Letter Agreement have been reported as equity-classified as they are indexed to the entity’s own stock and meet the additional criteria for equity classification. The final accounting
for the Business Combination, including L&F Warrants and Sponsor Holders Earnout Shares, is expected to be determined at Closing.
These unaudited pro forma condensed combined financial statements
and related notes have been derived from and should be read in conjunction with:
|
•
|
the historical unaudited condensed financial statements of L&F as and for the year ended December 31, 2021 and the related
notes included elsewhere in this proxy statement/prospectus;
|
|
•
|
the historical audited consolidated financial statements of ZeroFox as of and for the year ended January 31, 2022 and the
related notes included elsewhere in this proxy statement/ prospectus;
|
|
•
|
the historical audited consolidated financial statements of IDX as of and for the year ended December 31, 2021 and the related
notes included elsewhere in this proxy statement/ prospectus;
|
|
•
|
the accompanying notes to the unaudited pro forma condensed combined financial statements;
|
|
•
|
the sections entitled “Management’s Discussion and Analysis of Financial Condition and
Results of Operations of L&F,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of ZeroFox ,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of IDX,” and other financial information relating to L&F, ZeroFox, and IDX included elsewhere
in this proxy statement/prospectus.
|
The unaudited pro forma condensed combined financial statements are
provided for illustrative purposes only and are not necessarily indicative of what the actual results of operations and financial position would have been had the Transactions taken place on the dates indicated, nor are they indicative of the
future consolidated results of operations or financial position of New ZeroFox.
3. Accounting Treatment for the Business Combination
The accounting treatment for the Business Combination is dependent
upon which entity is considered the accounting acquirer. If a combining entity meets the definition of a VIE, the primary beneficiary of the VIE is the accounting acquirer.
Upon consummation of the Business Combination, IDX is considered a
business in accordance with ASC 805, Business Combinations. However, upon consummation of the Business Combination, ZeroFox is considered a variable interest entity as the equity at risk
for ZeroFox is not sufficient to fund expected future cash flow needs, including funding future projected losses, and servicing existing debt obligations. L&F will hold a variable interest in ZeroFox as it will own 100% of ZeroFox’s equity.
L&F will be considered the primary beneficiary as its ownership will provide the power to direct the activities that most significantly impact ZeroFox’s performance and the obligation to absorb the losses and/or receive the benefits of
ZeroFox that could potentially be significant to ZeroFox. L&F will be treated as the accounting acquirer.
As L&F is determined to be the primary beneficiary of ZeroFox,
it is considered the accounting acquirer in the Business Combination. L&F’s acquisitions of ZeroFox and IDX will be considered business combinations
248
under ASC 805, Business Combinations,
and will be accounted for using the acquisition method of accounting. The consideration transferred to effect the acquisitions will be allocated to the assets acquired and liabilities assumed based on their estimated acquisition-date fair
values. The excess of consideration transferred over the fair values of assets acquired and liabilities assumed will be recorded as goodwill. Transaction costs related to the acquisitions of ZeroFox and IDX will be expensed.
4. Exchange of Shares for New ZeroFox Common Stock
Exchange of ZeroFox Shares for New ZeroFox Common Stock
Based on 287,039,450 shares of ZeroFox Common Stock outstanding as
of January 31, 2022 after the assumed net exercise of certain warrants and the ZF Mandatory Conversion immediately prior to the Closing, and the ZF Closing Stock per Share Consideration, determined in accordance with the terms of the Business
Combination Agreement, of approximately 0.2872, holders of ZeroFox Common Stock (excluding holders of certain ZeroFox warrants and ZeroFox options) are expected to receive 82,446,660 shares of New ZeroFox Common Stock in the Business
Combination, determined as follows:
|
|
| |
ZeroFox Shares
Outstanding as of
January 31, 2022
(Historical)
|
| |
Net Exercise of Stock
Warrants
|
| |
Conversion of ZeroFox Redeemable
Convertible
Preferred Stock into
ZeroFox Common
Stock
|
| |
ZeroFox common
stock assumed
outstanding prior to
Closing
|
|
Series Seed, par value $0.00001 per share
|
| |
9,198,372
|
| |
—
|
| |
(9,198,372)
|
| |
—
|
|
Series A, par value $0.00001 per share
|
| |
15,997,285
|
| |
110,976
|
| |
(16,108,261)
|
| |
—
|
|
Series B, par value $0.00001 per share
|
| |
26,914,949
|
| |
125,401
|
| |
(27,040,350)
|
| |
—
|
|
Series C, par value $0.00001 per share
|
| |
21,124,699
|
| |
—
|
| |
(21,124,699)
|
| |
—
|
|
Series C-1, par value $0.00001 per share
|
| |
11,376,115
|
| |
—
|
| |
(11,376,115)
|
| |
—
|
|
Series D, par value $0.00001 per share
|
| |
13,871,547
|
| |
—
|
| |
(13,871,547)
|
| |
—
|
|
Series D-1, par value $0.00001 per share
|
| |
5,878,303
|
| |
—
|
| |
(5,878,303)
|
| |
—
|
|
Series D-2, par value $0.00001 per share
|
| |
993,868
|
| |
—
|
| |
(993,868)
|
| |
—
|
|
Series E, par value $0.00001 per share
|
| |
15,227,437
|
| |
725,930
|
| |
(15,953,367)
|
| |
—
|
|
Common stock, par value $0.00001 per share
|
| |
42,892,927
|
| |
—
|
| |
244,146,523
|
| |
287,039,450
|
|
Total
|
| |
163,475,502
|
| |
962,307
|
| |
122,601,641
|
| |
287,039,450
|
|
ZeroFox common stock assumed outstanding prior to Closing
|
| |
287,039,450
|
|||||||||
|
ZF Closing Stock Per Share Consideration
|
| |
0.2872
|
|||||||||
|
Estimated shares of New ZeroFox Common Stock issued to ZeroFox stockholders upon Closing
|
| |
82,446,660
|
|||||||||
Exchange of Shares of IDX Capital Stock for Shares of New ZeroFox
Common Stock
Based on 43,897,622 shares of IDX Capital Stock outstanding as of
December 31, 2021 after the net exercise of a common stock warrant immediately prior to the Closing, and the IDX Closing Stock Per Share Consideration, determined in accordance with the terms of the Business Combination Agreement, of
approximately 0.6174, holders of IDX Capital Stock are expected to receive 27,102,896 shares of New ZeroFox Common Stock in the Business Combination, determined as follows:
|
|
| |
IDX Capital Stock
outstanding as of
December 31, 2021
(Historical)
(assuming net
exercise)
|
| |
Net Exercise of IDX
Common Stock
Warrants
|
| |
Conversion of IDX
Redeemable
Convertible
Preferred Stock into
IDX Common Stock
|
| |
IDX Common Stock
assumed outstanding
prior to Closing
|
|
Series A-1, par value $0.0001 per share
|
| |
5,882,350
|
| |
—
|
| |
(5,882,350)
|
| |
—
|
|
Series A-2, par value $0.0001 per share
|
| |
26,069,330
|
| |
—
|
| |
(26,069,330)
|
| |
—
|
|
Common stock, par value $0.0001 per share
|
| |
11,671,845
|
| |
274,097
|
| |
31,951,680
|
| |
43,897,622
|
|
|
| |
43,623,525
|
| |
274,097
|
| |
—
|
| |
43,897,622
|
|
|
| |
IDX Common Stock assumed outstanding prior to closing
|
| |
43,897,622
|
||||||
|
|
| |
IDX Closing Stock Per Share Consideration
|
| |
0.6174
|
||||||
|
|
| |
Estimated shares of New ZeroFox Common Stock issued to IDX stockholders upon Closing
|
| |
27,102,896
|
||||||
249
Immediately prior to the Closing, the holder of series A-2
preferred stock warrants is expected to net exercise the warrants resulting in the purchase of 124,998 shares of IDX series A-2 preferred stock. Based on 124,998 shares of IDX Capital Stock from the conversion of preferred stock and the IDX
Total Preferred Per Share Consideration, determined in accordance with the terms of the Business Combination Agreement, of approximately 0.7340, the holder of series A-2 preferred stock warrants is expected to receive 91,750 shares of New
ZeroFox Common Stock in the Business Combination, determined as follows:
|
|
| |
Outstanding
Warrants to
purchase IDX series
A-2 stock as of
December 31, 2021
(Historical)
(assuming net
exercise)
|
| |
Net Exercise of IDX
series A-2 Warrants
|
| |
Conversion of IDX
Redeemable
Convertible
Preferred Stock into
IDX Capital Stock
|
| |
IDX Common Stock
assumed outstanding
prior to Closing
|
|
Series A-2 Stock Warrant
|
| |
124,998
|
| |
(124,998)
|
| |
—
|
| |
—
|
|
Series A-2, par value $0.0001 per share
|
| |
—
|
| |
124,998
|
| |
(124,998)
|
| |
—
|
|
Common stock, par value $0.0001 per share
|
| |
—
|
| |
—
|
| |
124,998
|
| |
124,998
|
|
|
| |
124,998
|
| |
—
|
| |
—
|
| |
124,998
|
|
|
| |
IDX Common Stock assumed outstanding prior to Closing
|
| |
124,998
|
||||||
|
|
| |
IDX Total Preferred Per Share Consideration
|
| |
0.7340
|
||||||
|
|
| |
Estimated shares of New ZeroFox Common Stock issued to IDX stockholders upon Closing
|
| |
91,750
|
||||||
Immediately prior to the Closing, the holder of common stock
warrants is expected to net exercise the warrants resulting in the purchase of 980,492 shares of IDX Capital Stock. Based on 980,492 shares of IDX Capital Stock from the net exercise of the common stock warrant and the IDX Total Per Share
Consideration, determined in accordance with the terms of the Business Combination Agreement, of approximately 0.6979, the holder of common stock warrants is expected to receive 684,300 shares of New ZeroFox Common Stock in the Business
Combination, determined as follows:
|
|
| |
Outstanding
Warrants to
purchase IDX
Common Stock as of
December 31, 2021
(Historical)
(assuming net
exercise)
|
| |
Net Exercise of IDX
Common Stock
Warrants
|
| |
IDX Common Stock
assumed outstanding
prior to Closing
|
|
Common Stock Warrant
|
| |
980,492
|
| |
(980,492)
|
| |
—
|
|
Common stock, par value $0.0001 per share
|
| |
—
|
| |
980,492
|
| |
980,492
|
|
|
| |
980,492
|
| |
—
|
| |
980,492
|
|
|
| |
IDX Common Stock assumed outstanding prior to Closing
|
| |
980,492
|
|||
|
|
| |
IDX Closing Stock Per Share Consideration
|
| |
0.6979
|
|||
|
|
| |
Estimated shares of New ZeroFox Common Stock issued to IDX stockholders upon Closing
|
| |
684,300
|
|||
As a result of the exchanges of IDX shares for New ZeroFox Common
Stock described above, IDX shareholders are expected to exchange a total of approximately 45,503,112 shares of IDX Common Stock for a total of approximately 27,878,946 shares of New ZeroFox Common Stock.
250
5. Adjustments to the Unaudited Pro Forma Condensed Combined
Balance Sheet
The pro forma adjustments, based on preliminary estimates that could
change materially as additional information is obtained, are as follows:
Pro Forma Adjustments for Material Events:
|
(a)
|
As described in Note 1, ZeroFox received a commitment of not less than $7.5 million in loans from Orix. As of the date of the
preparation of these pro forma financial statements, all $7.5 million in potential loans has been drawn. In connection with the commitment for up to $7.5 million in additional lending from Orix, ZeroFox incurred debt issuance costs of
$0.1 million. In addition, Orix was issued a warrant with an estimated fair value of $0.6 million. Under the terms of the warrant, Orix will have the right to purchase up to 161,112 shares of ZeroFox Series E redeemable convertible
preferred stock at an exercise price of $1.86205 per share. The pro forma adjustments reflect an increase of $7.4 million of cash ($7.5 million, net of $0.1 million in debt issuance costs), an increase of $6.8 million in long-term debt
($7.5 million, net of a $0.7 million debt discount, comprised of a $0.6 million discount due to warrants and a $0.1 million discount due to debt issuance costs), and an increase of $0.6 million in warrant liabilities.
|
|
(b)
|
To reflect the assumed net exercise of Orix’s warrant to purchase up to 161,112 shares of ZeroFox Series E redeemable
convertible preferred stock (see Note 5(a)). This adjustment reduces the warrant liability by $0.6 million and increases ZeroFox’s redeemable convertible preferred stock by $0.6 million.
|
Pro Forma Adjustments Related to ZeroFox:
The adjustments below relate to ZeroFox and include adjustments to record the
allocation of the purchase price for the acquisition of ZeroFox and additional adjustments related to the Business Combination.
|
(aa)
|
Upon the effective date of the Business Combination, all of the outstanding shares of ZeroFox will be exchanged for shares of
New ZeroFox. ZeroFox provides digital risk protection services and safeguards modern organizations from dynamic security risks across social, mobile, surface, deep and dark web, email and collaboration platforms. The ZeroFox acquisition
will allow New ZeroFox to further scale its digital risk protection services and expand its customer base. The acquisition will be accounted for as a business combination in accordance with ASC 805, Business Combinations.
|
The following table summarized the preliminary estimate of the consideration
transferred to effect the ZeroFox acquisition (in thousands, except share and share price amounts):
|
Repayment of ZeroFox's debt(1)
|
| |
$45,975
|
|
Shares of New ZeroFox Common Stock transferred(3)
|
| |
82,446,660
|
|
New ZeroFox Common Stock share price(4)
|
| |
$10.00
|
|
New ZeroFox Common Stock consideration transferred
|
| |
$824,467
|
|
Total consideration transferred
|
| |
$870,442
|
|
(1)
|
Total consideration transferred will include payment ZeroFox’s debt with Stifel and Orix by New ZeroFox.
|
|
(2)
|
Total consideration transferred will include 82,446,660 shares of New ZeroFox with an estimated fair value of $10.00 per share.
|
Adjustment 5(aa) reflects the following:
|
•
|
The adjustment reflects consideration transferred in the adjustments to cash and cash equivalents of $46.0 million, L&F
Class A ordinary shares (Domesticated) of $8,000, and additional paid-in capital of $830.4 million.
|
|
•
|
The adjustment reflects the elimination of ZeroFox’s historical equity as well as its equity arising from the other Adjustments
Related to ZeroFox. These eliminations include:
|
|
○
|
the elimination of $3.9 million of historical additional paid-in capital;
|
251
|
○
|
the elimination of $132.4 million of additional paid-in capital arising from the other Adjustments
Related to ZeroFox;
|
|
○
|
the elimination of $2,000 of common stock arising from the other Adjustments Related to ZeroFox;
|
|
○
|
the elimination of $156.8 million of historical accumulated deficit;
|
|
○
|
the elimination of $2.0 million of accumulated deficit arising from the Adjustments Related to ZeroFox;
|
|
○
|
the elimination of $0.2 million of historical accumulated other comprehensive income.
|
|
•
|
The adjustment reflects fair value adjustments to record ZeroFox’s identifiable intangible assets and goodwill of
$172.0 million and $675.7 million, respectively.
|
|
•
|
The adjustment reflects a fair value adjustment to reduce deferred revenue, current by $14.9 million.
|
|
•
|
The adjustment reflects the acquisition of a deferred tax asset of $32.9 million (see Note 7(c)) and a deferred tax liability
of $43.7 million (see Note 7(d)).
|
|
•
|
This adjustment reflects the payment of ZeroFox’s long-term debt — net of current portion with Stifel and Orix of
$43.3 million, respectively.
|
The following table summarizes the allocation of the preliminary estimate of the
purchase price to the assets acquired and liabilities assumed (in thousands):
|
Cash and cash equivalents(3)
|
| |
$(4,028)
|
|
Accounts receivable, net of allowance for doubtful accounts
|
| |
17,046
|
|
Deferred contract acquisitions costs, current
|
| |
4,174
|
|
Prepaid expenses and other assets
|
| |
1,276
|
|
Property and equipment, net of accumulated depreciation of $1,127
|
| |
694
|
|
Capitalized software, net of accumulated amortization of $3,538
|
| |
914
|
|
Deferred contract acquisition costs, net of current portion
|
| |
7,481
|
|
Acquired intangible assets, net of accumulated amortization of $3,151
|
| |
186,210
|
|
Goodwill
|
| |
705,402
|
|
Deferred tax asset
|
| |
32,909
|
|
Other assets
|
| |
319
|
|
Total assets acquired
|
| |
952,397
|
|
Accounts payable
|
| |
4,276
|
|
Accrued liabilities
|
| |
7,020
|
|
Deferred revenue, current
|
| |
14,626
|
|
Current portion of long-term debt
|
| |
938
|
|
Deferred revenue, net of current portion
|
| |
9,299
|
|
Long-term debt, net of current portion
|
| |
2,130
|
|
Deferred tax liability
|
| |
43,666
|
|
Total liabilities assumed
|
| |
81,955
|
|
Total consideration transferred
|
| |
$ 870,442
|
|
(3)
|
Cash is presented net of payment of $14.1 million of ZeroFox’s transaction costs which are offset against goodwill in the
preliminary purchase price allocation above.
|
The excess of the purchase price over the fair values of the net identifiable
tangible and intangible assets acquired will be assigned to goodwill. Goodwill represents the future benefits as a result of the acquisition that will enhance the services available to both new and existing customers and increase the New
ZeroFox’s competitive position. Goodwill will not be amortized, but instead will be tested for impairment at least annually or more frequently if certain indicators are present. In the event that
252
management determines that the value of goodwill has been impaired, an accounting
charge for the amount of impairment during the quarter in which the determination is made may be recognized. Goodwill attributable to the ZeroFox acquisition is not expected to be deductible for tax purposes.
The fair value of deferred revenue was determined using the adjusted fulfillment cost
method. Deferred revenue will be recognized as performance obligations are satisfied.
The following table sets forth the amounts allocated to the intangible assets
identified, the estimated useful lives of those intangible assets, and the methodologies used to determine the fair values of those intangible assets (dollars in thousands):
|
|
| |
Fair value
|
| |
Useful Life
(in years)
|
| |
Fair Value Methodology
|
|
Trade names and trademarks
|
| |
$19,000
|
| |
5
|
| |
Relief from Royalty method
Developed technology
|
|
Developed technology
|
| |
99,000
|
| |
5
|
| |
Replacement Cost method
Customer relationships
|
|
Customer Relationships
|
| |
54,000
|
| |
6
|
| |
Multi-period Excess Earnings Method
of the Income Approach
|
|
|
| |
$172,000
|
| |
|
| |
|
As part of the ZeroFox acquisition, L&F incurred acquisition-related costs of
approximately $0.7 million which are reflected in general and administrative expense.
|
(bb)
|
To reflect the net exercise of warrants to purchase ZeroFox Series A, B, and E redeemable convertible preferred stock that were
outstanding and unexercised as of January 31, 2022. This adjustment reduces the warrant liability by $4.0 million and increases redeemable convertible preferred stock and additional paid-in capital by $3.0 million and $1.0 million,
respectively.
|
|
(cc)
|
To reflect the payment of ZeroFox’s total estimated advisory, legal, accounting, auditing, and other professional fees of
$14.0 million that are deemed to be direct and incremental costs of the Business Combination. This adjustment reduces accrued liabilities by $3.5 million, and accumulated deficit by $10.5 million.
|
|
(dd)
|
To reflect ZeroFox’s payment of its long-term debt of $7.7 million with Orix (see Note 5(a)). This adjustment eliminates the
long-term debt carrying value of $6.9 million and the unamortized debt discount of $0.6 million that includes a discount due to unamortized debt issuance costs and warrants. The debt with Orix is subject to a prepayment penalty of 3.00%
of the outstanding balance of $7.5 million, or $0.2 million. The prepayment penalty is reflected in the reduction to cash of $7.7 million and the increase to accumulated deficit of $0.8 million.
|
|
(ee)
|
To reflect the conversion of all of ZeroFox’s redeemable convertible preferred stock into ZeroFox common stock in connection
with the Business Combination. Each share of all series of ZeroFox redeemable convertible preferred stock converts into two shares of ZeroFox common stock.
|
|
(ff)
|
To reflect the reclassification of Silver Lake’s warrant to purchase up to 1,924,790 shares of ZeroFox common stock from a
liability to additional paid-in-capital. Upon the Business Combination, using the estimated Exchange Ratio of 0.2872, this warrant is expected to be exchanged for a warrant to purchase up to 552,859 shares of New ZeroFox Common Stock.
The terms of the warrant to purchase New ZeroFox Common Stock are expected to result in the warrant being classified as equity.
|
|
(gg)
|
To reflect the reclassification of Hercules Capital, Inc.’s (“Hercules”) warrant to purchase up to 648,350 shares of Series C-1
redeemable convertible preferred stock from a liability to additional paid-in-capital. Upon the Business Combination, the warrant is expected to be converted into a warrant to purchase up to 1,296,700 shares of ZeroFox common stock.
Immediately subsequent to this conversion, using the estimated Exchange Ratio of 0.2872, the converted warrant is expected to be exchanged for a warrant to purchase up to 372,452 shares of New ZeroFox Common Stock. The terms of the
warrant to purchase New ZeroFox Common Stock are expected to result in the warrant being classified as equity.
|
253
|
(hh)
|
To reflect an adjustment to present deferred taxes as a net deferred tax liability. The proforma tax adjustments are based on
the assumption that the acquired deferred tax liabilities will be a source of income for our net operating losses. The Company will complete its analysis relating to the availability of the deferred tax liabilities as a source of income
and evaluate any limitations on the use of its net operating losses when the merger is complete.
|
Pro Forma Adjustments Related to IDX:
The adjustments below relate to IDX and include an adjustment to record the
allocation of the purchase price for the acquisition of IDX and additional adjustments related to the Business Combination.
|
(A)
|
Upon the Closing, all of the outstanding shares of IDX Capital Stock will be exchanged for shares of New ZeroFox Common Stock.
IDX provides privacy, identity protection, and data breach response services to its government and commercial customers. The IDX acquisition will allow New ZeroFox to further scale its digital risk protection services and expand its
customer base. The acquisition will be accounted for as a business combination in accordance with ASC 805, Business Combinations.
|
The following table summarizes the preliminary estimate of the consideration
transferred to effect the IDX acquisition (in thousands, except share and share price amounts):
|
Cash consideration(1)
|
| |
$29,540
|
|
Repayment of IDX's estimated transaction costs(2)
|
| |
4,756
|
|
Repayment of IDX's debt(3)
|
| |
12,884
|
|
Total cash consideration and repayment of IDX's debt and estimated transaction
costs
|
| |
$47,180
|
|
Shares of New ZeroFox Common Stock transferred(4)
|
| |
27,878,946
|
|
New ZeroFox Common Stock share price(4)
|
| |
$10.00
|
|
New ZeroFox Common Stock consideration transferred
|
| |
$278,789
|
|
Total consideration transferred
|
| |
$325,969
|
|
(1)
|
Total consideration transferred will include cash consideration of $47.2 million, adjusted for IDX’s closing working capital,
debt, and cash.
|
|
(2)
|
Total consideration transferred will include transaction costs incurred by IDX that are not deemed to be direct and incremental
costs of the Business Combination that will be reimbursed by New ZeroFox.
|
|
(3)
|
Total consideration transferred will include payment of IDX’s debt by New ZeroFox.
|
|
(4)
|
Total consideration transferred will include 27,878,946 shares of New ZeroFox with an estimated fair value of $10.00 per share.
|
Adjustment 5(A) reflects the following:
|
•
|
The adjustment reflects consideration transferred in the adjustments to cash and cash equivalents of $47.2 million, L&F
Class A ordinary shares (Domesticated) of $3,000, and additional paid-in capital of $278.8 million.
|
|
•
|
The adjustment reflects the elimination of IDX’s historical equity as well as its equity arising from the other Adjustments
Related to Acquisition of IDX (see Notes 5(B) through 5(E)). These eliminations of IDX’s equity include the elimination of IDX’s historical additional paid-in capital of $0.7 million as well as the elimination of its additional paid-in
capital arising from the other Adjustments Related to Acquisition of IDX of $65.1 million. The eliminations of IDX’s equity also include the elimination of historical common stock of $1,000 and the elimination of $3,000 of common stock
arising from the other Adjustments Related to Acquisition of IDX. These eliminations also include the elimination of IDX’s historical accumulated deficit of $70.2 million and the elimination of $10,000 of accumulated deficit arising
from the Adjustments Related to Acquisition of IDX.
|
254
|
•
|
The adjustment reflects fair value adjustments to record IDX’s identifiable intangible assets and goodwill of $94.9 million and
$226.3 million, respectively. In addition, adjustment 5(A) reflects a fair value adjustment to reduce deferred revenue, current by $2.1 million and a reduction to accrued liabilities of $1.9 million related to the fair value of
warrants.
|
|
•
|
The adjustment reflects the payment of IDX’s current portion of long-term debt, long-term debt—net of current portion, and
related party convertible debt of $1.7 million, $8.3 million, and $2.4 million, respectively.
|
The following table summarizes the allocation of the preliminary estimate of the
purchase price to the assets acquired and liabilities assumed (in thousands):
|
Cash and cash equivalents(5)
|
| |
$14,907
|
|
Accounts receivable
|
| |
9,997
|
|
Deferred contract acquisitions costs, current
|
| |
825
|
|
Prepaid expenses and other assets
|
| |
953
|
|
Property and equipment
|
| |
127
|
|
Deferred contract acquisition costs, net of current portion
|
| |
263
|
|
Goodwill
|
| |
226,289
|
|
Intangible assets
|
| |
94,900
|
|
Other assets
|
| |
37
|
|
Total assets acquired
|
| |
348,298
|
|
Accounts payable
|
| |
7,286
|
|
Accrued liabilities
|
| |
4,617
|
|
Deferred revenue, current
|
| |
7,560
|
|
Deferred revenue, net of current portion
|
| |
2,116
|
|
Accrued liabilities, long-term
|
| |
750
|
|
Total liabilities assumed
|
| |
22,329
|
|
Total consideration transferred
|
| |
$325,969
|
|
(5)
|
Cash in the table above is presented net of the $3.1 million payment of IDX’s transaction costs that are direct and incremental
to the Business Combination (see Note 5(bb)).
|
The excess of the purchase price over the fair values of the net identifiable
tangible and intangible assets acquired will be assigned to goodwill. Goodwill represents the future benefits as a result of the acquisition that will enhance the services available to both new and existing customers and increase the New
ZeroFox’s competitive position. Goodwill will not be amortized, but instead will be tested for impairment at least annually or more frequently if certain indicators are present. In the event that management determines that the value of goodwill
has been impaired, an accounting charge for the amount of impairment during the quarter in which the determination is made may be recognized. Goodwill attributable to the IDX acquisition is not expected to be deductible for tax purposes.
The following table sets forth the amounts allocated to the intangible assets
identified, the estimated useful lives of those intangible assets, and the methodologies used to determine the fair values of those intangible assets (dollars in thousands):
|
|
| |
Fair value
|
| |
Useful Life
(in years)
|
| |
Fair Value Methodology
|
|
Trade name
|
| |
$30,900
|
| |
5
|
| |
Relief from Royalty method
|
|
Developed technology
|
| |
14,000
|
| |
5
|
| |
Replacement Cost method
|
|
Breach-related contracts
|
| |
2,300
|
| |
1
|
| |
Multi-period Excess Earnings Method
of the Income Approach
|
|
Office of Personnel Management contract
|
| |
43,600
|
| |
6
|
| |
Multi-period Excess Earnings Method
of the Income Approach
|
|
Customer relationships
|
| |
4,100
|
| |
1
|
| |
Multi-period Excess Earnings Method
of the Income Approach
|
|
|
| |
$94,900
|
| |
|
| |
|
255
As part of the IDX acquisition, ZeroFox incurred negligible acquisition-related
costs and therefore no adjustment is reflected in these pro forma financial statements.
|
(B)
|
To reflect the payment of IDX’s total estimated advisory, legal, accounting, auditing, and other professional fees of
$3.1 million that are deemed to be direct and incremental costs of the Business Combination.
|
|
(C)
|
To reflect the net exercise of all IDX warrants outstanding and unexercised as of December 31, 2021. This adjustment increases
IDX redeemable convertible preferred stock by $0.2 million and reduces additional paid-in capital by $0.2 million.
|
|
(D)
|
To reflect the conversion of all of IDX’s redeemable convertible preferred stock into IDX common stock due to the Business
Combination. Each share of all series of IDX redeemable convertible preferred stock converts into one share of IDX common stock.
|
|
(E)
|
To reflect stock-based compensation for stock options that are subject to accelerated vesting upon the Business Combination.
|
Additional Pro Forma Adjustments:
The adjustments below are related to the Common Equity PIPE Financing, the
Convertible Notes Financing, and the Business Combination, which include additional adjustments related to L&F.
|
(AA)
|
To reflect the release of cash from the trust account to cash and cash equivalents, assuming no L&F public shareholders
exercise their right to have their L&F Class A Ordinary Shares redeemed for their pro rata share of the trust account.
|
|
(BB)
|
To reflect the payment of L&F’s total estimated advisory, legal, accounting, auditing, and other professional fees of
$11.7 million that are deemed to be direct and incremental costs of the Business Combination. The adjustment reduces prepaid expenses by $9,000, accrued liabilities by $2.8 million, and additional paid-in capital by $9.8 million.
|
|
(CC)
|
To reflect the payment of L&F’s accrued offering costs of $0.4 million upon consummation of the Business Combination.
|
|
(DD)
|
To reflect the issuance of the Notes for $150.0 million. This adjustment records an increase of cash from the convertible note
issuance of $149.8 million ($150.0 million, net of debt issuance costs of $0.2 million) and a corresponding increase in the carrying value of convertible debt. The Notes contain a provision whereby, in the case of an event of default,
the obligation will bear additional interest at a rate equal to 2.00%. Management evaluated Events of Default and determined the non-credit related events of default represent an embedded derivative that must be bifurcated and accounted
for separately from the Notes. The default rate derivative is treated as a liability, initially measured at fair value with subsequent changes in fair value recorded in earnings. Management has assessed the probability of occurrence for
a non-credit default event and determined the likelihood of a referenced event to be remote. Therefore, the estimated fair value of the default rate derivative is negligible and no amount was recorded.
|
|
(EE)
|
To reflect the issuance of an aggregate of 1,500,000 shares of New ZeroFox Common Stock in the Common Equity PIPE Financing
(excludes the 500,000 Common Equity PIPE Financing shares to be issued to holders of the ZeroFox PIK Promissory Notes, see Note 5(HH)) at a price of $10.00 per share, for an aggregate purchase price of $15.0 million.
|
|
(FF)
|
To reflect the settlement of the $6.0 million deferred underwriting fee payable that was incurred during L&F’s initial
public offering, which is required to be settled upon completion of the Business Combination.
|
|
(GG)
|
To reflect the assumption that L&F’s public shareholders exercise their redemption rights with respect to a maximum of
17,250,000 L&F Class A Ordinary Shares prior to the Closing at a redemption price of approximately $10.00 per share, or $172.5 million in cash. As there is no minimum L&F cash on hand required to consummate the Business
Combination, Scenario 2 assumes all 17,250,000 L&F Class A Ordinary Shares subject to possible redemption are redeemed.
|
|
(HH)
|
To reflect the issuance of an aggregate of 500,000 shares of New ZeroFox Common Stock in the
|
256
Common Equity PIPE Financing to be issued to holders of the ZeroFox PIK Promissory
Notes at a price of $10.00 per share. The issuance of these shares results in a reduction to the ZeroFox PIK Promissory Notes liability and an increase to additional paid-in-capital of $5.0 million.
6. Adjustments to the Unaudited Pro Forma Condensed Combined
Statements of Operations
The pro forma adjustments, based on preliminary estimates that could
change materially as additional information is obtained, are as follows:
Pro Forma Adjustments Related to ZeroFox:
The adjustments below relate to ZeroFox and include adjustments related to the
allocation of the purchase price and additional adjustments related to the Business Combination.
|
(aa)
|
To reflect an adjustment to revenue as a result of the fair value adjustment to ZeroFox’s deferred revenue (see Note 5(aa)).
|
|
(bb)
|
To reflect incremental amortization expense as a result of the fair value adjustment to intangible assets. Amortization expense
related to developed technology is recorded as cost of revenue. Amortization expense related to the trade names and trademarks is recorded as general and administrative expense. Amortization expense related to customer relationships is
recorded as sales and marketing expense.
|
|
(cc)
|
To reflect an adjustment to eliminate interest expense, amortization of discount and debt issuance costs on the Stifel and Orix
loans as it is assumed that the related debt balances would have been paid off by ZeroFox on February 1, 2021.
|
|
(dd)
|
To reflect an adjustment to write-off the unamortized debt discounts related to ZeroFox’s loans with Orix and Stifel. The
unamortized debt discounts include discounts due to unamortized debt issuance costs and warrants.
|
|
(ee)
|
To reflect the elimination of the change in fair value of ZeroFox’s warrant liabilities. It is assumed that the warrants to
purchase ZeroFox’s Series A, B, and E redeemable convertible preferred stock will be net exercised on February 1, 2020. In addition, it is assumed that the warrants to purchase ZeroFox’s common stock (see Note 5(ff)) and Series C-1
redeemable convertible preferred stock (see Note 5(gg)) will be exchanged for warrants to purchase New ZeroFox common stock on February 1, 2020 and that the exchanged warrants will be classified as equity.
|
|
(ff)
|
To reflect the payment of ZeroFox’s total estimated advisory, legal, accounting, auditing, and other professional fees of $11.0
million that are deemed to be direct and incremental costs of the Business Combination (see Note 5(cc)).
|
|
(gg)
|
To reflect write-down of the unamortized debt issuance costs and warrants and the prepayment penalty associated with the
payment of its long-term debt with Orix (see Note 5(dd)).
|
Pro Forma Adjustments Related to IDX:
The adjustments below relate to IDX and include adjustments related to the allocation
of the purchase price and additional adjustments related to the Business Combination.
|
(A)
|
To reflect an adjustment to revenue as a result of the fair value adjustment to IDX’s deferred revenue (see Note 5(A)).
|
|
(B)
|
To reflect incremental amortization expense as a result of the fair value adjustment to intangible assets. Amortization expense
related to developed technology is recorded as cost of revenue. Amortization expense related to the trade name is recorded as general and administrative expense. Amortization expense related to the Office of Personnel Management
contract, breach-related contract, and customer relationships is recorded as sales and marketing expense.
|
|
(C)
|
To reflect stock-based compensation for stock options that are subject to accelerated vesting upon the Business Combination.
|
|
(D)
|
To reflect the elimination of interest expense and amortization of deferred debt issuance costs on IDX’s loan with Comerica
Bank as it is assumed that this debt balance is paid off upon Closing.
|
257
|
(E)
|
To reflect the elimination of interest expense on IDX’s related party convertible debt as it is assumed that this debt balance
would have been paid off upon the Closing.
|
|
(F)
|
To reflect the elimination of the change in fair value of IDX’s related party convertible debt as it is assumed that this debt
balance would have been paid off upon the Closing.
|
|
(G)
|
To reflect the elimination of the change in fair value of IDX’s warrant liabilities. It is assumed that the warrants to
purchase IDX’s capital stock will be net exercised on February 1, 2021.
|
Additional Pro Forma Adjustments:
The adjustments below include adjustments related to the Common Equity PIPE
Financing, the Convertible Notes Financing and the Business Combination, which include additional adjustments related to L&F.
|
(AA)
|
To reflect an adjustment to record cash interest expense of 7.00% and amortization of debt issuance costs on the Notes (see
Note 5(DD)).
|
The Notes bear interest at a rate of 7.00% per annum, payable quarterly in cash;
provided, that the issuer may elect to pay interest in kind at a rate of 8.75% per annum. The preparation of the unaudited pro forma condensed combined financials statements assumes the cash interest option was elected consistently throughout
the reporting period. The following table summarizes the impact of selecting the interest in kind option on unaudited pro forma condensed combined financials statements (in thousands, except share and share price amounts):
|
|
| |
Cash Interst
Option
|
| |
PIK Option
|
|
Convertible debt
|
| |
$149,806
|
| |
$163,470
|
|
Total liabilities
|
| |
$235,991
|
| |
$249,655
|
|
Accumulated deficit
|
| |
$(36,147)
|
| |
$(49,811)
|
|
Total stockholders' equity
|
| |
$1,093,505
|
| |
$1,079,841
|
|
Interest expense
|
| |
$13,178
|
| |
$16,342
|
|
Net loss after taxes
|
| |
$(98,832)
|
| |
$(101,996)
|
|
Net loss per share
|
| |
$(0.85)
|
| |
$(0.87)
|
|
(BB)
|
To reflect the elimination of interest income related to the marketable securities held in the trust account.
|
|
(CC)
|
The pro forma basic and diluted net loss per share amounts presented in the unaudited pro forma condensed combined statements
of operations are based upon the number of New ZeroFox shares outstanding as if the Transactions occurred on February 1, 2020. The calculation of weighted-average shares outstanding for pro forma basic and diluted net loss per share
assumes that the shares issuable in connection with the Transactions have been outstanding for the entirety of the periods presented. The 1,293,750 Sponsor Holders Earnout Shares are participating securities that contractually entitle
the holders of such shares to participate in nonforfeitable dividends but do not contractually obligate the holders of such shares to participate in losses. The unaudited pro forma condensed combined statements of operations reflect net
losses for the periods presented and, accordingly, no loss amounts have been allocated to the Sponsor Holders Earnout Shares. The Sponsor Holders Earnout Shares have also been excluded from basic and diluted pro forma net loss per share
as such shares are subject to forfeiture until certain specified earnout triggering events have occurred.
|
258
Pro Forma weighted-average common shares outstanding—basic and diluted is
calculated as follows for the year ended January 31, 2021 and the nine months ended January 31, 2022:
|
Weighted-average shares calculation - basic and diluted
|
| |
Assuming No
Redemptions into
Cash
|
|
Assume conversion of Class B ordinary shares into Class A
ordinary shares effective January 1, 2021 as a result of assuming closing of the Business Combination on January 1, 2021
|
| |
4,312,500
|
|
Assume reclassification of L&F Class A ordinary
shares subject to redemption to L&F Class A ordinary shares not subject to redemption effective January 1, 2021 under Scenario 1 as a result of assuming closing of the Business Combination on January 1, 2021
|
| |
—
|
|
Assume January 1, 2021 issuance of L&F Class A
ordinary shares in connection with the closing of the Common Equity PIPE Investment Financing
|
| |
2,000,000
|
|
Assume January 1, 2021 issuance of L&F Class A
ordinary shares to ZeroFox shareholders as a result of assuming closing of the Business Combination on January 1, 2021
|
| |
82,446,660
|
|
Assume January 1, 2021 issuance of L&F Class A
ordinary shares to IDX shareholders as a result of assuming closing of the Business Combination on January 1, 2021
|
| |
27,878,946
|
|
Pro forma weighted-average shares outstanding—basic and
diluted
|
| |
116,638,106
|
7. Income Taxes
|
(a)
|
The following table represents the income tax impact of the pro forma adjustments using effective tax rate of 13.69% for the
year ended January 31, 2022 (in thousands):
|
|
|
| |
Year Ended
January 31, 2022
|
|
Current tax expense:
|
| |
|
|
Federal
|
| |
$—
|
|
Foreign
|
| |
100
|
|
State and local
|
| |
89
|
|
|
| |
189
|
|
Deferred tax (benefit) expense:
|
| |
|
|
Federal
|
| |
(17,200)
|
|
State and local
|
| |
291
|
|
Foreign
|
| |
—
|
|
|
| |
(16,909)
|
|
Less change in valuation allowance
|
| |
1,048
|
|
Income tax benefit
|
| |
$
(15,672)
|
259
Deferred income taxes reflect temporary differences in the recognition of revenue
and expenses between financial statement reporting and income tax reporting. Deferred income taxes as of January 31, 2022 consisted of the following (in thousands):
|
|
| |
January 31, 2022
|
|
Deferred tax assets:
|
| |
|
|
Depreciation and amortization
|
| |
$538
|
|
Deferred revenue
|
| |
2,122
|
|
Stock-based compensation
|
| |
112
|
|
Accruals
|
| |
1,509
|
|
Charitable contributions
|
| |
3
|
|
Allowance for doubtful accounts
|
| |
57
|
|
Tax credits
|
| |
12
|
|
Limitation on business interest expense
|
| |
2,781
|
|
Net operating losses- federal and state
|
| |
30,007
|
|
Deferred rent
|
| |
10
|
|
Credit carryforward
|
| |
36
|
|
Total deferred tax asset before valuation allowance
|
| |
37,187
|
|
Valuation allowance
|
| |
(2,894)
|
|
Total deferred tax asset
|
| |
34,293
|
|
Deferred tax liabilities:
|
| |
|
|
Prepaid commissions
|
| |
(2,907)
|
|
Deferred revenue
|
| |
(3,878)
|
|
Intangibles from ZeroFox's acquisition of a business
|
| |
(541)
|
|
ZeroFox intangibles
|
| |
(36,264)
|
|
IDX intangibles
|
| |
(18,796)
|
|
Other, net
|
| |
(76)
|
|
Total deferred tax liability before valuation allowance
|
| |
(62,462)
|
|
Valuation allowance
|
| |
—
|
|
Total deferred tax liability
|
| |
(62,462)
|
|
Net deferred tax liability
|
| |
$(28,169)
|
|
(b)
|
The adjustment primarily reflects changes in deferred taxes attributable to ZeroFox.
|
|
(c)
|
The adjustment primarily reflects changes in deferred taxes attributable to IDX.
|
|
(d)
|
The adjustment primarily reflects changes in deferred taxes attributable to New ZeroFox.
|
|
(e)
|
L&F’s acquisition of a $32.2 million deferred tax asset discussed in Note 5(aa) is comprised of the total deferred tax
asset of $33.5 million (see Note 7(a) above) net of IDX’s historical deferred tax asset of $1.3 million (see unaudited pro forma condensed combined balance sheet).
|
|
(f)
|
L&F’s acquisition of a $33.3 million deferred tax liability discussed in Note 5(aa) is comprised of the total deferred tax
liability of $49.0 million (see Note 7(b) above) net of the $15.7 million deferred tax liability related to IDX intangibles (see Note 7(a) above).
|
The pro forma tax adjustments are based on the assumption that the
acquired deferred tax liabilities will be a source of income for our net operating losses. We will complete our analysis relating to the availability of the deferred tax liabilities as a source of income and evaluate any limitations on the use
of our net operating losses when the merger is complete.
260
References in this section to “we,” “our,” or “us” refer to L&F
Acquisition Corp.
General
We are a blank check company incorporated in the Cayman Islands on
August 20, 2020 formed for the purpose of effecting a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or other similar business combination with one or more businesses. We reviewed a number of opportunities
to enter into an initial business combination with one or more operating businesses, and entered into the Business Combination Agreement on December 17, 2021. We intend to effectuate the Business Combination using cash derived from the proceeds
of the L&F IPO and the sale of the L&F Private Placement Warrants, our shares, debt or a combination of cash, shares and debt.
IPO and Private Placement
On November 23, 2020, we consummated the L&F IPO of 15,000,000
L&F Public Units at $10.00 per L&F Public Unit, generating gross proceeds of $150,000,000. The securities in the offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-249497). The SEC declared
the registration statement effective on November 18, 2020. Simultaneously with the closing of the L&F IPO, we consummated the sale of 6,859,505 L&F Private Placement Warrants to the Sponsor and Jefferies LLC at a price of $1.00 per
L&F Private Placement Warrant and approximately $1.21 per L&F Private Placement Warrant, respectively, generating gross proceeds of $7,250,002. On November 25, 2020, the underwriters fully exercised their over-allotment option, resulting
in an additional 2,250,000 L&F Public Units issued for an aggregate amount of $22,500,000. In connection with the underwriters’ full exercise of their over-allotment option, we consummated the sale of an additional 728,925 L&F Private
Placement Warrants to the Sponsor and Jefferies LLC at $1.00 per L&F Private Placement Warrant and approximately $1.21 per L&F Private Placement Warrant, respectively, generating total proceeds of $787,500.
Transaction costs amounted to $10,050,665, consisting of $3,450,000 of
underwriting fees, $6,037,500 of deferred underwriting fees and $563,165 of other offering costs.
Following the closing of the L&F IPO on November 23, 2020 and the
full exercise of the underwriters’ over-allotment on November 25, 2020, an amount of approximately $175,087,500 ($10.15 per L&F Unit) from the net proceeds of the sale of the L&F Public Units in the L&F IPO and the sale of the L&F
Private Placement Warrants were placed in a Trust Account, and invested in U.S. government securities, within the meaning set forth in 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 investing solely in U.S. Treasuries and meeting certain conditions under Rule 2a-7 of the Investment Company Act, as determined by us, until the earliest of: (i) the completion of a Business Combination and
(ii) the distribution of the funds in the Trust Account to our shareholders, as described below. See “—Redemption Rights for Public Shareholders upon Completion of the Business Combination.”
Effecting a Business Combination
Fair Market Value of Target Business
Pursuant to NYSE listing rules, the target business or businesses that
we acquire must collectively have a fair market value equal to at least 80% of the balance of the funds in the Trust Account (less any deferred underwriting commissions and taxes payable on interest earned) at the time of the execution of a
definitive agreement for our initial business combination. The fair market value of the target or targets will be determined by the L&F Board based upon one or more standards generally accepted by the financial community, such as discounted
cash flow valuation or value of comparable businesses. Our shareholders will be relying on the business judgment of the L&F Board, which will have significant discretion in choosing the standard used to establish the fair market value of the
target or targets, and different methods of valuation may vary greatly in outcome from one another. As discussed in the Section entitled “The Business Combination Proposal — Satisfaction of 80% Test,” the
L&F Board determined that this test was met in connection with the Business Combination.
261
Shareholder Approval of the Business Combination
We are seeking shareholder approval of the Business Combination at
the Shareholder Meeting to which this proxy statement/prospectus relates and, in connection with such meeting, holders of L&F Public Shares may redeem their shares for cash. The Public Shareholders will be entitled to redeem their L&F
Public Shares, equal to the aggregate amount then on deposit in the Trust Account, calculated as of two business days prior to the consummation of the Business Combination (initially $10.15 per L&F Public Share), including interest
(which interest shall be net of taxes payable), divided by the number of then issued and outstanding Public Shares, subject to certain limitations as described in this proxy statement/prospectus. The per-share amount to be distributed to the
Public Shareholders who properly redeem their shares will not be reduced by the deferred underwriting commissions we will pay to the underwriters. There will be no redemption rights upon the completion of a Business Combination with respect to
the L&F Public Warrants.
Such redemption rights will be effected under the Existing Governing
Documents and the DGCL. The Sponsor Holders, ZeroFox, IDX and Jeffery C. Hammes, Adam Gerchen, Tom Gazdziak and Richard Levy entered into the Sponsor Support Letter Agreement pursuant to which, among other things, the Sponsor Holders have
agreed to (i) vote in favor of the Business Combination Agreement and the transactions contemplated thereby (including the Mergers), (ii) waive the anti-dilution or similar protection with respect to the Founder Shares (whether resulting from
the transactions contemplated by the Common Equity PIPE Financing, the Convertible Notes Financing, the Domestication, the Mergers or otherwise), (iii) be bound by certain other covenants and agreements related to the Business Combination, and
(iv) not transfer (subject to customary exceptions) any Founder Shares until the earlier of (a) one year after the Closing, (b) the share price equaling or exceeding $12.00 on a volume-weighted average price basis for any 20 trading days within
any 30 trading day period commencing at least 150 days after the Closing, and (c) the completion of a transaction that results in all shareholders having the right to exchange shares for cash, securities or other property.
Limitations on Redemptions
Our proposed initial business combination may impose a minimum cash
requirement for (i) cash consideration to be paid to the target or its owners, (ii) cash for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions. In the event the aggregate cash
consideration we would be required to pay for all Class A Ordinary Shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed initial business combination exceed the
aggregate amount of cash available to us, we will not complete the initial business combination or redeem any shares, and all Class A Ordinary Shares submitted for redemption will be returned to the holders thereof. We may, however, raise funds
through the issuance of equity-linked securities or through loans, advances or other indebtedness in connection with our initial business combination, including pursuant to forward purchase agreements or backstop arrangements we may enter into
following consummation of the L&F IPO, in order to, among other reasons, satisfy such minimum cash requirements.
Redemption of Class A Ordinary Shares and Liquidation if No Initial
Business Combination
The Existing Governing Documents provide that we have from the
closing of the L&F IPO until May 23, 2022 to complete our initial business combination (“Combination Period”). If we are unable to complete our initial business combination within the
Combination Period, we will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash,
equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account (less 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 the Public Shareholders’ rights as shareholders (including the right to receive further liquidating distributions, if any) and (iii) as promptly as reasonably possible
following such redemption, subject to the approval of our remaining shareholders and the L&F Board, liquidate and dissolve, subject in the case of clauses (ii) and (iii) to our obligations under Cayman Islands law to provide for claims of
creditors and in all cases subject to the other requirements of applicable law. There will be no redemption rights or liquidating distributions with respect to our warrants, which will expire worthless if we fail to complete our initial
business combination within the Combination Period.
Our Sponsor, officers and directors have entered into a letter
agreement with us, pursuant to which they have waived their rights to liquidating distributions from the Trust Account with respect to any Founder Shares
262
held by them if we fail to complete our initial business combination within the
Combination Period. However, if our Sponsor or management team acquire Class A Ordinary Shares in or after the L&F IPO, they will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares if we fail
to complete our initial business combination by the Combination Period.
Our Sponsor, officers and directors have agreed, pursuant to a
written agreement with us, that they will not propose any amendment to the Existing Governing Documents (A) to modify the substance or timing of our obligation to allow redemption in connection with our initial business combination or to redeem
100% of our Class A Ordinary Shares if we do not complete our initial business combination within the Combination Period or (B) with respect to any other material provisions relating to shareholders’ rights or pre-initial business combination
activity, unless we provide our Public Shareholders with the opportunity to redeem their Class A Ordinary Shares upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the
Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, divided by the number of then outstanding Public Shares.
We expect that all costs and expenses associated with implementing our
plan of dissolution, as well as payments to any creditors, will be funded from amounts remaining out of the approximately $1,500,000 of proceeds held outside the Trust Account, although we cannot assure you that there will be sufficient funds for
such purpose. However, if those funds are not sufficient to cover the costs and expenses associated with implementing our plan of dissolution, to the extent that there is any interest accrued in the Trust Account not required to pay income 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 L&F IPO and the
sale of the L&F Private Placement Warrants, 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 Public Shareholders
upon our dissolution would be approximately $10.15. The proceeds deposited in the Trust Account could, however, become subject to the claims of our creditors which would have higher priority than the claims of our Public Shareholders. We cannot
assure you that the actual per-share redemption amount received by Public Shareholders will not be substantially less than $10.15. While we intend to pay such amounts, if any, we cannot assure you that we will have funds sufficient to pay or
provide for all creditors’ claims.
Although we will seek to have all vendors, service providers,
prospective target businesses and other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of our Public
Shareholders, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the Trust Account including but not limited to fraudulent inducement,
breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect to a claim against our assets, including the funds held in the
Trust Account. If any third party refuses to execute an agreement waiving such claims to the monies held in the Trust Account, our management will consider whether competitive alternatives are reasonably available to us and will only enter into
an agreement with such third party if management believes that such third party’s engagement would be in the best interests of the company under the circumstances. Examples of possible instances where we may engage a third party that refuses to
execute a waiver include the engagement of a third-party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where
management is unable to find a service provider willing to execute a waiver. WithumSmith+Brown, PC, our independent registered public accounting firm, and the underwriter of the L&F IPO will not execute agreements with us waiving such claims
to the monies held in the Trust Account. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and
will not seek recourse against the Trust Account for any reason. In order to protect the amounts held in the Trust Account, our Sponsor has agreed that it will be liable to us if and to the extent any claims by a third party for services rendered
or products sold to us, or a prospective target business with which we have entered into a written letter of intent, confidentiality or other similar agreement or business combination agreement, reduce the amount of funds in the Trust Account to
below the lesser of (i) $10.15 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,
263
if less than $10.15 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 underwriter of the L&F IPO against certain liabilities, including liabilities under the Securities Act. However, we have not asked our Sponsor to reserve for such
indemnification obligations, nor have we independently verified whether our Sponsor has sufficient funds to satisfy its indemnity obligations and we believe that our Sponsor’s only assets are securities of L&F. Therefore, we cannot assure
you that our Sponsor would be able to satisfy those obligations. As a result, if any such claims were successfully made against the Trust Account, the funds available for our initial business combination and redemptions could be reduced to less
than $10.15 per Public Share. In such event, we may not be able to complete our initial business combination, and you would receive such lesser amount per share in connection with any redemption of your Public Shares. None of our officers or
directors will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses.
In the event that the proceeds in the Trust Account are reduced below
the lesser of (i) $10.15 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 $10.15 per share due to reductions in the value of the trust
assets, in each case less taxes payable, and our Sponsor asserts that it is unable to satisfy its indemnification obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine
whether to take legal action against our Sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against our Sponsor to enforce its indemnification
obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance 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. 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 $10.15 per share.
We will seek to reduce the possibility that our Sponsor will have to
indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest
or claim of any kind in or to monies held in the Trust Account. Our Sponsor will also not be liable as to any claims under our indemnity of the underwriter of the L&F IPO against certain liabilities, including liabilities under the Securities
Act. We will have access to up to approximately $1,500,000 from the proceeds of the L&F 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, shareholders who received funds from our Trust Account could be liable for claims
made by creditors. In the event that our offering expenses exceed our estimate of $1,000,000, we may fund such excess with funds from the funds not to be held in the Trust Account. In such case, the amount of funds we intend to be held outside
the Trust Account would decrease by a corresponding amount. Conversely, in the event that the offering expenses are less than our estimate of $1,000,000, the amount of funds we intend to be held outside the Trust Account would increase by a
corresponding amount.
If we file a bankruptcy or insolvency petition or an involuntary
bankruptcy or insolvency petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy or insolvency law, and may be included in our bankruptcy or insolvency estate and
subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy or insolvency claims deplete the Trust Account, we cannot assure you we will be able to return $10.15 per share to our Public
Shareholders. Additionally, if we file a bankruptcy or insolvency petition or an involuntary bankruptcy or insolvency petition is filed against us that is not dismissed, any distributions received by shareholders could be viewed under applicable
debtor/creditor and/or bankruptcy or insolvency laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy or insolvency court could seek to recover some or all amounts received by our shareholders.
Furthermore, the L&F Board may be viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying Public Shareholders from
the Trust Account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons.
264
Our Public Shareholders are entitled to receive funds from the
Trust Account only (i) in the event of the redemption of our Public Shares if we do not complete our initial business combination within the Combination Period; (ii) in connection with a shareholder vote to amend the Existing Governing
Documents (A) to modify the substance or timing of our obligation to allow redemption in connection with our initial business combination or to redeem 100% of our Public Shares if we do not complete our initial business combination within the
Combination Period or (B) with respect to any other material provisions relating to shareholders’ rights or pre-initial business combination activity; or (iii) if they redeem their respective shares for cash upon the completion of our initial
business combination. In no other circumstances will a shareholder have any right or interest of any kind to or in the Trust Account. In the event we seek shareholder approval in connection with our initial business combination, a shareholder’s
voting in connection with the business combination alone will not result in a shareholder’s redeeming its shares to us for an applicable pro rata share of the Trust Account. Such shareholder must have also exercised its redemption rights
described above. These provisions of the Existing Governing Documents, like all provisions of the Existing Governing Documents, may be amended with a shareholder vote.
Employees
We currently have two 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 initial business combination. The amount of time they will devote in any time
period will vary based on whether a target business has been selected for our initial business combination and the stage of the business combination process we are in. We do not intend to have any full-time employees prior to the completion of
our initial business combination.
Facilities
We currently utilize office space at 150 North Riverside Plaza, Suite
5200, Chicago, Illinois 60606 from an affiliate of our Sponsor as our executive offices. We consider our current office space adequate for our current operations.
Legal Proceedings
There is no material litigation, arbitration or governmental proceeding
currently pending against us or any members of our management team in their capacities as such.
Periodic Reporting and Audited Financial Statements
We registered the L&F Public Units, L&F Public Shares and
L&F Public Warrants under the Exchange Act and have reporting obligations, including the requirement that we file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, our annual reports
contain financial statements audited and reported on by our independent registered public accountants.
We are required to evaluate our internal control procedures for the
fiscal year ending December 31, 2021 as required by the Sarbanes-Oxley Act. Only in the event we are deemed to be a large accelerated filer or an accelerated filer, and no longer qualify as an emerging growth company, will we be required to have
our internal control procedures audited. A target business may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of their internal controls. The development of the internal controls of any such entity to
achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such business combination.
We are a Cayman Islands exempted company. Exempted companies are Cayman
Islands companies conducting business mainly outside the Cayman Islands and, as such, are exempted from complying with certain provisions of the Cayman Islands Companies Act. As an exempted company, we applied for and received a tax exemption
undertaking from the Cayman Islands government that, in accordance with Section 6 of the Tax Concessions Act (Revised) of the Cayman Islands, for a period of 20 years from the date of the undertaking, no law which is enacted in the Cayman Islands
imposing any tax to be levied on profits, income, gains or appreciations will apply to us or our operations and, in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or
inheritance tax will be payable (i) on or in
265
respect of our shares, debentures or other obligations or (ii) by way of the
withholding in whole or in part of a payment of dividend or other distribution of income or capital by us to our shareholders or a payment of principal or interest or other sums due under a debenture or other obligation of us.
We are an “emerging growth company,” as defined in Section 2(a) of the
Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including,
but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and
exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a
result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an
“emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the
adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period.
We will remain an emerging growth company until the earlier of (1) the
last day of the fiscal year (a) following the fifth anniversary of the completion of 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 Ordinary Shares that are held by non-affiliates exceeds $700,000,000 as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during
the prior three-year period.
Additionally, we are a “smaller reporting company” as defined in Item
10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting
company until the last day of the fiscal year in which (1) the market value of our ordinary shares held by non-affiliates exceeds $250,000,000 as of the prior June 30th, or (2) our annual revenues exceeded $100,000,000 during such
completed fiscal year and the market value of our ordinary shares held by non-affiliates exceeds $700,000,000 as of the prior June 30.
Directors and Executive Officers
Our current directors and officers are as follows:
|
Name
|
| |
Age
|
| |
Position
|
|
Jeffrey C. Hammes
|
| |
61
|
| |
Chairman
|
|
Adam Gerchen
|
| |
40
|
| |
Chief Executive Officer and Director
|
|
Richard Levy
|
| |
48
|
| |
Director
|
|
Tom Gazdziak
|
| |
34
|
| |
Chief Financial Officer
|
|
Senator Joseph Lieberman
|
| |
79
|
| |
Director
|
|
Albert Goldstein
|
| |
40
|
| |
Director
|
|
Kurt Summers
|
| |
42
|
| |
Director
|
Jeffrey C. Hammes
serves as the Chairman of the company and is on the board of directors. Mr. Hammes served as the Chairman of Kirkland & Ellis LLP and Kirkland & Ellis International LLP (collectively, “K&E”) from 2010 until retiring in 2019. During
his tenure as Chairman of K&E, K&E revenues grew from $1.4 billion to more than $4.0 billion, and net income rose from less than $700,000,000 to more than $2,000,000,000 according to the American Lawyer. Under Mr. Hammes’ leadership, in
2019, K&E ranked first in total revenue and aggregate net income among the world’s top large law firms according to Bloomberg. That growth came across a variety of verticals where K&E has built leading franchises, including private
equity and M&A, restructuring and litigation, a breadth of expertise that affords valuable insight into various product categories as one of the largest consumers of the tech-enabled services offered by companies in our target universe.
266
In addition, K&E currently services more than 400 private equity clients around the
world and Mr. Hammes maintains relationships at the senior levels of many of those firms. Mr. Hammes received a B.B.A. in accounting from the University of Wisconsin-Madison and received his J.D. from Northwestern Pritzker School of Law. He is a
member of the Illinois bar (inactive).
Adam Gerchen is
the current Chief Executive Officer of L&F and serves on its board of directors and has served in both roles since 2020. Mr. Gerchen has also served as co-founder and Chief Executive Officer of Keller Lenkner, a law firm that has developed
unique arbitration strategies and other innovations in mass actions since 2018. Additionally, in order to serve the large number of firm clients, and address the complexity of various areas of law, Mr. Gerchen also built a separate servicing
business at Keller Lenkner in 2018 that combines client origination, intake, customer relationship management, IT, and settlement administration. From 2016 to 2017, Mr. Gerchen served as President of Burford Capital Limited (LSE: BUR)
(“Burford”), the leading global finance firm focused on law. Previously, Mr. Gerchen co-founded and served as Chief Executive Officer of Gerchen Keller Capital (“GKC”) from 2013 until GKC’s sale in 2016 to Buford. Prior to its acquisition, GKC
grew into the largest private investment and advisory firm focused exclusively on legal and regulatory risk, raising $1.4 billion of institutional capital. Across both organizations, products developed for and deployed into the legal sector
included single-case litigation finance, portfolio funding, risk management & insurance, claim monetization, post-settlement, bankruptcy & insolvency, international arbitration, and patent and intellectual property. Mr. Gerchen received
a B.A. in Business Economics and graduated Magna Cum Laude from Brown University and a J.D. from Harvard Law School.
Richard Levy
serves on the board of directors of the company. Mr. Levy is the Chief Executive Officer and Founder of VPC. Mr. Levy oversees VPC’s investment and operational activities. Mr. Levy is also the chairman of VPC’s Senior Leadership Team and
Investment Committee. Mr. Levy serves as chairman of the board of directors of VPC portfolio company, Giordano’s. He also serves as a member of the board of directors of the following VPC portfolio companies: Caribbean Financial Group since
2018, VPC Pizza Operating Corp. since 2011 and United Automobile Insurance Company since 2018. Previously, Mr. Levy served as head of the Small Cap Structured Products Group and co-head of the Solutions Group at Magnetar Capital. Mr. Levy also
co-founded and served as managing partner at Crestview Capital Partners. Mr. Levy received a B.A. in political science from The Ohio State University, an M.B.A. from the Illinois Institute of Technology’s Stuart School of Business and a J.D.
from Chicago-Kent College of Law. He is a member of the Illinois bar (inactive). Mr. Levy is also chairman of the board of nonprofit, Gardeneers, an active board member of Camp Kesem and he sits on the Board of Trustees for the Illinois
Institute of Technology.
Tom Gazdziak is
the Chief Financial Officer of the company. Mr. Gazdziak joined VPC in 2015 and currently serves as Fund Controller. He oversees VPC’s accounting team in the execution of accounting, finance, tax, audit, reporting and treasury related
activities for the VPC funds, including VPC Specialty Lending Investments PLC (LSE: VSL), a VPC managed UK publicly listed investment trust focused on opportunities in the litigation and fintech markets. Mr. Gazdziak joined VPC from
PricewaterhouseCoopers LLP where he progressed through several accounting roles since 2011 within the financial services practice specializing in the banking and capital markets industry. Mr. Gazdziak received a B.S. in accountancy and finance
and an M.B.A. in accountancy and financial analysis from the Kelley School of Business at Indiana University. He is a Certified Public Accountant (inactive).
Senator Joseph I. Lieberman serves on the L&F Board. Senator Lieberman has served as Senior Counsel at Kasowitz, Benson & Torres LLP since 2013. Prior to joining Kasowitz, Senator Lieberman, the Democratic Vice Presidential nominee in 2000, served
24 years in the U.S. Senate, retiring in January 2013 following the end of his fourth term. During his tenure with the U.S. Senate, Senator Lieberman served as the Chairman of the Committee on Homeland Security and Governmental Affairs and
helped shape legislation for homeland security, foreign policy, fiscal policy, environmental protection, human rights, health care, trade, energy, cyber security and taxes. Prior to being elected to the U.S. Senate, Senator Lieberman served as
the Attorney General of the State of Connecticut from 1983 until 1988. From 1970 until 1980, Senator Lieberman also served in the Connecticut State Senate, including three terms as majority leader. Senator Lieberman currently serves on the
board of directors of Park Hotels and Resorts Inc. (Nasdaq: PK). Senator Lieberman received his B.A. in political science and economics and his J.D. from Yale University.
Albert Goldstein
serves on the L&F Board. Mr. Goldstein is the Founder, Chairman & CEO of StoicLane Holdings, Inc., an investment holding company that is making strategic long-term investments in the digitization
267
of the FIRE verticals (Finance, Insurance & Real Estate). Prior to StoicLane, he
co-founded Avant Inc in 2013, a digital bank for middle-income consumers, and Amount Inc in 2016, a Banking-as-a-Service (BaaS) company helping the largest financial institutions in the world to digitize and deliver a seamless digital and mobile
customer experience. Avant and Amount have raised over $750,000,000 of equity capital from leading investors including Goldman Sachs, Tiger Global and General Atlantic and JP Morgan. Mr. Goldstein is currently a board member of Spring Labs, a
blockchain company and I2R Holdings, a supplier of electricity and solar power. Goldstein has been the recipient of multiple awards for entrepreneurship including winning the Ernst & Young Midwest Entrepreneur of the Year Award twice and
being named to the Crain’s Chicago Business 40 Under 40 list. Mr. Goldstein holds a B.S. in finance and mathematics from the University of Illinois Urbana — Champaign.
Kurt Summers serves on our board of directors. Mr. Summers has twenty years of experience in both private and public sector finance. Mr. Summers has been a Senior Advisor at Blackstone, Ullico and
Bridgewater since November 2019, January 2020 and November 2020, respectively, where he provides insight and strategic direction around various investment opportunities and existing holdings. From March 2021 to January
2022, Mr. Summers served as a member of the Board of Directors of VPC Impact Acquisitions Holdings III, Inc. prior to its business combination with Dave Inc. From September 2020 to October 2021, Mr. Summers
served as a member of the Board of Directors of VPC Impact Acquisition Holdings prior to its business combination with Bakkt Holdings, Inc. From 2014 to 2019, Mr. Summers served as Treasurer of the City of
Chicago, where he managed the city’s more than $8 billion investment portfolio and served as a trustee or fiduciary of five local pension boards with nearly $25 billion under management. As Treasurer of Chicago, Mr. Summers
and his team more than tripled the returns on the city’s portfolio, which now generates more than $100,000,000 of incremental revenue to Chicago’s taxpayers, bondholders and other stakeholders each year. From 2012 to 2014, Mr. Summers
served as Senior Vice President at Grosvenor Capital Management where he helped lead the firm’s strategy and business development efforts and served as a member of the Office of the Chairman. From 2010 to 2012, Mr. Summers
served as Chief of Staff to the Cook County Board President where he was the architect of a turnaround of the second largest county in the country. From 2009 to 2010, Mr. Summers served as Managing Director at
Ryan Specialty Group, an international specialty insurance organization. Mr. Summers began his career at McKinsey & Company, a preeminent global strategy-consulting firm, and also worked as an investment banker
at Goldman Sachs. Mr. Summers received a B.S.B.A. in finance and international business with high honors from Washington University and an M.B.A. from Harvard Business School.
Number and Terms of Office of Officers and Directors
The L&F Board consists of six members and is divided into three
classes with only one class of directors being appointed in each year, and with each class (except for those directors appointed prior to our first annual general meeting) serving a three-year term. In accordance with NYSE corporate governance
requirements, we are not required to hold an annual general meeting until one year after our first fiscal year end following our listing on NYSE. The term of office of the first class of directors, consisting of Senator Joseph Lieberman and
Albert Goldstein, will expire at our first annual general meeting. The term of office of the second class of directors, consisting of Richard Levy and Kurt Summers, will expire at the second annual general meeting. The term of office of the third
class of directors, consisting of Jeffrey C. Hammes and Adam Gerchen, will expire at the third annual general meeting.
Prior to the completion of an initial business combination, any vacancy
on the board of directors may be filled by a nominee chosen by holders of a majority of our Class B Ordinary Shares. In addition, prior to the completion of an initial business combination, holders of a majority of our Class B Ordinary Shares may
remove a member of the board of directors for any reason.
Pursuant to an agreement entered into concurrently with the issuance
and sale of the securities in the L&F IPO, our Sponsor, upon consummation of an initial business combination, will be entitled to nominate three individuals for election to the L&F Board, as long as the Sponsor holds any securities
covered by the registration and shareholder rights agreement.
Our officers are appointed by the board of directors and serve at
the discretion of the board of directors, rather than for specific terms of office. The L&F Board is authorized to appoint officers as it deems appropriate pursuant to our Existing Governing Documents.
268
Director Independence
The rules of the NYSE require that a majority of the L&F Board be
independent. The L&F Board has determined that Richard Levy, Senator Joseph Lieberman, Albert Goldstein and Kurt Summers are “independent directors” as defined in the NYSE listing standards and applicable SEC rules. Our independent directors
have regularly scheduled meetings at which only independent directors are present.
Officer and Director Compensation
The following disclosure concerns the compensation of our executive
officers and directors for the period from December 31, 2020 through December 31, 2021.
None of our officers or directors have received any cash compensation
for services rendered to us. Commencing on the date that our securities are first listed on the NYSE through the earlier of consummation of our initial business combination and our liquidation, we pay our Sponsor $10,000 per month for office
space, utilities, secretarial and administrative support services provided to members of our management team. We may elect to make payment of customary fees to members of the L&F Board for director service. In addition, our Sponsor, officers
and directors, or any of their respective affiliates are being 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 reviews on a quarterly basis all payments that were made to our Sponsor, officers or directors, or our or their affiliates. Any such payments prior to an initial business combination are made using funds
held outside the Trust Account. Other than quarterly audit committee review of such reimbursements, we do not expect to have any additional controls in place governing our reimbursement payments to our directors and officers for their
out-of-pocket expenses incurred in connection with our activities on our behalf in connection with identifying and consummating an initial business combination. Other than these payments and reimbursements, no compensation of any kind, including
finder’s and consulting fees, is paid by the company to our Sponsor, officers and directors, or any of their respective affiliates, prior to completion of our initial business combination.
After the completion of our initial business combination, directors or
members of our management team who remain with us may be paid consulting or management fees from the combined company. All of these fees will be fully disclosed to shareholders, to the extent then known, in the proxy solicitation materials or
tender offer materials furnished to our shareholders in connection with a proposed initial business combination. We have not established any limit on the amount of such fees that may be paid by the combined company to our directors or members of
management. It is unlikely the amount of such compensation will be known at the time of the proposed initial business combination, because the directors of New ZeroFox will be responsible for determining officer and director compensation.
Any compensation to be paid to our officers will be determined, or
recommended to the board of directors for determination, either by a compensation committee constituted solely by independent directors or by a majority of the independent directors on the L&F Board.
We do not intend to take any action to ensure that members of our
management team maintain their positions with us after the consummation of our initial business combination, although it is possible that some or all of our officers and directors may negotiate employment or consulting arrangements to remain with
us after our initial business combination. The existence or terms of any such employment or consulting arrangements to retain their positions with us may influence our management’s motivation in identifying or selecting a target business but we
do not believe that the ability of our management to remain with us after the consummation of our initial business combination will be a determining factor in our decision to proceed with any potential business combination. We are not party to
any agreements with our officers and directors that provide for benefits upon termination of employment.
269
Committees of the Board of Directors
The L&F Board has three standing committees: an audit committee, a
compensation committee and a nominating and corporate governance committee. Subject to phase-in rules and a limited exception, the rules of the NYSE and Rule 10A of the Exchange Act require that the audit committee of a listed company be
comprised solely of independent directors. Subject to phase-in rules and a limited exception, the rules of the NYSE require that the compensation committee and the nominating and corporate governance committee of a listed company be comprised
solely of independent directors.
Audit Committee
We have established an audit committee of the board of directors.
Senator Joseph Lieberman, Albert Goldstein and Kurt Summers serve as members of our audit committee. Under the NYSE 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, subject to the exception described below. Senator Joseph Lieberman, Albert Goldstein and Kurt Summers are independent.
Albert Goldstein serves as chair of the audit committee. Each member of
the audit committee is financially literate and the L&F Board has determined that Albert Goldstein qualifies as an “audit committee financial expert” as defined in applicable SEC rules.
We have adopted an audit committee charter, which details the principal
functions of the audit committee, including:
|
•
|
assisting board oversight of (1) the integrity of our financial statements, (2) our compliance with legal and regulatory
requirements, (3) our independent registered public accounting firm’s qualifications and independence, and (4) the performance of our internal audit function and independent registered public accounting firm; the appointment,
compensation, retention, replacement, and oversight of the work of the independent registered public accounting firm and any other independent registered public accounting firm engaged by us;
|
|
•
|
pre-approving all audit and non-audit services to be provided by the independent registered public accounting firm or any other
registered public accounting firm engaged by us, and establishing pre-approval policies and procedures; reviewing and discussing with the independent registered public accounting firm all relationships the firm has with us in order to
evaluate their continued independence;
|
|
•
|
setting clear policies for audit partner rotation in compliance with applicable laws and regulations; obtaining and reviewing a
report, at least annually, from the independent registered public accounting firm describing (1) the independent auditor’s internal quality-control procedures and (2) 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;
|
|
•
|
meeting to review and discuss our annual audited financial statements and quarterly financial statements with management and the
independent auditor, including reviewing our specific disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; 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
|
|
•
|
reviewing with management, the independent registered public accounting firm, 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 have established a compensation committee of the board of directors.
Senator Joseph Lieberman and Albert Goldstein serve as members of our compensation committee. Under the NYSE listing standards and
270
applicable SEC rules, we are required to have at least two members of the compensation
committee, all of whom must be independent. Senator Joseph Lieberman and Albert Goldstein are independent. Senator Joseph Lieberman serves as chair of the compensation committee.
We have adopted a compensation committee charter, which will detail the
principal functions of the compensation committee, including:
|
•
|
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’s based on such evaluation;
|
|
•
|
reviewing and making recommendations to the L&F Board with respect to the compensation, and any incentive compensation and
equity based plans that are subject to board approval of all of our other officers;
|
|
•
|
reviewing our executive compensation policies and plans;
|
|
•
|
implementing and administering our incentive compensation equity-based remuneration plans;
|
|
•
|
assisting management in complying with our proxy statement and annual report disclosure requirements;
|
|
•
|
approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our officers
and employees;
|
|
•
|
producing a report on executive compensation to be included in our annual proxy statement; and
|
|
•
|
reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors.
|
Notwithstanding the foregoing, as indicated above, other than the
payment of customary fees we make to members of the L&F Board for director service and payment to an affiliate of our Sponsor of $10,000 per month, for up to 18 months, for office space, utilities and secretarial and administrative support
and reimbursement of expenses, no compensation of any kind, including finders, consulting or other similar fees, will be paid to any of our existing shareholders, officers, directors or any of their respective affiliates, prior to, or for any
services they render in order to effectuate the consummation of an initial business combination. Accordingly, it is likely that prior to the consummation of an initial business combination, the compensation committee will only be responsible for
the review and recommendation of any compensation arrangements to be entered into in connection with such initial business combination.
The charter will also provide that the compensation committee may, in
its sole discretion, retain or obtain the advice of a compensation consultant, independent 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 the NYSE and the
SEC.
Nominating and Corporate Governance Committee
Prior to the consummation of the L&F IPO, we established a
nominating and corporate governance committee of the board of directors. Senator Joseph Lieberman and Albert Goldstein serve as members of our nominating and corporate governance committee. Senator Joseph Lieberman serves as chair of the
nominating and corporate governance committee.
The primary purposes of our nominating and corporate governance committee is to assist
the board in:
|
•
|
identifying, screening and reviewing individuals qualified to serve as directors, consistent with criteria approved by the board,
and recommending to the board of directors candidates for nomination for election at the annual general meeting or to fill vacancies on the board of directors
|
|
•
|
developing and recommending to the board of directors and overseeing implementation of our corporate governance guidelines;
|
271
|
•
|
coordinating and overseeing the annual self-evaluation of the board of directors, its committees, individual directors and
management in the governance of the company; and
|
|
•
|
reviewing on a regular basis our overall corporate governance and recommending improvements as and when necessary.
|
The nominating and corporate governance committee will be governed by a
charter that complies with the rules of the NYSE.
Director Nominations
The Board has nominated each of the current directors to serve as
directors of L&F. Please see the section entitled “Directors and Executive Officers” for more information on the experience of the nominees.
Compensation Committee Interlocks and Insider Participation
None of our officers currently serves, or in the past year has served,
as a member of the compensation committee of any entity that has one or more officers serving on the L&F Board.
Code of Ethics
We have adopted a code of ethics that applies to our officers and
directors. In addition, a copy of the code of ethics will be provided without charge upon request to us and is posted on our website: https://lfacquisitioncorp.com/about/.
272
AND RESULTS OF OPERATIONS OF L&F
The following discussion and analysis should be
read in conjunction with the financial statements and related notes included elsewhere in this proxy statement/prospectus. This discussion contains forward-looking statements reflecting our current expectations, estimates and assumptions
concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of
factors, including those discussed in the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” appearing elsewhere in this proxy statement/prospectus.
References in this section to “we,” “our” or “us” refer to L&F
Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the
financial statements and the notes thereto contained elsewhere in this proxy statement/prospectus. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and
uncertainties.
Overview
We are a blank check company incorporated in the Cayman Islands on
August 20, 2020 formed for the purpose of effecting a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or other similar business combination with one or more businesses. We reviewed a number of opportunities
to enter into an initial business combination with one or more operating businesses, and entered into the Business Combination Agreement on December 17, 2021. We intend to effectuate the Business Combination using cash derived from the proceeds
of the L&F IPO and the sale of the L&F Private Placement Warrants, our shares, debt or a combination of cash, shares and debt.
Results of Operations
We have neither engaged in any operations nor generated any
operating revenues to date. Our only activities from inception through December 31, 2021 were organizational activities and those necessary to prepare for the L&F IPO. We do not expect to generate any operating revenues until after the
completion of the Business Combination. We generate non-operating income in the form of interest income on marketable investments held after the L&F IPO. We expect that we will incur increased expenses as a result of being a public company
(for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses in connection with completing an initial business combination.
For the year ended December 31, 2021, we had a net income of
$5,598,086, which consists of change in fair value of warrant liabilities of $9,425,504 and interest earned on marketable investments held in Trust Account of $20,498, offset by operating costs of $3,847,916.
For the period from August 20, 2020 (inception) through December 31,
2020, we had a net loss of $7,798,760, which consists of change in fair value of warrant liabilities of $6,829,174, transaction costs of $807,424 and interest earned on marketable investments held in Trust Account of $2,030, offset by operating
costs of $164,192.
Liquidity and Capital Resources
On November 23, 2020, we consummated the L&F IPO of 15,000,000
L&F Public Units, at a price of $10.00 per L&F Public Unit, generating gross proceeds of $150,000,000. Simultaneously with the closing of the L&F IPO, we consummated the sale of 6,859,505 L&F Private Placement Warrants to the
Sponsor and Jefferies LLC at a price of $1.00 per L&F Private Placement Warrant and approximately $1.21 per L&F Private Placement Warrant, respectively, generating gross proceeds of $7,250,002.
On November 25, 2020, we sold an additional 2,250,000 L&F Public
Units for total gross proceeds of $22,500,000 in connection with the underwriters’ full exercise of their over-allotment option. Simultaneously with the closing of the over-allotment option, we also consummated the sale of an additional 728,925
L&F Private Placement Warrants to the Sponsor and Jefferies LLC at $1.00 per L&F Private Placement Warrant and approximately $1.21 per L&F Private Placement Warrant, respectively, generating total proceeds of $787,500.
273
Following the L&F IPO, the full exercise of the over-allotment
option, and the sale of the L&F Private Placement Warrants, a total of $175,087,500 was placed in the Trust Account, and we had $1,480,035 of cash held outside of the Trust Account, after payment of costs related to the L&F IPO, and
available for working capital purposes. We incurred $10,050,665 in transaction costs, including $3,450,000 of underwriting fees, $6,037,500 of deferred underwriting fees and $563,165 of other offering costs.
Net Cash Used in Operating Activities
For the year ended December 31, 2021, net cash used in operating
activities was $903,189. Net income of $5,598,086 was affected by change in fair value of warrant liabilities of $9,425,504 and interest earned on marketable investments held in trust account of $20,498. Changes in operating assets and
liabilities, provided $2,944,727 of cash from operating activities.
For the period from August 20, 2020 (inception) through December 31,
2020, net cash used in operating activities was $327,906. Net loss of $7,798,760 was affected by formation costs paid by the Sponsor of $5,000, interest earned on marketable investments of $2,030, change in fair value of warrant liabilities of
$6,829,174, and transaction costs of $807,424. Changes in operating assets and liabilities used $168,714 of cash from operating activities.
Cash and Marketable Investments in the Trust
Account
At December 31, 2021, we had cash and marketable securities held in
the Trust Account of $175,110,029. We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account, which interest shall be net of taxes payable and excluding
deferred underwriting commissions, to complete the initial business combination. We may withdraw interest from the Trust Account to pay taxes, if any. To the extent that our share capital or debt is used, in whole or in part, as consideration
to complete an initial 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.
At December 31, 2021, we had cash of $575,739 held outside of the
Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar
locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, structure, negotiate and complete a business combination.
In order to fund working capital deficiencies or finance transaction
costs in connection with the Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete the Business Combination, we
may repay such loaned amounts out of the proceeds of the Trust Account released to us. In the event that the Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned
amounts, but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants, at a price of $1.00 per warrant, at the option of the lender. The warrants would be identical to
the L&F Private Placement Warrants.
In connection with our assessment of going concern considerations in
accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” we have until May 23, 2022 (or such later date as may be
approved by L&F's shareholders) to consummate an initial business combination. It is uncertain that the we will be able to consummate an initial business combination by this time. If a business combination is not consummated by this date
and an extension not requested by the Sponsor, there will be a mandatory liquidation and subsequent dissolution of L&F. Management has determined that the mandatory liquidation, should a business combination not occur and an extension is
not requested by the Sponsor, and potential subsequent dissolution, raises substantial doubt about our ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should we be required
to liquidate after May 23, 2022 (or such later date as may be approved by L&F's shareholders).
274
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be
considered off-balance sheet arrangements as of December 31, 2021. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which
would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of
other entities, or purchased any non-financial assets.
Critical Accounting Policies
The preparation of financial statements and related disclosures
included elsewhere in this proxy statement/prospectus 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:
Class A Ordinary Shares Subject to Possible
Redemption
We account for our ordinary shares subject to possible redemption in
accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Class A Ordinary Shares subject to mandatory redemption is classified as a liability instrument and is measured at fair
value. Conditionally redeemable ordinary shares (including ordinary shares that features 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, ordinary shares are classified as shareholders’ equity. Our Class A Ordinary Shares feature certain redemption rights that are considered to be outside of our control and subject to
occurrence of uncertain future events. Accordingly, Class A Ordinary Shares subject to possible redemption is presented as temporary equity, outside of the shareholders’ equity section of our balance sheet.
Warrant Liabilities
We account for warrants as either equity-classified or
liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing
Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC
480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own ordinary shares, among other conditions for equity classification. This assessment, which
requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for
equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are
required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.
Net (Loss) Income per Ordinary Share
Net loss per ordinary share is computed by dividing net loss by the
weighted average number of ordinary shares outstanding during the period. Accretion associated with the redeemable Class A Ordinary Shares is excluded from earnings per share as the redemption value approximates fair value.
275
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with
Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies
accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and
it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. We
adopted ASU 2020-06 effective as of January 1, 2021. The adoption of ASU 2020-06 did not have an impact on our consolidated financial statements.
276
The following discussion reflects the business of
New ZeroFox, as currently embodied by each of ZeroFox and IDX. “We,” “us” and “our” generally refer to ZeroFox, Inc. (together with its subsidiaries, “ZeroFox”) in the present tense or New ZeroFox following the business combination, as the
context requires.
Who We Are
ZeroFox is an enterprise cybersecurity software-as-a-service company
that addresses the full lifecycle of external cyber threats and risks for its customers. External cybersecurity encompasses the threats that target internet accessible systems, devices and digital assets that exist beyond the protection of an
organization’s endpoint and firewall systems. The ZeroFox platform addresses these risks by providing enterprises external threat intelligence and protection to disrupt attacks and threats to brands, people, systems, assets and data, and respond
to data breaches across the internet.
Organizations are increasingly challenged by cybercriminal activity,
with the number of employee and customer records compromised exceeding tens of billions annually. The ZeroFox platform goes beyond traditional threat intelligence to protect organizations from threats outside the firewall with AI-driven analysis,
experienced intelligence analysts with unique dark web access, and comprehensive breach response and adversary disruption services. The ZeroFox platform enables actionable intelligence to disrupt phishing, impersonations, malicious domains and
data leakage.
ZeroFox provides customers with an innovative and comprehensive
platform for digital attack detection and protection. The ZeroFox platform is powered by patented artificial intelligence innovations, full spectrum threat intelligence, and response and disruption capabilities that are designed to detect
external threats to brands, people, systems, assets and data across a customer’s public attack surface and dismantle and remediate attacks against those brands, people, systems, assets and data. Our patented technology collects and processes
millions of pieces of content, rich media, posts, messages, global intelligence and threat actor activity across the digital landscape, including social media sites, public, deep and dark web forums, mobile app stores, code repositories, and
thousands of digital platforms and discrete content sources. From the data we collect and process, we can identify and remediate issues like targeted phishing attacks, credential and account compromise, data exfiltration, and brand hijacking
threats. With the growing digital presence of enterprise organizations, our modular ZeroFox platform is designed to meet the external cybersecurity needs of our customers as well as enable the ZeroFox platform to quickly add new capabilities.
Our Story
ZeroFox, a Washington, D.C. metro-based company, was founded in 2013,
based on the recognition that the emergence and adoption of social media, mobile applications and cloud computing by enterprise organizations would fundamentally change the cybersecurity paradigm. Social media represents much more than a platform
where individuals connect online. The adoption of social media has also revolutionized the way that people communicate with each other and, subsequently, how enterprises and organizations enable communication among employees, customers, partners,
and prospects. Mobile applications accelerated the digital transformation in which earlier versions of the web would need to become interactive and persist across multiple modern mediums. Furthermore, cloud computing’s continued evolution and
adoption demonstrate how organizations are more comfortable with data residing beyond their traditional security perimeter outside of the historical boundaries of IT governance and control.
An increasingly large number of businesses, including those in
industries that were slower to adopt digital technologies, have adopted social media, mobile applications and cloud computing, with critical digital assets now residing outside of traditional firewalls. These organizations now offer mobile and
web applications as a key driver of their revenue production in order to make customer access easier, transactions smoother, and their services more engaging. These same organizations have aggressively embraced social media and digital channels
to interact and transact with customers, vendors, and partners. This dramatic shift has created an enormous digital footprint on the “public” internet, expanding the attack surface to include all externally available digital platforms. These
public platforms are largely ungoverned, unmonitored and unprotected by existing perimeter and internal security technologies. This public attack surface exposes these organizations and their respective communities to targeted cyberattacks, data
loss, phishing scams, compliance violations and account takeovers.
277
The COVID-19 Pandemic has further accelerated the movement toward a
digital-first strategy for an increasing number of organizations. Given the shift to work-from-home arrangements and consumers’ increasing reliance on digital engagement for services, organizations and their security teams must continue to
implement new security strategies that protect against external digital threats to ensure trust and reduce risks. The modern enterprise IT infrastructures are commonly characterized by greater decentralization, cloud-based collaboration, and a
growing dependency upon cloud-hosted operating systems. Growing attacks on this external attack surface will drive the need for advanced, innovative, artificial-intelligence-powered external cybersecurity solutions, such as ours.
ZeroFox has completed strategic acquisitions that have expanded our
platform’s core capabilities and provided important additions of human talent, technology and intellectual property, customers and revenue. ZeroFox acquired Cyveillance, a business unit of Lookingglass Cyber Solutions, Inc, in September 2020 and
more recently, we acquired Vigilante ATI, Inc. in June 2021. As part of this transaction, ZeroFox will materially enhance its platform by acquiring IDX, a provider of digital privacy protection and breach response services.
IDX, a Portland, Oregon-headquartered company, was founded in 2003 with
a mission to address the growing risks that stem from emerging external cybersecurity threats and data breaches that result in expanding corporate fraud and harms to an organization’s employees, customers, and partners. The IDX enterprise
platform protects individuals from the risks of privacy compromise and identity cybercrime and remediates the negative effects that can result. As organizations began to experience cybersecurity attacks and breaches at a growing frequency and
severity, IDX expanded its platform offering by providing data breach response services, leveraging its digital protection platform that enable organizations to comply with cybersecurity laws and regulations, and associated corporate risks. The
IDX business is poised to benefit from this tailwind, serving organizations of all sizes that have experienced an attack, breach, or cyber compromise.
Following the consummation of the Business Combination with IDX, IDX’s
technology will be fully integrated into the ZeroFox platform in order to enhance the platform to support expanded use cases, additional cross-sell synergy opportunities between ZeroFox and IDX’s customer base and future growth. The combined
businesses will create a unique competitive advantage by providing external threat protection capabilities and breach response services, for companies protecting against, or responding to, an external cyberattack, effectively capturing the entire
lifecycle of the external cybersecurity market.
Industry Overview
Enterprise cybersecurity, compliance, governance and risk management
teams are under-resourced and overwhelmed with an influx of issues and high-priority threats, and they lack purpose-built applications to successfully address external cyber threats and risks. Consequently, organizations are insufficiently
prepared to deal with external cyber threats and risks and may fall victim to cybercrime. In general, external threats, unlike internal threats and risks that may be caused by disgruntled or untrained employees, are comprised of individuals that
are not employees or affiliated with an organization and where the attacking infrastructure is not within the logical or physical confines of an organization’s network. Successful external cyberattacks may result in both loss of revenue and
increased liability following the compromise or breach of sensitive customer data or intellectual property, as well as business disruption, extortion, impaired reputation and the need to provide for regulatory compliance.
Cybersecurity leaders need a single source of truth and a consolidated
external cybersecurity platform to provide broad visibility and defensibility in the digital-first world. External cybersecurity solutions call for the ability to quickly assess and understand an organization’s digital horizon, to then correlate
that information, and, ultimately, take action to prevent attacks, limit exposure, remediate an incident and disrupt the adversary. This area of the cyber landscape is becoming increasingly relevant, since malicious events can become major
disruptors of a business, its brand, reputation, supply chain, ability to interact online, conduct commerce, and operate in a normal course.
278
As illustrated in the following diagram, our view of the emerging
external cybersecurity market is large and security and risk teams need to address several different threat vectors daily with converging technologies and workflows.
TAM is based on 2025 Estimates of each segment. 1)
“Vulnerability & Attack Surface Management” by Markets and Markets (May 2020). 2)“ID Protection / Privacy” by Research and Markets (October 2020). 3)“Cyber Threat Intelligence” by Verified Market research (August 2020) and “SOAR Market” by
Adroit Market Research (July 2020). 4)“DRP Market” by Futuremarketinsight (September 2020) and “MSS Market Share” by Gartner (December 2020).
The external cybersecurity market opportunity encompasses the
simultaneous management of several different technology segments that include but are not necessarily limited to the following critical components:
|
•
|
Digital Risk Protection: the discipline of identifying and protecting the brand or brands, mobile applications, domains,
executives, digital accounts, locations and the overall digital footprint of an organization.
|
|
•
|
Cyber Threat Intelligence or Advanced Threat Intelligence: the monitoring of platforms, forums and underground internet
marketplaces for threat intelligence content that pertains to companies, people and their inherent risk postures, and the reporting of relevant threat intelligence.
|
|
•
|
Attack Surface Management: the awareness, understanding and continuous identification of the total set of technology systems and
digital platforms that an organization has exposed to the open internet and is visible to both the organization and their potential adversaries. The attack surface includes technologies ranging from corporate firewalls and routers to
cloud instances, mobile devices and IoT/EoT devices as well as IP addresses, domains, networks and hosts’ names.
|
|
•
|
Vulnerability Management: the process of identifying, assessing, remediating and reporting security vulnerabilities in software
and systems that attackers can potentially use to compromise a device and repurpose as a platform to extend and compromise a network.
|
|
•
|
Breach Response: the processes and corresponding courses of action to analyze and mitigate the potential negative impact and harms
caused by the breach of an organization’s data, which includes
|
279
notifying individuals whose sensitive personal information may have been exposed in an
unauthorized manner by the breach, and taking steps, including providing protection software and services, to address the risks of harm to the affected individuals and the organization, as a result of the breach.
|
•
|
Security Orchestration and Automation: the process of integrating a disparate ecosystem of required security tools and processes
to automate tasks for simpler, more effective security operations, enabling analyses of relevant data, and the timely correlation and orchestration of the actions to take in order to mitigate risk and loss.
|
In an increasingly digital-first world, we believe that organizations
need personnel, systems, and software, combined with continuous identification, protection and breach response capabilities to effectively manage the external cybersecurity landscape. Organizations attempt to manually integrate data, workflows
and responses across multiple vendors, the collective effort of which is sometimes referred to as “swivel chair security.” Security teams become fatigued after failing to align these critical processes. Unintegrated security systems and platforms
that produce threat data without the capability to take remediation actions can become burdensome to cybersecurity teams. A platform-based approach, such as the ZeroFox platform, that is designed to provide an organization with results and
demonstrated outcomes offers a more successful solution to their external cybersecurity needs. These outcomes include efficient and aggregated content with context and, most importantly, actions to keep organizations, people, assets, and
intellectual property more secure.
Industry Trends
Cybersecurity and related threats such as ransomware and data breaches
are top-of-mind for governments and corporations around the world. The macro level changes driving the digital-first world will continue for the foreseeable future, driving the need for external cybersecurity solutions. A 2020 Gartner research
report forecasted that the penetration of the target audience for digital risk protection services will increase from 1% to 10%, representing a 1,000% increase in the adoption of digital risk protection solutions by organizations in less than a
five-year period.
We believe that the following trends will continue to increase the
demand for external cybersecurity solutions:
|
•
|
The increase in remote work is likely to continue. This shift toward working more from
home, or in a hybrid home/office arrangement, is likely to drive decentralization of corporate IT beyond the protection of the traditional perimeter, resulting in a greater chance of adversarial risk being introduced into an
organization’s systems, applications, and workflows.
|
|
•
|
A continued acceleration of digital adoption, including those emerging businesses that disrupt
industries with new and unique technologies, is likely to continue. As the adoption of digital technologies continues, people will likely use a greater breadth of devices. We expect that this pattern will continue, with increased
reliance on mobile phones and tablets before expanding into devices integrated into new automobiles, homes, other business and personal devices—all representing an expansion of the potential attack surface for malicious actors targeting
an organization, its employees and customers.
|
|
•
|
We will likely see a continued increase and evolution in cybercrime and ransomware. As a
result of organizations and governments’ inabilities to proactively identify, track, stop and convict criminals that operate on the open internet or criminal underground, or outside the jurisdiction of authorities where hacks occur,
cyberattacks, rampant financial fraud, abuse and extortion will likely continue to compromise organizations, intellectual property and nation-state secrets.
|
|
•
|
Continued fragmentation of the cybersecurity industry with organizations providing point
intelligence, protection and response solutions or capabilities is also likely to continue. Other cybersecurity providers may add external threat intelligence and digital risk protection capabilities but may lack the technical
expertise and operational experience that we have built into our consolidated and unified platform over the last decade to create a competitive advantage.
|
|
•
|
We will likely see an increase in cybersecurity protections and government requirements, combined
with multidimensional enforcement by regulators. Cybersecurity laws already exist in many U.S. states, and we are beginning to see new enhancements and further regulation passed by
|
280
states, including California and Virginia. The passage of expanded and additional state
laws is likely to propel the trend toward a patchwork of provisions and requirements that increase the pressure on organizations to enhance their cybersecurity and compliance. Several new cybersecurity bills are pending in the U.S. Congress.
Additionally, many national and multinational data protection laws, led by the General Data Protection Regulation (GDPR) in the European Union further add pressure for enhanced cybersecurity.
|
•
|
There will be a continued shortage of adequate and qualified, well-trained cybersecurity staff
for enterprises and governments. Organizations face a critical shortage of experienced cyber-trained talent. According to CyberSeek in partnership with the National Initiative for Cybersecurity Education (NICE), led by the
National Institute of Standards and Technology (NIST), in the United States alone, as of January 2022, over 500,000 positions were open for cybersecurity professionals. Companies are recruiting for technical automation and 24x7 support
personnel to augment and complement already strained operations and staff processes.
|
|
•
|
Consequences of cybersecurity breaches have become more severe. An ongoing wave of
high-profile breaches in multiple industries has exposed a broad range of data. The monetary and reputational cost of these breaches, whether malicious or inadvertent, is increasing rapidly, and the regulatory and compliance risks can
result in levied fines and penalties, as well as the need to implement new technologies.
|
Growth Strategy
ZeroFox intends to deliver exceptional and innovative external
cybersecurity solutions that prioritize customer satisfaction and business resiliency. Embracing these priorities, we are pursuing the following growth strategies:
|
•
|
Drive new customer acquisition and adoption through innovation. We intend to grow our base
of new customers by serving them with our artificial intelligence capabilities provided by the ZeroFox platform. This platform-based approach enables us to build trusted relationships while providing security outcomes on use cases that
our customers value.
|
|
•
|
Expand high margin business. We intend to focus on and continue to grow our higher margin
enterprise platform subscription business in industry verticals that are experiencing the highest rates of cyberattacks.
|
|
•
|
Expand relationships with partners. We also intend to continue to build our relationships
with our channel partners, including Value-Added Resellers (VARs), Original Equipment Manufacturers (OEMs) and distribution partners, as well as cyber insurer and legal breach response partners.
|
|
•
|
Increase adoption and platform usage by current customers. As we enhance our platform’s
capabilities, we expect that our customers will choose to adopt and purchase additional platform modules and services to address additional external cybersecurity use cases and security pain points.
|
|
•
|
Expand our global footprint. We intend to continue to grow our international customer
base by increasing our investments in our international go-to-market efforts, operations, partners and delivery capabilities.
|
|
•
|
Expand our total addressable market through strategic acquisitions. We intend to
complement our organic growth investments with strategic acquisitions in complementary technologies and markets to successfully execute on our long-term vision and platform strategy. We have proven our capability to identify, acquire and
integrate targets to expand our TAM, enhance our solution offering, and accelerate our growth.
|
ZeroFox Solutions
ZeroFox provides mission-critical external cybersecurity solutions to
customers around the world. Customers rely on us to address important cybersecurity problems and challenges that they face today and look for our guidance regarding the problems they will face tomorrow. The ZeroFox platform is a cloud-native
enterprise software-as-a-service application focused on providing external cybersecurity teams with comprehensive solutions to address external cybersecurity threats and risks. Our platform employs continuous digital identification and
281
detection, comprehensive threat intelligence and persistent adversary disruption to
support a wide variety of cybersecurity use cases that address pervasive business challenges. Our customers’ adoption of the ZeroFox platform commonly begins with the purchase of one or two core components and grows over time. Our platform
features a comprehensive set of capabilities as visually depicted in the following diagram:
ZeroFox Protect:
ZeroFox Protect enables organizations to configure protective capabilities to continuously identify and protect their external assets. Our digital risk protection capabilities cast a digital net around owned assets across the internet including
digital representations for the organization’s brands, identities, systems, executives, accounts, domains, and mobile applications to secure their digital presence against targeted attacks, protect privacy, and decrease fraudulent activity
across the internet. These capabilities include:
|
•
|
Account Protection: the protection of digital accounts to protect those accounts from suspicious activity, impersonation,
takeover, and compromise.
|
|
•
|
Brand Protection: the intelligent identification of threats to brands to decrease the reach and efficacy of attacks.
|
|
•
|
Executive Protection: the enabling of comprehensive control and protection for an executive’s digital footprint to ensure it is
free of impersonations, sensitive data leakage and other cyber risks.
|
|
•
|
Domain Protection: the continuous scanning of the internet for malicious and infringing domains to decrease the effectiveness of
targeted attacks.
|
|
•
|
Identity and Privacy Protection: identifying and protecting an individual’s digital footprint in order to detect and address
potential threats and compromises to the personal information and to ensure the individual’s footprint is free of impersonations, sensitive data leakage and other cyber risks.
|
ZeroFox Predict:
ZeroFox Predict provides customers with a broad array of global threat intelligence solutions that assist with predicting emerging new threat vectors. We provide threat intelligence solutions that enable customers to directly search across our
data lake of global threat indicators, tactics, adversary intelligence, exploits, vulnerabilities, and security tools. Additionally, customers can request advanced cyber-criminal investigations or engagement, or customers can directly import
data into their ecosystem to power other security tools and workflows. ZeroFox Predict includes:
|
•
|
Threat Hunting: a platform to search, in real-time, strategic, operational, and tactical global threat intelligence.
|
|
•
|
Advanced DarkOps Investigations: our multilingual research and intelligence team allows for embedded interaction across the deep
and dark web forums as a specialized capability that can be leveraged for advanced adversary investigation and disruption.
|
|
•
|
Global Data Feeds: aggregated data of intelligence collections across the internet to ingest relevant threats and indicators of
compromise findings into a customer’s technology stack.
|
282
ZeroFox Detect:
ZeroFox Detect, powered by proprietary artificial intelligence, gives customers real-time asset and vulnerability awareness for their external-facing internet digital footprint. This component of our platform provides technical capabilities to
execute continuous attack surface identification and detection, which empowers the customer to gain an up-to-date picture of its internet accessible digital footprint. The digital presence typically includes social media and collaboration
platform accounts, domains, internet facing infrastructure, such as port, data, content, and images. More specifically, this component includes the following identification and detection capabilities:
|
•
|
Domains: continuous domain monitoring and analysis for malicious indicators is required to ensure capturing the domain when it is
hosting malicious content, code, or payloads.
|
|
•
|
Digital Platform Accounts: a catalogue of owned digital accounts for brands, executives, individuals, locations, products, to
adequately know how and when to secure assets.
|
|
•
|
Internet-accessible Infrastructure: ensures the mapping of the external internet facing infrastructure, externally-accessible
networks and digital infrastructure components.
|
|
•
|
Public, Private, and Proprietary Data, Content, and Images: the collection and analysis of data, content, images, and other
information anywhere sensitive public, private, and proprietary information may reside on the internet to better secure the customer’s enterprise.
|
ZeroFox Response: ZeroFox Response enables organizations to provide the required 24x7 level of support necessary to quickly respond to external attacks, incidents, data loss or exfiltration, or potential breaches. ZeroFox Response is a combined offering
built from the combined capabilities of the ZeroFox and IDX platforms. With the global increase in computer generated information and data that is stored in the cloud, nearly every organization is more vulnerable to some levels of external
cyber threats and risk. These threats and risk are often eventually exploited by persistent malicious actors and criminals around the world resulting in breaches and compromise of varying intensity and scale. ZeroFox Response enables our
customers to reduce overall enterprise risk by responding to these situations responsibly, in a timely manner, and in compliance with regulatory requirements. Capabilities include:
|
•
|
Response: responding to a breach frequently requires operational rigor and constant communications with affected organizations and
individuals. We execute this often-regulatory requirement on behalf of our customers by providing a 24x7 call center, publicizing extensive FAQs tailored for the particular breach incident and maintaining required compliance services.
This capability is an offering on the IDX platform today.
|
|
•
|
Protection: in addition to providing responses services, regulated enterprises are often required, to provide ongoing protection
services to compromised individuals to address their risks of harm. Our platform provides software to detect and address these risks, combined with complementary concierge-style services. This capability is a combined ZeroFox and IDX
offering.
|
ZeroFox Disrupt:
ZeroFox Disrupt leverages our platform to report, block, and take down an attack’s core components across the internet. These malicious command and control threats often take a significant amount of time to comprehensively identify and then
remove from the internet. We support customers by decreasing this significant cost through automation and leveraging technically-enabled solutions to report, block, deny lists, sinkhole and take down the components of an attack across the
internet. By working with our global disruption network, we are able to block and redirect traffic from malicious and nefarious locations. Capabilities include:
|
•
|
Takedowns: the scalable execution of content removal on relevant platforms on the customer’s behalf.
|
|
•
|
Disruption-as-a-Service: collaborating with partners to block internet traffic from navigating to malicious locations across the
web.
|
The ZeroFox Platform
The ZeroFox platform is powered by patented artificial intelligence
capabilities and is built on a modern cloud-native technology architecture that supports our core capabilities and solutions. Our engineering teams, which are aligned by scrum development methodology, deploy code updates and improvements to our
platform on a continual delivery basis. Additionally, our customers and partners alike can easily use and implement integrations to our platform with other vendors. This integrated ecosystem, which is built on top of our platform
283
APIs, enables us to extend an organization’s technology investment in ZeroFox thereby
maximizing our customers’ investments in other cybersecurity categories such as endpoint, network, identity, security event management, security orchestration and automation, and IT service management. Our App Library has hundreds of connected
applications, or “apps”, that allow our customers to integrate our platform into their operational and security processes. We also provide our platform capabilities to customers via enterprise mobile apps available from the Google Play and Apple
App Stores. The following diagram depicts the type of data our platform collects and artificial intelligence we have implemented in the ZeroFox platform.
The ZeroFox platform’s transparent artificial intelligence-powered
engine curates content and distills the most critical issues of open source intelligence. We also leverage our research analysts to provide context and review of additional platforms, forums, and marketplaces in the form of human intelligence to
create a more holistic and complete view of the threat landscape. Our customers’ cybersecurity teams utilize this intelligence to make informed decisions regarding remediation actions.
The patented artificial intelligence-powered engines in the ZeroFox
platform enable automation and analysis-at-scale in several key areas. The ZeroFox platform has implemented artificial intelligence capabilities in machine learning, natural language processing, computer vision and deep learning. An example of
our computer vision capabilities includes embedded image identification where we can train our algorithms to find images within images. This is particularly useful when looking for objects like company logos and credit cards. An additional
example of our approach and implementation of advanced optical character recognition (OCR) enables us to extract characters and words regardless of language from images for further automated computer analysis. Our modular approach to artificial
intelligence design and implementation has enabled us to use our components individually or in combination with each other to help address external cybersecurity challenges.
We employ a proprietary technology backend and have optimized our
platform to provide a customer-centric turnkey user experience from a customer’s initial onboarding and configuration to ongoing use, reporting and analytics and maintenance. Our platform can be quickly configured, effectively optimizing our
customer’s experience by minimizing their time-to-value and time to implement enhanced security controls.
Operationally, our around-the-clock OnWatch managed security team
strives to become the natural extension of our customer’s security operations center. The ZeroFox platform is coupled with internal runbook integrations and workflows that allow for and enable global reach, response and capacity. OnWatch teams
are deployed in locations around the world to provide customers prompt follow-the-sun operational experience.
284
We have extended the ZeroFox App Library to integrate with the
ZeroFox platform with the essential vendors within an organization’s security and information technology tech stack. These integrations add value to our customers by providing enhanced visibility and threat intelligence context. The following
diagram is a visual example of technologies that the ZeroFox platform through the ZeroFox App Library can integrate with in an organization.
A robust digital-first information security strategy warrants a
comprehensive approach that is aligned with known security standards such as NIST and ISO to support external cybersecurity demands. Security teams need an integrated digital risk protection suite with capabilities needed to secure the public
attack surface focusing on identification protection, intelligence, disruption and breach response. ZeroFox has been recognized as a cybersecurity leader by industry analysts, including the 2018 Forrester Digital Risk Protection Wave, and has
collected top industry awards such as Red Herring Top 100 North America, the SINET16 Champion, Dark Reading’s Top Security Startups to Watch, Best of Black Hat and the 2015 Security Tech Trailblazer of the Year.
Our Customers
As of December 31, 2021, the combined companies had over 1,700
customers, including 5 of the Fortune 10, protecting over 40,000,000 digital assets, including over 900 customers from our acquisition of IDX. We have key reference customers in many industry verticals to include but not necessarily limited to
education, energy, entertainment, financial services, government healthcare, media, retail, services, and technology that we believe validate our solutions in the market, and our customers range from small and medium-sized organizations to
Fortune 500 companies.
On a combined basis, excluding IDX’s contract with OPM, which will be
acquired at the time of this transaction, no single customer accounted for more than three percent (3%) of our revenue in fiscal 2021 nor the three months ended November 30, 2021. OPM will continue to be a meaningful revenue-generating customer
and the details are included within the audited financials in this filing. See “IDX History and Business Overview.”
Case Studies
Top Financial Institution
Customer Overview & External Cybersecurity Challenge: A large
financial institution with significant assets under management, thousands of employees, and several lines of business and offerings strives to be a financial services cybersecurity thought leader. This desire and objective has manifested itself
through thoughtful and robust cybersecurity programs and frameworks, consistent investments in best-in-class human talent and the implementation of best-of-breed innovative technologies to mitigate risk throughout the organization. Similar to
other large financial institutions, this organization was continuously targeted by external attackers with ongoing threats of impersonations, domain spoofing, attempted reconnaissance and exploitation of internet accessible systems, malicious and
fraudulent mobile applications, and phishing attacks.
285
Solution: The financial industry thought leader conducted an
early-market evaluation of vendors in fiscal year 2014 that were focusing on niche areas in what would become the external cybersecurity market. ZeroFox was selected given our investments in threat intelligence, attack detection and disruption
and has repeatedly partnered with this organization to expand the usage of the platform, drive adoption of artificial intelligence and new global operation center capabilities and increase the number of subscriptions.
The Business Result for ZeroFox: This customer’s revenue grew six
hundred percent over the past seven years to be a multi-million-dollar annual account with a multi-year go-forward contract.
Leading Automotive Manufacturer
Customer Overview & External Cybersecurity Challenge: A global
automotive manufacturer with global manufacturing capabilities to include a global hybrid employee and contracted workforce prides itself on being an industry leader in enterprise risk management. As a global corporation, enterprise risk
management includes but is not limited to workforce safety, product quality assurance, customer safety and cybersecurity risk management. Even with robust security controls, an incident occurred, and millions of customer records were exposed
externally.
Solution: The company moved quickly to bring in external cybersecurity
assistance knowing there could be legal liability in addition to regulatory and compliances issues due to the incident. We were selected as the provider of choice given our platform’s deep technical capabilities, our proven experience to manage
cybersecurity incidents for large, complex organizations and our unique capability to provide both reactive and proactive external cybersecurity services.
The Business Result for ZeroFox: We closed an initial million-dollar
contract with this customer and see multiple opportunities for creating a more meaningful partnership with them in the future.
Mission Critical Organization
Customer Overview & External Cybersecurity Challenge: A mission
critical organization with a rich legacy in investing in best-of-breed cybersecurity technologies to protect sensitive information and intellectual property experienced an increased level of persistent external cyberattacks. The organization
acknowledged that these external cybersecurity attacks were growing in volume and sophistication and ultimately became aware of a successful breach of their security controls.
Solution: The organization executed on a commercially quick competitive
process to identify a solution provider: technology, services, or some combination thereof to assist them with the incident and breach. IDX was selected as the breach provider for this organization and ZeroFox was subsequently identified and
selected as the external cybersecurity provider of record to further secure this organization’s internet accessible footprint with threat intelligence, digital risk protection services, and disruption capabilities.
The Business Result for ZeroFox: We closed an initial opportunity via a
short sales cycle for reactive services then subsequently closed a meaningful proactive services upsell opportunity representing over forty times the initial deal value.
Acquisition Strategy and IDX Combination
ZeroFox has successfully completed strategic acquisitions that have
expanded our platform’s core capabilities. These acquisitions have provided ZeroFox with incremental value through the addition of human talent, technology and intellectual property, customers, and revenue.
IDX History and Business Overview
IDX was founded in 2003 and over the course of more than ten years
built an enterprise-grade digital privacy protection and breach response services business. In 2015, IDX was awarded a three-year, $330 million contract by the U.S. Office of Personnel Management (OPM) and the U.S. Department of Defense (DoD) to
provide protection services covering approximately 21,500,000 current and former federal government employees and contractors that were impacted by the breach of OPM personal background investigation records. Earning this award required IDX to
comply with rigorous government security standards, making the IDX data breach
286
response business well-positioned to further serve organizations that experience
large-scale data breaches. IDX believes winning this award resulted in further market validation, increased visibility, and enhanced reputation for IDX as a leading data breach response provider in the United States by revenues.
In 2018, OPM expanded the value of contract award to approximately
$460,000,000 over a term of another 5.5 years making it one of the largest cybersecurity contracts awarded. This expanded contract was also awarded to IDX. IDX’s performance under this contract further validated IDX’s belief that it is a
leading platform provider for both government and commercial data breach response services in the United States by revenues.
Many of the IDX government awards are subject to a competitive bid
process and are awarded on the basis of technical merit, personnel qualifications, experience and price. Our future revenues and income could be materially affected by changes in government procurement policies and related oversight, and other
risks generally associated with government contracts. Our eligibility to perform under our federal government contracts requires us to maintain adequate security measures. We have implemented security technologies and procedures that we believe
adequately satisfy the requirements of our federal government contracts.
Synergies with IDX
ZeroFox’s combination with IDX will bring significant, tangible
strategic benefits to the combined value proposition for our customers. In many cases, IDX customers do not have adequate external cybersecurity solutions for their internet accessible attack surface, which creates opportunities for the combined
company to introduce IDX customers to the ZeroFox AI-powered protection platform to enhance their cybersecurity readiness and posture.
Likewise, with IDX, ZeroFox can now provide enhanced digital privacy
protection and data breach response services to enterprise customers. This expands the ZeroFox external cybersecurity value proposition to create powerful benefits for our customers by addressing full lifecycle risks and consolidating everything
needed to address external attacks and inevitable breaches under one trusted party and platform. This combined offering will provide new customers a single solution to address the entire external cybersecurity lifecycle.
IDX’s cloud-native and modular platform already has integrations with
the ZeroFox platform. Additionally, the IDX software development lifecycle aligns closely with ZeroFox’s development best practices, including an agile development methodology, continuous integration and continuous deployment processes, and the
use of microservices and container technologies in a cloud-native hosting environment. The combined platform provides New ZeroFox with competitive advantages by leveraging a highly scalable architecture, extensive security and compliance
certifications, and a flexible and customizable platform that can be rapidly configured to meet customer needs and easily integrated with our customers’ existing software applications.
Acquisition of Vigilante
On June 7, 2021, ZeroFox acquired Vigilante ATI, Inc. Vigilante
provides customers with a clear view of the cybercriminal underground economy through the Vigilante cloud-based platform. The platform clearly depicted potential indicators of attack and compromise on customers’ infrastructure, whether their
credentials, financial information, personally identifiable information, and other sensitive information is being traded, to helping contextualize tactics, exploits, and vulnerabilities that are leveraged against enterprise organizations. This
strategic tuck-in transaction accelerated ZeroFox’s ability to further deliver enhanced threat intelligence collection, analysis and hunting capabilities to large scale enterprise customers.
Acquisition of Cyveillance
On September 30, 2020, ZeroFox acquired the Cyveillance business unit
and related assets from Lookingglass Cyber Solutions, Inc. Cyveillance’s tradecraft and intellectual property are based on decades of experience in providing top enterprise organizations with threat intelligence, cybersecurity, brand, and
executive protection services. This transaction broadened our ability to deliver a suite of digital risk protection solutions powered by global threat intelligence to enterprise customers.
ZeroFox Sales and Marketing
Our sales team is bifurcated into two sub-organizations: a new customer
acquisition team and an existing customer account management team. These teams are further structured into named-account sales teams that focus on a broad target of customer verticals and regions ranging from enterprise to small and medium-sized
287
businesses. Most of our current business is currently in North America and as such, the
team is proportionate in size and focus to our customer base. Members of the account management team are focused on creating successful customer outcomes, renewing customer subscriptions, and expanding platform adoption to drive customer upsell
values.
In alignment with our corporate strategy, ZeroFox is a channel-first
organization. Our go-to-market strategy leverages our partner community to reach our desired customer cohorts. In North America, ZeroFox generally relies on a single tier value-added reseller and partner community. In other regions, ZeroFox may
employ a two-tiered approach by leveraging a network of distributors who manage the various channel partners within desired territories or regions.
ZeroFox’s comprehensive marketing strategy focuses on an inbound
marketing model designed to deliver high efficacy contact-to-opportunity conversion rates and efficient pipeline velocity. We execute field, partner, and demand programs to drive ongoing engagement with prospects and leverage our sales
development organization to mature those engagements into sales pipeline opportunities. Once prospects become customers, we continue engagement with solution-oriented content created by ZeroFox experts and executives through numerous
collaboration channels designed to drive increased customer revenue and optimize our customers’ long-term value. Additionally, we conduct webinars and podcasts, participate in cybersecurity industry events, and utilize our product marketing team
to drive market awareness through thought leadership. The sophistication and experience of the ZeroFox threat intelligence enables us to productize our thought leadership into daily and weekly threat intelligence reports, quarterly threat
landscape reports, and annual threat reports. Other tactics leveraged to maximize inbound traffic include paid media, content syndication, social media, outbound campaigns, public relations, and remarketing advertising. These tactics frequently
rely on the ZeroFox website to drive awareness, education, and opportunity conversion on the ZeroFox platform’s broad set of artificial intelligence capabilities. Furthermore, the website has been optimized to assist with this lead conversion in
mobile, tablet and traditional desktop engagements. Marketing automation workflows continuously engage prospects throughout the buyers’ journey with thought leadership and solution-centric content to advance their understanding of the ZeroFox
solution’s business value proposition.
Our global field and partner marketing strategy is designed to maximize
the leverage of partner ecosystems and build brand engagement at regional and territory levels to drive and accelerate pipeline growth. Additionally, we have strong participation in many significant cybersecurity conferences and trade shows
across many global geographies to expand our brand reach. In alignment with our sales approach, we also have a channel-first sales and marketing strategy. To support this strategy, we have a technology-enabled way to communicate and collaborate
with partners at all sales lifecycle stages, from demand generation through technical validation and close. We believe that we have a state-of-the-art partner portal that allows global partners to take advantage of all aspects of our marketing
strategy, content and accelerated readiness around rapid product innovations to drive demand within their customer base and ensure their technical and sales staff’s readiness.
Competition
The market for our platform and services is competitive and
characterized by rapid changes in technology, customer requirements, industry standards, and by frequent new product and service offerings and improvements. Today, we see competition from the following by general categories:
|
•
|
digital risk protection providers such as Proofpoint, Mimecast and Recorded Future who primarily focus on select niche sub-sector
categories within security or take more of an investigative-focused approach;
|
|
•
|
broad infrastructure security vendors such as CrowdStrike, Palo Alto Networks and Rapid7, through its acquisition of IntSights,
who are supplementing their traditional endpoint or network security solutions with threat intelligence solutions;
|
|
•
|
identity protection providers that typically compete with IDX such as Norton LifeLock, Experian, and Transunion who are focusing
on driving consumer awareness and adoption of credit-related protection services;
|
|
•
|
managed security service and system integrator solution providers such as Secureworks (formerly Dell Secureworks) IBM, and
Accenture who are using people to augment their combined technology offerings.
|
288
We believe that our external cybersecurity solutions offer
advantages as compared to products offered by our competitors on the following factors:
|
•
|
ability of our platform to address the entire external cybersecurity lifecycle with protection, prediction, detection, response
and disruption associated with cyberattacks and incursions;
|
|
•
|
ability of our artificial-intelligence powered platform and human threat intelligence team to acquire global data sets at scale on
behalf of our customers;
|
|
•
|
ability of our platform and related service capabilities to assist our customers from the discovery of a potential cyber breach
through notification and protection of those affected by addressing their risks of harm;
|
|
•
|
ability of our platform to leverage artificial intelligence to analyze data efficiently and effectively at scale to help customers
achieve a wide variety of security protections;
|
|
•
|
ability of our platform’s App Library integrations to drive enhanced value to customers through partner technology workflow
automation and enhanced data contextualization; and
|
|
•
|
ability of our platform to drive in-platform policy orchestration enabling customers to automate ZeroFox-centric workflows.
|
We offer full adversary kill chain disruption capability in the market
today by automating the process for removal of malicious or infringing content and we provide the ability to coordinate and/or integrate with several partners to disrupt cyberattacks.
Research and Development
We devote significant resources to improve and enhance our solutions
and maintain the effectiveness of our platform. We also work closely with our customers to gain valuable insights into their threat environments and security management practices to assist in designing new solutions and features that extend the
capabilities of our platform. Our engineering staff monitors and tests our software on a regular basis, and we maintain a regular Continuous Integration (CI) and Continuous Delivery (CD) release framework to update and enhance our platform and
its modular capabilities. Leveraging our on-demand platform model, we can seamlessly deploy real-time upgrades with no downtime.
Human Capital
ZeroFox’s corporate culture is built on the goal of creating a diverse
and inclusive environment where employees’ unique opinions and feedback are respected, desired and actioned upon. As a team, employees constantly collaborate and work together to set policy, communicate openly and drive an environment of
transparency. For example, we frequently have global town hall meetings where the agenda is set by employees, hosted by employees that volunteer to emcee each event, and where multiple regions and business units are always recognizing their
achievements and successes. Additionally, each global town hall also has a segment, referred to as the ZeroFox Fellow Foxes segment, where employees get the opportunity to thank and recognize their peers anonymously or in an open forum in front
of the entire company for going above and beyond. These recognitions are commonly surprises and are sure to put smiles on many faces. Lastly, it’s not uncommon to see dozens of Fellow Foxes recognitions in a single town hall; Foxes love to work
hard and recognize their teammates.
The Fellow Foxes practice is an example of the framework and value
system that has been built to recognize and reward employees based upon meritocracy. We believe that most talent not only wants to be listened to but also challenged and rewarded where they can rise to their full potential and deliver their top
performance in a healthy, fun work environment. Our workforce’s ability to execute relentlessly in pursuit of company objectives is both a primary differentiator and a critical component contributing to our success. ZeroFox’s people team designs
and implements key initiatives and employs business-driven human resources programs to recruit, hire, empower, develop, assess, and retain industry talent. First, we aim to build an effective team by leveraging our global footprint to find the
right people, in the right geographies and place them into the right roles. Next, we empower employees to take ownership in their work while providing them with the tools, resources, and time to do their jobs well. We invest in our staff,
offering coaching, training, and other support to develop short- and long-term skills and provide them with opportunities for career growth. Our semi-annual
289
performance management cycle, which is purposefully decoupled from compensation
discussions to encourage non-biased dialogue, encompasses both look back and look ahead elements to celebrate success, make improvements and develop competencies to address future business needs. To ensure that ZeroFox retains a highly capable
workforce that represents a variety of diverse backgrounds and complies with contractual obligations and local compliance regulations, we regularly benchmark our program against industry standards, diversity objectives and key employee drivers.
As of December 31, 2021, ZeroFox employed 499 employees and 20
contractors. Our workforce is geographically distributed across the United States and various other locations across the globe. As of the same date, IDX had 71 active full-time employees and 65 contractors. None of the employees in either company
today, or going forward as New ZeroFox, is represented by a labor union and we have not experienced work stoppages. We consider our employee relations to be in good standing and we invest in them. We value our employees as a meaningful asset to
our company.
Employee Health & Safety / Covid-19
ZeroFox is committed to protecting the physical well-being of our
employees, families, and customers. To address the evolving complexities introduced by COVID-19, we have and will continue to take multiple steps to promote safety, realign workforce planning strategy, and support employee needs while continuing
to drive customer satisfaction. We regularly review and update our health and safety plan based on guidelines, rules and capabilities issued by local, regional, and countrywide healthcare organizations. At present, a large majority of employees
work from home. In select geographies some employees can optionally work out of a local office in a hybrid environment, and there is another group of employees that work primarily in the office. As the world reopens and employees potentially
transition back toward an office setting, our offices will reopen with modified configurations based on requirements and recommendations from local, state, national government, and health institutions. Concurrently, we will use a phased approach
that entails re-classifying ongoing work locations across all roles and implementing a flexible hybrid work model where appropriate. While onsite, we will have protocols in place to help keep employees, customers, and other visitors safe. We
exercise an abundance of caution where safety is concerned and are ultimately prepared, resourced and equipped to exceed customer expectations, whether working onsite or remote.
Facilities
We are headquartered in the Washington D.C. metropolitan area with
our primary office in Baltimore, Maryland where we occupy over 10,000 square feet of office space pursuant to a lease that expires in February 2023 subject to the terms thereof. Our headquarters was built to reflect our corporate culture,
operational needs, and dedication to employee happiness. We lease additional offices in regions throughout the United States, including but not limited to approximately 15,000 square feet of office space in Portland, Oregon for IDX’s operations
and around the world, including in the United Kingdom, Chile and India. We believe that our current facilities are adequate to meet our current needs and that suitable additional alternative spaces will be available in the future on
commercially reasonable terms.
Since the beginning of the COVID-19 pandemic, we have shifted our
approach from almost entirely in-person to a flexible work environment that is comprised of in-person, hybrid in-person and remote, and 100% remote. We consider our 100% remote team part of our “Global Office” and that team is properly supported
and securely enabled for remote-only work. Our hybrid team has access to work in-person and remote from designated offices around the world, and our in-person teams have designated offices they report to for work.
Intellectual Property
The intellectual property rights we hold are a foundational and
integral asset in our broader business portfolio and are core to our long-term strategy to create shareholder value. We rely on intellectual property protection under law (patents, trademarks, copyrights, and trade secrets) and leverage our
rights through various agreements, including license agreements, confidentiality and non-disclosure agreements, and employee non-disclosure and assignment of inventions agreements.
We believe all these intellectual property rights enable ZeroFox to be
a leading innovator in, and provider of, cloud-based external cybersecurity software-as-a-service for organizations to protect against, detect and
290
remediate external digital threats and risks — such as phishing, malware, scams,
impersonator accounts, piracy, counterfeit goods—present across the internet. From what we consider to be a market leadership position in innovation, we can attract both customers and employee talent.
From inception, we anchored our business’ value proposition to the
rapid creation of intellectual property; today this objective remains central to our platform, capabilities technology, and go-to-market strategy. Since then, we have ambitiously expanded our intellectual property portfolio by creating new
inventions, tradecraft and proprietary know-how stemming from our operational experience and research and development efforts. As of the date of this filing:
|
•
|
ZeroFox has 23 issued patents, 20 of which are in the U.S., in addition to 11 pending patent applications in the U.S.; these
include intellectual property relating to attack surface identification, threat intelligence and digital risk protection. The active patents are expected to expire between 2029 and 2039. In addition, ZeroFox owns dozens of trademark
registrations throughout the world and numerous registered domain names for websites that we use in our business, such as www.zerofox.com.
|
|
•
|
IDX has 2 issued patents and 4 pending patent applications in the U.S., covering IP in breach response and digital privacy
protection. The active patents are expected to expire between 2031 and 2039. In addition, IDX owns several software products, has 10 registered trademarks, multiple registered domain names and has invested heavily in its business
processes and proprietary know-how.
|
We will continue to invest in the innovation and development of our
intellectual property portfolio through business acquisitions, technology alliance and strategic licensing relationships, and ongoing research and development. Our intellectual property rights will be at risk because invalidation, circumvention
and third-party intellectual property claims, and litigation remain possible. In addition, our industry is competitive so the intellectual property created by our competitors could limit the adoption of our technologies and products.
We believe competitors may try to develop products that are similar to
ours and that they may infringe our intellectual property rights. Additionally, competitors or other third parties may also claim that our platforms and other solutions infringe their intellectual property rights. Third parties may in the future
assert claims of infringement, misappropriation, and other violations of intellectual property rights against us or our customers, with whom our agreements may obligate us to indemnify against these claims.
Despite our best efforts to protect and aggressively expand our
intellectual property rights, there is always the potential that they may not be respected in the future or may be invalidated, circumvented, or challenged. The cybersecurity industry is characterized by the existence of a large and expanding
number of patents and frequent claims and related litigation based on allegations of patent infringement or other violations of intellectual property rights. We believe our approach to constantly invest in intellectual property is a meaningful
component of our corporate strategy to mitigate intellectual property risk and liability. As an organization, we may elect to protect our intellectual property rights and challenge our competitor’s infringing use of such rights. Successful claims
of infringement by a third party could prevent us from offering certain products or features, require us to develop alternate, non-infringing technology, which could require time and during which we could be unable to continue to offer our
affected products or solutions, require us to obtain a license, which may not be available on reasonable terms or at all, or force us to pay damages, royalties, or other fees.
For additional information, see the section titled “Risk Factors—Risks Related to Our Intellectual Property.”
Backlog
ZeroFox enters into both single and multi-year subscription contracts
for its solutions. It generally invoices the entire amount at contract signing prior to commencement of the subscription period. Until such time as these amounts are invoiced, they are not recorded in deferred revenue or elsewhere in our
consolidated financial statements, and are considered backlog. As of January 31, 2021, we had $28.5 million in total deferred revenue, which excluded backlog of approximately $12.2 million. Of this amount, approximately $8.4 million is expected
to be billed in fiscal year 2022. We expect backlog will change from period to period for several reasons, including the timing and duration of customer agreements, varying billing cycles of subscription agreements, and the timing and duration of
customer renewals. Because revenue for any period is a function of revenue recognized from deferred revenue under contracts in existence at the beginning of the period, as well as new and renewing contracts during the period, backlog at the
beginning of any period is not necessarily indicative of future revenue performance.
291
Government Regulation & Legal Affairs
As a provider of cloud-based external cybersecurity solutions, our
business is potentially subject to a variety of domestic and international laws and regulations relating to the collection, use, retention, protection, transfer, and processing of business data, personal data, and other sensitive information.
Certain aspects of our offerings may involve access to and use of personally identifiable information and other sensitive data. The nature of cybersecurity product and service offerings requires the collection of various types of data. In the
operation of our business, we may collect the types of data covered by these laws and regulations including personally identifiable information, information about an individual’s health and financial information about individuals. To the extent
we are in possession of such data and these various laws and regulations are determined to apply to us, this could require us to adopt additional operational, technological and security measures to protect and manage such information which
could increase our costs of operations. Our failure to comply with such laws and regulations could also result in monetary fines and reputational damage which would have a negative impact on our business. These laws and regulations include, but
are not limited to, the European Union General Data Protection Regulation (“GDPR”), the California Consumer Privacy Act (“CCPA”), the California Privacy Rights Act (“CPRA”), the Electronic Communication Privacy Act, Computer Fraud and Abuse
Act, the Gramm-Leach-Bliley Act (“GLBA”), and the HIPPA/HITECH Act. In addition to these, other laws and regulations relating to cloud computing, cross-border data transfer restrictions, data collection and data localization may apply to our
business as we expand outside of the U.S. market.
Laws and regulations outside the U.S., and particularly in Europe,
often are more restrictive than those in the U.S. Applicable laws and regulations may require us to implement privacy and security policies, permit customers to access, correct, and delete personal information stored or maintained by us, inform
individuals of security breaches that affect their personal information, and, in some cases, obtain individuals’ consents to use personal information for certain purposes. In addition, some foreign governments require that personal information
collected in a country not be disseminated outside of that country without consent or other implemented safeguards.
For example, the European Union General Data Protection Regulation,
or GDPR, applies to the processing (which includes the collection and use) of certain personal data of data subjects in the European Economic Area, or EEA. As compared to previously effective data protection law in the European Union, the GDPR
imposes additional obligations and resulting risk upon our business and increases substantially the penalties to which we could be subject in the event of any non-compliance. Administrative fines under the GDPR can amount to 20,000,000 Euros or
four percent of our worldwide annual revenue for the prior fiscal year, whichever is higher. We may be required to incur, in the future, substantial expense in complying with the obligations imposed by the GDPR, potentially making significant
changes in our business operations, which may adversely affect our revenue and our business overall. Additionally, because there have been very few GDPR actions enforced against companies similar to ours, we are unable to predict how they will
be applied to us or our customers. Despite our efforts to comply with the GDPR, a regulator may determine that we have not done so and subject us to fines and public censure, which could harm our company financially and negatively affect our
reputation. Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have been found to not provide adequate protection to such personal data, including the U.S. We have undertaken
certain efforts to conform transfers of personal data from the EEA to the U.S. and other jurisdictions based on our understanding of current regulatory obligations and the guidance of data protection authorities. Despite this, we may be
unsuccessful in establishing or maintaining conforming means of transferring such data from the EEA, in particular because of continued legal and legislative activity within the European Union that has challenged or called into question the
legal basis for existing means of data transfers to countries (including the U.S.) that have been found to not provide adequate protection for personal data.
The implementation of the GDPR has led other jurisdictions to either
amend existing laws or propose new data privacy and cybersecurity laws to resemble all or a portion of the requirements of the GDPR (e.g., for purposes of having an adequate level of data protection to facilitate data transfers from the EU).
Accordingly, the challenges we face in the EU will likely also apply to other jurisdictions outside the EU that adopt laws similar to the GDPR or regulatory frameworks of equivalent complexity. For example, the CCPA became enforceable on July
1, 2020. The CCPA has been characterized as the first “GDPR-like” privacy statute to be enacted in the U.S. because it contains several provisions similar to certain provisions of the GDPR. In addition, the CPRA was passed by California voters
in November 2020. The CPRA amends the CCPA by creating additional privacy rights for California consumers and additional obligations on businesses, which could subject us to additional
292
compliance costs as well as potential fines, individual claims, and commercial
liabilities. The majority of the CPRA provisions will take effect on January 1, 2023. The CCPA and CPRA could mark the beginning of a trend toward more stringent privacy legislation in the U.S., as other states or the federal government may
follow California’s lead and increase protections for U.S. residents. For example, on March 2, 2021, the Virginia Consumer Data Protection Act, which will take effect on January 1, 2023, was signed into law. The CCPA has already prompted
several proposals for new federal and state privacy legislation that, if passed, could increase our potential liability, add layers of complexity to compliance in the U.S. market, increase our compliance costs and adversely affect our business.
Our business is also subject to laws relating to import and export
control such as U.S. export licensing requirements, trade and economic sanctions administered by the U.S. Office of Foreign Assets Control (“OFAC”) and anti-bribery laws such as the U.S. Foreign Corrupt Practices Act (“FCPA”) and the U.K.
Anti-Bribery Act.
We believe that we are in material compliance with the laws and
regulations that are applicable to us.
Many of these laws and regulations, such as those related to data
protection and privacy, are frequently being revised and new laws in different jurisdictions are being adopted. Therefore, we must continually evolve our business practices to satisfy these regulatory obligations. We have policies and procedures
that we rely on to satisfy these requirements and are transparent with our customers regarding our business practices, product features and types of data that are collected when a customer uses ZeroFox security solutions.
In addition to the existing regulatory framework applicable to our
business, some governments are considering whether to take a more active role in regulating the cybersecurity industry and, in the U.S., there are efforts to have the federal government regulate digital platform companies. New regulations in
these two areas could impact our go-to-market model. Therefore, we keep abreast of these potential changes and how they may impact our business.
Aside from the efforts that we undertake to comply with these
obligations, most of our customers are subject to the same or similar regulatory oversight, and some of our customers have adopted more stringent requirements than required by law. Consequently, some customers either expect us to comply with
their own compliance-related initiatives or require us to contractually commit to meeting certain data privacy or cybersecurity provisions, such as signing a business associate agreement in the case of a healthcare covered entity. We believe
that our security solutions may help our customers in industries such as healthcare, government and finance fulfill their compliance obligations. See “Risk Factors - If we are not able to satisfy
data protection, security, privacy, and other government- and industry-specific requirements or regulations, our business, results of operations, and financial condition could be harmed.”
From time to time, ZeroFox may be subject to various legal proceedings,
investigations or claims that arise in the ordinary course of our business activities. As of the date of this filing, ZeroFox is not currently a party to any litigation, investigation or claim the outcome of which, if determined adversely to it,
would individually or in the aggregate be reasonably expected to have a material adverse effect on ZeroFox’s business, financial position, results of operations or cash flows.
293
AND RESULTS OF OPERATIONS OF ZEROFOX
You should read the following discussion and
analysis of ZeroFox's financial condition and results of operations in conjunction with the consolidated financial statements and the related notes included elsewhere in this proxy statement/prospectus. In addition to historical financial
information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from
those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this proxy statement/prospectus, particularly in the sections of this proxy
statement/prospectus titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” Unless otherwise indicated or the context otherwise requires, references in this Management's Discussion and Analysis of Financial Condition and
Results of Operations of ZeroFox section to “ZeroFox,” “we,” “us,” “our,” and other similar terms refer to ZeroFox, Inc. and its consolidated subsidiaries before the Business Combination.
Overview
ZeroFox was founded in 2013 with the vision that the emergence and
adoption of social media, mobile applications and cloud computing by enterprises would fundamentally change the cybersecurity paradigm. Social media represents much more than a platform where individuals connect online. The adoption of social
media revolutionized the way people communicate with each other and, subsequently, how enterprises and organizations enable communication among employees, customers, partners, and prospects. Mobile applications accelerated the digital
transformation in which earlier versions of the web would need to become interactive and persist across multiple modern mediums. Furthermore, cloud computing’s continued evolution and adoption demonstrate how organizations are more comfortable
with data residing beyond their traditional security perimeter outside of the historical boundaries of IT governance and control.
We provide customers with an innovative and comprehensive platform for
external cybersecurity. Our ZeroFox platform, which is powered by patented artificial intelligence algorithms and cyber threat intelligence, is designed to dismantle external threats to brands, people and other assets across a customer’s internet
accessible attack surface. Our patented platform processes millions of pieces of content, rich media, posts, messages, global intelligence and threat actor activity across the digital landscape, including, without limitation, mobile app stores,
social media sites, dark web forums and discrete content sources. With the data we collect and process, we identify and remediate targeted phishing attacks, credential compromise, data exfiltration, brand hijacking, and executive and location
threats across the public-facing open web as well as the deep and dark web. We protect our customers’ most valued internet accessible assets.
We sell subscriptions to our ZeroFox Platform and corresponding
intelligence services to organizations of all sizes across multiple industries. We primarily sell subscriptions to our Platform through our direct sales teams that leverage our global network of channel partners on both a named account and
territory basis.
A substantial majority of our customers purchase subscription
agreements with a term of one year. Our subscription agreements are generally priced on the number of assets protected and the desired levels of services. Customers may extend the value of the Platform by adding disruption and threat intelligence
services. We generally recognize our subscription agreements ratably over the term of the agreement. We also generate revenue from our training and investigative services, which are generally priced on a fixed-fee basis and recognized as
incurred.
As of January 31, 2022, we had approximately 835 customers in more
than 50 countries, including 3 of the Fortune 10. One customer accounted for 6% of our revenue in 2022. No single customer represented more than 5% of our revenue in 2021 and 2020.
COVID-19
The COVID-19 pandemic has further accelerated the movement toward a
digital-first strategy for nearly every organization. Given unprecedented work from home arrangements and consumers’ increasing reliance on digital engagement for products and services, organizations and their security teams must implement new
security strategies that protect against external threats to ensure trust and reduce risk. We believe that enterprises will face
294
growing attacks on their external attack surface as modern IT infrastructure will be
characterized by greater decentralization and collaboration that is dependent upon public networks.
We have shifted our approach from almost entirely in-person to a
flexible work environment that is composed of in-person, hybrid in-person and remote, and fully remote. Our fully remote global team is supported and enabled for remote-only work. Our hybrid team has access to work in-person from designated
offices and remote, and our in-person teams have designated offices they report to for work. The impact of the COVID-19 pandemic continues to rapidly evolve, and we will continue to monitor the situation and may take further actions that alter
our business operations or that we determine are in the best interests of our employees, customers, partners, and other constituents. We do not know the full extent to which the COVID-19 pandemic may impact our business and our financial
performance. For additional information related to risks related to the COVID-19 pandemic, see “Risk Factors—The COVID-19 pandemic could adversely affect our business, operating results, and financial condition.”
Recent Acquisitions
On September 30, 2020, we acquired the Cyveillance business unit and
particular assets from Lookingglass Cyber Solutions, Inc. (“Lookingglass Cyber Solutions”). Total consideration was $39.2 million, which consisted of $7.5 million in cash and $31.7 million in Series E Preferred Stock. The Cyveillance business
unit provides threat intelligence, brand, and executive protection services to enterprise organizations.
On June 7, 2021, we acquired Vigilante ATI, Inc.™ (“Vigilante”) a
provider of dark web threat intelligence collection and analysis capabilities. Total consideration was $7.4 million, which consisted of $3.8 million in cash and $3.8 million in a note payable, reduced by $0.2 million in net liabilities assumed.
Key Factors Affecting Performance
New Customer Acquisition
Our future growth depends in large part on our ability to acquire new
customers. To attract new customers, we have invested, and will continue to invest, in our sales and marketing efforts. Many organizations have not yet adopted external cybersecurity solutions, and our business and operating results will be
affected by the rate at which organizations adopt our solutions. We believe our platform addresses the evolving needs of organizations of all sizes and industries and coupled with our go-to-market strategy, presents significant opportunities for
growth.
Investing in Growth
We intend to continue to invest in our business so that we can
capitalize on our market opportunity. We intend to continue to invest in sales and marketing to grow our sales team, expand our brand recognition and optimize our channel partner network. We also intend to continue to invest in our research and
development team to build additional functionality and enhance existing functionality in our platform to extend our capabilities as our success is dependent on our ability to further our technological leadership. We also intend to evaluate
strategic acquisitions of businesses and technologies to expand and enhance the functionality of our platform.
Our investments in growth may adversely affect our operating results in
the near term; however, we expect that these investments will contribute to our long-term growth and success.
If these investments do not lead to expected revenue growth, our
operating losses may increase, and we may not achieve profitability and our growth rates may slow.
Retention and Expansion within Customers
Our ability to increase revenue depends in large part on our ability to
retain our existing customers and grow the value of their subscriptions. We focus on increasing sales to our existing customers by increasing the number of protected assets and corresponding intelligence services delivered on and through our
platform. We intend to expand existing capabilities and launch new features which we believe will contribute to increased adoption by our growing base of customers. Our ability to expand within our customer base, particularly large enterprise and
government customers, will depend on a number of factors, including platform performance, competitive offerings, pricing, overall changes in our customers’ spending levels, and the effectiveness of our efforts to help our customers realize the
benefits of our platform.
295
Key Business Metrics
We monitor the following key metrics to help us evaluate our business,
identify trends affecting our business, formulate business plans and make strategic directions:
Customers
We believe that the size of our customer base is an indicator of our
market adoption and that our net new customer additions are an indicator of the growth of our business. We focus our sales and marketing efforts on large enterprises and medium sized businesses. We define a customer as any entity that has
entered into a distinct subscription agreement for access to the ZeroFox platform for which the term has not ended or with which we are continuing to provide service and negotiating a renewal contract that expired within 90 days of the
applicable measurement date. We do not consider our channel partners as customers, and we treat managed service security providers, who may purchase our products on behalf of multiple companies, as a single customer.
|
|
| |
As of January 31,
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
Customers
|
| |
835
|
| |
692
|
| |
447
|
|
Period-over-period growth
|
| |
21%
|
| |
55%
|
| |
30%
|
Annual Recurring Revenue (“ARR”)
We believe that ARR is a key operating metric to measure our
business as changes in ARR reflect our ability to acquire net new customers and to maintain, retain and expand our relationships with our existing customers. We define ARR as the annualized contractual value of all recurring revenue related to
contracts in place at the end of the reporting date assuming any contract is renewed on its existing terms. We continue to include ARR from customers whose term has expired within 90 days of the applicable measurement date for which we are
actively negotiating renewal.
|
|
| |
As of January 31,
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
|
| |
(dollars in thousands)
|
||||||
|
ARR
|
| |
$53,930
|
| |
$44,088
|
| |
$21,757
|
|
Period-over-period growth
|
| |
22%
|
| |
103%
|
| |
83%
|
Dollar-Based Net Retention
We believe that our ability to retain and expand our revenue
generated from our existing customers is an indicator of the long-term value of our customer relationships and our potential future business opportunities. Our dollar-based net retention rate measures the percentage change in our ARR derived
from our customer base at a point in time. We exclude public sector accounts and customers with less than $10,000 in ARR from our net retention. We calculate our dollar-based net retention rate as of the period end by starting with the ARR from
all subscription customers as of 12 months prior to such period end, or prior period ARR. We then calculate the ARR from these same subscription customers as of the current period end, or current period ARR. Current period ARR reflects customer
renewals, expansion and contraction and churn over the trailing 12 months. Current period ARR excludes ARR from new subscription customers in the trailing 12 months. We then divide the current period ARR by the prior period ARR to arrive at our
dollar-based net retention rate. Our dollar-based net retention rate can fluctuate from period to period due to large customer contracts in any period, which may reduce our dollar-based net retention in future periods if our customers do not
continue to increase their subscriptions.
|
|
| |
As of January 31,
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
Dollar-based net retention
|
| |
100%
|
| |
92%
|
| |
104%
|
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we
believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe
296
that non-GAAP financial information, when taken collectively, may be helpful to
investors because it provides consistency and comparability with past financial performance by excluding certain items that may not be indicative of our business, results of operations or outlook. However, non-GAAP financial information is
presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP.
Other companies, including companies in our industry, may calculate
similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. In particular, free cash flow is not a
substitute for cash used in operating activities. Additionally, the utility of free cash flow as a measure of our liquidity is limited as it does not represent the total increase or decrease in our cash balance for a given period.
A reconciliation is provided below for each non-GAAP financial measure
to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable
GAAP financial measures and not rely on any single financial measure to evaluate our business.
Non-GAAP Gross Profit and Non-GAAP Gross Margin
We define non-GAAP gross profit and non-GAAP gross margin as GAAP gross
profit and GAAP gross margin, respectively, excluding stock-based compensation expense and amortization of acquired intangible assets. We believe non-GAAP gross profit and non-GAAP gross margin provide our management and investors consistency and
comparability with our past financial performance and facilitate period-to-period comparisons of operations, as these measures eliminate the effects of certain variables unrelated to our overall operating performance.
The following table provides a reconciliation of our GAAP
subscription gross profit to our non-GAAP gross profit and of our GAAP subscription gross margin to our non-GAAP subscription gross margin, for each of the periods presented:
|
|
| |
Year Ended January 31,
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
|
| |
(dollars in thousands)
|
||||||
|
Revenue
|
| |
$47,433
|
| |
$28,538
|
| |
$16,390
|
|
Gross profit
|
| |
$31,076
|
| |
$18,892
|
| |
$10,625
|
|
Add: Stock-based compensation expense
|
| |
50
|
| |
3
|
| |
9
|
|
Add: Amortization of acquired intangible assets
|
| |
481
|
| |
140
|
| |
—
|
|
Non-GAAP gross profit
|
| |
$31,607
|
| |
$19,035
|
| |
$10,634
|
|
Gross margin
|
| |
66%
|
| |
66%
|
| |
65%
|
|
Non-GAAP gross margin
|
| |
67%
|
| |
67%
|
| |
65%
|
Non-GAAP Loss from Operations
We define non-GAAP loss from operations as GAAP loss from
operations, excluding stock-based compensation expense, amortization of acquired intangible assets, and public company offering costs. We believe non-GAAP loss from operations provide our management and investors consistency and comparability
with our past financial performance and facilitates period-to-period comparisons of operations, as these measures eliminate the effects of certain variables unrelated to our overall operating performance.
297
The following table provides a reconciliation of our GAAP loss
from operations to our non-GAAP loss from operations, for each of the periods presented:
|
|
| |
Year Ended January 31,
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
|
| |
(dollars in thousands)
|
||||||
|
Loss from operations
|
| |
$(28,015)
|
| |
$(18,197)
|
| |
$(19,438)
|
|
Add: Stock-based compensation expense
|
| |
696
|
| |
450
|
| |
268
|
|
Add: Amortization of acquired intangible assets
|
| |
3,022
|
| |
918
|
| |
—
|
|
Add: Public company offering costs
|
| |
3,521
|
| |
—
|
| |
—
|
|
Non-GAAP loss from operations
|
| |
$(20,776)
|
| |
$(16,829)
|
| |
$(19,170)
|
Free Cash Flow
We define free cash flow as net cash used in operating activities less
purchases of property and equipment and capitalized internal-use software. We believe that free cash flow is a useful indicator of liquidity that provides meaningful information to management and investors about the amount of cash provided or
consumed by our operating activities to be used for other strategic initiatives. Free cash flow does not represent the total increase or decrease in our cash balance for a given period and does not reflect our future contractual commitments. In
addition, other companies may calculate free cash flow differently or not at all, which reduces the usefulness of free cash flow as a tool for comparison.
The following table presents a reconciliation of net cash provided
by (used in) operating activities to free cash flow:
|
|
| |
Year Ended January 31,
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
|
| |
(dollars in thousands)
|
||||||
|
Net cash used in operating activities
|
| |
$(18,072)
|
| |
$(15,058)
|
| |
$(18,633)
|
|
Less: Purchases of property and equipment
|
| |
(572)
|
| |
(264)
|
| |
(224)
|
|
Less: Capitalized software
|
| |
(674)
|
| |
(494)
|
| |
(580)
|
|
Free cash flow
|
| |
$(19,318)
|
| |
$(15,816)
|
| |
$(19,437)
|
Components of Our Results of Operations
Revenue
We generate substantially all of our revenue from subscription
agreements which includes access to our hosted platform, intelligence services and disruption capabilities. The majority of our customers are invoiced annually in advance of their subscription term. Our subscription agreements are “stand ready”
to permit platform access and provide our protection services over the contractual term. We recognize subscription revenue ratably over the term of the agreement. Professional services revenue includes training and investigative services.
Professional services are generally priced on a fixed-fee basis and revenue is recognized as the services are performed. Professional services have not been a material component of our operations.
Cost of Revenue
Costs of revenue consist primarily of third-party cloud infrastructure
expenses, fees paid to data providers and personnel-related costs such salaries, bonuses, benefits, and stock-based compensation associated with our customer support, intelligence services and professional services, software and subscription
services used to support our customers, amortization of our capitalized internal-use software, travel and related expenses, amortization of acquired technology and allocated overhead costs. Our allocated overhead costs include depreciation and
information technology expenses.
298
Operating Expenses
Our operating expenses consist of research and development, sales and
marketing and general and administrative expenses. Personnel related expenses, including salaries, bonuses, commissions, benefits, and stock-based compensation, are the most significant component of each of these categories. Operating expenses
also include allocated overhead costs.
Research and Development
Research and development expenses consist primarily of personnel costs
for our research, product and engineering teams, including salaries, bonuses, benefits, and stock-based compensation. Research and development expenses also include software and subscription services and third-party cloud infrastructure incurred
in the design and development of our hosted platform and allocated overhead costs.
We expect research and development expenses to increase in absolute
dollars as we continue to increase our investments in our platform and services. However, we anticipate research and development expenses to decrease as a percentage of our revenue over time although our research and development expenses may
fluctuate as a percentage of our revenue from period-to-period depending on the timing of these expenses and the capitalization of expenses that qualify as internal-use software.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel costs for
our sales and marketing teams, including salaries, commissions, bonuses, benefits, and stock-based compensation. Sales and marketing expenses also include conferences, branding and other marketing events, software and subscription services,
travel and related expenses, amortization of acquired customer relationships and allocated overhead costs. We capitalize and amortize sales commissions from the initial acquisition of a customer subscription agreement to sales and marketing
expense over the estimated customer life and any such expenses paid for the renewal of a customer’s subscription are capitalized and amortized over the term of the renewal.
We expect sales and marketing expenses to increase in absolute dollars
as we continue to invest in our sales and marketing organization to drive additional revenue, further penetrate our market and expand our global customer base. However, we anticipate sales and marketing expenses to decrease as a percentage of our
revenue over time although our sales and marketing expenses may fluctuate as percentage of our revenue from period-to-period depending on the timing of these expenses.
General and Administration
General and administrative expenses consist primarily of personnel
costs for our executive, finance, legal, human resources and information technology teams, including salaries, bonuses, benefits, and stock-based compensation. General and administrative expenses also include professional fees for external
accounting, legal and other advisory services, insurance, software and subscription services, travel and related expenses, facilities related expenses, amortization of acquired trade names and allocated overhead costs.
Following the closing of the proposed Business Combination, we expect
to incur additional expenses as the result of operating as a public company, including costs related to additional reporting and compliance requirements applicable to a listed company, and increased expenses for insurances and accounting, legal
and other professional services. We expect general and administrative expenses to increase in absolute dollars; however, we anticipate general and administrative expenses to decrease as a percentage of our revenue over time.
Interest Expense
Interest expense consists primarily of contractual interest expense, as
well as amortization of debt discount and issuance costs related to our term loans and our convertible notes issued in conjunction with our Series D Preferred Stock.
Other Income (Expense), Net
Other income (expense), net consists primarily of unrealized and
realized gains and losses related to changes in foreign currency exchange rates.
299
Provision for Income Taxes
Provision for income taxes consists of income taxes in foreign
jurisdictions where we conduct business and certain state income taxes in the United States. We maintain a full valuation allowance for domestic and certain foreign deferred tax assets, including net operating loss carryforwards. Based on our
history of losses, we expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that some or all of those deferred tax assets may not be realized.
Results of Operations
The following table sets forth our results of operations for the
periods presented:
|
|
| |
Year Ended January 31,
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
|
| |
(dollars in thousands)
|
||||||
|
Revenue
|
| |
$47,433
|
| |
$28,538
|
| |
$16,390
|
|
Cost of revenue(1)
|
| |
16,357
|
| |
9,646
|
| |
5,765
|
|
Gross profit
|
| |
31,076
|
| |
18,892
|
| |
10,625
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
|
Research and development(1)
|
| |
12,810
|
| |
5,942
|
| |
5,582
|
|
Sales and marketing(1)
|
| |
29,873
|
| |
21,466
|
| |
18,852
|
|
General and administrative(1)
|
| |
16,408
|
| |
9,681
|
| |
5,629
|
|
Total operating expenses
|
| |
59,091
|
| |
37,089
|
| |
30,063
|
|
Loss from operations
|
| |
(28,015)
|
| |
(18,197)
|
| |
(19,438)
|
|
Interest expense, net
|
| |
(3,585)
|
| |
(2,233)
|
| |
(1,854)
|
|
Loss on extinguishment of debt
|
| |
—
|
| |
(1,418)
|
| |
(1,274)
|
|
Change in fair value of warrant liability
|
| |
(7,375)
|
| |
(806)
|
| |
(75)
|
|
Loss before income taxes
|
| |
(38,975)
|
| |
(22,654)
|
| |
(22,641)
|
|
(Benefit from) provision for income taxes
|
| |
(536)
|
| |
86
|
| |
98
|
|
Net loss after tax
|
| |
$(38,439)
|
| |
$(22,740)
|
| |
$(22,739)
|
|
(1)
|
Includes stock-based compensation expense as follows:
|
|
|
| |
Year Ended January 31,
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
|
| |
(in thousands)
|
||||||
|
Cost of revenue
|
| |
$50
|
| |
$3
|
| |
$9
|
|
Research and development
|
| |
97
|
| |
72
|
| |
85
|
|
Sales and marketing
|
| |
222
|
| |
130
|
| |
87
|
|
General and administrative
|
| |
327
|
| |
245
|
| |
87
|
|
Total stock-based compensation expense
|
| |
696
|
| |
$ 450
|
| |
$ 268
|
The following tables discloses the components of our consolidated
statements of loss/operations as a percentage of revenue for each of the periods presented:
|
|
| |
Year Ended January 31,
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
|
| |
(as a percentage of total revenue)
|
||||||
|
Revenue
|
| |
100%
|
| |
100%
|
| |
100%
|
|
Cost of revenue(1)
|
| |
34
|
| |
34
|
| |
35
|
|
Gross profit
|
| |
66
|
| |
66
|
| |
65
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
|
Research and development(1)
|
| |
27
|
| |
21
|
| |
34
|
300
|
|
| |
Year Ended January 31,
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
|
| |
(as a percentage of total revenue)
|
||||||
|
Sales and marketing(1)
|
| |
63
|
| |
75
|
| |
115
|
|
General and administrative(1)
|
| |
35
|
| |
34
|
| |
34
|
|
Total operating expenses
|
| |
125
|
| |
130
|
| |
183
|
|
Loss from operations
|
| |
(59)
|
| |
(64)
|
| |
(118)
|
|
Interest expense, net
|
| |
(8)
|
| |
(8)
|
| |
(12)
|
|
Loss on extinguishment of debt
|
| |
—
|
| |
(5)
|
| |
(8)
|
|
Change in fair value of warrant liability
|
| |
(16)
|
| |
(3)
|
| |
—
|
|
Loss before income taxes
|
| |
(83)
|
| |
(80)
|
| |
(138)
|
|
Income taxes
|
| |
(1)
|
| |
—
|
| |
1
|
|
Net loss after tax
|
| |
(82)%
|
| |
(80)%
|
| |
(139)%
|
|
(1)
|
Includes stock-based compensation expense as follows:
|
|
|
| |
Year Ended January 31,
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
|
| |
(as a percentage of total revenue)
|
||||||
|
Cost of revenue
|
| |
0%
|
| |
0%
|
| |
0%
|
|
Research and development
|
| |
—
|
| |
—
|
| |
—
|
|
Sales and marketing
|
| |
—
|
| |
—
|
| |
1
|
|
General and administrative
|
| |
1
|
| |
1
|
| |
1
|
|
Total stock-based compensation expense
|
| |
1%
|
| |
1%
|
| |
2%
|
Comparison of the Year Ended January 31, 2022 and 2021
|
|
| |
Year Ended January 31,
|
| |
Change
|
||||||
|
|
| |
(dollars in thousands)
|
|||||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
$
|
|
Revenue
|
| |
$ 47,433
|
| |
$ 28,538
|
| |
$ 18,895
|
| |
66%
|
Revenue increased $18.9 million, or 66%, from $28.5 million for the
year ended January 31, 2021 to $47.4 million for the year ended January 31, 2022, primarily due to increased customer adoption for our subscription services.
Cost of Revenue, Gross Profit, and Gross Margin
|
|
| |
Year Ended January 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
Cost of revenue
|
| |
$ 16,357
|
| |
$9,646
|
| |
$6,711
|
| |
70%
|
|
Gross profit
|
| |
$ 31,076
|
| |
$ 18,892
|
| |
$ 12,184
|
| |
64%
|
|
Gross margin
|
| |
66%
|
| |
66%
|
| |
|
| |
|
Cost of revenue increased $6.7 million, or 70%, from $9.6 million
for the year ended January 31, 2021 to $16.4 million for the year ended January 31, 2022, primarily due to an increase of $4.4 million in personnel costs.
Research and Development
|
|
| |
Year Ended January 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
Research and development
|
| |
$12,810
|
| |
$ 5,942
|
| |
$ 6,868
|
| |
116%
|
301
Research and development costs increased $6.9 million, or 116%,
from $5.9 million for the year ended January 31, 2021 to $12.8 million for the year ended January 31, 2022 primarily due to increases of $4.9 million in personnel-related expenses and $1.2 million in intelligence research activities.
Sales and Marketing
|
|
| |
Year Ended January 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
Sales and marketing
|
| |
$ 29,873
|
| |
$ 21,466
|
| |
$ 8,407
|
| |
39%
|
Sales and marketing expenses increased $8.4 million, or 39%, from
$21.5 million for the year ended January 31, 2021 to $29.9 million for the year ended January 31, 2022, primarily due to increases of $3.5 million in personnel-related expenses, $1.8 million in sales commissions, including amortized commission
expenses, and $1.7 million of amortization expense from acquired customer relationships related to the Cyveillance and Vigilante acquisitions.
General and Administrative
|
|
| |
Year Ended January 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
General and administrative
|
| |
$ 16,408
|
| |
$ 9,681
|
| |
$ 6,727
|
| |
69%
|
General and administrative expenses increased $6.7 million, or 69%,
from $9.7 million for the year ended January 31, 2021 to $16.4 million for the year ended January 31, 2022, primarily related to personnel-related costs of $1.4 million and an increase in professional fees related to compliance and reporting
requirements to become a public company of $6.4 million, offset by a $1.5 million decrease in the fair value of contingent consideration associated with the Cyveillance.
Interest Expense, Net and Other Expense, Net
|
|
| |
Year Ended January 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
Interest expense, net
|
| |
$ 3,585
|
| |
$ 2,233
|
| |
$1,352
|
| |
61%
|
|
Loss on extinguishment of debt
|
| |
$—
|
| |
$ 1,418
|
| |
$ (1,418)
|
| |
(100)%
|
|
Change in fair value of warrant liability
|
| |
$ 7,375
|
| |
$806
|
| |
$6,569
|
| |
815%
|
The increase in interest expense of $1.4 million is due to increased
borrowings under debt facilities. The increase in the change in fair value of warrant liability reflects the adjustments to record outstanding warrants at their fair value.
(Benefit from) Provision for Income Taxes
|
|
| |
Year Ended January 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
|
| |
(dollars in thousands)
|
|||||||||
|
(Benefit from) provision for incomes taxes
|
| |
$ (536)
|
| |
$ 86
|
| |
$ (622)
|
| |
(723)%
|
The benefit from taxes is primarily related to the deferred benefit
of $0.6 million related to the acquisition of Vigilante. The deferred tax benefit is driven by the current year reversal of the deferred tax liability established from the purchase price accounting for intangibles created in the Vigilante
acquisition.
Critical Accounting Estimates
Our management’s discussion and analysis of financial condition and
results of operations is based upon our financial statements and notes to our financial statements, which were prepared in accordance with GAAP. The preparation of the financial statements requires management to make estimates and assumptions
that affect the
302
amounts reported in the financial statements and accompanying notes. Our management
evaluates our estimates on an ongoing basis, including those related to the allowance for doubtful accounts, the carrying value and useful lives of long-lived assets, the fair value of financial instruments, the recognition and disclosure of
contingent liabilities, income taxes, and stock-based compensation. We base our estimates and judgments on our historical experience, knowledge of factors affecting our business and our belief as to what could occur in the future considering
available information and assumptions that are believed to be reasonable under the circumstances.
The accounting estimates we use in the preparation of our financial
statements will change as new events occur, more experience is acquired, additional information is obtained and our operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements
in estimation methodologies are reflected in our reported results of operations and, if material, the effects of changes in estimates are disclosed in the notes to our financial statements. By their nature, these estimates and judgments are
subject to an inherent degree of uncertainty and actual results could differ materially from the amounts reported based on these estimates.
The critical accounting estimates, assumptions, and judgments that we
believe have the most significant impact on our consolidated financial statements are described below.
Revenue Recognition
We recognize revenue in accordance with ASC 606, Revenue from Contracts
with Customers. Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services. In recognizing revenue,
we apply the following five steps:
|
•
|
Identify contracts with customers
|
|
•
|
Identify the performance obligations in the contract
|
|
•
|
Determine the transaction price
|
|
•
|
Allocate the transaction price to performance obligations in the contract
|
|
•
|
Recognize revenue when or as performance obligations are satisfied
|
We apply judgment in determining the customer’s ability and intent to
pay, including the customer’s historical payment experience or credit and financial information pertaining to the customer.
Our contracts may contain multiple performance obligations which are
accounted separately if they are capable of being distinct are distinct in the context of the contract. Contracts with multiple performance obligations require an allocation of the transaction price to each performance obligation based on the
stand-alone selling price (SSP) of each performance obligation, using the relative selling price method of allocation. We apply judgment in determining SSP for our performance obligations utilizing our observable standalone sales or sales of
bundled items when standalone sales are not available and our overall pricing methodology.
Subscription Revenue—Subscription revenue consists of revenue from
subscriptions to access our Platform together with related data and support service offerings. Revenue is recognized over time on a ratable basis over the contract term beginning on the date that our service is made available to the customer.
Customers have the option to purchase additional subscription and
support services at a stated price. These options generally do not provide a material right, as they are priced at our SSP.
Professional Services Revenue—All of our professional services are
considered distinct performance obligations when sold on a stand-alone basis. Revenue is generally recognized at the point in time when the professional service is delivered.
For the years ended January 31, 2022, 2021, and 2020, subscription
revenue accounted for 95%, 97%, and 97% of total revenue, respectively. For the years ended January 31, 2022, 2021, and 2020, no single customer exceeded 7% of total revenue.
Deferred Contract Acquisition Costs
Contract acquisition costs are related to sales commissions earned for
incremental costs to obtain a contract. We amortize the initial commissions over the longer of the customer relationship or over the same period as the
303
initial revenue arrangement to which these costs relate. We have estimated the period
of benefit for customer relationships to be 4 years. The impact to our financial statements for change of one year to the estimated life our customer relationships would approximate $0.3 million.
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC 718,
Compensation—Stock Compensation. ASC 718 requires that the cost of awards of equity instruments offered in exchange for employee services, including employee stock options and restricted stock awards, be measured based on the grant-date fair
value of the award. We determine the fair value of options granted using the Black model (“Black-Scholes model”) which requires the input of subjective assumptions. and recognize the cost over the period during which an employee is required to
provide service in exchange for the award, generally the vesting period, net of estimated forfeitures. The fair value of restricted stock awards is based on the estimated price of our common stock on the date of grant and is recognized as expense
over the requisite service period of the awards, net of estimated forfeitures.
The assumptions and estimates for stock-based compensation are as
follows:
|
•
|
Fair value of common stock. Because our common stock is not publicly traded, we estimate the fair value of our common stock, as
discussed below in the section titled “Valuations”.
|
|
•
|
Expected term. The expected term represents the period of time that options granted are expected to remain unexercised. We
calculate the expected term using the simplified method, which equals the midpoint of the options’ vesting term and contractual period.
|
|
•
|
Expected Volatility. Because our common stock is not publicly traded, we estimate the expected volatility based on historical
volatilities of comparable public traded companies.
|
|
•
|
Risk-free interest rate. We use the U.S. Treasury yield for a period that corresponds to the expected term of the award.
|
|
•
|
Divided yield. We do not currently issue dividends, and do not expect to issued dividends in the foreseeable future. Accordingly,
our dividend yield is zero.
|
|
|
| |
As of January 31,
|
||||||
|
Assumptions
|
| |
2022
|
| |
2021
|
| |
2020
|
|
Weighted-average risk-free rate
|
| |
1.42%
|
| |
1.83%
|
| |
2.42%
|
|
Weighted-average expected term of the option (in years)
|
| |
6.0600
|
| |
6.04
|
| |
6.0800
|
|
Weighted-average expected volatility
|
| |
38.09%
|
| |
37.84%
|
| |
40.03%
|
|
Weighted-average dividend yield
|
| |
0.00%
|
| |
0.00%
|
| |
0.00%
|
Common Stock Valuations
Our board of directors, with input from management and third-party
valuation specialists, determines the fair value of our common stock underlying our equity awards. Because our common stock is not publicly traded, our board of directors considered numerous objective and subjective factors to determine the fair
value of our common stock including:
|
(i)
|
the results of contemporaneous independent third-party valuations of our common stock;
|
|
(ii)
|
the prices, rights, preferences, and privileges of our Convertible Redeemable Preferred Stock relative to those of our common
stock;
|
|
(iii)
|
the lack of marketability of our common stock;
|
|
(iv)
|
actual operating and financial results;
|
|
(v)
|
current business conditions and projections;
|
|
(vi)
|
the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market
conditions; and
|
|
(vii)
|
precedent transactions involving our shares.
|
304
We use a combination of valuation methodologies with varying
weightings applied to each methodology. Our warrant liabilities and contingent consideration are recorded at fair value based on our common stock valuation. Changes in any of these estimates and assumption would have impacted our valuations as of
each valuation date and may have had a material impact on the valuation of our common stock, our warrants and our underlying equity awards.
Business Combinations
We account for acquisitions using the acquisition method of accounting.
The fair value of purchase consideration is allocated to the tangible and intangible assets acquired, and liabilities assumed, based on their estimated fair values. The excess of the fair value of purchase consideration over the values of the
identifiable assets acquired and liabilities assumed is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, we make significant estimates and assumptions, especially with respect to intangible
assets.
Significant estimates in valuing certain identifiable assets include,
but are not limited to, the selection of valuation methodologies, future expected cash flows, discount rates, and useful lives. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain
and unpredictable and, as a result, actual results may differ from estimates. The impact to our financial statements for change of one year to the estimated lives our intangible assets would approximate $0.6 million.
Goodwill represents the excess of the purchase price over the fair
value of identifiable assets acquired and liabilities assumed when a business is acquired. The valuation of intangible assets and goodwill involves the use of estimates and assumptions and can have a significant impact on future operating
results. We perform our annual goodwill impairment assessment on November 1, or when an assessment of qualitative factors indicates an impairment may have occurred. The qualitative assessment includes an evaluation of events and circumstances
including long-term growth projections, profitability, industry, market and macroeconomic conditions.
Recently Issued Accounting Pronouncements
See Note 2 to our consolidated financial statements included elsewhere
in this prospectus for more information regarding recently issued accounting pronouncements.
Liquidity and Capital Resources
We have financed operations primarily through the sale of equity
securities, borrowings under various security and loan agreements, and payments from customers Our operating losses have been significant, as reflected in our accumulated deficit of $156.8 million and $118.4 million as of January 31, 2022 and
2021, respectively.
We believe that our cash flows from operations and cash on hand,
together with the proceeds from the Convertible Notes Financing and Common Equity PIPE Financing we expect to receive upon the completion of the Business Combination, and additional facilities with our current lenders, will be sufficient to meet
our cash requirements for at least the 12 months following the date of this proxy statement/prospectus. Future capital requirements will depend on many factors, including, but not limited to, cash collected from customers, additional borrowing,
acceleration of sales and marketing costs to facilitate revenue expansion, and the continued adoption of our subscription products.
305
Cash Flows
The following table presents a summary of our cash flows for the
periods presented:
|
|
| |
Year Ended January 31,
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
2020
|
|
|
| |
(dollars in thousands)
|
||||||
|
Cash, cash equivalents, and restricted cash at beginning of year
|
| |
$13,864
|
| |
$22,898
|
| |
$9,382
|
|
Net cash used in operating activities
|
| |
$(18,072)
|
| |
$(15,058)
|
| |
$(18,633)
|
|
Net cash used in investing activities
|
| |
$(5,038)
|
| |
$(7,993)
|
| |
$(804)
|
|
Net cash provided by financing activities
|
| |
$19,698
|
| |
$14,074
|
| |
$33,018
|
|
Foreign exchange translation adjustment
|
| |
$(78)
|
| |
$(57)
|
| |
$(65)
|
|
Cash, cash equivalents, and restricted cash at end of year
|
| |
$10,374
|
| |
$13,864
|
| |
$22,898
|
Operating Activities
Our largest source of cash is payments from customers. Our primary
uses of cash stem from personnel-related expense, third-party hosting expense, data source expense, and overhead expense, which is primarily comprised of IT support, facilities, and insurance expense. We have primarily funded operations through
a combination of equity and debt financing. Cash used in operating activities primarily consists of our net losses from operations adjusted for non-cash expenses, including stock-based compensation expense, depreciation and amortization
expense, and changes in period operating assets and liabilities.
Cash used in operating activities during the year ended January 31,
2022 was $18.1 million, consisting of our net loss of $38.4 million adjusted by $11.8 million of non-cash expenses and $8.5 million of net cash inflows from changes in operating assets and liabilities. Cash used in operating activities during
the year ended January 31, 2021 was $15.1 million, consisting of our net loss of $22.7 million adjusted by $5.6 million of non-cash expenses and $2.0 million of net cash inflows from changes in operating assets and liabilities. Cash used in
operating activities during the year ended January 31, 2020 was $18.6 million, consisting of our net loss of $22.7 million adjusted by $2.6 million of non-cash expenses and $1.5 million of net cash inflows from changes in operating assets and
liabilities.
Investing Activities
Cash used in investing activities during the year ended January 31,
2022 was $5.0 million, consisting of $3.8 million in net cash paid for the acquisition of Vigilante and $1.2 million in capital expenditures and capitalized software development costs. Cash used in investing activities during the year ended
January 31, 2021 was $8.0 million, consisting of $7.2 million in net cash paid for the acquisition of Cyveillance and $0.8 million in capital expenditures and capitalized software development costs. Cash used in investing activities during the
year ended January 31, 2020 was $0.8 million for capital expenditures and capitalized software development costs.
Financing Activities
Financing activities for the year ended January 31, 2022 provided
$19.7 million of cash proceeds, consisting of $20.0 million of net proceeds from new borrowings. Financing activities for the year ended January 31, 2021 provided $14.1 million of cash proceeds, consisting of $37.1 million of net proceeds from
new borrowings offset by $23.0 million of debt repayments. Financing activities for the year ended January 31, 2020 provided $33.0 million of cash proceeds, consisting of $21.1 million of proceeds from the sale of redeemable convertible
preferred stock, $8.4 million of proceeds from the issuance of convertible notes and $14.7 million of net proceeds from new borrowings offset by $11.2 million of debt repayment.
306
Debt Obligations
The following table presents a summary of our debt obligations for the
periods presented:
|
|
| |
As of January 31, 2022
|
|||||||||||||||
|
|
| |
(dollars in thousands)
|
|||||||||||||||
|
Lender
|
| |
Stated Interest
Rate
|
| |
Gross Balance
|
| |
Unamortized
Debt Discount
|
| |
Unamortized
Deferred Debt
Issuance Costs
|
| |
Discount on
Note Payalbe
|
| |
Net Carrying
Value
|
|
Stifel Bank
|
| |
4.50%
|
| |
$15,000
|
| |
$96
|
| |
$574
|
| |
$—
|
| |
$14,330
|
|
Orix Growth Capital, LLC
|
| |
10.00%
|
| |
30,000
|
| |
349
|
| |
608
|
| |
—
|
| |
29,043
|
|
InfoArmor
|
| |
5.50%
|
| |
3,281
|
| |
—
|
| |
—
|
| |
213
|
| |
3,068
|
|
PIPE Investors
|
| |
5.00%
|
| |
5,032
|
| |
—
|
| |
—
|
| |
—
|
| |
5,032
|
|
|
| |
|
| |
$53,313
|
| |
$445
|
| |
$1,182
|
| |
$213
|
| |
$51,473
|
|
|
| |
Current portion of long-term debt
|
| |
$5,970
|
||||||||||||
|
|
| |
Long-term debt
|
| |
45,503
|
||||||||||||
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$51,473
|
|
|
| |
As of January 31, 2021
|
||||||||||||
|
|
| |
(dollars in thousands)
|
||||||||||||
|
Lender
|
| |
Stated
Interest Rate
|
| |
Gross Balance
|
| |
Unamortized
Debt Discount
|
| |
Unamortized
Deferred Debt
Issuance
Costs
|
| |
Net Carrying
Value
|
|
Stifel Bank
|
| |
4.50%
|
| |
$10,000
|
| |
$109
|
| |
$45
|
| |
$9,846
|
|
Orix Growth Capital, LLC
|
| |
10.00%
|
| |
20,000
|
| |
782
|
| |
489
|
| |
18,729
|
|
|
| |
|
| |
$30,000
|
| |
$891
|
| |
$534
|
| |
$28,575
|
|
|
| ||||||||||||||
Material Cash Requirements
The following table summarizes current and long-term material cash
requirements as of January 31, 2022:
|
|
| |
Payments Due By Period
|
||||||||||||
|
|
| |
Total
|
| |
Less than
1 year
|
| |
1-3
years
|
| |
3-5
years
|
| |
Thereafter
|
|
|
| |
|
| |
|
| |
(dollars in thousands)
|
| |
|
| |
|
|
Operating leases (1)
|
| |
$1,948
|
| |
$1,035
|
| |
$913
|
| |
$—
|
| |
$—
|
|
Purchase commitments (2)
|
| |
5,878
|
| |
3,453
|
| |
2,425
|
| |
—
|
| |
—
|
|
Debt repayments
|
| |
53,313
|
| |
5,970
|
| |
36,343
|
| |
11,000
|
| |
—
|
|
Total
|
| |
$61,139
|
| |
$10,458
|
| |
$39,681
|
| |
$11,000
|
| |
$—
|
|
(1)
|
Relates to our office facilities.
|
|
(2)
|
Relates to non-cancelable purchase commitments to purchase products and services entered into in the normal course of business.
|
Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency
To date, the majority of our sales contracts
have been denominated in U.S. dollars with a limited number of contracts denominated in foreign currencies. Approximately, 89%, 86% and 85% of our revenue for the years ended January 31, 2022, 2021 and 2020, respectively, was denominated in
USD. Operating expenses within the United States are primarily denominated in U.S. dollars, while operating expenses incurred outside the United States are primarily denominated in each country’s respective local currency.
The functional currency of our foreign
subsidiaries is each country’s respective local currency. Assets and liabilities of the foreign subsidiaries are translated into U.S. dollars at the exchange rates in effect at the reporting date, and income and expenses are translated at average
exchange rates during the period, with the resulting translation adjustments directly recorded as a component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are recorded in other income (expense),
net in the consolidated
307
statements of operations. As the impact of foreign currency exchange rates has not been
material to our historical operating results, we have not entered into derivative or hedging transactions, but we may do so in the future if our exposure to foreign currency becomes more significant.
We do not believe a hypothetical 10% increase or
decrease in foreign exchange rates would have had a material impact on our financial statements.
Interest Rate Risk
As of January 31, 2022, we had $53.3 million of
outstanding borrowings under term loans. Our loans have fixed interest rates and variable interest rates that would subject us to interest rate fluctuations.
We do not believe a hypothetical 10% increase or
decrease in interest rates would have had a material impact on our financial statements.
Emerging Growth Company
Upon the consummation of the Business Combination,
we will be an emerging growth company, as defined in the Jumpstart Our Business Startups, “JOBS,” Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised
accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period
until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to
companies that comply with new or revised accounting pronouncements as of public company effective dates.
308
RESULTS OF OPERATIONS OF IDX
IDX’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS FROM OPERATIONS
The following discussion and analysis of the
financial condition and results of operations of IDX should be read together with its audited consolidated financial statements as of December 31, 2021 and 2020 and for the years ended December 31, 2021, 2020, and 2019, in each case together
with related notes thereto, included elsewhere in this proxy/prospectus.
The following discussion contains
forward-looking statements that reflect future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside of IDX’s control. Actual results may differ
significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in the
sections entitled “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements” and “Market and Industry Information” included elsewhere in this proxy statement/prospectus. Certain amounts may not foot due to rounding.
Overview
IDX was founded in 2003 with a mission to address the growing threat
from data breaches and resulting identity theft and fraud. The Company created a software and services platform to help protect individuals from data breaches and resulting identity crime and to remediate the negative effects of such breaches.
As organizations began to experience cybersecurity breaches of
growing frequency and severity, the Company expanded its offerings by providing organizations with data breach response services that leveraged IDX’s identity protection offerings for individuals. As new laws and regulations were passed that
required breach notification and protections for affected individuals, the IDX business grew to serve both governmental and commercial entities of different sizes.
The Business
IDX believes it has a leading position in the United States by
revenues as a provider of data breach response services, and associated identity and privacy protection services, to both government and commercial entities. IDX acquires new customers for its data breach services through cyber insurers (and
their approved privacy attorneys) where IDX services are pre-approved, through direct relationships with organizations that choose to select a data breach response service provider, where IDX enters into a master services agreement (MSA) with
them for current and future services, as well as through government channels as a result of approved listings with the General Services Administration (GSA) for federal agencies with the National Association of State Procurement Officials
(NASPO) for state and local agencies.
IDX provides identity and privacy protection services through its
proprietary, cloud-native platform for the protection of individuals impacted by data breaches, as well as through other channels, for proactively addressing the risks associated with privacy and identity risks to the affected individuals and
the breached organization. This platform was designed to improve scalability and usability, while concurrently supporting rapid development of new capabilities, and compliance with increasingly rigorous security standards based on the National
Institute of Standards and Technology (NIST) Special Publication 800-53 Rev 4. Typically, IDX tests its own security controls, and in some cases contracts out testing to third parties as part of yearly FISMA security risk assessments, HIPAA
security risk analysis for business associates, and SOC 2 type 2 certifications.
IDX has a substantial customer base for data breach services in the
public sector. The largest component of revenue from the public sector results from a multiyear contract with the U.S. Office of Personnel Management (“OPM”), described below.
In 2015, OPM and the Department of Defense (“DoD”) awarded IDX a
three-year, $330 million contract to provide identity protection and breach response services covering approximately 21.5 million current and former federal employees and contractors that were affected by the OPM data breach of background
investigation records. IDX believes winning this award resulted in further market validation, increased visibility, and enhanced reputation for IDX as a leading data breach response provider in the United States by revenues. Earning this
309
award required the Company to comply with rigorous government security standards,
and when combined with receiving “very good” and “excellent” Contractor Performance Assessment Reports (CPAR) ratings, the IDX data breach response business was well positioned to address large-scale data breaches.
In 2018, IDX won a rebid of the contract with OPM and the DoD worth
at least $460 million, assuming all option periods and the extension period are exercised, for the period ending June 30, 2024 to provide identity protection services for certain employees and prospective employees of the U.S. government
affected by a breach of OPM systems (“OPM Contract”). IDX believes the OPM Contract was and remains as of December 31, 2021 the largest data breach response arrangement in the history of such contracts in the United States, and further cemented
IDX as a leading provider in the United States by revenues of data breach response services to both governmental and commercial entities. In addition, IDX is listed on the General Services Administration (GSA) SIN 520.20 for Data Breach
Response and Identity Protection Services facilitating data breach response contracts with numerous other government agencies.
The OPM Contract is structured as a Base Period from July 1, 2019 to
June 30, 2020, followed by a series of options as follows: Option Period I from July 1, 2020 to June 30, 2021, Option Period II from July 1, 2021 to June 30, 2022, Option Period III from July 1, 2022 to June 30, 2023, and Option Period IV from
July 1, 2023 to December 31, 2023. OPM has an option to extend the OPM Contract from January 1, 2024 to June 30, 2024, as well as an option to add a transition-out period. To date, OPM has exercised Option Period I and Option Period II. IDX
plans to pursue the rebid of the OPM Contract in 2024 for an extension through 2027. For more information, see a copy of the OPM Contract filed as exhibits to the registration statement of which this proxy statement/prospectus forms a part.
IDX generates the largest component of its commercial revenue from
organizations that require response services for data breach incidents. The response services typically include notifications of individuals impacted by the breach, call center support, and a customized webpage for providing information (and
providing privacy and identity protection software and services for) to the affected population. In addition to revenue from data breach incident response services, IDX also provides identity and privacy services on a subscription basis to
organizations, which they can offer as a benefit for their employees or customers.
Impact of COVID-19 On the Business
IDX operates in geographic locations that have been impacted by
coronavirus disease 2019 (“COVID-19”). The pandemic has affected, and could further affect, IDX’s operations, and the operations of its customers as a result of various factors, including but not limited to quarantines, local, state, and
federal government public health orders, facility and business closures, and travel and logistics restrictions. IDX anticipates governments and businesses will likely take additional actions or extend existing actions to respond to the risks of
the COVID-19 pandemic. IDX continues to actively monitor the impacts and potential impacts of the COVID-19 pandemic on IDX’s customers, supply chain, and operations. For further information, please see “Risk
Factors—The COVID-19 pandemic could adversely affect our business, operating results, and financial condition.”
IDX instituted a global work-from-home policy in March 2020 and
to-date have not experienced significant disruptions as a result. IDX has not requested relief under the Coronavirus Aid, Relief, and Economic Security Act, and it therefore had no effect on its financial statements.
Key Factors Affecting Performance
New customer acquisition
IDX believes that its future growth depends in part on its ability
to acquire new customers for its data breach services and consumer identity and privacy protection membership services to its strategic partners’ members, employer groups’ employees, and retail customers. Historically, IDX has sourced a
significant proportion of new data breach services customers as a result of relationships with cyber insurers. IDX makes on-going investments in developing and maintaining these relationships, as well as relationships with privacy attorneys
that represent many of their cyber insurers. Additionally, IDX invests in direct marketing to prospective customers for data breach services, as well as IDX’s identity and privacy membership services for employee benefits and strategic partner
customer protection.
310
Customer Retention
IDX’s revenue growth is also fostered by its ability to retain
customers that perceive on-going need for data breach response services, as well as cross-selling membership services for customers’ employees or their customers. Notably, IDX has multi-year contracts with some government entities, including
the OPM Contract. The possible retention and renewal of the OPM Contract may also be a factor in maintaining revenue growth. For more information on the OPM Contract, see “Business of ZeroFox—IDX History
and Business Overview.”
Investing in Business Growth
IDX also invests in initiatives to support the growth of its
business. IDX’s research and development organization, composed of employees and contractors, uses an agile development philosophy in an effort to enhance its existing identity and privacy platform while adding new features and products,
usability enhancements, customer integrations and APIs, and security certifications. IDX’s sales and marketing teams invest in business growth through channel expansion with dedicated sales teams and associated marketing demand generation
programs.
IDX also invests in growth of its business with government entities
by building relationships with consultants experienced in the government procurement process and maintenance of its listings on relevant GSA schedules, as well as by investing in relationships with key government agency stakeholders and
congressional representatives. In this regard, IDX from time to time will work with consultants who specialize in government contract bidding strategies, provide advice on optimal maintenance and use of the U.S. Government GSA schedule, and
provide strategic, relationship-building and legislative affairs services with members of Congress and their staffs.
Key Business Metrics
IDX monitors the following key metrics to measure performance,
identify trends, formulate business plans, and make strategic decisions.
Breach Revenue, Consumer Membership Services & Total Revenue
The table below presents IDX’s key performance indicators for the
periods indicated.
|
|
| |
Years Ended December 31,
|
| |
$Change
|
| |
$Change
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
2019
|
| |
2021 vs. 2020
|
| |
2020 vs. 2019
|
|
|
| |
(in thousands, except customer and member data)
|
||||||||||||
|
Breach revenue(1)(3)
|
| |
$102,719
|
| |
$100,667
|
| |
$100,556
|
| |
$2,052
|
| |
$111
|
|
Consumer membership services(1)
|
| |
3,353
|
| |
2,869
|
| |
2,548
|
| |
484
|
| |
321
|
|
Total revenue
|
| |
$106,072
|
| |
$103,536
|
| |
$103,104
|
| |
$2,536
|
| |
$432
|
|
Breach customers(2)
|
| |
1,230
|
| |
820
|
| |
586
|
| |
410
|
| |
234
|
|
Consumer members(2)
|
| |
168
|
| |
134
|
| |
91
|
| |
34
|
| |
43
|
|
(1)
|
IDX defines breach revenue as revenues related to breach contracts, which typically have a term of 15 months (three-month call
center period followed by 12 months of monitoring) and are non-recurring. IDX defines consumer membership services as recurring monthly and yearly ongoing identity and privacy services provided to strategic partners’ members, employer
groups’ employees, and retail customers.
|
|
(2)
|
IDX defines a breach customer as an agency or organization from which it has recognized breach revenue in a reporting period.
IDX defines consumer members, in this instance, as strategic partners and employer groups receiving consumer membership services (non-breach and non-retail customers).
|
|
(3)
|
Effective January 1, 2020, IDX adopted ASC 606, “Revenue from Contracts with Customers”
(“ASC 606”), under the modified retrospective method. See notes to the consolidated financial statements included elsewhere in this proxy statement/prospectus for more information related to the impact of adoption of ASC 606.
|
IDX has continued to see an increase each year in the number of its
breach customers, with an increase of 410 in 2021 compared to 2020. Although annual revenue growth in 2020 compared to 2019 was relatively flat, the number of unique breach and recurring customers significantly increased. This is a direct
result of the increase in breach incidents occurring, which IDX believes were spurred by the increased online and remote presence of businesses in response to the COVID-19 lockdown. IDX has continued to see this trend into 2022 and expects this
trend to continue into future years.
311
Components of Results from Operations
Revenue
IDX recognizes revenue when control of the promised goods or
services is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for its goods or services. For arrangements with multiple performance obligations, the Company allocates
revenue to each performance obligation on a relative fair value basis based on management’s estimate of Stand-Alone Selling Price (SSP).
IDX’s breach services revenue consists of contracts with various
combinations of notification, project management, communication services, and ongoing identity protection services. Performance periods generally range from one to three years, and payment terms are generally either thirty or sixty days
throughout the term. Contracts generally do not contain significant financing components. The Company’s breach services contracts are structured as either fixed or variable. In fixed contracts, IDX charges customers a fixed total price or fixed
per-impacted individual price for the total package of services. For variable breach services contracts, IDX charges the breach communications component, which includes notifications and call center support, at a fixed total fee, and charges
for ongoing identity protection services as incurred using a fixed price per enrollment. The Company generally does not offer rights of return for Enterprise Security products, and the distribution channel does not hold inventory. As a result,
historical returns and related reserves have been insignificant.
IDX provides identity and privacy protection services memberships
through its Employer Groups and Strategic Partners as well as directly to individual end-users through its retail business. Consumer membership services consist of multiple bundled identity and privacy product offerings and provide members with
ongoing monitoring services. For consumer membership services, IDX recognizes revenue ratably over the service period, which is typically one year. Payments from Employer Groups and Strategic Partners are generally collected monthly, and
payments from end-users are collected up front.
IDX evaluates arrangements with governmental entities containing
“fiscal funding” or “termination for convenience” provisions, when such provisions are required by law, to determine the probability of possible cancellation. For more information, see “Risk
Factors—Risks Related to Government Contracting Matters”. IDX considers multiple factors, including its history with the government entity in similar transactions and budgeting and approval processes undertaken by the
governmental entity. If IDX determines upon execution of these arrangements that the likelihood of cancellation is remote, it then recognizes revenues for such arrangements once all relevant criteria have been met. If IDX cannot make such a
determination, it recognizes revenues upon the earlier of cash receipt or approval of the applicable funding provision by the governmental entity for such arrangements.
Cost of Services
Cost of services consists of fees to outsourced service providers
for credit monitoring, call center operation, notification mailing, insurance, and other miscellaneous services and internal labor costs. For periods prior to January 1, 2020, under ASC 605, Revenue Recognition—Multiple Element Arrangements,
incremental direct costs were capitalized as setup costs and amortized ratably over the contractual period. Beginning January 1, 2020, notification costs are being expensed as fulfillment costs and recognized at a point in time. Call center
costs, also fulfillment costs, are being capitalized and amortized over time. Sales commissions, which are incremental costs to obtain contracts, are generally recognized ratably over the contractual period of the applicable agreement. These
costs are within capitalized contract costs and recognized in relation to revenue recorded over the combined service and membership terms. The remainder of cost of services is expensed as incurred.
Gross Profit
Gross profit, calculated as total revenue less total cost of
services, is affected by various factors, including the timing of breach incidents, renewals from existing customers, costs associated with fulfilling contracts such as notification, call center, and monitoring costs, the extent to which IDX
expands its customer support organization, and the extent to which it can negotiate any preferential pricing from its vendors. Because of these factors, IDX’s services revenue and gross profit may fluctuate over time.
312
Operating Expenses
Sales and Marketing
Sales and marketing expenses consist primarily of
employee compensation and related expenses, including salaries, bonuses and benefits for IDX’s sales and marketing employees, sales commissions that are recognized as expenses over the period of benefit, marketing programs, travel and
entertainment expenses, and allocated overhead costs. IDX capitalizes its sales commissions and recognizes them as expenses over the estimated period of benefit.
General and Administrative
General and administrative costs include
salaries, stock-based compensation expenses, and benefits for personnel involved in IDX’s executive, finance, legal, human resources, and administrative functions, as well as third-party professional services and fees, and overhead expenses.
IDX expects that general and administrative expenses will increase in absolute dollars as IDX hires additional personnel and enhances its systems, processes, and controls to support the growth in IDX’s business as well as increased compliance
and reporting requirements as a public company.
Research and Development
Research and development expenses primarily
consist of personnel costs and contractor fees related to the bundling of other third-party software products that are offered as one combined package within the Company’s product offerings. Personnel costs include salaries, bonuses and
stock-based compensation and related employer-paid payroll taxes, as well as an allocation of facilities, benefits, and information technology costs. Research and development costs are expensed as incurred.
Interest and Other Expense
Interest and other expense consist primarily of
term loan interest expense and the amortization of warrant and loan fees, which are recorded as a reduction to debt on the consolidated balance sheets.
Income Tax Expense (Benefit)
Income Tax Expense (benefit) consists of federal
and state income taxes in the United States. IDX maintains a partial valuation allowance on its state net operating losses and credits.
Results of Operations
Comparison of 2021 and 2020
The following tables set forth IDX’s consolidated
statements of operations in dollar amounts and as a percentage of total revenue for each period presented:
|
|
| |
Years Ended December 31,
|
| |
|
||||||||||||
|
|
| |
2021
|
| |
2020
|
| |
2021 vs 2020
|
|||||||||
|
|
| |
|
| |
Percentage of
Revenue
|
| |
|
| |
Percentage of
Revenue
|
| |
Change in
Dollars
|
| |
Change in
Percentage
|
|
|
| |
(in thousands)
|
|||||||||||||||
|
Revenue(1)
|
| |
$106,072
|
| |
100%
|
| |
$103,536
|
| |
100%
|
| |
$2,536
|
| |
2%
|
|
Cost of services
|
| |
82,745
|
| |
78%
|
| |
77,900
|
| |
75%
|
| |
4,845
|
| |
6%
|
|
Gross profit
|
| |
23,327
|
| |
22%
|
| |
25,636
|
| |
25%
|
| |
(2,309)
|
| |
(9)%
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Research and development
|
| |
4,941
|
| |
5%
|
| |
4,113
|
| |
4%
|
| |
828
|
| |
20%
|
|
Sales and marketing
|
| |
7,181
|
| |
7%
|
| |
6,988
|
| |
7%
|
| |
193
|
| |
3%
|
|
General and administrative
|
| |
6,873
|
| |
6%
|
| |
4,341
|
| |
4%
|
| |
2,531
|
| |
58%
|
|
Total operating expenses
|
| |
18,995
|
| |
18%
|
| |
15,442
|
| |
15%
|
| |
3,553
|
| |
23%
|
|
Operating income
|
| |
4,332
|
| |
4%
|
| |
10,194
|
| |
10%
|
| |
(5,862)
|
| |
(58)%
|
|
Interest and other expense
|
| |
3,143
|
| |
3%
|
| |
1,457
|
| |
1%
|
| |
1,686
|
| |
116%
|
|
Income before provision for income taxes
|
| |
1,189
|
| |
1%
|
| |
8,737
|
| |
8%
|
| |
(7,548)
|
| |
(86)%
|
|
Income tax expense
|
| |
1,716
|
| |
2%
|
| |
2,083
|
| |
2%
|
| |
(367)
|
| |
(18)%
|
|
Net (loss) income
|
| |
$(527)
|
| |
(1)%
|
| |
$6,654
|
| |
6%
|
| |
$(7,181)
|
| |
(108)%
|
|
(1)
|
Effective January 1, 2020, IDX adopted ASC 606, “Revenue from Contracts with Customers”
(“ASC 606”), under the modified retrospective method. See notes to the consolidated financial statements included elsewhere in this proxy statement/prospectus for more information related to the impact of adoption of ASC 606.
|
313
Revenue
Total revenue increased by $2.536 million in 2021 compared to 2020.
Breach revenue accounted for 97% of IDX’s total revenue in 2021 and 2020. The increase was due primarily to an increase in the number of breaches in 2021 compared to 2020.
Cost of Services
Total cost of services increased by $4.846 million or 6% in 2021
compared to 2020. The increase was due primarily to an increase in breach revenue.
Gross Profit
Gross margin decreased from 24.8% in 2020 to 22.0% in 2021. This is
due to the increase in cost of services associated with new breach contracts during 2021.
Operating Expenses
Research and Development
Research and development expenses increased by $828 thousand or 20%
in 2021 compared to 2020 as IDX continued to invest the Company’s products and services, which included increased personnel costs, contractor fees, and software expenses.
Sales and Marketing
Sales and marketing cost increased by $193 thousand or 3% in 2021
compared to 2020.
General and Administrative
General and administrative costs increased by $2.531 million or 58%
in 2021 compared to 2020. This increase is due almost entirely to increased legal and accounting expenses incurred as part of the proposed transaction, which includes expense related to PCAOB audits, the BCA, and preparation for the S-4 filing.
Interest and Other Expense
Interest and other expense increased by $1.686 million, or 116%, in
2021 compared to 2020. The increase in 2021 compared to 2020 is primarily the result of a $1.943 million increase in the fair value of warrant liabilities partially offset by a $502 thousand decrease in interest expense on term loans. In
December 2020, IDX paid both term loans in full and obtained a new loan from one of IDX’s existing lenders. The interest rate for the new term loan is lower than the combined rates of the previous loans.
Provision for Income Taxes
Income tax expense decreased by $367 thousand or 18% in 2021
compared to 2020. The decrease in 2021 is a result of lower operating income for 2021 compared to 2020. The decrease resulting from lower operating income was partially offset by an increase in state income tax expense in 2021, resulting from
increased state income tax exposure. The Effective Tax Rate (ETR) in 2021 was 71% which differs from the statutory rate due to transaction expenses, changes in fair market value of convertible debt and warrants, and state taxes and also
contributes to the increase from prior year. The Effective Tax Rate (ETR) in 2020 was 24% which differs from the statutory rate due to state taxes, permanent items and change in the valuation allowance related to Oregon NOLs.
314
Cash Flows
The following table summarizes IDX’s cash flows for the periods
indicated:
|
|
| |
Years Ended December 31,
|
|||
|
|
| |
2021
|
| |
2020
|
|
|
| |
(in thousands)
|
|||
|
Net cash provided by operating activities
|
| |
$3,368
|
| |
$7,615
|
|
Net cash used in investing activities
|
| |
(125)
|
| |
(15)
|
|
Net cash provided by (used in) financing activities
|
| |
$0.412
|
| |
$(567)
|
Operating Activities
Net cash provided by operating activities during 2021 was
$3.368 million, which resulted from net loss of $527 thousand was adjusted for non-cash charges of $3.182 million and net cash inflows of $712 thousand from changes in operating assets and liabilities. Non-cash charges primarily consisted of
$712 thousand in change in fair value of debt and $1.943 million in change in fair value of warrant liabilities. Cash provided by operating activities during 2021 benefited from a change in accrued liabilities and other liabilities of $850
thousand, a change in accounts payable of $920 thousand, and a change in deferred revenue of $427 thousand, offset by a change in accounts receivable of $(1.346) million.
Net cash provided by operating activities during 2020 was
$7.615 million, which resulted from net income of $6.654 million was adjusted for non-cash charges of $(253) thousand and net cash inflows of $1.213 million from changes in operating assets and liabilities. Non-cash charges primarily consisted
of $899 thousand in deferred tax expense. Cash provided by operating activities during 2020 benefited from the change in deferred revenue of $(454) thousand, offset by a change in accounts receivable of $766 thousand and a change in capitalized
contract costs of $796 thousand.
Investing Activities
Net cash used in investing activities during 2021 and 2020 were due
to purchases of property and equipment of $125 thousand and $15 thousand, respectively.
Financing Activities
Net cash provided by financing activities of $0.412 thousand in 2021
was primarily due to proceeds from option exercises of $70 thousand offset by $68 thousand of principal payments on capital lease obligations. Net cash used in financing activities of $567 thousand during 2020 was primarily due to principal
payments on long-term debt that has since been paid in full of $1.092 million. A cash outflow of $9.408 million occurred in 2020 from the extinguishment of debt and was offset by a cash inflow of $10 million from IDX’s new long-term debt.
315
Comparison of 2020 and 2019
The following tables set forth IDX’s consolidated statements of
operations in dollar amounts and as a percentage of total revenue for each period presented:
|
|
| |
Years Ended December 31,
|
| |
|
||||||||||||
|
|
| |
2020
|
| |
2019
|
| |
2020 vs 2019
|
|||||||||
|
|
| |
|
| |
Percentage of
Revenue
|
| |
|
| |
Percentage of
Revenue
|
| |
Change in
Dollars
|
| |
Change in
Percentage
|
|
|
| |
(in thousands)
|
|||||||||||||||
|
Revenue(1)
|
| |
$103,536
|
| |
100%
|
| |
$103,104
|
| |
100%
|
| |
432
|
| |
0%
|
|
Cost of services
|
| |
77,900
|
| |
75%
|
| |
83,388
|
| |
81%
|
| |
(5,488)
|
| |
(7)%
|
|
Gross profit
|
| |
25,636
|
| |
25%
|
| |
19,716
|
| |
19%
|
| |
5,920
|
| |
30%
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Research and development
|
| |
4,113
|
| |
4%
|
| |
3,839
|
| |
4%
|
| |
274
|
| |
7%
|
|
Sales and marketing
|
| |
6,988
|
| |
7%
|
| |
6,897
|
| |
7%
|
| |
91
|
| |
1%
|
|
General and administrative
|
| |
4,341
|
| |
4%
|
| |
4,452
|
| |
4%
|
| |
(111)
|
| |
(2)%
|
|
Total operating expenses
|
| |
15,442
|
| |
15%
|
| |
15,188
|
| |
15%
|
| |
254
|
| |
2%
|
|
Operating income
|
| |
10,194
|
| |
10%
|
| |
4,528
|
| |
4%
|
| |
5,666
|
| |
125%
|
|
Interest and other expense
|
| |
1,457
|
| |
1%
|
| |
1,799
|
| |
2%
|
| |
(342)
|
| |
(19)%
|
|
Income before provision for income taxes
|
| |
8,737
|
| |
8%
|
| |
2,729
|
| |
3%
|
| |
6,008
|
| |
220%
|
|
Income tax expense (benefit)
|
| |
2,083
|
| |
2%
|
| |
(424)
|
| |
0%
|
| |
2,507
|
| |
(591)%
|
|
Net income
|
| |
$6,654
|
| |
6%
|
| |
$3,153
|
| |
3%
|
| |
$3,501
|
| |
111%
|
|
(1)
|
Effective January 1, 2020, IDX adopted ASC 606, “Revenue from Contracts with Customers”
(“ASC 606”), under the modified retrospective method. See notes to the consolidated financial statements included elsewhere in this proxy statement/prospectus for more information related to the impact of adoption of ASC 606.
|
Revenue
Total revenue increased by $432 thousand in 2020 compared to 2019.
Breach revenue accounted for 97% and 98% of IDX’s total revenue in 2020 and 2019, respectively.
Cost of Services
Total cost of services decreased by $5.488 million or 7%, in 2020
compared to 2019. The decrease was due primarily to more efficient purchasing of various third-party costs and the change in cost of services related to the adoption of ASC 606, which resulted in the acceleration of $4.901 million in
capitalized contract costs being included as an adjustment to retained earnings as of January 1, 2020.
Gross Profit
Favorable changes in cost of services resulted in an increase in
gross margin to 24.8% in 2020 compared to 19.1% in 2019.
Operating Expenses
Research and Development
Research and development expenses increased by $274 thousand or 7%
in 2020 compared to 2019 as IDX continued to invest the Company’s products and services, which included increased personnel costs and contractor fees.
Sales and Marketing
Sales and marketing cost increased by $91 thousand or 1% in 2020
compared to 2019.
General and Administrative
General and administrative costs decreased by $111 thousand or 2% in
2020 compared to 2019.
316
Interest and Other Expense
Interest and other expense decreased by $342 thousand, or 19%, in
2020 compared to 2019. The decrease in 2020 compared to 2019 is primarily the result of decreased interest expense on term loans. In December 2020, IDX paid both term loans in full and obtained a new loan from one of IDX’s existing lenders. As
a result of the new term loan, IDX expects 2021 interest expense to be less than what it was in 2020.
Provision for Income Taxes
Income tax expense increased by $2.507 million or 591% in 2020
compared to 2019. The increase in 2020 is a result of the Company adopting ASC 606 as of January 1, 2020. The adoption resulted in an acceleration of profit, therefore increasing taxable income. The Effective Tax Rate (ETR) in 2020 was 24%
which differs from the statutory rate due to state taxes, permanent items and change in the valuation allowance related to Oregon NOLs. The ETR in 2019 was a benefit of 16%. This differs from the statutory rate due to the release of the
valuation allowance on all assets except Oregon R&D credits and a piece of the Oregon NOL, as well as the benefit of R&D credits.
Cash Flows
The following table summarizes IDX’s cash flows for the periods
indicated:
|
|
| |
Years Ended December 31,
|
|||
|
|
| |
2020
|
| |
2019
|
|
|
| |
(in thousands)
|
|||
|
Net cash provided by operating activities
|
| |
$7,615
|
| |
$5,802
|
|
Net cash used in investing activities
|
| |
(15)
|
| |
(48)
|
|
Net cash used in financing activities
|
| |
$(567)
|
| |
$(1,936)
|
Operating Activities
Net cash provided by operating activities during 2020 was
$7.615 million, which resulted from net income of $6.654 million was adjusted for non-cash charges of $(253) thousand and net cash inflows of $1.213 million from changes in operating assets and liabilities. Non-cash charges primarily consisted
of $899 thousand in deferred tax expense. Cash provided by operating activities during 2020 benefited from the change in deferred revenue of $(454) thousand, offset by a change in accounts receivable of $766 thousand and a change in capitalized
contract costs of $796 thousand.
Net cash provided by operating activities during 2019 was
$5.802 million, which resulted from net income of $3.153 million adjusted for non-cash charges of $14 thousand and net cash inflows of $2.634 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $791
thousand of deferred tax expense. Cash provided by operating activities during 2019 was the result of an increase in deferred revenue of $9.543 million, an increase in accounts receivable of $2.043 million, and an increase in accounts payable
of $4.604 million, offset by a decrease in accrued expenses and other liabilities of $8.866 million and a decrease in capitalized contract costs of $4.663 million.
Investing Activities
Net cash used in investing activities during 2020 and 2019 were due
to purchases of property and equipment of $15 thousand and $48 thousand, respectively.
Financing Activities
Net cash used in financing activities of $567 thousand and
$1.936 million during 2020 and 2019, respectively, was primarily due to principal payments on long-term debt that has since been paid in full of $1.092 million and $2.033 million. A cash outflow of $9.408 million occurred in 2020 from the
extinguishment of debt and was offset by a cash inflow of $10 million from IDX’s new long-term debt.
Contractual Obligations
The Company has entered a non-cancellable purchase commitment of
$32 million related to six months of outsourced credit and other monitoring services provided to the Company’s largest customer as of December 31,
317
2021. This commitment amount and length is determined by the customer’s exercise of
annual option periods. As of the date of issuance of the Company’s most recently audited financial statements, December 31, 2021, Option Period II has been exercised.
The following table summarizes IDX’s contractual obligations and
commitments as of December 31, 2021:
|
(in thousands)
|
| |
Total
|
| |
Less than
1 year
|
| |
1-3 years
|
|
Operating leases
|
| |
$743
|
| |
$532
|
| |
$211
|
|
Purchase commitments
|
| |
32,414
|
| |
32,414
|
| |
—
|
|
Total
|
| |
$33,157
|
| |
$32,946
|
| |
$211
|
Off-Balance Sheet Arrangements
Leases
Rental payments under operating leases are recognized on a
straight-line basis over the term of the lease including any periods of free rent. Rental expense for operating leases was $422, $408, and $377 thousand for 2021, 2020, and 2019 respectively. Additionally, the Company had a sublease for one of
IDX’s suites. The sublease ended February 29, 2020. Sublease income is included in general and administrative expenses on the consolidated statements of operations.
With the Company’s operating lease agreements terminating on October
31, 2020, the Company signed the Fourth Amendment to its Lease on April 23, 2020. The lease extension extended the term by two months through the December 31, 2020. The extension was only for two of three leases. The Fifth Amendment to the
Company’s Lease was executed on October 9, 2020. This amendment was for two years and two months commencing on January 1, 2021 and ending February 28, 2023. IDX’s landlord provided an abatement for January 1, 2021 through February 28, 2021 as
part of its lease renewal.
Future minimum lease payments under noncancelable operating leases
(with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of December 31, 2021 are:
|
|
| |
Operating
Leases
|
|
|
| |
(in thousands)
|
|
Fiscal Year:
|
| |
|
|
2022
|
| |
$532
|
|
2023
|
| |
$163
|
|
2024
|
| |
$48
|
|
Total minimum lease payments
|
| |
$743
|
Critical Accounting Policies and Estimates
IDX’s financial statements are prepared in accordance with GAAP. The
preparation of these financial statements requires IDX to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, as well as related disclosures. IDX evaluates its estimates and assumptions
on an ongoing basis. Estimates are based on historical experience and various other assumptions that IDX believes to be reasonable under the circumstances. Actual results could differ from these estimates. The critical accounting policies,
assumptions, and judgements that IDX believes have the most significant impact on its consolidated financial statements are described below.
Revenue Recognition
Revenues are derived from sales of breach response services and
identity and privacy protection services. IDX satisfies performance obligations to recognize revenue for two performance obligations, one at a point in time and the other ratably over the expected term with the customer.
318
Revenue is recognized when all of the following criteria are met:
Identification of the contract, or contracts, with a customer—A contract with a customer to account for exists when (i) IDX enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be
transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and the parties are committed to perform, and (iii) IDX determines that collection of substantially
all consideration to which it will be entitled in exchange for goods or services that will be transferred is probable based on the customer’s intent and ability to pay the promised consideration.
Identification of the performance obligations in the contract—Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer
can benefit from the goods or service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the
goods or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods or services, IDX applies judgment to determine whether promised goods or services are
capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised goods or services are accounted for as a combined performance obligation.
Determination of the transaction price—The transaction price is determined based on the consideration to which IDX will be entitled in exchange for transferring goods or services to the customer.
Allocation of the transaction price to the performance obligations
in the contract—IDX allocates the transaction price to each performance obligation based on the amount of consideration expected to be received in exchange for transferring goods and
services to the customer. IDX allocates the transaction price by using an estimated selling price for services provided to determine which portion of its contracts’ total transaction price should be recognized at a
point-in-time and which portion should be recognized over-time. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation on a relative standalone
selling price based on the observable selling price of products and services.
Recognition of revenue when, or as, IDX satisfies performance
obligations—IDX satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at or over the time the related
performance obligation is satisfied by transferring a promised good or service to a customer.
On January 1, 2020, the Company adopted the new revenue standard,
ASC 606 Revenue Recognition – Contracts with Customers (“Topic 606”), on a modified retrospective basis, applying the practical expedient to all uncompleted contracts as of January 1, 2020. The Company has also adopted the practical expedient
for contract modifications, which allows it to reflect the aggregate effect of all modifications occurring prior to January 1, 2020, as of the date of adoption. As a result, the consolidated financial statements for the years ended December 31,
2021 and December 31, 2020 are presented under the new revenue recognition guidance, while prior period amounts are not adjusted and continue to be reported under the prior revenue recognition guidance.
Significant Judgments
Significant judgments and estimates are required under Topic 606.
Due to the complexity of certain contracts, the actual revenue recognition treatment required under Topic 606 for the Company’s arrangements may be dependent on contract-specific terms and may vary in some instances. The Company’s contracts
with customers often include promises to transfer multiple services, including project management services, notification services, call center services, and monitoring services. Determining whether services are distinct performance obligations
that should be accounted for separately requires significant judgment.
The Company is required to estimate the total consideration expected
to be received from contracts with customers, including any variable consideration. Once the estimated transaction price is established, amounts are allocated to performance obligations on a relative SSP basis. The Company’s breach business
derives revenue from two main performance obligations: (i) notification and (ii) combined call center and monitoring services, described further in Note 6.
At contract inception, the Company assesses the products and
services promised in the contract to identify each performance obligation and evaluate whether the performance obligations are capable of being distinct and
319
are distinct within the context of the contract. Performance obligations that are
not both capable of being distinct and distinct within the context of the contract are combined and treated as a single performance obligation in determining the allocation and recognition of revenue. Determining whether products and services
are considered distinct performance obligations requires significant judgment. In determining whether products and services are considered distinct performance obligations, the Company assesses whether the customer can benefit from the products
and services on their own or together with other readily available resources and whether our promise to transfer the product or service to the customer is separately identifiable from other promises in the contract.
Judgment is required to determine the SSP for each distinct
performance obligation. The Company rarely sells its individual breach services on a standalone basis, and accordingly, the Company is required to estimate the range of SSPs for each performance obligation. In instances where the SSP is not
directly observable because the Company does not sell the service separately, the Company reviews information that includes historical discounting practices, market conditions, cost-plus analysis, and other observable inputs to determine an
appropriate SSP. The Company typically has more than one SSP for individual performance obligations due to the stratification of those items by classes of customers, size of breach, and other circumstances. In these instances, the Company may
use other available information such as service inclusions or exclusions, customizations to notifications, or varying lengths of call center or monitoring services in determining the SSP.
If a group of agreements are so closely related to each other that
they are, in effect, part of a single arrangement, such agreements are deemed to be one arrangement for revenue recognition purposes. The Company exercises judgment to evaluate the relevant facts and circumstances in determining whether the
separate agreements should be accounted for separately or as, in substance, a single arrangement. The Company’s judgments about whether a group of contracts comprises a single arrangement can affect the allocation of consideration to the
distinct performance obligations, which could have an effect on results of the Company’s operations for the periods involved.
Generally, the Company has not experienced significant returns or
refunds to customers. The Company’s estimates related to revenue recognition may require significant judgment and the change in these estimates could have an effect on the Company’s results of operations during the periods involved.
Contract Balances
The timing of revenue recognition may differ from the timing of
invoicing to customers and these timing differences result in receivables, contract assets, or contract liabilities (deferred revenue) on the consolidated balance sheets. The Company records a contract asset when revenue is recognized prior to
invoicing and records a deferred revenue liability when revenue is expected to be recognized subsequent to invoicing. For the Company’s breach services agreements, customers are typically invoiced at the beginning of the arrangement for the
entire contract. When the breach agreement includes variable components related to as-incurred monitoring services, customers are invoiced monthly for the duration of the enrollment or call center period. Large contracts are typically billed
50% upfront and due upon receipt with the remaining 50% invoiced subsequently with Net 30 terms.
Contract assets are presented as other receivables within the
consolidated balance sheets and primarily relate to the Company’s rights to consideration for work completed but not billed on service contracts. Contract assets are transferred to receivables when the Company invoices the customer. Contract
liabilities are presented as deferred revenue and relate to payments received for services that are yet to be recognized in revenue.
During the year ended December 31, 2021, the Company recognized
$7.505 million of revenue that was included in deferred revenue at the end of the preceding year. All other deferred revenue activity is due to the timing of invoices in relation to the timing of revenue, as described above. The Company expects
to recognize as revenue approximately 78% of its December 31, 2021 deferred revenue balance in the year ended December 31, 2022 and the remainder thereafter.
In instances where the timing of revenue recognition differs from
that of invoicing, the Company has determined that its contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing the
Company’s services, not to facilitate financing arrangements.
320
Government Contracts
The Company evaluates arrangements with governmental entities
containing “fiscal funding” or “termination for convenience” provisions, when such provisions are required by law, to determine the probability of possible cancellation. The Company considers multiple factors, including the history with the
customer in similar transactions and budgeting and approval processes undertaken by the governmental entity. If the Company determines upon execution of these arrangements that the likelihood of cancellation is remote, it then recognizes
revenues for such arrangements once all relevant criteria have been met. If such a determination cannot be made, revenues are recognized upon the earlier of cash receipt or approval of the applicable funding provision by the governmental entity
for such arrangements.
Contract Costs
The Company capitalizes costs to obtain a contract or fulfill a
contract. These costs are recorded as capitalized contract costs on the consolidated balance sheets. Costs to obtain a contract for a new customer are generally amortized on a straight-line basis over the estimated period of benefit. The
Company determined the estimated period of benefit by taking into consideration the contractual term. The Company periodically reviews the carrying amount of the capitalized contract costs to determine whether events or changes in circumstances
have occurred that could affect the period of benefit. Amortization expense associated with costs to fulfill a contract is recorded to cost of services on the Company’s consolidated statements of income, and amortization expense associated with
costs to obtain a contract (sales commissions) is recorded to sales and marketing expense.
For periods prior to January 1, 2020, under ASC 605, Revenue Recognition – Multiple Element Arrangements, incremental direct costs were capitalized as setup costs and amortized ratably over the contractual period. Beginning January 1, 2020, notification costs are being expensed as fulfillment costs and recognized at a point in time. Call center costs, also fulfillment costs, are being capitalized and amortized over time. Sales
commissions, which are incremental costs to obtain contracts, are generally recognized ratably over the contractual period of the applicable agreement.
Income Taxes
The Company provides for income taxes using the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax effect of differences between recorded assets and liabilities and their respective tax basis along with operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period the rate change becomes effective. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained in the event of a tax audit.
Recognized income tax positions are measured at the largest amount
that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense.
$84,194 and $32,043 in penalties and interest have been accrued to expense as of December 31, 2021 and 2020 and are discussed further in Note 10 Income Taxes in the notes to the consolidated financial statements. No interest or penalties have
been accrued or charged to expense as of or for the year ended December 31, 2019.
Deferred tax assets are reduced by a valuation allowance when, in
management’s opinion, it is more likely than not that some portion or all the deferred tax assets will not be realized. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. The Company’s valuation allowance is based on available evidence, including its current year and prior year operating losses, evaluation of positive and negative evidence with respect to certain specific
deferred tax assets including evaluating sources of future taxable income to support the realization of the deferred tax assets.
The Company’s income tax returns are generally subject to
examination by taxing authorities for a period of three years from the date they are filed. Tax authorities may have the ability to review and adjust net operating loss or tax credit carryforwards that were generated prior to these periods if
utilized in an open tax year. As of
321
December 31, 2021, the Company’s income tax returns for the years ended December 31,
2016 through 2021 are subject to examination by the Internal Revenue Service and applicable state and local taxing authorities.
Quantitative and Qualitative Disclosures about
Market Risk
IDX’s operations are in the United States, and it is exposed to
market risk in the ordinary course of its business.
Interest Rate Risk
As of December 31, 2021, IDX had no short or long-term investments.
Foreign Currency Exchange Risk
To date, all of IDX’s sales contracts have been denominated in U.S.
dollars, therefore its revenue is not subject to foreign currency risk. Operating expenses are incurred within the United States and are denominated in U.S. dollars.
Emerging Growth Company (“EGC”) Status
IDX is an emerging growth company (“EGC”), as defined in the JOBS
Act. Under the JOBS Act, EGCs can delay adopting new or revised accounting standards applicable to public companies issued after the enactment of the JOBS Act until those standards apply to private companies. IDX has elected to use this
extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date IDX (i) is no longer an EGC or (ii) affirmatively and
irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, IDX’s consolidated financial statements may or may not be comparable to the financial statements of issuers who comply with new or revised accounting
pronouncements as of public companies’ effective dates, which may make IDX’s common stock less attractive to investors.
Recent Accounting Pronouncements
See Notes 2x. Standards Issued and Adopted and 2y. Standards Issued
but Not Yet Effective to the consolidated financial statements for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this proxy statement/prospectus..
Liquidity and Capital Resources
Sources and Uses of Funds
As of December 31, 2021, IDX had $17.986 million of cash and cash
equivalents. IDX believes that existing cash and cash equivalents will be sufficient to support working capital and capital expenditure requirements for at least the next twelve months. Since inception, IDX has financed operations primarily
through credit facilities and positive cash flow related to its OPM Contract. Principal uses of cash are cost of services provided to its customers such as notification printing and monitoring and personnel related expenses. In August 2016, IDX
and ITGS, Inc., as co-borrowers, entered into a credit facility with Comerica Bank (“Lender”) (the “Comerica Credit Facility”), which was amended and restated in December 2020 and further amended in July 2021. The current Comerica Credit
Facility provides for a secured term loan facility in an aggregate principal amount of $10 million. IDX’s obligations under the Comerica Credit Facility are secured by substantially all its assets. As of December 31, 2021, there was $10 million
in principal amount outstanding under the Comerica Credit Facility.
Interest is payable monthly and accrues at the prime referenced rate
plus 1.5% per year, which was 4.75% as of Decemebr 31, 2021. The outstanding principal amount of the term loan is payable in thirty-six equal monthly installments beginning on July 1, 2022 and continuing through the maturity date in June 2025.
IDX may prepay the term loan, in whole or in part, at any time, without penalty or premium. Any amounts, once repaid, may not be reborrowed.
The Comerica Credit Facility contains customary affirmative and
negative covenants for this type of facility, including, among others, restrictions on dispositions, any change in control, mergers or consolidations,
322
acquisitions, investments, incurrence of debt, granting of liens, payments of
dividends or distributions and certain transactions with affiliates, in each case subject to certain exceptions. The Comerica Credit Facility also contains a minimum EBITDA financial covenant requiring that IDX generate minimum EBITDA of not
less than $3 million during any trailing twelve-month period.
The events of default under the Comerica Credit Facility include,
among others, subject to grace periods in certain instances, payment defaults, covenant defaults, bankruptcy and insolvency defaults, cross-defaults to other indebtedness, judgment defaults, a material adverse change default and a default in
the event that the contract with the OPM Contract is canceled or terminated. Upon the occurrence and during the continuance of an event of default, Lender may declare all outstanding principal and accrued and unpaid interest under the credit
facility immediately due and payable, increase the applicable interest rate by 5%, and may exercise other rights and remedies provided under the Comerica Credit Facility. IDX intends to repay and terminate the credit facility at the Closing.
ID Experts Holdings, Inc. is a party to that certain Convertible
Promissory Note Purchase Agreement, dated as of December 18, 2018, by and among ID Experts Holdings, Inc. and certain ID Experts Holdings, Inc. shareholders, pursuant to which it has issued certain convertible promissory notes. Please see “Certain IDX Relationships and Related Party Transactions – Loan Agreements.”)
From time to time, IDX may explore additional financing sources and
means to lower is cost of capital, which could include equity, equity-linked and debt financing. IDX cannot assure you that any additional financing will be available to it on acceptable terms, or at all. If IDX raises additional funds by
issuing equity or equity-linked securities, the ownership of the existing shareholders will be diluted. If IDX raises additional financing by the incurrence of indebtedness, IDX may be subject to increased fixed payment obligations and could be
subject to additional restrictive covenants, such as limitations on its ability to incur additional debt, and other operating restrictions that could adversely impact IDX’s ability to conduct business. Any future indebtedness IDX incurs may
result in terms that could be unfavorable to equity investors. There can be no assurances that IDX will be able to raise additional capital. The inability to raise capital would adversely affect IDX’s ability to achieve its business objectives.
323
Stifel Loan and Security Agreement
On January 7, 2021, ZeroFox entered into a loan and security agreement
with Stifel Bank, which was most recently amended on December 16, 2021 (as amended, the “Stifel Loan Agreement”). The Stifel Loan Agreement provides ZeroFox with the ability to borrow up to $15 million in
formula revolving line advances which bear interest at a variable annual rate equal to the greater of (i) 1.00% above the prime rate then in effect or (ii) 4.50%. The Stifel Loan Agreement requires monthly, interest-only payments and quarterly
fees in arrears equal to 0.25% per annum of the unused portion of the revolving line of credit. As of January 31, 2022, ZeroFox has drawn down on all $15 million available for advance under the Stifel Loan Agreement.
Borrowings under the Stifel Loan Agreement are secured by a continuing
first priority lien on all issued and outstanding shares of capital stock of ZeroFox’s subsidiaries (except for any foreign subsidiaries, for which 65% of such capital stock is pledged) and on all other assets, including intellectual property, of
ZeroFox.
Pursuant to the Stifel Loan Agreement, ZeroFox is subject to certain
affirmative and negative covenants during the term of the agreement, including certain financial covenants and limitations on ZeroFox’s ability to incur additional debt, pay dividends and make certain investments. Obligations under the Stifel
Loan Agreement are subject to acceleration upon the occurrence of specified events of default, including failure to make timely payments or to comply with the aforementioned covenants.
In connection with entering into the Stifel Loan Agreement, ZeroFox
issued a warrant to Stifel Bank to purchase 107,408 shares of its Series E Preferred Stock at an exercise price of $1.86205 per share. The warrant remains outstanding and is exercisable at any time until its expiration on January 7, 2031. In
connection with the second amendment to the Stifel Loan Agreement, on December 8, 2021 ZeroFox issued a second warrant to Stifel Bank to purchase an additional 161,113 shares of its Series E Preferred Stock at the same exercise price. This
second warrant expires on December 8, 2031. It is expected that these warrants will be exercised for an aggregate of 154,254 shares of New ZeroFox Common Stock prior to the Closing.
Orix Loan and Security Agreement
On January 7, 2021, ZeroFox entered into a subordinated loan
facility with ORIX Growth Capital, LLC (“Orix”), which was amended most recently on February 10, 2022 (as amended, the “Orix Loan Agreement”).
Under this term loan facility, ZeroFox may borrow upto $37.5 million.
Outstanding principal under the Orix Loan Agreement bears interest at a
variable annual rate equal to the greater of (i) 6.75% above the highest prime rate then in effect or (ii) 10.00% and requires accrued interest to be paid monthly in arrears together with equal monthly payments of principal. As of January 31,
2022, ZeroFox has drawn down on $30 million available for disbursement under the Orix Loan Agreement.
Obligation under the Orix Loan Agreement are subordinated in all
respects to ZeroFox’s obligations under the Stifel Loan Agreement and are secured by an all-assets lien, which includes the capital stock of ZeroFox’s subsidiaries (except for any foreign subsidiaries, for which 65% of such capital stock is
pledged).
Pursuant to the Orix Loan Agreement, ZeroFox is subject to certain
affirmative and negative covenants during the term of the agreement, including certain financial covenants and limitations on ZeroFox’s ability to incur additional debt, pay dividends and make certain investments. Obligations under Orix Loan
Agreement are subject to acceleration upon the occurrence of specified events of default, including failure to make timely payments or breach of covenant.
In connection with entering into the Orix Loan Agreement, ZeroFox
issued a warrant to Orix to purchase 644,451 shares of its Series E Preferred Stock at an exercise price of $1.86205 per share. The warrant remains outstanding and is exercisable at any time until its expiration on January 7, 2031. In
connection with the fourth amendment to the Orix Loan Agreement, on February 10, 2022, ZeroFox issued a second warrant to Orix to purchase an additional 161,112 shares of its Series E Preferred Stock at the same exercise price. This second
warrant expires on February 10, 2032. It is expected that these warrants will be exercised for an aggregate of 462,764 shares of New ZeroFox Common Stock prior to the Closing.
324
PIK Promissory Notes
On December 16, 2021, ZeroFox issued the ZeroFox PIK Promissory Notes
to related parties for an aggregate purchase price of $5.0 million. Such ZeroFox PIK Promissory Notes accrue interest that will be paid-in-kind at a rate of 5.0% per annum and mature upon the earlier of the Closing and the one-year anniversary of
the date of issuance. If the Closing occurs, the repayment of the original principal amount of the ZeroFox PIK Promissory Notes may be offset against amounts owed by such related parties under their respective Common Equity Subscription
Agreements.
Unsecured Note
In connection its acquisition of all of the outstanding shares of
VigilanteATI, Inc. (the “Vigilante Acquisition”) from InfoArmor, Inc. (“InfoArmor”), on June 7, 2021 ZeroFox issued an unsecured promissory note to InfoArmor, as the
purchase price consideration for Vigilante Acquisition, in the original principal amount of $3.75 million (the “InfoArmor Note”). The InfoArmor Note carries a 5.5% interest rate, matures on June 7, 2025 and
is subordinated in all respects to the Stifel Loan Agreement and the Orix Loan Agreement. Under the InfoArmor Note, ZeroFox is required to make quarterly payments of principal and accrued interest.
325
The following table sets forth certain information as of December 31,
2021 concerning the persons who are expected to serve as directors and executive officers of New ZeroFox following the consummation of the Business Combination and assuming the election of the nominees at the Shareholder Meeting as set forth in “Proposal No. 9 – The Director Election Proposal.”
|
Name
|
| |
Age
|
| |
Position
|
|
James C. Foster
|
| |
43
|
| |
Chief Executive Officer and Chairman of the Board
|
|
Kevin T. Reardon
|
| |
50
|
| |
Chief Operating Officer
|
|
Timothy S. Bender
|
| |
53
|
| |
Chief Financial Officer
|
|
Michael Price
|
| |
43
|
| |
Chief Technology Officer
|
|
John R. Prestridge, III
|
| |
61
|
| |
Chief Marketing Officer
|
|
Scott O’Rourke
|
| |
47
|
| |
Chief Revenue Officer
|
|
Thomas P. FitzGerald
|
| |
56
|
| |
General Counsel and Corporate Secretary
|
|
Peter Barris
|
| |
70
|
| |
Director
|
|
Sean Cunningham
|
| |
64
|
| |
Director
|
|
Adam Gerchen
|
| |
40
|
| |
Director
|
|
Todd P. Headley
|
| |
59
|
| |
Director
|
|
Thomas F. Kelly
|
| |
69
|
| |
Director
|
|
Samskriti King
|
| |
49
|
| |
Director
|
|
Corey M. Mulloy
|
| |
50
|
| |
Director
|
Under the Proposed Certificate of Incorporation and Proposed Bylaws,
we will have a classified board of directors following the Closing, with three directors in Class I (Peter Barris, Corey M. Mulloy and Sean Cunningham), each to initially serve for a term expiring at the first annual meeting of shareholders
following the Closing expected to be held in 2023, two directors in Class II (Samskriti King and Thomas F. Kelly), each to initially serve for a term expiring at the second annual meeting of shareholders following the Closing expected to be
held in 2024, and three directors in Class III (James C. Foster, Todd Headley, and Adam Gerchen), each to initially serve for a term expiring at the third annual meeting of shareholders following the Closing expected to be held in 2025. At each
such annual meeting and each succeeding annual meeting, directors shall be elected for a term of three years.
Directors
James C. Foster
is a co-founder of ZeroFox where he has served as Chairman and Chief Executive Officer since 2013. From 2010 to 2012, Mr. Foster served as a Senior Vice President at Accuvant, Inc. where he was responsible for accelerating growth and
profitability following the acquisition of Ciphent, Inc. in 2010. From 2006 to 2010, Mr. Foster was the founder and Chief Executive Officer of Ciphent, Inc. before its sale to Accuvant. Mr. Foster has a history of working in high-growth
cybersecurity startups including Guardent (acquired by Verisign) and Foundstone (acquired by McAfee). Earlier in his career, Mr. Foster worked in various roles supporting the United States Department of Defense and its contractor base. He holds
a B.S. in software applications from Capitol University and is a Fellow at The Wharton School of Business at the University of Pennsylvania. Mr. Foster has authored or co-authored over a dozen books relating to cybersecurity including Buffer
Overflow Attacks, Writing Security Tools and Exploits, and Sockets Shellcode Porting. We believe Mr. Foster is qualified to serve on the New ZeroFox Board due to, among other things, the experience he brings as the founder, Chief Executive
Officer and current Chairman of the board of directors of ZeroFox.
Peter Barris has
served as a member of the ZeroFox board of directors since 2014. From 1999 to 2017, Mr. Barris was the Managing General Partner of New Enterprise Associates (“NEA”), a venture capital firm with over $20 billion of assets under management. After
retiring in 2019, Mr. Barris has served as NEA’s chairman. Under his leadership, NEA invested in transformative technology companies including CareerBuilder, Tableau, Diapers.com, Groupon, Jet.com, Juniper Networks, Macromedia, Salesforce.com,
TiVo, and Workday. Mr. Barris also serves on the board of directors of Groupon, Inc. (Nasdaq: GRPN), Sprout Social, Inc. (Nasdaq: SPT), Berkshire Grey, Inc. (Nasdaq: BGRY) and NextNav Inc. (Nasdaq: NN) and is currently a director of several
private companies. Prior to joining NEA, Mr. Barris was President and Chief Operating Officer of Legent Corporation and Senior Vice President of the Systems Software Division of UCCEL Corporation. Prior to his
326
time at Legent Corporation, Mr. Barris spent almost a decade at General Electric
Company (NYSE: GE) in a variety of management positions, including Vice President and General Manager at GE Information Services. He is Vice-Chair of the Northwestern University Board of Trustees and serves on the board of In-Q-Tel and the
Brookings Institute. Mr. Barris has also served on the Executive Committee of the Board of the National Venture Capital Association and was a founding member of Venture Philanthropy Partners, a philanthropic organization in the Washington, D.C.
area. Mr. Barris received a B.S.E.E. from Northwestern University and an M.B.A. from the Tuck School of Business at Dartmouth. We believe Mr. Barris is qualified to serve on the New ZeroFox Board due to, among other things, his service on the
ZeroFox board of directors and his many years of experience leading and investing in transformative technology companies and his public company board experience.
Corey M. Mulloy
joined ZeroFox as a director in 2015. He is a partner at Highland Capital Partners, which he joined in 1997. While at Highland, Mr. Mulloy has worked closely with the founders of several portfolio companies, including seven that completed
public offerings and twenty that exited through acquisition transactions. Prior to Highland, Mr. Mulloy worked as a financial analyst at Robertson, Stephens & Co., L.L.C., an investment bank, and The Whitman Group. Mr. Mulloy previously
served on the board of directors of Gigamon, Inc. (listed on NYSE until 2018: GIMO) and serves as a director of a number of private companies. Mr. Mulloy has served on the Swarthmore College Board of Managers since 2020 and the College’s
Investment Committee since 2007. Mr. Mulloy received a B.A. in economics from Swarthmore College and an M.B.A. from Harvard Business School. We believe Mr. Mulloy is qualified to serve on the New ZeroFox Board due to, among other things, his
service on the ZeroFox board of directors, his many years of leadership in investment banking working with portfolio companies that completed public offerings and his public company board experience.
Todd P. Headley
joined ZeroFox as a director in 2014. Mr. Headley previously served as a director of Qualys, Inc. (NASDAQ: QLYS) from 2015 to 2018, LogRhythm, Inc. from 2014 to 2018, Phantom Cyber from 2015 to 2018 and was the Chief Financial Officer of
Sourcefire, Inc. (listed on NASDAQ until 2013: FIRE) from 2003 until its acquisition by Cisco Systems, Inc. in 2013. Prior to Sourcefire, Mr. Headley held key financial management positions in four venture-backed technology start-ups: Riverbed
Technologies, Roadshow, BioNetrix and POMS. Mr. Headley also currently serves on the Executive Board of the Virginia Tech University APEX Center for Entrepreneurs. From 1992-2003 Mr. Headley held key financial management positions in several
venture-backed technology start-ups, four of which were successfully acquired. Mr. Headley began his career in 1985 in public accounting with Arthur Andersen LLP. He is a CPA and holds a B.S. in accounting from Virginia Tech. We believe
Mr. Headley is qualified to serve on the New ZeroFox Board due to, among other things, his service on the ZeroFox board of directors, his many years serving as director of public companies in the technology space and his extensive financial
management and accounting background.
Samskriti King
joined ZeroFox as a director in 2021. Since 2019, Ms. King has been the Chief Executive Officer of Veracode, Inc., a leading provider of application security testing. She was one of the earliest employees of Veracode when the company was
founded over 15 years ago and also served as Veracode’s Chief Strategy Officer, Executive Vice President for Product Strategy and Corporate Development and Vice President of Product Marketing and Service Delivery. Prior to Veracode, Ms. King
held leadership positions in cybersecurity and technology companies including Verisign and Razorfish. Ms. King currently serves as a director of Progress Software Corporation (NASDAQ: PRGS) and is a member of the Board of Trustees of the
Massachusetts Technology Leadership Council. She earned her B.S. in computer science from the University of Strathclyde in Glasgow, Scotland, where she earned the prestigious Charles Babbage Award, awarded to the student with the highest
academic achievement in the graduating class. Ms. King received her M.S.E. in computer and information science from the University of Pennsylvania. We believe Ms. King is qualified to serve on the New ZeroFox Board due to, among other things,
her chief executive leadership running an application security testing business and current public company board experience.
Thomas F. Kelly
has served as President and Chief Executive Officer of IDX since 2017. From 2016 to 2017, Mr. Kelly served as a cybersecurity industry consultant. In the prior twenty years, Mr. Kelly was Chief Executive Officer of several software and security
companies including AccelOps between 2015 and 2016 (acquired by Fortinet, 2016), Moxie Software, MontaVista Software (acquired by Cavium, 2009), BlueStar Solutions (acquired by Affiliated Computer Services, 2004) and Blaze Software (IPO then
acquired, 2000). In the prior 25 years of his career, Mr. Kelly held executive leadership operating roles at several companies including Cirrus Logic, Cadence Design Systems, and Frame Technology (acquired by Adobe, 1995). Mr. Kelly has served
on numerous corporate boards over his career including at FEI, Epicor Software, and Blaze Software, and
327
currently is on the board of directors of Fabrinet (NYSE: FN). Mr. Kelly received a
B.S. in economics from Santa Clara University, and serves on several community and academic advisory boards. We believe Mr. Kelly is qualified to serve on the New ZeroFox Board due to, among other things, his operational experience as Chief
Executive Officer of IDX and extensive public company leadership and public company board experience.
Sean Cunningham
joined IDX as a director in 2016. Mr. Cunningham is currently Managing Director of ForgePoint Capital, which he joined in 2015. Prior to ForgePoint Capital, Mr. Cunningham led cybersecurity investment strategy at Intel Capital, most recently as
Director of Venture Investments for over 15 years. Mr. Cunningham’s prior roles at Intel since 1994 also included the role of Marketing Director. Prior to Intel, Mr. Cunningham held various leadership positions at Sequent Computers and at ISC
Systems. Mr. Cunningham also serves on the board of directors of a number of other private companies, including DeepSee.ai, Cloudentity, Anitian, and ReversingLabs. Mr. Cunningham has also served on the Gonzaga University School of Business
Entrepreneurship Advisory Board. Mr. Cunningham holds a B.B.A. in finance and an M.B.A. from Gonzaga University. We believe Mr. Cunningham is qualified to serve on the New ZeroFox Board due to, among other things, his experience as a venture
capital investor in cybersecurity technology and guiding successful companies.
Adam Gerchen is
the current Chief Executive Officer of L&F and serves on its board of directors and has served in both roles since 2020. Mr. Gerchen has also served as co-founder and Chief Executive Officer of Keller Lenkner, a law firm that has developed
unique arbitration strategies and other innovations in mass actions since 2018. Additionally, in order to serve the large number of firm clients, and address the complexity of various areas of law, Mr. Gerchen also built a separate servicing
business at Keller Lenkner in 2018 that combines client origination, intake, customer relationship management, IT, and settlement administration. From 2016 to 2017, Mr. Gerchen served as President of Burford Capital Limited (LSE: BUR)
(“Burford”), the leading global finance firm focused on law. Previously, Mr. Gerchen co-founded and served as Chief Executive Officer of Gerchen Keller Capital (“GKC”) from 2013 until GKC’s sale in 2016 to Buford. Prior to its acquisition, GKC
grew into the largest private investment and advisory firm focused exclusively on legal and regulatory risk, raising $1.4 billion of institutional capital. Across both organizations, products developed for and deployed into the legal sector
included single-case litigation finance, portfolio funding, risk management & insurance, claim monetization, post-settlement, bankruptcy & insolvency, international arbitration, and patent and intellectual property. Mr. Gerchen holds a
B.A. in economics from Brown University and a J.D. from Harvard Law School. We believe Mr. Gerchen is qualified to serve on the New ZeroFox Board due to, among other things, his chief executive experience running L&F and two other
successful investment firms.
Executive Officers
For information about James C. Foster, please see “Directors” above.
Kevin T. Reardon
joined ZeroFox in 2020 as Chief Operating Officer. From 2016 to 2019, Mr. Reardon led Consulting, Strategy and Field Engineering for Symantec Corporation and helped transition the company on its sale to Broadcom, Inc. From 2015 to 2016,
Mr. Reardon was Chief Information Security Officer for Blue Coat Systems, which was acquired by Symantec. From 2006 to 2015, Mr. Reardon was at McAfee Security and Intel Security in various senior leadership roles for Operations, Consulting,
Strategy and the Office of the Chief Technology Officer. Mr. Reardon holds a B.S. in computer information systems from the University of Scranton.
Timothy S. Bender
joined ZeroFox in 2016 as Chief Financial Officer. From 2012 to 2016, Mr. Bender served as Chief Financial Officer of Motionsoft, Inc., a provider of business and management solutions for member-based organizations in the fitness industry. From
2001 to 2012, Mr. Bender served as Vice President, Accounting and Corporate Controller of Vocus, Inc. (listed on Nasdaq until 2014: VOCS). Mr. Bender holds a B.S.B.A. in accounting from Geneva College and is a CPA (currently inactive).
Michael Price
joined ZeroFox in 2015 as its Chief Technology Officer, where he is responsible for leading and setting the vision for its technology. He oversees all aspects of engineering, research and development. Prior to ZeroFox, Mr. Price founded the
mobile vulnerability intelligence company, Vulnr, serving as its Chief Executive Officer. From 2011 to 2013, Mr. Price served as the Vice President of Engineering of Appthority, and from 2001 to 2010 Mr. Price worked at McAfee, where he focused
initially on enterprise vulnerability management and later served as the regional lead for McAfee Labs in Latin America. Mr. Price holds a B.S. in Security and Risk Analysis from The Pennsylvania State University. He is presently a graduate
student at The Citadel, where he studies Intelligence and Security and also currently serves on a volunteer basis in support of State of Maryland and United States Armed Forces cybersecurity efforts.
328
John R. Prestridge, III joined ZeroFox in 2020 as its Chief Marketing Officer. He is a senior enterprise marketing, product, and sales executive with decades of experience delivering results for B2B software companies. From 2017 to 2020, Mr. Prestridge was
Senior Vice President of North America and Global Chief Marketing Officer for EasyVista, Inc., a global information technology service management (ITSM) software company, and from 2009 to 2017, he was Vice President of Marketing and Product
Strategy for SunView Software, Inc. Mr. Prestridge also held senior leadership roles in solutions and product marketing at Citrix Systems over his eight year tenure there.
Scott O’Rourke
became the global leader of ZeroFox sales and Chief Revenue Officer in 2017. Prior to taking this role, Mr. O’Rourke was responsible for establishing the ZeroFox Commercial Sales team in 2015 and leading all US-based sales efforts since 2016.
Before joining ZeroFox, Mr. O’Rourke held numerous sales leadership roles, including serving as the Vice President of Enterprise Sales at Trustwave and sales positions at Interactions Corporation, Verizon and AT&T. Mr. O’Rourke received a
B.S. in civil engineering from Virginia Tech and an M.B.A. in finance from Johns Hopkins University.
Thomas P. FitzGerald joined ZeroFox in 2021 as its General Counsel and Corporate Secretary. From 2013 to 2020, Mr. FitzGerald worked as an attorney at Cisco Systems, Inc. supporting the networking and security businesses, most recently of which he served
as Senior Director, Legal where he managed the team of attorneys primarily responsible for Cisco’s Security Business Group. Mr. FitzGerald was the Vice President and Deputy General Counsel of Sourcefire, Inc. (listed on NASDAQ until 2013: FIRE)
from 2009 until its acquisition by Cisco in 2013. From 1998 to 2009, Mr. FitzGerald worked in private practice at various national law firms in which his practice focused on emerging growth technology companies. Mr. FitzGerald received a B.A.
in economics from Trinity College and a J.D. from American University.
Corporate Governance Guidelines and Code of Business Conduct and Ethics
The New ZeroFox Board will adopt Corporate Governance Guidelines that
address items such as the qualifications and responsibilities of its directors and director candidates and corporate governance policies and applicable standards. In addition, the New ZeroFox Board will adopt a Code of Business Conduct and Ethics
that applies to all of its employees, officers and directors, including its Chief Executive Officer, Chief Financial Officer and other executive and senior financial officers. The full text of the New ZeroFox Board’s Corporate Governance
Guidelines and its Code of Business Conduct and Ethics will be posted on the Corporate Governance portion of New ZeroFox’s website, www. .com. New ZeroFox intends to make any legally required disclosures regarding amendments to, or waivers of,
provisions of its code of ethics on its website rather than by filing a Current Report on Form 8-K.
Board Composition
When considering whether directors and director nominees have the
experience, qualifications, attributes and skills, taken as a whole, to enable the New ZeroFox Board to satisfy its oversight responsibilities effectively in light of its business and structure, the New ZeroFox Board expects to focus primarily on
each person’s background and experience as reflected in the information discussed in each of the directors’ individual biographies set forth above in order to provide an appropriate mix of experience and skills relevant to the size and nature of
its business.
Director Independence
Upon the Closing, the New ZeroFox Board is expected to determine that
each of the directors on the New ZeroFox Board other than James C. Foster and Thomas F. Kelly will qualify as independent directors, as defined under the rules of the Nasdaq Stock Market, and the New ZeroFox Board will consist of a majority of
“independent directors,” as defined under the rules of the SEC and the Nasdaq Stock Market relating to director independence requirements. In addition, New ZeroFox will be subject to the rules of the SEC and the Nasdaq Stock Market relating to
the membership, qualifications, and operations of the audit committee, as discussed below.
Role of Board in Risk Oversight
The New ZeroFox Board will have extensive involvement in the oversight
of risk management related to New ZeroFox and its business and will accomplish this oversight through the regular reporting to the New ZeroFox Board by the audit committee. The audit committee will represent the New ZeroFox Board by
329
periodically reviewing New ZeroFox’s accounting, reporting and financial practices,
including the integrity of its financial statements, the surveillance of administrative and financial controls and its compliance with legal and regulatory requirements. Through its regular meetings with management, including the finance, legal,
internal audit and information technology functions, the audit committee will review and discuss all significant areas of New ZeroFox’s business and summarize for the New ZeroFox Board all areas of risk and the appropriate mitigating factors. In
addition, the compensation committee and the nominating and corporate governance committee will review and report to the New ZeroFox Board with regard to areas of risk management that such Board committees oversee.
Committees of the Board
The New ZeroFox Board will direct the
management of New ZeroFox’s business and affairs, as provided by Delaware law, and will conduct its business through meetings of the New ZeroFox Board and its standing committees. New ZeroFox will have a standing audit committee, compensation
committee and nominating and corporate governance committee, each of which will operate under a written charter.
In addition, from time to time, special
committees may be established under the direction of the New ZeroFox Board when the Board deems it necessary or advisable to address specific issues. Following the Business Combination, current copies of New ZeroFox’s committee charters will be
posted on its website, www. .com, as required by applicable SEC and Nasdaq Stock Market rules. The information on or available through any of such website is not deemed incorporated in this proxy statement/prospectus and does not form part
of this proxy statement/prospectus.
Audit Committee
Upon the Closing, New ZeroFox’s audit committee
will consist of Todd P. Headley, and . The New ZeroFox Board will determine that each of these individuals will satisfy the independence requirements of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, Rule 10A-3
under the Exchange Act and the applicable listing standards of the Nasdaq Stock Market. Each member of New ZeroFox’s audit committee will satisfy the requirements for financial literacy under the applicable Nasdaq Stock Market rules. In
arriving at this determination, the New ZeroFox Board will examine each audit committee member’s scope of experience and the nature of their prior and/or current employment.
The New ZeroFox Board will determine that
Mr. Headley qualifies as an audit committee financial expert within the meaning of SEC regulations and meets the financial sophistication requirements of the Nasdaq Stock Market rules. In making this determination, the New ZeroFox Board will
consider Mr. Headley’s formal education and previous and current experience in financial and accounting roles. Both New ZeroFox’s independent registered public accounting firm and management periodically will meet privately with the New
ZeroFox’s audit committee.
The audit committee’s responsibilities will include, among other
things:
|
•
|
appointing, compensating, retaining, evaluating, terminating and overseeing New ZeroFox’s independent registered public accounting
firm;
|
|
•
|
discussing with New ZeroFox’s independent registered public accounting firm their independence from management;
|
|
•
|
reviewing with New ZeroFox’s independent registered public accounting firm the scope and results of their audit;
|
|
•
|
pre-approving all audit and permissible non-audit services to be performed by New ZeroFox’s independent registered public
accounting firm;
|
|
•
|
overseeing the financial reporting process and discussing with management and New ZeroFox’s independent registered public
accounting firm the interim and annual financial statements that New ZeroFox files with the SEC;
|
|
•
|
reviewing and monitoring New ZeroFox’s accounting principles, accounting policies, financial and accounting controls and
compliance with legal and regulatory requirements; and
|
|
•
|
establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls
or auditing matters.
|
330
Compensation Committee
Upon the Closing, New ZeroFox’s compensation committee will consist of
Corey M. Mulloy, and . The New ZeroFox Board will determine that each of Mr. Mulloy, and are non-employee directors, as defined in Rule 16b-3 promulgated under the Exchange Act. The New ZeroFox Board will determine that Mr. Mulloy,
and are “independent” as defined under the applicable Nasdaq listing standards, including the standards specific to members of a compensation committee. The compensation committee’s responsibilities will include, among other things:
|
•
|
reviewing and approving corporate goals and objectives relevant to the compensation of New ZeroFox’s Chief Executive Officer,
evaluating the performance of New ZeroFox’s Chief Executive Officer in light of these goals and objectives and setting or making recommendations to the New ZeroFox Board regarding the compensation of New ZeroFox’s Chief Executive Officer;
|
|
•
|
reviewing and setting or making recommendations to New ZeroFox's Board regarding the compensation of the other executive officers;
|
|
•
|
making recommendations to New ZeroFox's Board regarding the compensation of New ZeroFox's directors;
|
|
•
|
reviewing and approving or making recommendations to New ZeroFox's Board regarding New ZeroFox's incentive compensation and
equity-based plans and arrangements; and
|
|
•
|
appointing and overseeing any compensation consultants.
|
Nominating and Corporate Governance Committee
Upon the Closing, New ZeroFox's nominating and corporate governance
committee will consist of Peter Barris and . New ZeroFox’s Board will determine that each of Peter Barris and is “independent” as defined under the applicable listing standards of Nasdaq and SEC rules and regulations.
The nominating and corporate governance committee’s responsibilities
include, among other things:
|
•
|
identifying individuals qualified to become members of New ZeroFox's Board, consistent with criteria approved by New ZeroFox's
Board;
|
|
•
|
recommending to New ZeroFox's Board the nominees for election to New ZeroFox's Board at annual meetings of New ZeroFox's
shareholders;
|
|
•
|
overseeing an evaluation of New ZeroFox's Board and its committees; and
|
|
•
|
developing and recommending to New ZeroFox's Board a set of corporate governance guidelines. We believe that the composition and
functioning of New ZeroFox's nominating and corporate governance committee meets the requirements for independence under the current Nasdaq Stock Market listing standards.
|
New ZeroFox’s Board may from time to time establish other committees.
Compensation Committee Interlocks and Insider Participation
None of the expected New ZeroFox executive officers currently serves,
or has served during the last year, as a member of the board of directors or compensation committee of any entity, that has one or more executive officers who are expected to serve as a member of the New ZeroFox Board.
Related Person Transaction Policy of New ZeroFox
Upon the Closing, it is anticipated that the New ZeroFox Board will
adopt a written Related Person Transactions Policy that will set forth New ZeroFox’s policies and procedures regarding the identification, review, consideration and oversight of “related person transactions.” New ZeroFox’s audit committee will
approve only those transactions that it determines are fair to us and in New ZeroFox’s best interests.
331
A “Related Person Transaction” is a transaction, arrangement or
relationship in which New ZeroFox or any of its subsidiaries was, is or will be a participant, the amount of which involved exceeds $120,000, and in which any related person had, has or will have a direct or indirect material interest. A “Related
Person” means:
|
•
|
any person who is, or at any time during the applicable period was, one of New ZeroFox's executive officers or a member of New
ZeroFox's Board;
|
|
•
|
any person who is known by New ZeroFox to be the beneficial owner of more than 5% of our voting stock;
|
|
•
|
any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse,
sibling, mother-in-law, father-in-law, daughter-in-law, brother-in-law or sister-in-law of a director, officer or a beneficial owner of more than 5% of our voting stock, and any person (other than a tenant or employee) sharing the
household of such director, executive officer or beneficial owner of more than 5% of our voting stock; and
|
|
•
|
any firm, corporation or other entity in which any of the foregoing persons is a partner or principal or in a similar position or
in which such person has a 10% or greater beneficial ownership interest.
|
It is also anticipated that New ZeroFox will have policies and
procedures designed to minimize potential conflicts of interest arising from any dealings it may have with its affiliates and to provide appropriate procedures for the disclosure of any real or potential conflicts of interest that may exist from
time to time. Specifically, pursuant to its audit committee charter, the audit committee will have the responsibility to review related person transactions.
Limitation on Liability and Indemnification Matters
The DGCL authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their shareholders for monetary damages for breaches of directors’ fiduciary duties, subject to certain exceptions. New ZeroFox’s Proposed Certificate of Incorporation includes a provision that
eliminates the personal liability of directors for monetary damages for any breach of fiduciary duty as a director to the fullest extent permitted by the DGCL as the same exists or as may hereafter be amended from time to time. The effect of
these provisions is to eliminate the rights of New ZeroFox and its shareholders, through shareholders’ derivative suits on New ZeroFox's behalf, to recover monetary damages from a director for breach of fiduciary duty as a director, including
breaches resulting from grossly negligent behavior. However, exculpation does not apply to any director if the director has acted in bad faith, knowingly or intentionally violated the law, authorized illegal dividends or redemptions or derived an
improper benefit from his or her actions as a director.
New ZeroFox’s Proposed Certificate of Incorporation will permit and the
Proposed Bylaws will obligate New ZeroFox to indemnify, to the fullest extent permitted by the DGCL, any director or officer of New ZeroFox who was or is a party or is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”) by reason of the fact that he or she is or was a director or officer of New ZeroFox or is or was serving at the request of New ZeroFox as a director,
officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with any such Proceeding. New ZeroFox will not be obligated to indemnify a person in connection with a Proceeding (or part thereof) initiated by such person unless the Proceeding (or part thereof) was, or is, authorized by
the New ZeroFox Board, and New ZeroFox Board determines to provide the indemnification, or is otherwise required by applicable law. In addition, the Proposed Bylaws require New ZeroFox, to the fullest extent permitted by law, to pay, in advance
of the final disposition of a Proceeding, expenses (including attorneys’ fees) actually and reasonably incurred by an officer or director of New ZeroFox in defending any Proceeding, upon receipt of a written request therefor (together with
documentation reasonably evidencing such expenses) and an undertaking by or on behalf of the person to repay such amounts if it shall ultimately be determined that the person is not entitled to be indemnified under the Proposed Bylaws or the
DGCL.
New ZeroFox expects to enter into an indemnification agreement with
each of its directors and executive officers that provides for indemnification to the maximum extent permitted by Delaware law.
New ZeroFox believes that these indemnification and advancement
provisions and insurance are useful to attract and retain qualified directors and executive officers. The limitation of liability and indemnification provisions in New ZeroFox's Proposed Certificate of Incorporation and Proposed Bylaws may
discourage shareholders from
332
bringing a lawsuit against directors for breach of their fiduciary duty. These
provisions also may have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit New ZeroFox and its shareholders. In addition, your
investment may be adversely affected to the extent New ZeroFox pays the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors or executive officers, we have been informed that in the opinion of the SEC such indemnification is against public policy and is therefore unenforceable.
333
L&F
Prior to the consummation of the Business Combination, none of the
executive officers or directors of L&F received any cash compensation for services rendered. The Sponsor, executive officers, directors and their respective affiliates are reimbursed for any out-of-pocket expenses related to identifying,
investigating, negotiating and completing an initial business combination. The audit committee reviews on a quarterly basis all payments that were made to the Sponsor, executive officers, directors and our or their respective affiliates. We note
that certain named executive officers have economic interests in our Sponsor. For more information about the interests of our Sponsor in the Business Combination, please see the section entitled “Proposal No. 2 -
The Business Combination Proposal — Interests of Certain Persons in the Business Combination.”
ZeroFox
Throughout this section, unless otherwise noted,
“ZeroFox,” “we,” “us,” “our” and similar terms refer to ZeroFox, Inc. and its subsidiaries.
To achieve ZeroFox’s goals, ZeroFox has designed, and intends to modify
as necessary, its compensation and benefits program to attract, retain, incentivize and reward deeply talented and qualified executives who share its philosophy and desire to work towards achieving these goals.
ZeroFox believes its compensation program should promote the success of
the company and align executive incentives with the long-term interests of its shareholders. ZeroFox’s current compensation programs reflect its startup origins in that they consist primarily of salary and stock option awards. As ZeroFox’s needs
evolve, ZeroFox intends to continue to evaluate its philosophy and compensation programs as circumstances require.
This section provides an overview of ZeroFox’s executive compensation
programs, including a narrative description of the material factors necessary to understand the information disclosed in the summary compensation table below.
The ZeroFox Board, with input from its Chief Executive Officer, has
historically determined the compensation for ZeroFox’s named executive officers. For the year ended January 31, 2022, ZeroFox’s named executive officers were:
|
•
|
James C. Foster, Chief Executive Officer
|
|
•
|
Kevin Reardon, Chief Operating Officer
|
|
•
|
Scott O’Rourke, Chief Revenue Officer
|
Summary Compensation Table
The following table sets forth information concerning the compensation
of the named executive officers for the year ended January 31, 2022.
|
Name and Principal Position
|
| |
Year
|
| |
Salary
($)
|
| |
Option
Awards
($)(1)
|
| |
Non-equity Incentive
Compensation
($)
|
| |
All Other
Compensation
($)(2)
|
| |
Total
($)
|
|
James C. Foster, Chief Executive Officer
|
| |
2022
|
| |
287,770
|
| |
—
|
| |
$175,000
|
| |
12,000
|
| |
$465,770
|
|
Kevin Reardon, Chief Operating Officer
|
| |
2022
|
| |
285,000
|
| |
1,262,472
|
| |
$175,000
|
| |
—
|
| |
$1,722,472
|
|
Scott O’Rourke, Chief Revenue Officer
|
| |
2022
|
| |
268,852
|
| |
160,702
|
| |
$281,232
|
| |
14,269
|
| |
$724,645
|
|
(1)
|
The amounts in this column represent the aggregate grant-date fair value of awards granted to each named executive officer,
computed in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. See Note 11 to ZeroFox’s audited financial statements included elsewhere in this proxy
statement/prospectus/information statement for a discussion of the assumptions made by ZeroFox in determining the grant-date fair value of ZeroFox’s equity awards.
|
|
(2)
|
The amounts in this column represents a monthly expense allowance for Mr. Foster, and a field marketing allowance for
Mr. O’Rourke.
|
Narrative Disclosure to Summary Compensation Table
For the year ended January 31, 2022, the compensation program for
ZeroFox’s named executive officers consisted of base salary, incentive compensation delivered in the form of bonuses and commissions, stock option awards, and perquisites.
334
Base Salary
Base salary is set at a level that is commensurate with the named
executive officer’s duties and authorities, contributions, prior experience and sustained performance.
Bonus Plan
Bonuses are earned based upon the achievement of annual bookings, with
payouts equal to 1% of target for each 1% achievement of the annual bookings target up to 100% of the target bonus. Incremental payouts above the target bonus based on the achievement of bookings above the annual bookings target are at the
discretion of the compensation committee in the case of Mr. Foster, and at the discretion of the chief executive officer for other participants.
Messrs. Foster and Reardon are eligible to earn annual bonuses under
our Annual Incentive Plan. For the year ended January 31, 2022, each of Messrs. Foster and Reardon had bonus targets equal to $175,000, and bonuses were paid out at 100% of target.
Commission Plan
Commissions are earned based on annual bookings, with a fixed
percentage for annual bookings up to the annual bookings target and an incremental percentage for annual bookings above the annual bookings target.
Mr. O’Rourke is eligible for periodic commissions under our Sales
Management Incentive Plan. For 2022, Mr. O’Rourke had an annual commission target expressed as a rate per bookings amounts, which equated to a total annual commission target of $275,000, and annual commissions were paid out at 100% of target.
Stock Option Awards
Stock options have been granted to ZeroFox’s named executive officers
under the ZeroFox 2013 Equity Incentive Plan (the “2013 Equity Incentive Plan”).
2013 Equity Incentive Plan
ZeroFox maintains the 2013 Equity Incentive Plan, which allows ZeroFox
to provide incentive stock options, within the meaning of Section 422 of the Code, nonstatutory stock options, stock appreciation rights, restricted or unrestricted stock awards, phantom stock, restricted stock units, performance awards, other
stock-based awards, or any combination of the foregoing (each, an “award” and the recipient of such award, a “participant”) to eligible employees, officers and directors of, and other individuals providing bona fide services to or for ZeroFox or
any affiliate of ZeroFox. It is expected that the 2013 Equity Incentive Plan will be frozen as of the Closing, and ZeroFox will not grant any additional awards under the 2013 Equity Incentive Plan thereafter. However, the 2013 Equity Incentive
Plan will continue to govern the terms and conditions of the outstanding awards previously granted under the 2013 Equity Incentive Plan.
As of January 31, 2022, stock options covering 23,065,696 shares of
ZeroFox common stock were outstanding under the 2013 Equity Incentive Plan.
Plan Administration. The 2013 Equity Incentive Plan is administered by the compensation committee of the ZeroFox Board. The administrator has all authority and discretion necessary or appropriate to administer the 2013 Equity Incentive Plan and to
control its operation, including the authority to construe and interpret the terms of the 2013 Equity Incentive Plan and the awards granted under the 2013 Equity Incentive Plan. The administrator’s determinations, interpretations and
constructions are final, binding and conclusive on all persons.
Awards Available for Grant and Eligibility. The 2013 Equity Incentive Plan provides for the grant of stock options, stock appreciation rights, restricted stock, phantom stock, performance awards and other stock-based awards. Employees, officer and directors
of, and other individuals providing bona fide services to or for, ZeroFox or an affiliate of ZeroFox are eligible to receive awards. Only employees of ZeroFox or its parent or subsidiary companies are eligible to receive incentive stock
options.
Stock Options.
Subject to the provisions of the 2013 Equity Incentive Plan, the administrator determines the term of a stock option, the number of shares subject to a stock option, and the time period in which a stock option may be exercised.
335
The term of a stock option is stated in the applicable award
agreement, but the term of an incentive stock option may not exceed 10 years from the grant date. The administrator determines the exercise price of the stock options, which generally may not be less than 100% of the fair market value of our
common stock on the grant date for incentive stock options. However, an incentive stock option granted to an individual who directly or by attribution owns more than 10% of the total combined voting power of all of our classes of stock or of any
our parent or subsidiary may have a term of no longer than five (5) years from the grant date and will have an exercise price of at least 110% of the fair market value of our common stock on the grant date.
The administrator determines how a participant may pay the exercise
price of a stock option, and the permissible methods are generally set forth in the applicable award agreement. Award agreements also set forth post-separation exercise periods for vested stock options, which are generally as follows, but in no
event later than the stock option expiration date: (i) immediate expiration upon termination for cause; (ii) 90 days upon involuntary termination without cause or resignation (other than due to disability or death); (iii) 12 months upon
separation due to death or disability; or (iv) 12 months following death occurring during a post-separation exercise period described in (ii) or (iii). Upon exercise of stock options, participants generally are required to execute a stock
restriction agreement, providing transfer restrictions, rights of ZeroFox to repurchase the stock upon termination of the service relationship, drag-along rights and other similar provisions.
Non-Transferability of Awards. Unless determined otherwise by the administrator, and in any event in the case of an incentive stock option or a stock appreciation right granted with respect to an incentive stock option, awards generally are not
transferable except by will or by the laws of descent and distribution, and are exercisable during the lifetime of the participant only by the participant.
Stock Dividend, Stock Split and Reverse Stock
Split. In the event of a stock dividend, stock split or reverse stock split affecting ZeroFox common stock, the maximum number of shares available for issuance under the 2013 Equity Incentive Plan, the number of
shares covered by and the exercise price and other terms of outstanding awards shall, without further action of the ZeroFox board of directors, be adjusted to reflect such event.
Change in Control Transactions. Unless otherwise provided in an award agreement or any other written agreement between ZeroFox or any of its affiliates and the participant or unless otherwise expressly provided by the ZeroFox Board at the time of
grant of an award, in the event of a “change in control” (as defined in the 2013 Equity Incentive Plan), the ZeroFox Board may take one or more of the following actions with respect to awards: (i) arrange for the surviving corporation or
acquiring corporation (or the surviving or acquiring corporation’s parent company) to assume or continue the award or to substitute a similar award for the award; (ii) arrange for the assignment of any reacquisition or repurchase rights held by
ZeroFox in respect of common stock issued pursuant to the award to the surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company); (iii) accelerate the vesting, in whole or in part, of the award
(and, if applicable, the time at which the award may be exercised) to a date prior to the effective time of such change in control as the ZeroFox Board shall determine (or, if the ZeroFox Board shall not determine such a date, to the date that
is five (5) days prior to the effective date of the change in control), with such award terminating if not exercised (if applicable) at or prior to the effective time of the change in control; (iv) arrange for the lapse of any reacquisition or
repurchase rights held by ZeroFox with respect to the award; (v) cancel or arrange for the cancellation of the award, to the extent not vested or not exercised prior to the effective time of the change in control, in exchange for such cash
consideration, if any, as the ZeroFox Board, in its sole discretion, may consider appropriate; and (vi) make a payment, in such form as may be determined by the ZeroFox Board equal to the excess, if any, of (A) the value of the property the
holder of the award would have received upon the exercise of the award, over (B) any exercise price payable by such holder in connection with such exercise. The ZeroFox Board need not take the same action with respect to all awards or with
respect to all participants.
Amendment; Termination. The ZeroFox Board may terminate, amend or modify the 2013 Equity Incentive Plan or any portion thereof at any time. Except as otherwise determined by the Board, termination of the 2013 Equity Incentive Plan shall not affect the
administrator’s ability to exercise the powers granted to it with respect to awards granted under the 2013 Equity Incentive Plan before its termination. As noted above, it is expected that as of the Closing, the 2013 Equity Incentive Plan will
be frozen and ZeroFox will not grant any additional awards under the 2013 Equity Incentive Plan thereafter.
336
ZeroFox 2022 Incentive Equity Plan
For more information about the 2022 Incentive Equity Plan, see the
section entitled “Proposal No. 7 — The Incentive Equity Plan Proposal.”
ZeroFox 2022 Employee Stock Purchase Plan
For more information about the 2022 Employee Stock Purchase Plan, see
the section entitled “Proposal No. 8 — The Employee Stock Purchase Plan Proposal.”
Outstanding Equity Awards at 2022 Fiscal Year End
The following table presents information regarding outstanding equity
awards held by ZeroFox’s named executive officers as of January 31, 2022.
|
|
| |
Option Awards(1)
|
||||||||||||
|
Name
|
| |
Grant Date
|
| |
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
|
| |
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
|
| |
Option
Exercise
Price
($)
|
| |
Option
Expiration
Date
|
|
James C. Foster
|
| |
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Kevin Reardon
|
| |
02/24/20(2)
|
| |
2,050,000
|
| |
2,050,000
|
| |
0.35
|
| |
01/30/30
|
|
|
| |
11/24/21(3)
|
| |
—
|
| |
1,250,000
|
| |
1.90
|
| |
11/01/31
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Scott O’Rourke
|
| |
10/28/15(4)
|
| |
175,000
|
| |
—
|
| |
0.14
|
| |
10/28/25
|
|
|
| |
01/27/16(5)
|
| |
150,000
|
| |
—
|
| |
0.17
|
| |
01/27/26
|
|
|
| |
02/14/17(6)
|
| |
863,000
|
| |
—
|
| |
0.20
|
| |
02/14/27
|
|
|
| |
03/05/19(7)
|
| |
343,750
|
| |
156,250
|
| |
0.28
|
| |
03/05/29
|
|
|
| |
03/05/19(8)
|
| |
148,750
|
| |
191,250
|
| |
0.28
|
| |
03/05/29
|
|
|
| |
11/20/19(9)
|
| |
20,000
|
| |
—
|
| |
0.31
|
| |
11/20/29
|
|
|
| |
05/14/20(10)
|
| |
8,750
|
| |
11,250
|
| |
0.35
|
| |
05/14/30
|
|
|
| |
05/14/20(11)
|
| |
5,000
|
| |
—
|
| |
0.35
|
| |
05/14/30
|
|
|
| |
05/20/21(12)
|
| |
—
|
| |
300,000
|
| |
0.64
|
| |
03/01/31
|
|
(1)
|
All stock options were granted pursuant to the 2013 Equity Incentive Plan.
|
|
(2)
|
25% of the stock options vested on January 30, 2021, and the remainder will vest in equal quarterly installments over 36 months
thereafter, subject to continued service through the applicable vesting date.
|
|
(3)
|
25% of the stock options will vest on November 1, 2022, and the remainder will vest in equal quarterly installments over 36 months
thereafter, subject to continued services throughout the applicable vesting date.
|
|
(4)
|
25% of the stock options vested on October 17, 2016, and the remainder vested in equal monthly installments over 36 months
thereafter, subject to continued service through the applicable vesting date.
|
|
(5)
|
25% of the stock options vested on January 27, 2017, and the remainder vested in equal monthly installments over 36 months
thereafter, subject to continued service through the applicable vesting date.
|
|
(6)
|
25% of the stock options vested on February 1, 2018, and the remainder vested in equal quarterly installments over 36 months
thereafter, subject to continued service through the applicable vesting date.
|
|
(7)
|
25% of the stock options vested on March 1, 2020, and the remainder will vest in equal quarterly installments over 36 months
thereafter, subject to continued service through the applicable vesting date.
|
|
(8)
|
25% of the stock options vested on January 31, 2021, and the remainder will vest in equal quarterly installments over 36 months
thereafter, subject to continued service through the applicable vesting date.
|
|
(9)
|
100% of the stock options vested on November 20, 2019.
|
|
(10)
|
25% of the stock options vested on February 1, 2021, and the remainder will vest in equal quarterly installments over 36 months
thereafter, subject to continued service through the applicable vesting date.
|
337
|
(11)
|
100% of the stock options vested on May 14, 2020.
|
|
(12)
|
25% of the stock options will vest on March 1, 2022, and the remainder will vest in equal quarterly installments over 36 months
thereafter, subject to continued service through the applicable vesting date.
|
Benefits and Perquisites
ZeroFox provides benefits to its named executive officers on the same
basis as provided to all of its employees, including medical, dental and vision insurance; health reimbursement arrangement, life insurance; accidental death and dismemberment insurance; short-and long-term disability insurance; health and
dependent care flexible spending accounts; employee assistance program; various voluntary employee-funded coverages; and a tax-qualified Section 401(k) plan to which ZeroFox may provide discretionary employer contributions. ZeroFox does not
maintain any executive-specific benefit or perquisite programs.
In addition, Mr. Foster receives a monthly expense allowance of $1,000,
and Mr. O’Rourke received a discretionary field marketing allowance of $16,877 during the year ended January 31, 2021.
Executive Officer Employment Agreements
James C. Foster
The Company has not entered into an employment agreement or offer
letter with Mr. Foster.
Kevin Reardon
Employment Letter Agreement
ZeroFox entered into an employment letter agreement with Kevin Reardon,
our Chief Operating Officer, dated December 19, 2019, which provides for an initial annual base salary of $300,000, an initial annual cash incentive bonus target of $170,000, of which $85,000 was paid at signing, an initial grant of 4,100,000
options to purchase ZeroFox common stock, a change in control bonus in the amount of $300,000 if the ZeroFox Board approves a definitive change in control transaction agreement within the 24-month period from the effective date of the employment
letter agreement, and was eligible to receive an additional grant of 1,250,000 options to purchase ZeroFox common stock upon the achievement of $50.0 million ARR by ZeroFox, which options were granted on November 24, 2021. Mr. Reardon’s current
base salary is $285,000, and he is eligible to earn an annual cash incentive bonus under our Annual Incentive Plan with a target opportunity of $175,000.
Mr. Reardon’s employment letter does not provide for a specific term
and Mr. Reardon is an at-will employee. ZeroFox or Mr. Reardon may terminate his employment at any time for any or no reason, with no severance due.
Scott O’Rourke
Employment Letter Agreement
ZeroFox entered into an employment letter agreement with Scott
O’Rourke, our Vice President of Commercial Sales, dated September 30, 2015, which provided for an initial annual base salary of $175,000, an initial annual cash incentive target of $175,000, and an initial grant of 175,000 options to purchase
ZeroFox common stock. Mr. O’Rourke was promoted to Chief Revenue Officer on May 14, 2019. Mr. O’Rourke’s current base salary is $275,000, and he is eligible to earn periodic commissions under our Sales Management Incentive Plan with an annual
target opportunity of $275,000.
Mr. O’Rourke’s employment letter does not provide for a specific term
and Mr. O’Rourke is an at-will employee. ZeroFox or Mr. O’Rourke may terminate his employment at any time for any or no reason, with no severance due.
Change in Control Retention Agreements
ZeroFox entered into a change in control retention agreement (a “Change in Control Retention Agreement”) with each of Messrs. Reardon and O’Rourke, dated April 24, 2020, which provides for accelerated vesting of the “Specified Amount” (as defined below) of stock options
granted to Mr. Reardon on February 24, 2020 and Mr. O’Rourke on October 28, 2015, January 27, 2016 and February 14, 2017 (each, a “Grant”), if
338
either (i) the named executive officer’s employment is involuntarily terminated without
“cause” or he resigns for “good reason,” in each case, within 12 months following consummation of a change in control; or (ii) the named executive officer’s employment is involuntarily terminated without “cause” between the date on which a change
in control transaction is approved by ZeroFox’s Board and the date on which the transaction is consummated; provided that he executes a release agreement. For this purpose, the “Specified Amount” means, with respect to each Grant, the lesser of
(i) 50% of the original number of options granted under such Grant and (ii) all remaining nonvested options granted under such Grant. Under the Change in Control Retention Agreement, ZeroFox agrees not to exercise its right under the 2013 Equity
Incentive Plan, in connection with a change in control transaction, to cancel the options in exchange for payment of an amount determined in the sole discretion of Zero Fox’s Board.
Each of Messrs. Reardon and O’Rourke has waived his rights under his
Change in Control Retention Agreement with respect to the transactions contemplated by the Business Combination Agreement.
Post-Business Combination Executive Compensation
Following the Closing, New ZeroFox intends to develop an executive
compensation program that is designed to align compensation with New ZeroFox’s business objectives and the creation of shareholder value, while enabling New ZeroFox to attract, retain, incentivize and reward individuals who contribute to the
long-term success of New ZeroFox. Decisions on the executive compensation program will be made by the New ZeroFox compensation committee.
Director Compensation
ZeroFox currently has no formal agreement under which its directors
receive compensation for their service on the ZeroFox Board or its committees. ZeroFox’s policy is to reimburse non-employee directors for reasonable and necessary out-of-pocket expenses incurred in connection with attending board and committee
meetings or performing other services in their capacities as non-employee directors and to occasionally grant stock options and restricted stock awards to ZeroFox’s non-employee directors.
For the year ended January 31, 2022, Samskriti King was the only
non-employee director to receive cash compensation or equity grants. Ms. King receives an annual retainer of $40,000 paid in quarterly installments. She was granted two restricted stock awards for an aggregate of 176,317 shares of ZeroFox common
stock on November 24, 2021, of which 158,773 shares were unvested as of January 31, 2022. The table below summarizes the compensation of each person serving as a ZeroFox non-employee director for the year ended January 31, 2022 who is expected to
serve as a director of New ZeroFox. James C. Foster did not receive any additional compensation for his service as a director in 2022. The compensation of Mr. Foster as a named executive officer is set forth above under “ZeroFox’s Executive
Compensation—Summary Compensation Table.” Following the Closing, the New ZeroFox compensation committee expects to implement an appropriate compensation program for the non-employee directors of New ZeroFox.
|
Name
|
| |
Fees
earned
or paid
in cash
($)
|
| |
Stock
awards
($)
|
| |
All Other
Compensation
($)
|
| |
Total
($)
|
|
Peter Barris
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
Todd Headley
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
Samskriti King
|
| |
$20,000
|
| |
$389,661(1)
|
| |
—
|
| |
$409,661
|
|
Corey Mulloy
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
(1)
|
Represents the aggregate grant-date fair value of restricted stock awards, computed in accordance with the FASB ASC Topic 718. See
Note 11 to ZeroFox’s audited financial statements included elsewhere in this proxy statement/prospectus/information statement for a discussion of the assumptions made by ZeroFox in determining the grant-date fair value of ZeroFox’s equity
awards.
|
339
L&F Related Party Transactions
Class B Ordinary Shares
In August 2020, the Sponsor paid $25,000 to cover certain offering and
formation costs of L&F in exchange for 5,750,000 Founder Shares. In November 2020, the Sponsor effected a surrender of 1,437,500 Founder Shares to the Company for no consideration, resulting in a decrease in the total number of Class B
Ordinary Shares outstanding to 4,312,500 shares. The Founder Shares included an aggregate of up to 562,500 shares that were subject to forfeiture depending on the extent to which the underwriter’s over-allotment option was exercised, so that the
number of Founder Shares would equal, on an as-converted basis, 20% of the Company’s issued and outstanding ordinary shares after the L&F IPO. As a result of the underwriter’s election to fully exercise their over-allotment option on
November 25, 2020, no Founder Shares were subject to forfeiture.
The Sponsor and the directors and officers have agreed not to transfer,
assign or sell any of their Founder Shares until the earlier of (A) one year after the completion of an initial business combination, or earlier if, subsequent to the initial Business Combination, the closing price of the Class A Ordinary Shares
equals or exceeds $12.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after L&F’s
initial Business Combination, and (B) the date on which L&F completes a liquidation, merger, share exchange or other similar transaction that results in the Public Shareholders having the right to exchange their Class A Ordinary Shares for
cash, securities or other property.
Private Placement Warrants
On November 23, 2020, simultaneously with the closing of the L&F
IPO, L&F completed the private sale of an aggregate of 5,000,000 L&F Private Placement Warrants to the Sponsor at a purchase price of $1.00 per L&F Private Placement Warrant, generating gross proceeds to the Company of $5,000,000. In
connection with the underwriter’s full exercise of its over-allotment option an additional 450,000 L&F Private Placement Warrants were sold to the Sponsor at a price $1.00 per L&F Private Placement Warrant, generating gross proceeds to
the Company of $450,000.
Each private placement warrant is exercisable for one whole Class A
Ordinary Share at a price of $11.50 per share, subject to adjustment. A portion of the proceeds from the sale of the private placement warrants to the Sponsor was added to the proceeds from the L&F IPO held in the trust account. If the
Company does not complete a business combination by May 23, 2022 (or such later date as may be approved by L&F's shareholders), the L&F Private Placement Warrants will expire worthless. The L&F Private Placement Warrants will be
non-redeemable for cash and exercisable on a cashless basis so long as they are held by the Sponsor or its permitted transferees.
The Sponsor and L&F’s officers and directors have agreed, subject
to limited exceptions, not to transfer, assign or sell any of their private placement warrants until 30 days after the completion of the initial business combination.
Registration Rights Agreement
At the Closing, New ZeroFox, the Sponsor, Jefferies and certain
shareholders of ZeroFox and IDX will enter the Registration Rights Agreement pursuant to which, among other things, New ZeroFox will grant the other parties customary registration rights with respect to shares of New ZeroFox, and former
shareholders of ZeroFox and IDX will be subject to a 180-day lock-up period following execution of the Registration Rights Agreement during which period such shareholders may not transfer their shares (subject to customary exceptions). The
lock-up period described above will not apply to any shares acquired in the Common Equity PIPE Financing or shares issuable upon conversion of the Notes.
Common Equity PIPE Financing
Concurrently with the execution of the Business Combination Agreement,
L&F entered into the Common Equity Subscription Agreements with the Common Equity PIPE Investors. Pursuant to the Common Equity Subscription Agreements, the Common Equity PIPE Investors agreed to subscribe for and purchase, and L&F
340
agreed to issue and sell to such investors, on the Closing Date (as defined in the
Business Combination Agreement), an aggregate of 2,000,000 shares of New ZeroFox Common Stock in exchange for an aggregate purchase price of $20,000,000.
Several related parties to L&F as summarized below entered into the
Common Equity Subscription Agreements, pursuant to which they have collectively committed to subscribe for an aggregate of 1,000,000 shares of New ZeroFox Common Stock for aggregate gross proceeds of $10,000,000 to be consummated in connection
with Closing.
|
Common Equity PIPE Investor
|
| |
Shares
|
| |
Amount Subscribed
|
|
JCH Investments LLC(1)
|
| |
50,000
|
| |
$500,000
|
|
GCP-OI I, LLC(2)
|
| |
50,000
|
| |
$500,000
|
|
L&F Acquisition Holdings Fund, LLC(3)
|
| |
150,000
|
| |
$1,500,000
|
|
Corbin ERISA Opportunity Fund, L.P.(4)
|
| |
750,000
|
| |
$7,500,000
|
|
(1)
|
JCH Investments LLC is an entity affiliated with Jeffrey C. Hammes, the chairman of the L&F Board.
|
|
(2)
|
GCP-OI I, LLC is an entity affiliated with Adam Gerchen, our chief executive officer and a director of L&F.
|
|
(3)
|
L&F Acquisition Holdings Fund, LLC is an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard
Levy, a director of L&F.
|
|
(4)
|
Corbin ERISA Opportunity Fund, L.P. is an affiliate of Corbin Capital Partners, LP, and such entity is a significant security
holders of L&F.
|
Convertible Notes Financing
In connection with signing the Business Combination Agreement,
L&F entered into the Convertible Notes Subscription Agreements with the Convertible Notes Investors, in respect of $150,000,000 aggregate principal amount of the Notes to be issued in connection with the Closing. The principal terms of the
Notes are set forth in the form of indenture attached as an exhibit to the Convertible Notes Subscription Agreements, which Indenture will be entered into by L&F, the guarantors party thereto and the indenture trustee, and the form of
global note attached thereto. The Notes will bear interest at a rate of 7.00% per annum, payable quarterly in cash; provided, that the issuer may elect to pay interest in kind at a rate of 8.75% per annum, and the Notes will be convertible at
the Conversion Price, and will mature on the date that is three years following the closing of the Convertible Notes Financing.
Several related parties to L&F as summarized below entered into
Convertible Notes Subscription Agreements, pursuant to which they collectively committed to subscribe for Notes in an aggregate principal amount of $30,000,000, on the terms and subject to the conditions set forth in the Convertible Notes
Subscription Agreements and the Convertible Notes Indenture, to be consummated in connection with the Closing.
|
Convertible Notes Investor
|
| |
Amount Subscribed
|
|
L&F Acquisition Holdings Fund, LLC(1)
|
| |
$7,500,000
|
|
Corbin ERISA Opportunity Fund, L.P.(2)
|
| |
$22,500,000
|
|
(1)
|
L&F Acquisition Holdings Fund, LLC is an affiliate of Victory Park Capital Advisors, LLC, an entity affiliated with Richard
Levy, a director of L&F.
|
|
(2)
|
Corbin ERISA Opportunity Fund, L.P. is an affiliate of Corbin Capital Partners, LP, and such entity is a significant security
holder of L&F.
|
Sponsor Support Letter Agreement
Concurrently with the execution of the Business Combination
Agreement, (i) L&F, (ii) the Sponsor, Albert Goldstein and Joseph Lieberman, (iii) ZeroFox, (iv) IDX, and (v) Jeffrey C. Hammes, Adam Gerchen, Tom Gazdziak and Richard Levy (solely for the limited purposes set forth therein), entered into
an Amended and Restated Sponsor Support Letter Agreement. On January 31, 2022, (i) L&F, (ii) the Sponsor, the Sponsor Holders, (iii) ZeroFox, (iv) IDX, and (v) Jeffrey C. Hammes, Adam Gerchen, Tom Gazdziak and Richard Levy (solely for the
limited purposes set forth therein), entered into a Second Amended and Restated Sponsor Support Letter Agreement (the “Sponsor Support Letter Agreement”). Pursuant to the Sponsor Support
Letter Agreement, the Sponsor Holders have agreed to subject an aggregate of 1,293,750 shares of New ZeroFox
341
Common Stock held by such Sponsor Holders to an earnout, whereby such shares will be
forfeited unless certain volume-weighted average share price thresholds are met in trading or are deemed to occur in connection with a Change of Control (as defined in the Business Combination Agreement) within five years from the Closing. See “Proposal No. 2 — Business Combination Proposal — Related Agreements — The Sponsor Support Letter Agreement” for more information related to the Sponsor Support Letter Agreement.
Related Party Loans
On August 28, 2020, the Sponsor agreed to loan L&F an aggregate of
up to $300,000 to cover expenses related to the L&F IPO pursuant to a promissory note (the “Promissory Note”). This loan was non-interest bearing and payable upon the completion of the L&F IPO.
Prior to the consummation of the L&F IPO, L&F borrowed approximately $64,126 under the Promissory Note. On November 23, 2020, L&F repaid the Promissory Note in full to the Sponsor.
In addition, in order to finance transaction costs in connection with a
business combination, the Sponsor or an affiliate of the Sponsor, or certain of L&F’s officers and directors may, but are not obligated to, loan L&F funds as may be required (“Working Capital Loans”).
If L&F completes an initial business combination, L&F would repay the Working Capital Loans out of the proceeds of the trust account released to L&F. Otherwise, the Working Capital Loans would be repaid only out of funds held outside
the trust account. In the event that an initial business combination does not close, L&F may use a portion of proceeds held outside the trust account to repay the Working Capital Loans but no proceeds held in the trust account would be used
to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid
upon consummation of an initial business combination or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into warrants of New ZeroFox at a price of $1.00 per warrant. The warrants would be identical
to the private placement warrants. To date, L&F had no borrowings under the Working Capital Loans.
Administrative Services Agreement
L&F entered into an agreement that provides that, subsequent to the
closing of the L&F IPO and continuing until the earlier of L&F’s consummation of an initial business combination or L&F’s liquidation, L&F will pay to an affiliate of the Sponsor a total of $10,000 per month for office space,
secretarial and administrative services.
The Sponsor, executive officers and directors, or any of their
respective affiliates, will be reimbursed for any out-of-pocket expenses incurred in connection with activities on L&F’s behalf such as identifying potential target businesses and performing due diligence on suitable business combinations.
L&F’s audit committee will review on a quarterly basis all payments that were made to the Sponsor, officers, directors or their affiliates.
ZeroFox Related Party Transactions
Headquarters’ Lease
ZeroFox currently leases its headquarters at 1834 S. Charles Street,
Baltimore, Maryland, 21230 pursuant to the terms of a Lease Agreement dated February 27, 2016 (as amended, the “ZF HQ Lease”) with 1830 Charles Street LLC, a subsidiary of Wolf Acquisitions,
L.P. Wolf Acquisitions, L.P. is wholly-owned by James C. Foster, ZeroFox’s Chief Executive Officer. Under the terms of the ZF HQ Lease, ZeroFox pays 1830 Charles Street LLC base rent of $35,170 per month (an amount that will increase to $36,225
per month on March 1, 2022). The current term of the ZF HQ Lease will expire on February 28, 2023, unless extended by the parties. The ZF HQ Lease was approved by ZeroFox’s board of directors and ZeroFox believes that the ZF HQ Lease is on
arms’-length terms.
Cyveillance Sublease
On September 30, 2020, ZeroFox acquired the Cyveillance business unit
and related assets from Lookingglass Cyber Solutions, Inc. (“Lookingglass”). In connection with this transaction, ZeroFox issued Series E redeemable convertible preferred stock to Lookingglass and, as a result, Lookingglass is a related party of
ZeroFox and Lookingglass will be a greater than 5% beneficial owner of the outstanding shares of New
342
ZeroFox Common Stock. As part of the Cyveillance acquisition, ZeroFox entered into that
certain Deed of Sublease, dated September 30, 2020, with Lookingglass as sublandlord (the “Lookingglass Sublease”). Under the Lookingglass Sublease, ZeroFox pays Lookingglass $23,886 monthly base rent (an amount that increased to $24,844 per
month on March 1, 2021 and increases to $25,837 per month on March 1, 2022). The Lookingglass Sublease expires on July 31, 2022. The Lookingglass Sublease was approved by the ZeroFox Board in connection with the Cyveillance acquisition and
ZeroFox believes that the Lookingglass Sublease is on arm’s-length terms.
Bridge Notes
On December 16, 2021, several ZeroFox related parties purchased ZeroFox
PIK Promissory Notes, as summarized below. Such ZeroFox PIK Promissory Notes accrue interest that will be paid-in-kind at a rate of 5.0% per annum and mature upon the earlier of the Closing and the one-year anniversary of the date of issuance. If
the Closing occurs, the repayment of the original principal amount of the ZeroFox PIK Promissory Notes may be offset against amounts owed by such related parties under their respective Common Equity Subscription Agreements.
|
Noteholder
|
| |
Amount Subscribed
|
|
Highland Capital Partners 9 Limited Partnership(1)
|
| |
$1,179,620
|
|
Highland Capital Partners 9-B Limited Partnership(1)
|
| |
$508,110
|
|
Highland Entrepreneurs’ Fund 9 Limited Partnership(1)
|
| |
$102,960
|
|
New Enterprise Associates 14, L.P.(2)
|
| |
$2,288,150
|
|
Wolf Acquisitions, L.P.(3)
|
| |
$671,160
|
|
(1)
|
Corey Mulloy is a member of the ZeroFox board of directors, and following the Closing will be a member of the New ZeroFox Board.
The general partner of each of Highland Capital Partners 9 Limited Partnership, Highland Capital Partners 9-B Limited Partnership and Highland Entrepreneurs’ Fund 9 Limited Partnership is Highland Management Partners 9 Limited Partnership
whose general partner is Highland Management Partners 9 LLC, of which Mr. Mulloy is a managing member. Following the Closing, Highland Capital will be a greater than 5% beneficial owner of the outstanding New ZeroFox Common Stock.
|
|
(2)
|
Following the Closing, New Enterprise Associates 14, L.P. will be a greater than 5% beneficial owner of the outstanding New ZeroFox
Common Stock.
|
|
(3)
|
Wolf Acquisitions, L.P. is wholly-owned by James C. Foster, the Chief Executive Officer of ZeroFox. Mr. Foster is a member of the
ZeroFox board of directors and following the Closing will be the Chief Executive Officer and a member of the New ZeroFox Board and a greater than 5% beneficial owner of the outstanding New ZeroFox Common Stock.
|
Participation in the Common Equity PIPE Financing
Several ZeroFox related parties are participating in the Common Equity
PIPE Financing, as summarized below:
|
Common Equity PIPE Investor
|
| |
Shares
|
| |
Amount Subscribed
|
|
Highland Capital Partners 9 Limited Partnership
|
| |
117,962
|
| |
$1,179,620
|
|
Highland Capital Partners 9-B Limited Partnership
|
| |
50,811
|
| |
$508,110
|
|
Highland Entrepreneurs’ Fund 9 Limited Partnership
|
| |
10,296
|
| |
$102,960
|
|
New Enterprise Associates 14, L.P.
|
| |
228,815
|
| |
$2,288,150
|
|
Wolf Acquisitions, L.P.
|
| |
67,116
|
| |
$671,160
|
Please see footnotes to the Bridge Notes table above.
343
Private Placements of Securities
Series D Preferred Stock Financing
On December 20, 2019, ZeroFox issued an aggregate of 20,743,718 shares
of its Series D, Series D-1 and Series D-2 preferred stock. Investors acquired shares of Series D preferred stock at a purchase price, in cash, of $1.52993 per share, for an aggregate purchase amount of approximately $21.22 million. Shares of
Series D-1 and Series D-2 were issued upon the conversion of convertible promissory notes held by investors at conversion prices of $1.223944 per share and $1.376937 per share, respectively, for an aggregate conversion amount of approximately
$8.56 million. Certain ZeroFox parties participated in the financing round, as summarized below:
|
Stockholder
|
| |
Shares of
ZeroFox
Series D
Preferred
Stock
|
| |
Purchase
Price
|
|
Highland Capital Partners 9 Limited Partnership
|
| |
856,515
|
| |
$1,310,408
|
|
Highland Capital Partners 9-b Limited Partnership
|
| |
368,935
|
| |
$564,445
|
|
Highland Entrepreneurs’ Fund 9 Limited Partnership
|
| |
74,762
|
| |
$114,381
|
|
New Enterprise Associates 14, L.P.
|
| |
2,037,886
|
| |
$3,117,823
|
|
Redline Capital Fund Universal Investments, a sub-fund of
Redline Capital Fund, FCP-FIS
|
| |
1,284,661
|
| |
$1,965,441
|
|
Investor
|
| |
Shares of
ZeroFox
Series D-1
Preferred
Stock
|
| |
Purchase
Price ($)
|
|
Highland Capital Partners 9 Limited Partnership
|
| |
1,105,729
|
| |
$1,353,350
|
|
Highland Capital Partners 9-B Limited Partnership
|
| |
476,281
|
| |
$582,942
|
|
Highland Entrepreneurs’ Fund 9 Limited Partnership
|
| |
96,515
|
| |
$118,129
|
|
New Enterprise Associates 14, L.P.(1)
|
| |
2,119,077
|
| |
$2,593,632
|
|
Redline Capital Fund Universal Investments, a sub-fund of
Redline Capital Fund, FCP-FIS(2)
|
| |
1,334,978
|
| |
$1,633,938
|
Please see footnotes to the Bridge Notes table above.
|
(1)
|
Peter Barris is a member of the ZeroFox board of directors, and is a nominee to serve as a member of the New ZeroFox Board.
Effective December 31, 2019, Mr. Barris resigned from his position as a member of NEA 14 GP, LTD, the sole general partner of NEA Partners 14, L.P., the sole general partner of New Enterprise Associates 14, L.P.
|
|
(2)
|
Following the Closing, Redline Capital will be a greater than 5% beneficial owner of the outstanding New ZeroFox Common Stock.
|
Redline Letter Agreement
On December 7, 2021, ZeroFox entered into a letter agreement with
Redline Capital Fund Universal Investments, a sub-fund of Redline Capital Fund, FCP-FIS (“Redline Capital”), pursuant to which Redline Capital irrevocably waived its right to designate a member of the ZeroFox board of directors and its board
observer rights and pursuant to which Redline Capital and its affiliates granted to ZeroFox’s chief executive officer an irrevocable proxy to vote all of their shares, which shall be voted proportionally to the overall votes cast by other
shareholders of ZeroFox on proposals or resolutions voted on by ZeroFox’s shareholders. Following the Closing, Redline Capital will beneficially own more than 5% of the outstanding New ZeroFox Common Stock.
Registration Rights Agreement
At the Closing, New ZeroFox, the Sponsor, Jefferies and certain
shareholders of ZeroFox (including James C. Foster, Wolf Acquisitions, L.P., New Enterprises Associates 14, L.P., Highland Capital Partners 9 Limited Partnership, Highland Capital Partners 9-B Limited Partnership, Highland Entrepreneurs’ Fund 9
Limited Partnership and Redline Capital Fund Universal Investments) and IDX will enter the Registration Rights Agreement pursuant to which, among other things, New ZeroFox will grant the other parties customary registration rights with respect to
shares of New ZeroFox, and former shareholders of ZeroFox and IDX will be
344
subject to a 180-day lock-up period following execution of the Registration Rights
Agreement during which such shareholders may not transfer their shares (subject to customary exceptions). The lock-up period described above will not apply to any shares acquired in the Common Equity PIPE Financing or shares issuable upon
conversion of the Notes.
IDX Related Party Transactions
In connection with and contingent upon the Closing, Thomas F. Kelly
will continue his employment for one year, assuming the position of Senior Advisor pursuant to Amendment No. 4 to the Employment Agreement between IDX and Thomas F. Kelly, dated December 17, 2021. Thomas F. Kelly is a nominee to serve as a member
of the New ZeroFox Board.
In the fiscal year ended December 31, 2021, in connection with his
service as IDX's Chief Executive Officer, Thomas F. Kelly received a base salary of $325,000 and a discretionary bonus for his achievements in 2021 of $225,000.
Participation in the Common Equity PIPE Financing
Several IDX related parties are participating in the Common Equity PIPE
Financing, as summarized below:
|
Common Equity PIPE Investor
|
| |
Shares
|
| |
Amount Subscribed
|
|
Peloton Equity I, L.P.(1)
|
| |
104,963
|
| |
$1,049,630
|
|
Peloton ID Experts, LLC(1)
|
| |
77,238
|
| |
$772,380
|
|
ForgePoint Cyber Affiliates Fund I, L.P.(2)
|
| |
1,723
|
| |
$17,230
|
|
ForgePoint Cybersecurity Fund I, L.P.(2)
|
| |
148,223
|
| |
$1,482,230
|
|
(1)
|
Following the Closing, Peloton Equity will be a greater than 5% beneficial owner of the outstanding New ZeroFox Common Stock.
|
|
(2)
|
Sean Cunningham is a non-managing member of ForgePoint Cybersecurity GP-I, LLC, and is a nominee to serve as a member of the New
ZeroFox Board. Following the Closing, ForgePoint will be a greater than 5% beneficial owner of the outstanding New ZeroFox Common Stock.
|
Convertible Promissory Notes
IDX is a party to that certain Convertible Promissory Note Purchase
Agreement, dated as of December 18, 2018, by and among IDX and certain IDX shareholders, including entities associated with Peloton and ForgePoint (the “NPA”). Pursuant to the NPA, IDX issued certain
convertible promissory notes to related parties, as summarized below:
|
Noteholder
|
| |
Principal
Amount
|
| |
Loans Fees and
Interest Paid as of
September 30, 2021
|
| |
Total Outstanding
Balance as of
September 30, 2021
|
|
Peloton Equity I, L.P.
|
| |
$293,250
|
| |
$0.00
|
| |
$391,203
|
|
Peloton ID Experts, LLC
|
| |
$215,790
|
| |
$0.00
|
| |
$287,870
|
|
ForgePoint Cybersecurity Fund I, LP(1)
|
| |
$414,113
|
| |
$0.00
|
| |
$552,439
|
|
ForgePoint Cyber Affiliates Fund I, LP(1)
|
| |
$4,815
|
| |
$0.00
|
| |
$6,423
|
Please see footnotes to the “Participation in the Common Equity PIPE Financing” table
above.
|
(1)
|
Transferred from Trident Capital Security Fund I, L.P. pursuant to an assignment and transfer agreement dated May 13, 2020.
|
Registration Rights Agreement
At the Closing, New ZeroFox, the Sponsor, Jefferies and certain
shareholders of ZeroFox and IDX (including Thomas Kelly, Peloton Equity I, L.P., Peloton ID Experts, LLC and ForgePoint Capital) will enter the Registration Rights Agreement pursuant to which, among other things, New ZeroFox will grant the
other parties customary registration rights with respect to shares of New ZeroFox, and former shareholders of ZeroFox and IDX will be subject to a 180-day lock-up period following execution of the Registration Rights Agreement during which
period such shareholders may not transfer their shares (subject to customary exceptions). The lock-up period described above will not apply to any shares acquired in the Common Equity PIPE Financing.
345
The following table sets forth information regarding (i) the actual
beneficial ownership of L&F Ordinary Shares as of March 15, 2022 (except as otherwise noted) and (ii) the expected beneficial ownership of New ZeroFox Common Stock immediately following the Closing, assuming that no Public Shares are
redeemed, and alternatively that all Public Shares are redeemed, by:
|
•
|
each person who is known to be the beneficial owner of more than 5% of either the outstanding Class A Ordinary Shares or Class B
Ordinary Shares, and each person who is expected to be the beneficial owner of more than 5% of the outstanding shares of New ZeroFox Common Stock post-Business Combination;
|
|
•
|
each of our current executive officers and directors;
|
|
•
|
each person who will become an executive officer or director of New ZeroFox; and
|
|
•
|
all executive officers and directors of L&F as a group pre-Business Combination and all executive officers and directors of
New ZeroFox as a group post-Business Combination.
|
Beneficial ownership is determined according to the rules of the SEC,
which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable or exercisable
within 60 days.
The beneficial ownership of L&F Ordinary Shares pre-Business
Combination is based on 17,250,000 Class A Ordinary Shares and 4,312,500 shares of Class B Ordinary Shares outstanding as of December 31, 2021.
The expected beneficial ownership of shares of New ZeroFox Common
Stock immediately following the Closing, assuming that none of the Public Shares is redeemed, is based on an aggregate of 134,750,316 shares of New ZeroFox Common Stock to be issued and outstanding immediately following the Closing, which
assumes the following: (A) 83,371,892 shares of New ZeroFox Common Stock are issued to the holders of ZeroFox Common Stock in connection with the Business Combination based on a per share consideration of 0.2872 of a share of New ZeroFox Common
Stock, (B) 27,815,924 shares of New ZeroFox Common Stock are issued to the holders of IDX Capital Stock in connection with the Business Combination based on a per share consideration of 0.6174 of a share of New ZeroFox Common Stock, (C) all
outstanding ZeroFox Warrants and IDX Warrants will be exercised immediately prior to the Closing, (D) 2,000,000 shares of New ZeroFox common stock are issued to the PIPE Investors, (E) no New ZeroFox Public Warrants and New ZeroFox Private
Placement Warrants issued in connection with the Business Combination that will be outstanding immediately following Closing have been exercised; (F) no Notes issued in the Convertible Notes Financing have been converted; (G) all outstanding
vested and unvested ZeroFox options and IDX options are converted into New ZeroFox Options exercisable for shares of New ZeroFox Common Stock; and (H) neither ZeroFox nor IDX issues any additional equity securities prior to the Business
Combination, and that no other event occurs that would change either the ZeroFox or the IDX per share consideration from what each would have been as of the date of the Business Combination Agreement.
The expected beneficial ownership of shares of New ZeroFox Common
Stock immediately following the Closing, assuming the maximum number of the Public Shares is redeemed, is based on an aggregate of 117,500,316 shares of New ZeroFox Common Stock to be issued and outstanding immediately following the Closing,
based on the same assumptions set forth above.
346
|
|
| |
|
| |
|
| |
|
| |
After the Business Combination
|
|||||||||
|
|
| |
Before the Business Combination
|
| |
Assuming No Redemption
|
| |
Assuming Maximum Redemption
|
||||||||||||
|
Name of Beneficial Owner
|
| |
Number of
Class A Shares
|
| |
Number of
Class B Shares
|
| |
% of Class
|
| |
Number of
Shares of New
ZeroFox
Common Stock
|
| |
% of Class
|
| |
Number of
Shares of New
ZeroFox
Common Stock
|
| |
% of Class
|
|
Five Percent Holders
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
New Enterprise Associates(1)
|
| |
—
|
| |
—
|
| |
—
|
| |
18,150,408
|
| |
13.5%
|
| |
18,150,408
|
| |
15.4%
|
|
Highland Capital(2)
|
| |
—
|
| |
—
|
| |
—
|
| |
14,204,388
|
| |
10.6%
|
| |
14,204,388
|
| |
12.1%
|
|
Redline Capital(3)
|
| |
—
|
| |
—
|
| |
—
|
| |
11,297,081
|
| |
8.4%
|
| |
11,297,081
|
| |
9.6%
|
|
Lookingglass Cyber Solutions, Inc(4)
|
| |
—
|
| |
—
|
| |
—
|
| |
8,772,587
|
| |
6.5%
|
| |
8,772,587
|
| |
7.5%
|
|
James C. Foster(5,16)
|
| |
—
|
| |
—
|
| |
—
|
| |
8,678,607
|
| |
6.5%
|
| |
8,678,607
|
| |
7.4%
|
|
Peloton Equity(6)
|
| |
—
|
| |
—
|
| |
—
|
| |
7,306,764
|
| |
5.4%
|
| |
7,306,764
|
| |
6.3%
|
|
ForgePoint(7)
|
| |
—
|
| |
—
|
| |
—
|
| |
6,098,824
|
| |
4.5%
|
| |
6,013,305
|
| |
5.2%
|
|
Corbin Capital Partners GP, LLC(8)
|
| |
1,485,000
|
| |
—
|
| |
8.6%
|
| |
2,235,000
|
| |
1.7%
|
| |
750,000
|
| |
*
|
|
Citadel Advisors LLC(9)
|
| |
880,289
|
| |
—
|
| |
5.1%
|
| |
880,289
|
| |
*
|
| |
—
|
| |
—
|
|
JAR Sponsor LLC(10)
|
| |
—
|
| |
4,202,767
|
| |
97.5%
|
| |
4,202,767
|
| |
3.1%
|
| |
4,202,767
|
| |
3.6%
|
|
Sculpor Capital LP(11)
|
| |
914,095
|
| |
—
|
| |
5.3%
|
| |
914,095
|
| |
*
|
| |
—
|
| |
—
|
|
Directors and Executive Officers of
L&F
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Jeffrey C. Hammes(13)
|
| |
—
|
| |
4,202,767
|
| |
97.5%
|
| |
4,252,767
|
| |
3.2%
|
| |
4,252,767
|
| |
3.6%
|
|
Adam Gerchen(14)
|
| |
—
|
| |
4,202,767
|
| |
97.5%
|
| |
4,252,767
|
| |
3.2%
|
| |
4,252,767
|
| |
3.6%
|
|
Richard Levy(15)
|
| |
—
|
| |
4,202,767
|
| |
97.5%
|
| |
4,352,767
|
| |
3.2%
|
| |
4,352,767
|
| |
3.7%
|
|
Tom Gazdziak
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
Senator Joseph Lieberman
|
| |
—
|
| |
50,000
|
| |
1.2%
|
| |
50,000
|
| |
*
|
| |
50,000
|
| |
*
|
|
Albert Goldstein
|
| |
—
|
| |
20,000
|
| |
*
|
| |
20,000
|
| |
*
|
| |
20,000
|
| |
*
|
|
Kurt Summers
|
| |
—
|
| |
39,733
|
| |
*
|
| |
39,733
|
| |
*
|
| |
39,733
|
| |
*
|
|
All L&F Directors and Executive Officers as a Group (7
persons)
|
| |
—
|
| |
4,312,500
|
| |
100.0%
|
| |
4,562,500
|
| |
3.4%
|
| |
4,562,500
|
| |
3.9%
|
|
Directors & Executive Officers of New
ZeroFox After Closing (16)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
James C. Foster(5)
|
| |
—
|
| |
—
|
| |
—
|
| |
8,678,607
|
| |
6.5%
|
| |
8,678,607
|
| |
7.4%
|
|
Peter Barris
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
Sean Cunningham
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
Adam Gerchen(14)
|
| |
—
|
| |
4,202,767
|
| |
97.5%
|
| |
4,252,767
|
| |
3.2%
|
| |
4,252,767
|
| |
3.6%
|
|
Todd Headley(17)
|
| |
—
|
| |
—
|
| |
—
|
| |
307,355
|
| |
*
|
| |
307,355
|
| |
*
|
|
Thomas F. Kelly
|
| |
—
|
| |
—
|
| |
—
|
| |
1,967,690
|
| |
1.5%
|
| |
1,967,690
|
| |
1.7%
|
|
Samskriti King(18)
|
| |
—
|
| |
—
|
| |
—
|
| |
50,643
|
| |
*
|
| |
50,643
|
| |
*
|
|
Corey Mulloy(19)
|
| |
—
|
| |
—
|
| |
—
|
| |
14,204,388
|
| |
10.6%
|
| |
14,204,388
|
| |
12.1%
|
|
Kevin Reardon(20)
|
| |
—
|
| |
—
|
| |
—
|
| |
662,426
|
| |
*
|
| |
662,426
|
| |
*
|
|
Tim Bender(21)
|
| |
—
|
| |
—
|
| |
—
|
| |
772,035
|
| |
*
|
| |
772,035
|
| |
*
|
|
Scott O'Rourke(22)
|
| |
—
|
| |
—
|
| |
—
|
| |
535,829
|
| |
*
|
| |
535,829
|
| |
*
|
|
John Prestridge(23)
|
| |
—
|
| |
—
|
| |
—
|
| |
86,169
|
| |
*
|
| |
86,169
|
| |
*
|
|
Michael Price(24)
|
| |
—
|
| |
—
|
| |
—
|
| |
670,778
|
| |
*
|
| |
670,778
|
| |
*
|
|
Tom FitzGerald(25)
|
| |
—
|
| |
—
|
| |
—
|
| |
43,084
|
| |
*
|
| |
43,084
|
| |
*
|
|
All Directors and Executive Officers of
New ZeroFox as a Group (14 persons)(26)
|
| |
|
| |
4,202,767
|
| |
97.5%
|
| |
32,231,771
|
| |
|
| |
32,231,771
|
| |
|
|
*
|
Represents beneficial ownership of less than 1%.
|
347
|
(1)
|
Consists of (i) 18,127,986 shares (including 228,815 shares to be purchased in the Common Equity PIPE Financing) to be held by
New Enterprise Associates 14, L.P. (“NEA 14”) upon the Closing and (ii) 22,422 shares to be held by NEA Ventures 2014, L.P. (“Ven 2014”) upon the Closing. The shares held directly by NEA 14 are held indirectly by NEA Partners 14, L.P.
(“NEA Partners 14”), the sole general partner of NEA 14. NEA 14 GP, LTD (“NEA 14 LTD”) is the sole general partner of NEA Partners 14. The individual directors of NEA 14 LTD are Forest Baskett, Anthony A. Florence, Jr., Patrick J.
Kerins, Scott D. Sandell, and Peter Sonsini (together, the “NEA 14 Directors”). NEA Partners 14, NEA 14 LTD and the NEA 14 Directors may be deemed to share voting and dispositive power with regard to the shares directly held by NEA 14.
The shares held directly by Ven 2014 are held indirectly by Karen P. Welsh, the general partner of Ven 2014. The address for each of these entities and individuals is c/o New Enterprise Associates, Inc., 1954 Greenspring Drive, Suite
600, Timonium, Maryland 21093.
|
|
(2)
|
Consists of 9,239,181 shares (including 117,962 shares to be purchased in the Common Equity PIPE Financing) to be held by
Highland Capital Partners 9 Limited Partnership (“HCP 9”) upon the Closing, 3,979,181 shares (including 50,811 shares to be purchased in the Common Equity PIPE Financing) to be held by Highland Capital Partners 9-B Limited Partnership
(“HCP 9B”) upon the Closing, and 806,454 shares (including 10,296 shares to be purchased in the Common Equity PIPE Financing) to be held by Highland Entrepreneurs’ Fund 9 Limited Partnership (“HEF 9”) upon the Closing. The general
partner of each of HCP 9, HCP 9B and HEF 9 is Highland Management Partners 9 Limited Partnership (“Highland 9 GP LP”), whose general partner is Highland Management Partners 9 LLC (“Highland 9 GP LLC”). Robert Davis, Dan Nova, Paul
Maeder and Corey Mulloy (“Managing Members”) are the managing members of Highland 9 GP LLC and may be deemed to share voting and dispositive power over shares held by each of HCP 9, HCP 9B and HEF 9. The principal business address of
each of the foregoing entities and the Managing Members is One Broadway, 14th Floor, Cambridge, Massachusetts 02142.
|
|
(3)
|
Consists of 11,297,081 shares to be held directly by Redline Capital Fund Universal Investments (“Redline UI”), a sub-fund of
Redline Capital Fund, FCP-FIS (“Redline Capital”) upon the Closing. Redline Capital Management S.A. (“Redline Management”) serves as the manager of Redline UI and Redline Capital, and Redline Capital (UK) Limited (“Redline Adviser”)
serves as the investment adviser to Redline Management. As the Investment Director of Redline Management, Tatiana Evtushenkova may be deemed to have investment power over the shares held by Redline UI. The principal business address of
Redline Adviser is Lynton House 7-12 Tavistock Square, London, England WC1 9LT. The principal business address of the other Redline entities is 26 Avenue Monterey, L-2163 Luxembourg. Pursuant to a letter agreement, dated December 7,
2021, Redline Capital and its affiliates granted to ZeroFox’s chief executive officer an irrevocable proxy to vote all of their shares, which shall be voted proportionally to the overall votes cast by other shareholders of ZeroFox on
proposals or resolutions voted on by ZeroFox’s shareholders.
|
|
(4)
|
Consists of 8,747,587 shares to be held directly by Lookingglass Cyber Solutions, Inc. (“Lookingglass”) upon the Closing. The
address of Lookingglass is 10740 Parkridge Boulevard, Suite 200, Reston, Virginia, 20191.
|
|
(5)
|
Consists of 8,678,607 shares to be held directly by James C. Foster upon the Closing and 60,576 shares (including 67,116 shares
to be purchased in the Common Equity PIPE Financing) to be held by Wolf Acquisitions, L.P. upon the Closing. Wolf Acquisitions, L.P. is wholly-owned by Mr. Foster. The address of Mr. Foster is c/o ZeroFox, Inc., 1834 S. Charles Street
Baltimore, Maryland 21230.
|
|
(6)
|
Consists of (i) 4,209,310 shares (including 104,963 shares to be purchased in the Common Equity PIPE Financing) to be held by
Peloton Equity I, L.P. upon the Closing and (ii) 3,097,454 shares (including 77,238 shares to be purchased in the Common Equity PIPE Financing) to be held by Peloton ID Experts, LLC upon the Closing. Peloton Equity GP is the general
partner of Peloton Equity I, L.P. and Peloton ID Experts, LLC. Carlos Ferrer and Theodore B. Lundberg are the managing members of Peloton Equity GP. The business address of the foregoing persons and entities is 66 Field Point Road, 2nd
Floor, Greenwich, CT 06830.
|
|
(7)
|
Consists of (i) 69,114 shares (including 1,723 shares to be purchased in the Common Equity PIPE Financing) to be held by
ForgePoint Cyber Affiliates Fund I, L.P. upon the Closing and (ii) 5,944,191 shares (including 148,223 shares to be purchased in the Common Equity PIPE Financing) to be held by ForgePoint Cybersecurity Fund I, L.P. (together with
ForgePoint Cyber Affiliates Fund I, L.P., the “ForgePoint Funds”) upon the Closing. Donald R. Dixon and Alberto J. Yepez are the managing members of ForgePoint Cybersecurity GP-I, LLC, which is the general partner of each of the
ForgePoint Funds, and exercise shared voting, investment and dispositive rights with respect to the shares of stock held by each of the ForgePoint Funds. Sean Cunningham is a non-managing member of ForgePoint Cybersecurity GP-I, LLC. In
this capacity, Mr. Cunningham does not have voting or dispositive power over the shares held by the ForgePoint Funds. The address for all entities and individuals affiliated with the ForgePoint Funds is 400 S El Camino Road, Suite 1050,
San Mateo, CA 94402.
|
|
(8)
|
Before the Business Combination, includes Class A Ordinary Shares held by Corbin Opportunity Fund, L.P. (“COF”), Corbin ERISA
Opportunity Fund, Ltd. (“CEOF”), Corbin Capital Partners, L.P. (“CCP”) and Corbin Capital Partners GP, LLC. Before the Business Combination, based on Schedule 13G/A filed jointly by COF, CEOF, CCP, Corbin Capital Partners Group, LLC and
Corbin Capital Partners GP, LLC, with the SEC on December 14, 2021, COF beneficially owns 990,000 Class A Ordinary Shares, CEOF beneficially owns 495,000 Class A Ordinary Shares, CCP beneficially owns 1,485,000 Class A Ordinary Shares
and Corbin Capital Partners GP, LLC beneficially owns 1,485,000 Class A Ordinary Shares. After the Business Combination, also includes 750,000 shares to be purchased in the Common Equity PIPE Financing by CEOF and excludes up to
1,956,520 shares issuable upon the conversion to CEOF, subject to certain adjustments from time to time as set forth in the relevant indenture, of $22,500,000 principal amount of Notes. CCP is the investment manager of each of COF and
CEOF (“Corbin Funds”). CCP and its general partner, Corbin Capital Partners GP, LLC may be deemed beneficial owners of the Class A Ordinary Shares beneficially owned by each of the Corbin Funds noted above. Craig Bergstrom, as the Chief
Investment Officer of CCP, makes voting and investment for the Corbin Funds, but disclaims beneficial ownership of the shares held by them, except to the extent of his pecuniary interest therein. The address of COF, CEOF, CCP and Corbin
Capital Partners GP, LLC is 590 Madison Avenue, 31st Floor, New York, NY 10022.
|
|
(9)
|
Includes Class A Ordinary Shares held by Citadel Advisors LLC (“CA”), Citadel Advisors Holdings LP (“CAH”), Citadel GP LLC
(“CGP”), Citadel Securities Group LP (“CSG”), Citadel Securities LLC (“CS”), Citadel Securities GP LLC (“CSGP”) and Mr. Kenneth Griffin. Before the Business Combination, based on Schedule 13G/A filed jointly by CA, CAH, CGP, CS, CSG,
CSGP and Mr. Kenneth Griffin on February 14, 2022, CA beneficially owns 866,937 Class A Ordinary Shares, CAH beneficially owns 866,937 Class A Ordinary Shares, CGP beneficially owns 866,937 Class A Ordinary Shares, CS beneficially owns
13,352 Class A Ordinary Shares, CSG beneficially owns 13,352 Class A Ordinary Shares, CSGP beneficially owns 13,352 Class A Ordinary Shares and Mr. Kenneth Griffin beneficially owns 880,289 Class A Ordinary Shares. The business address
of each of the foregoing entities and Mr. Griffin is 131 S. Dearborn Street, 32nd Floor, Chicago, Illinois 60603.
|
|
(10)
|
GCP-OI I, LLC, MSBD 2020 Series LLC and Victory Park Capital Advisors, LLC as the voting members of JAR Sponsor LLC will exercise
voting control over 4,202,767 Class B Ordinary Shares. Jeffrey C. Hammes, by virtue of his role as managing member of MSBD 2020 Series LLC has voting and dispositive power over the Class B Ordinary Shares held by JAR Sponsor LLC, and
therefore
|
348
may be deemed to have beneficial ownership of the Class B Ordinary Shares held
directly by the Sponsor. Adam Gerchen, by virtue of his role as manager of GCP-OI I, LLC has voting and dispositive power over the Class B Ordinary Shares held by JAR Sponsor LLC, and therefore may be deemed to have beneficial ownership of the
Class B Ordinary Shares held directly by the Sponsor. Richard Levy has voting and dispositive power on behalf of Victory Park Capital, LLC over the Class B Ordinary Shares held by JAR Sponsor LLC, and therefore may be deemed to have beneficial
ownership of the Class B ordinary shares held directly by the Sponsor. The address of JAR Sponsor LLC is 150 North Riverside Plaza, Suite 5200 Chicago, IL 60606.
|
(11)
|
Includes Class A Ordinary Shares held by Sculptor Capital LP (“Sculptor”), Sculptor Capital II LP (“Sculptor-II”), Sculptor
Capital Holding Corporation (“SCHC”), Sculptor Capital Holding II LLC (“SCHC-II”), Sculptor Capital Management, Inc. (“SCU”), Sculptor Master Fund, Ltd. (“SCMF”), Sculptor Special Funding, LP (“NRMD”), Sculptor Credit Opportunities
Master Fund, Ltd. (“SCCO”), Sculptor SC II LP (“NJGC”) and Sculptor Enhanced Master Fund, Ltd. (“SCEN”). Before the Business Combination, based on Schedule 13G filed jointly by Sculptor, Sculptor-II, SCHC, SCHC-II, SCU, SCMF, NRMD,
SCCO, NJGC and SCEN, with the SEC on January 20, 2022, Sculptor beneficially owns 914,095 Class A Ordinary Shares, Sculptor-II beneficially owns 914,095 Class A Ordinary Shares, SCHC beneficially owns 914,095 Class A Ordinary Shares,
SCHC-II beneficially owns 914,095 Class A Ordinary Shares, SCU beneficially owns 914,095 Class A Ordinary Shares, SCMF beneficially owns 489,917 Class A Ordinary Shares, NRMD beneficially owns 489,917 Class A Ordinary Shares, SCCO
beneficially owns 76,485 Class A Ordinary Shares, NJGC beneficially owns 266,446 Class A Ordinary Shares and SCEN beneficially owns 81,247 Class A Ordinary Shares. Sculptor is the principal investment manager to a number of private
funds and discretionary accounts. Sculptor-II serves as the principal investment managers to the accounts and thus may be deemed beneficial owners of the Class A Ordinary Shares in the accounts managed by Sculptor and Sculptor-II.
SCHC-II serves as the sole general partner of Sculptor-II and is wholly owned by Sculptor. SCHC serves as the sole general partner of Sculptor. As such, SCHC and SCHC-II may be deemed to control Sculptor as well as Sculptor-II and,
therefore, may be deemed to be the beneficial owners of the Class A Ordinary Shares. SCU is the sole shareholder of SCHC, and may be deemed a beneficial owner of the Class A Ordinary Shares. Wayne Cohen is the President and Chief
Operating Officer of SCU. The address of Sculptor, Sculptor-II, SCHC, SCHC-II, SCU, SCMF, NRMD, SCCO, NJGC and SCEN is 9 West 57 Street, 39 Floor, New York, NY 10019.
|
|
(12)
|
Unless otherwise indicated, the address of each of L&F’s directors and executive officers is c/o L&F Acquisition Corp., 150
North Riverside Plaza, Suite 5200 Chicago, IL 60606.
|
|
(13)
|
Before the Business Combination, includes 4,202,767 shares held by JAR Sponsor LLC, the Sponsor, the record holder of the Class B
Ordinary Shares reported herein. The voting members of the Sponsor are, GCP-OI I, LLC, MSBD 2020 Series LLC and Victory Park Capital Advisors, LLC. Jeffrey C. Hammes, by virtue of his role as managing member of MSBD 2020 Series LLC has
voting and dispositive power over the Class B Ordinary Shares held by JAR Sponsor LLC, and therefore may be deemed to have beneficial ownership of the Class B Ordinary Shares held directly by the Sponsor. Mr. Hammes disclaims beneficial
ownership of such securities except to the extent of his pecuniary interest therein. After the Business Combination, also includes 50,000 shares to be purchased in the Common Equity PIPE Financing by JCH Investments LLC of which Mr.
Hammes is managing member.
|
|
(14)
|
Before the Business Combination, includes 4,202,767 shares held by JAR Sponsor LLC, the Sponsor, the record holder of the Class B
Ordinary Shares reported herein. The members of the Sponsor are, GCP-OI I, LLC, MSBD 2020 Series LLC and Victory Park Capital Advisors, LLC. Adam Gerchen, by virtue of his role as manager of GCP-OI I, LLC has shared voting and dispositive
power over the Class B Ordinary Shares held by JAR Sponsor LLC, and therefore may be deemed to have beneficial ownership of the Class B Ordinary Shares held directly by the Sponsor. Mr. Gerchen disclaims beneficial ownership of such
securities except to the extent of his pecuniary interest therein. After the Business Combination, also includes 50,000 shares to be purchased in the Common Equity PIPE Financing by GCP-OI I, LLC.
|
|
(15)
|
Before the Business Combination, includes 4,202,767 shares held by JAR Sponsor LLC, the Sponsor, the record holder of the Class B
Ordinary Shares reported herein. The members of the Sponsor are, GCP-OI I, LLC, MSBD 2020 Series LLC and Victory Park Capital Advisors, LLC. Richard Levy has shared voting and dispositive power on behalf of Victory Park Capital, LLC over
the Class B Ordinary Shares held by JAR Sponsor LLC, and therefore may be deemed to have beneficial ownership of the Class B Ordinary Shares held directly by the Sponsor. Mr. Levy disclaims beneficial ownership of such securities except
to the extent of his pecuniary interest therein. After the Business Combination, includes 150,000 shares to be purchased in the Common Equity PIPE Financing by L&F Acquisition Holdings Fund, LLC, of which Mr. Levy has voting and
dispositive power, and excludes up to 652,173 shares issuable upon the conversion, subject to certain adjustments from time to time as set forth in the relevant indenture, of $7,500,000 principal amount of Notes to be purchased by L&F
Acquisition Holdings Fund, LLC.
|
|
(16)
|
Unless otherwise indicated, the address of each of New ZeroFox’s directors and executive officers is c/o ZeroFox, Inc., 1834 S.
Charles Street Baltimore, Maryland 21230.
|
|
(17)
|
Includes options to purchase 227,487 shares exercisable as of or within 60 days of March 31, 2022.
|
|
(18)
|
Includes 50,643 unvested restricted shares as to which Ms. King has sole voting power but which are subject to restrictions on
transfer, of which 5,039 shares will vest within 60 days of March 31, 2022.
|
|
(19)
|
Represents shares (including 179,069 shares to be purchased in the Common Equity PIPE Financing) to be held by HCP 9, HCP 9B and
HEF 9 upon the Closing as to which shares Mr. Mulloy may be deemed to share voting and dispositive power, as discussed in footnote (2).
|
|
(20)
|
Includes options to purchase 662,426 shares exercisable as of or within 60 days of March 31, 2022.
|
|
(21)
|
Includes options to purchase 756,867 shares exercisable as of or within 60 days of March 31, 2022.
|
|
(22)
|
Includes options to purchase 535,829 shares exercisable as of or within 60 days of March 31, 2022.
|
|
(23)
|
Includes options to purchase 86,169 shares exercisable as of or within 60 days of March 31, 2022.
|
|
(24)
|
Includes options to purchase 670,778 shares exercisable as of or within 60 days of March 31, 2022.
|
|
(25)
|
Includes options to purchase 43,084 shares exercisable as of or within 60 days of March 31, 2022.
|
|
(26)
|
After the Business Combination, includes options to purchase 2,982,640 shares exercisable as of or within 60 days of March 31,
2022 and shares beneficially owned as discussed in footnotes (5), (14) and (19).
|
349
L&F is an exempted company incorporated under the Cayman Islands
Companies Act. The Cayman Islands Companies Act and L&F’s Existing Governing Documents govern the rights of its shareholders. Following the Domestication, New ZeroFox will be incorporated under the laws of the State of Delaware and the
rights of New ZeroFox shareholders will be governed by the laws of the State of Delaware, including the DGCL, the Proposed Certificate of Incorporation and the Proposed Bylaws. The Cayman Islands Companies Act differs in some material respects
from laws generally applicable to U.S. corporations and their shareholders. In addition, the Existing Governing Documents differ in certain material respects from the Proposed Certificate of Incorporation and Proposed Bylaws of New ZeroFox. As
a result, when you become a shareholder of New ZeroFox, your rights will differ as compared to when you were a shareholder of L&F.
The following table sets forth a summary of important similarities
and differences in the corporate governance and shareholder rights associated with each of L&F and New ZeroFox according to applicable law or the organizational documents of L&F and New ZeroFox, including the principal changes proposed
to be made between L&F’s Existing Governing Documents and the Proposed Certificate of Incorporation and Proposed Bylaws of New ZeroFox. This summary is qualified by reference to the complete text of the Existing Governing Documents of
L&F, the complete text of the Proposed Certificate of Incorporation, a copy of which is attached to this proxy statement/prospectus as Annex B, and the complete text of the Proposed Bylaws, a copy of which is attached to this proxy
statement/prospectus as Annex C. All shareholders are encouraged to read each of the Proposed Governing Documents in their entirety for a more complete description of their terms. Additionally, as the Existing Governing Documents are governed
by the Cayman Islands law and the Proposed Governing Documents will be governed by the DGCL, we encourage shareholders to carefully consult the information set out under the section entitled “Proposal
No. 3 - The Domestication Proposal” and “Description of Securities” as well as the DGCL and the Cayman
Islands Companies Act.
|
|
| |
Existing Governing Documents
and Cayman Islands Law
|
| |
Proposed Governing Documents
and Delaware Law
|
|
Authorized Shares
(Advisory Governing
Documents Proposal 5(A))
|
| |
The authorized share capital under the Existing Governing Documents is
500,000,000 Class A Ordinary Shares, par value US$0.0001 per share, 50,000,000 Class B Ordinary Shares, par value US$0.0001 per share, and 1,000,000 preference shares, par value US$0.0001 per share.
|
| |
The Proposed Governing Documents authorize 1,000,000,000 shares of New ZeroFox
Common Stock, par value $0.0001 per share, and 100,000,000 shares of New ZeroFox Preferred Stock, par value $0.0001 per share
|
|
|
| |
|
| |
|
|
|
| |
See paragraph 5 of L&F’s Amended and Restated
Memorandum of Association.
|
| |
See Article IV, Section 1 of the Proposed Certificate of
Incorporation.
|
|
|
| |
|
| |
|
|
Authorize the Board of Directors to Issue Preferred Stock Without
Shareholder Consent
(Advisory Governing
Documents Proposal 5(B))
|
| |
The Existing Governing Documents authorize the issuance of up to 1,000,000
preference shares with such designation, rights and preferences as may be determined from time to time by L&F’s Board. Accordingly, L&F’s Board is empowered under the Existing Governing Documents, without shareholder approval,
to issue preference shares with dividend, liquidation, redemption, voting or other rights which could adversely affect the voting power or other rights of the holders of ordinary shares.
|
| |
The Proposed Governing Documents authorize the issuance of up to 100,000,000
shares of preferred stock in one or more series with such designations, powers, preferences and rights, and qualifications, limitations or restrictions thereof as may be fixed from time to time by the New ZeroFox Board for each such
series, including, without limitation, the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, and
|
350
|
|
| |
Existing Governing Documents
and Cayman Islands Law
|
| |
Proposed Governing Documents
and Delaware Law
|
|
|
| |
|
| |
liquidation preferences of any such series, and the number of shares
constituting any such series and the designation thereof, or any of the foregoing.
|
|
|
| |
|
| |
|
|
|
| |
See paragraph 5 of L&F’s Amended and Restated
Memorandum of Association and Article 3 of L&F’s Amended and Restated Articles of Association.
|
| |
See Article IV, Sections 1 and 4 of the Proposed
Certificate of Incorporation.
|
|
|
| |
|
| |
|
|
Corporate Name
(Governing Documents
Proposal)
|
| |
The Existing Governing Documents provide the name of the company is “L&F
Acquisition Corp.”
|
| |
The Proposed Governing Documents will provide that the name of the corporation
will be “ZeroFox Holdings, Inc.”
|
|
|
| |
|
| |
|
|
|
| |
See paragraph 1 of L&F’s Amended and Restated
Memorandum of Association.
|
| |
See Article I of the Proposed Certificate of Incorporation.
|
|
|
| |
|
| |
|
|
Perpetual Existence
(Advisory Governing
Documents Proposal 5(G))
|
| |
The Existing Governing Documents provide that if we do not consummate a
business combination (as defined in the Existing Governing Documents) by May 23, 2022 (eighteen months after the closing of the L&F IPO), L&F will cease all operations except for the purposes of winding up and will redeem the
shares issued in the L&F IPO and liquidate its Trust Account.
|
| |
The Proposed Governing Documents provide that New ZeroFox will have perpetual
existence, which is the default under the DGCL.
|
|
|
| |
|
| |
|
|
|
| |
See Article 49, subsection 49.7 of L&F’s Amended and
Restated Articles of Association.
|
| |
See Article VII, Section 1 of the Proposed Certificate of
Incorporation.
|
|
|
| |
|
| |
|
|
Exclusive Forum
(Advisory Governing
Documents Proposal 5(C))
|
| |
The Existing Governing Documents do not contain a provision adopting an
exclusive forum for certain shareholder litigation.
|
| |
The Proposed Governing Documents adopt Delaware as the exclusive forum for
certain shareholder litigation and the U.S. federal district courts as the exclusive forum for litigation arising out of the Securities Act.
|
|
|
| |
|
| |
|
|
|
| |
|
| |
See Article X, Section 2 of the Proposed Certificate of
Incorporation.
|
|
|
| |
|
| |
|
351
|
|
| |
Existing Governing Documents
and Cayman Islands Law
|
| |
Proposed Governing Documents
and Delaware Law
|
|
Number of Directors
|
| |
Under the Existing Governing Documents, the L&F Board shall consist of not
less than one person provided however that L&F may by ordinary resolution increase or reduce the limits in the number of directors.
|
| |
Subject to the rights of holders of any preferred stock of New ZeroFox, the
number of directors that constitutes the New ZeroFox Board may be fixed only by resolution of the New ZeroFox Board.
|
|
|
| |
|
| |
|
|
|
| |
See Article 27, subsection 27.1 of L&F’s Amended and
Restated Articles of Association.
|
| |
See Article V, Section 1 of the Proposed Certificate of
Incorporation.
|
|
|
| |
|
| |
|
|
Classified Board
|
| |
The Existing Governing Documents provide that the L&F Board is composed of
three classes with only one class of directors being elected in each year and each class serving a three-year term.
|
| |
The Proposed Governing Documents provide that the New ZeroFox Board will be
divided into three classes with only one class of directors being elected in each year and each class serving a three-year term.
|
|
|
| |
|
| |
|
|
|
| |
See Article 27 subsection 27.2 of L&F’s Amended and
Restated Articles of Association.
|
| |
See Article V, Section 2 of the Proposed Certificate of
Incorporation.
|
|
|
| |
|
| |
|
|
Election and Removal of Directors
(Advisory Governing
Documents Proposal 5(E) with respect to Director Removal for Cause)
|
| |
The Existing Governing Documents provide that prior to the closing of a
Business Combination, the holders of Class B Ordinary Shares, by ordinary resolution, may appoint any person to be a director or remove any director of L&F. For the avoidance of doubt, prior to the closing of a Business Combination,
holders of Class A Ordinary Shares have no right to vote on the appointment or removal of any L&F director.
|
| |
Directors of New ZeroFox will be elected by a plurality of all of the votes
cast in the election of directors. The Proposed Certificate of Incorporation will provide that shareholders may only remove a director for cause and only by the affirmative vote of the holders of a majority of the issued and outstanding
capital stock of New ZeroFox entitled to vote in the election of directors, voting together as a single class.
|
|
|
| |
|
| |
|
|
|
| |
See Article 29 subsection 29.1 of L&F’s Amended and
Restated Articles of Association.
|
| |
See Article VI, Section 1 of the Proposed Certificate of
Incorporation and Article II, Section 2.9 of the Proposed Bylaws.
|
|
|
| |
|
| |
|
352
|
|
| |
Existing Governing Documents
and Cayman Islands Law
|
| |
Proposed Governing Documents
and Delaware Law
|
|
Quorum for Shareholder Meetings
|
| |
Under the Existing Governing Documents, a quorum for a meeting of shareholders
will be present if the holders of a majority of the issued and outstanding shares are present (in person or by proxy) or, being a non-natural person, duly represented in person or by proxy.
|
| |
In order to constitute a quorum for the transaction of business at a meeting
of shareholders, the Proposed Bylaws require the presence, in person or by proxy, of the holders of a majority of the voting power of the capital stock of New ZeroFox issued and outstanding and entitled to vote at the meeting.
|
|
|
| |
|
| |
|
|
|
| |
See Article 22, subsection 22.1 of L&F’s Amended and
Restated Articles of Association.
|
| |
See Article II, Section 2.6 of the Proposed Bylaws.
|
|
|
| |
|
| |
|
|
Voting Rights Generally
|
| |
Under the Cayman Islands Companies Act and the Existing Governing Documents,
routine corporate matters may be approved by an ordinary resolution (being the affirmative vote of at least a majority of the votes cast by the holders of the issued ordinary shares who are present in person or represented by proxy and
entitled to vote thereon at the general meeting).
Except as otherwise set forth in the Existing Governing Documents,
shareholders of L&F have one vote for every share held.
Mergers require a special resolution, and any other authorization as may be
specified in the Existing Governing Documents.
All mergers (other than parent/subsidiary mergers) require shareholder
approval—there is no exception for smaller mergers.
Where a bidder has acquired 90% or more of the shares in a Cayman Islands
company, it can compel the acquisition of the shares of the remaining shareholders and thereby become the sole shareholder.
A Cayman Islands company may also be acquired through a “scheme of
arrangement” sanctioned by a Cayman Islands court and approved by a
|
| |
Generally, approval of routine corporate matters that are put to a shareholder
vote require the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter while directors are elected by a plurality of the votes cast.
Holders of New ZeroFox Common Stock will be entitled to one vote for each
share held as of the record date for the determination of the shareholders entitled to vote on such matters, including the election and removal of directors, except as otherwise required by law.
Mergers generally require approval of a majority of all outstanding shares of
voting stock. Mergers in which less than 20% of the acquirer’s stock is issued generally do not require acquirer shareholder approval.
Mergers in which one corporation owns 90% or more of a second corporation may
be completed without the vote of the second corporation’s board of directors or shareholders.
|
353
|
|
| |
Existing Governing Documents
and Cayman Islands Law
|
| |
Proposed Governing Documents
and Delaware Law
|
|
|
| |
majority in number and 75% in value of shareholders in attendance and voting
at a shareholders’ meeting.
|
| |
|
|
|
| |
|
| |
|
|
|
| |
|
| |
See Article IV, Section 3 of the Proposed Certificate of
Incorporation and Section 215 and Subchapter IX of the DGCL.
|
|
|
| |
|
| |
|
|
Amendments to Governing Documents
(Advisory Governing
Documents Proposal 5(F))
|
| |
The Existing Governing Documents provide that certain amendments may only be
made pursuant to a special resolution under the Cayman Islands Companies Act, which would require the affirmative vote of at least the holders of at least a two-thirds (2/3) majority of the votes cast by holders of L&F Ordinary
Shares who are present in person or represented by proxy and entitled to vote thereon at a general meeting, or unanimous written resolution signed by all of the shareholders entitled to vote at a general meeting.
|
| |
The Proposed Certificate of Incorporation will allow for amendments by the
affirmative vote of holders of at least a majority of the total voting power of all the then outstanding shares of stock entitled to vote thereon, voting together as a single class; provided, that certain amendments will require the
affirmative vote of the holders of two-thirds of the total voting power of the outstanding shares of capital stock entitled to vote thereon, voting together as a single class.
In addition, the Proposed Bylaws will allow for amendments with the approval
by the holders of a majority of the voting power of the shares present in person or by proxy at the meeting of shareholders and entitled to vote on the matter; provided, that certain amendments will require approval by holders of at
least two-thirds of the voting power of the then-outstanding voting securities entitled to vote thereon, voting together as a single class. See “Description of Securities–Amendments
to Certificate of Incorporation and Bylaws” below.
|
|
|
| |
|
| |
|
|
|
| |
See Article 18 of L&F’s Amended and Restatede Articles
of Association.
|
| |
See Article XI, Section 1 of the Proposed Certificate of
Incorporation and Article X of the Proposed Bylaws.
|
|
|
| |
|
| |
|
354
|
|
| |
Existing Governing Documents
and Cayman Islands Law
|
| |
Proposed Governing Documents
and Delaware Law
|
|
Shareholder Written Consent In Lieu of a Meeting
(Advisory Governing
Documents Proposal 5(D))
|
| |
The Existing Governing Documents provide that resolutions may be passed by a
vote in person or, where proxies are allowed, by proxy at a general meeting, or by unanimous written resolution.
|
| |
The Proposed Governing Documents allow shareholders to vote in person or by
proxy at a meeting of shareholders, but prohibit the ability of shareholders to act by written consent in lieu of a meeting.
|
|
|
| |
|
| |
|
|
|
| |
See Article 1 of L&F’s Amended and Restated Articles
of Association.
|
| |
See Article VIII, Section 1 of the Proposed Certificate of
Incorporation and Article II, Section 2.10 of the Proposed Bylaws.
|
|
|
| |
|
| |
|
|
Appraisal Rights
|
| |
Unless Section 239 of the Cayman Islands Companies Act applies, minority
shareholders that dissent from a merger are entitled to be paid the fair market value of their shares, which, if necessary, may ultimately be determined by the court.
|
| |
In general, under the DGCL, a shareholder of a publicly traded corporation
does not have appraisal rights in connection with a merger. Shareholders of a publicly traded corporation do, however, generally have appraisal rights in connection with a merger if they are required by the terms of a merger agreement
to accept for their shares anything except: (a) shares or depository receipts of the corporation surviving or resulting from such merger; (b) shares of stock or depository receipts that will be either listed on a national securities
exchange or held of record by more than 2,000 holders; or (c) cash in lieu of fractional shares or fractional depository receipts described in (a) and (b) above; or (d) any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depositary receipts described in (a), (b) and (c) above.
|
|
|
| |
|
| |
|
|
|
| |
|
| |
See DGCL Section 262.
|
|
|
| |
|
| |
|
|
Inspection of Books and Records
|
| |
Under Cayman Islands law, shareholders generally do not have any rights to
inspect or obtain copies of the register of shareholders or other corporate records of a company.
|
| |
Under the DGCL, any shareholder may inspect the corporation’s books and
records for a proper purpose during the usual hours for business.
|
|
|
| |
|
| |
|
|
|
| |
|
| |
See DGCL Section 220.
|
|
|
| |
|
| |
|
355
|
|
| |
Existing Governing Documents
and Cayman Islands Law
|
| |
Proposed Governing Documents
and Delaware Law
|
|
Shareholder Lawsuits
(Advisory Governing
Documents Proposal 5(C) with respect to the Exclusive Forum Provisions)
|
| |
In the Cayman Islands, the decision to institute proceedings on behalf of a
company is generally taken by the company’s board of directors. A shareholder may be entitled to bring a derivative action on behalf of the company, but only in certain limited circumstances.
The Existing Governing Documents do not expand upon or otherwise limit
statutorily provided rights.
|
| |
A shareholder may bring a derivative suit subject to procedural requirements
(including compliance with the exclusive forum provisions in the Proposed Certificate of Incorporation).
Except with respect to the exclusive forum provisions in the Proposed
Certificate of Incorporation, the Proposed Governing Documents do not expand upon or otherwise limit statutorily provided rights.
|
|
|
| |
|
| |
|
|
Provisions Related to Status as Blank Check Company
(Advisory Governing
Documents Proposal 5(G))
|
| |
The Existing Governing Documents set forth various provisions related to
L&F’s status as a blank check company prior to the consummation of a business combination.
|
| |
The Proposed Governing Documents do not include such provisions related to New
ZeroFox’s status as a blank check company, which no longer will apply upon consummation of the Business Combination, as we will cease to be a blank check company at such time.
|
|
|
| |
|
| |
|
|
|
| |
See Article 49 of L&F’s Amended and Restated Articles
of Association.
|
| |
|
|
|
| |
|
| |
|
|
Duties of Directors
|
| |
Under Cayman Islands law, a director owes fiduciary duties to a company,
including to exercise loyalty, honesty and good faith to the company as a whole.
In addition to fiduciary duties, directors owe a duty of care, diligence and
skill. Such duties are owed to the company but may be owed directly to creditors or shareholders in certain limited circumstances.
|
| |
Under Delaware law, the standards of conduct for directors have developed
through Delaware case law. Generally, directors of Delaware corporations are subject to a duty of loyalty and a duty of care. The duty of loyalty requires directors not to act for the purpose of self-dealing, and the duty of care
requires directors in managing New ZeroFox’s affairs to use that level of care which ordinarily careful and prudent persons would use in similar circumstances. When directors act consistently with their duties of loyalty and care, and
no other facts exist to call for a heightened standard of review, their decisions generally are presumed to be valid under the business judgment rule.
New ZeroFox’s Board may exercise all such authority and powers of New ZeroFox
and do all such lawful acts and things as are not by statute or the Proposed Governing Documents
|
356
|
|
| |
Existing Governing Documents
and Cayman Islands Law
|
| |
Proposed Governing Documents
and Delaware Law
|
|
|
| |
|
| |
directed or required to be exercised or done solely by the shareholders.
|
|
|
| |
|
| |
|
|
Corporate Opportunities
|
| |
The Existing Governing Documents provide that L&F 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 L&F and it is an opportunity that L&F is able
to complete on a reasonable basis.
|
| |
The Proposed Certificate of Incorporation will waive, to the fullest extent
permitted by applicable law, any corporate opportunities that a non-employee director or his or her affiliates may acquire so long as such opportunity is not offered or presented to the non-employee director solely in his or her
capacity as a director of New ZeroFox.
|
|
|
| |
|
| |
|
|
|
| |
See Article 51.2 of L&F’s Amended and Restated
Articles of Association.
|
| |
See Article XII of the Proposed Certificate of
Incorporation.
|
|
|
| |
|
| |
|
|
Indemnification of Directors and Officers
|
| |
The Existing Governing Documents require L&F to indemnify its directors
and officers except with regard to actual fraud, willful neglect or willful default.
|
| |
The Proposed Governing Documents will obligate New ZeroFox to indemnify each
current and former director or officer of New ZeroFox to the fullest extent permitted by the DGCL.
|
|
|
| |||||
|
|
| |
See Article 45 of L&F’s Amended and Restated Articles
of Association.
|
| |
See Article IX of the Proposed Certificate of
Incorporation and Article VIII of the Proposed Bylaws.
|
|
|
| |
|
| |
|
|
Limited Liability of Directors
|
| |
Liability of directors may be limited, except with regard to their own actual
fraud, willful neglect or willful default.
|
| |
The Proposed Certificate of Incorporation includes a provision that
eliminates, to the fullest extent permitted by the DGCL, the personal liability of directors for monetary damages to New ZeroFox or its shareholders for any breach of fiduciary duty as a director.
|
|
|
| |
|
| |
See Article IX of the Proposed Certificate of
Incorporation.
|
357
The following description of the Company’s securities reflects the
Company’s capital stock and warrants as they will exist as of the effective time of the Business Combination. The Company’s capital stock will be governed by the Company’s Proposed Certificate of Incorporation, the Company’s Proposed Bylaws and
the DGCL. This description is a summary and is not complete. We urge you to read the Company’s Proposed Certificate of Incorporation and Proposed Bylaws, which will be in effect prior to the effective time of the Business Combination and the
forms of which are included as Annex B and Annex C, respectively, to this proxy statement/prospectus and are incorporated herein by reference, in their entirety. Throughout this section, references to the “Company” refer to ZeroFox Holdings, Inc.
(f.k.a. L&F Acquisition Corp.) after the Business Combination as the context so requires.
General
Following the consummation of the Business Combination, the authorized
capital stock of the Company will consist of 1,100,000,000 shares of stock, $0.0001 par value per share, of which 1,000,000,000 shares will be designated as common stock and 100,000,000 shares will be designated as preferred stock. Following the
consummation of the Business Combination, assuming no Redemptions, the Company would have an aggregate of approximately 143,950,098 shares of New ZeroFox Common Stock outstanding, assuming the maximum number of shares of New ZeroFox Common Stock
that may be issued to holders of shares and equity awards of the Target Companies are issued (as more fully described in this proxy statement/prospectus), together with the shares issued to the existing shareholders of L&F and the shares
issued in connection with the Common Equity PIPE Financings, in each case in connection with the Business Combination, but excluding shares issuable upon exercise of the New ZeroFox Public Warrants and New ZeroFox Private Placement Warrants and
upon conversion of the Notes) and no shares of preferred stock issued and outstanding.
Common Stock
The Proposed Certificate of Incorporation authorizes one class of
common stock.
Dividend Rights
The DGCL permits a corporation to declare and pay dividends out of
“surplus” or, if there is no “surplus”, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. “Surplus” is defined as the excess of the net assets of the corporation over the amount
determined to be the capital of the corporation by the board of directors. The capital of the corporation is typically calculated to be (and cannot be less than) the aggregate par value of all issued shares of capital stock. Net assets equals the
fair value of the total assets minus total liabilities. The DGCL also provides that dividends may not be paid out of net profits if, after the payment of the dividend, capital is less than the capital represented by the outstanding stock of all
classes having a preference upon the distribution of assets. Delaware common law also imposes a solvency requirement in connection with the payment of dividends.
Subject to preferences that may apply to any shares of the Company’s
preferred stock outstanding at the time, the holders of the Company’s common stock will be entitled to receive dividends out of funds legally available therefor if the Company’s board of directors, in its discretion, determines to authorize the
issuance of dividends and then only at the times and in the amounts that the Company’s board of directors may determine.
Voting Rights
Holders of the Company’s common stock will be entitled to one vote for
each share held as of the record date for the determination of the shareholders entitled to vote on such matters, including the election and removal of directors, except as otherwise required by law. Under Delaware law, the right to vote
cumulatively does not exist unless the certificate of incorporation specifically authorizes cumulative voting. The Company’s Proposed Certificate of Incorporation will not authorize cumulative voting and will provide that no shareholder will be
permitted to cumulate votes at any election of directors. Consequently, the holders of a majority of the outstanding shares of the Company’s common stock can elect all of the directors then standing for election, and the holders of the remaining
shares will not be able to elect any directors.
Right to Receive Liquidation Distributions
If the Company becomes subject to a liquidation, dissolution, or
winding-up, the assets legally available for distribution to the Company’s shareholders would be distributable ratably among the holders of the Company’s
358
common stock and any participating series of the Company’s preferred stock outstanding
at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of, and the payment of any liquidation preferences on, any outstanding shares of the Company’s preferred stock.
Other Matters
All outstanding shares of the Company’s common stock will be fully paid
and nonassessable. The Company’s common stock will not be entitled to preemptive rights and will not be subject to redemption or sinking fund provisions.
Preferred Stock
The Company’s board of directors will be authorized, subject to
limitations prescribed by the DGCL, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences, and rights of the shares of
each series and any of its qualifications, limitations, or restrictions, in each case without further vote or action by the Company’s shareholders. The Company’s board of directors will be empowered to increase or decrease the number of shares of
any series of the Company’s preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by the Company’s shareholders. The Company’s board of directors will be able to authorize the
issuance of the Company’s preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the Company’s common stock. The issuance of the Company’s preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring, or preventing a change in control of the Company and might adversely affect the market price of
the Company’s common stock and the voting and other rights of the holders of the Company’s common stock. There are currently no plans to issue any shares of the Company’s preferred stock.
Board of Directors
The Company’s board of directors is expected to consist of eight
directors. The Proposed Certificate of Incorporation provides that the number of directors shall be fixed only by resolution of the board of directors. Directors are elected by a plurality of all of the votes cast in the election of directors.
Takeover Defense Provisions
Certain provisions of Delaware law, the Proposed Certificate of
Incorporation and the Proposed Bylaws, which are summarized in this proxy statement/prospectus, may have the effect of delaying, deferring, or discouraging another person from acquiring control of the Company. They are also designed, in part, to
encourage persons seeking to acquire control of the Company to negotiate first with the Company’s board of directors.
Section 203 of the DGCL
The Company will also be governed by the provisions of Section 203 of
the DGCL. In general, Section 203 of the DGCL prohibits a public Delaware corporation from engaging in a “business combination” with an “interested stockholder” (as those terms are defined in Section 203 of the DGCL) for a period of three years
after the date of the transaction in which the person became an interested stockholder, unless:
|
•
|
either the merger or the transaction which resulted in the shareholder becoming an interested stockholder was approved by the
board of directors prior to the time that the shareholder became an interested stockholder;
|
|
•
|
upon consummation of the transaction which resulted in the shareholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding shares owned by directors who are also officers of the corporation and shares owned by employee stock plans
in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
|
|
•
|
at or subsequent to the time the shareholder became an interested stockholder, the merger was approved by the Company’s board of
directors and authorized at an annual or special meeting of the shareholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.
|
359
In general, Section 203 defines a “business combination” to include
mergers, asset sales, and other transactions resulting in financial benefit to a shareholder and an “interested stockholder” as a person who, together with affiliates and associates, owns, or, within the prior three years, did own, 15% or more of
the corporation’s outstanding voting stock. These provisions may have the effect of delaying, deferring, or preventing changes in control of the Company.
Classified Board of Directors
The Proposed Certificate of Incorporation will provide that the
Company’s board of directors is divided into three classes, designated as Class I, Class II and Class III. Each class will be an equal number of directors, as nearly as possible, consisting of one-third of the total number of directors
constituting the entire board of directors. The term of the initial Class I directors will terminate on the date of the first annual meeting of shareholders following the Closing Date, the term of the initial Class II directors will terminate on
the date of the second annual meeting of shareholders following the Closing Date, and the term of the initial Class III directors will terminate on the date of the third annual meeting of shareholders following the Closing Date. At each annual
meeting of shareholders, successors to the class of directors whose term expires at that annual meeting will be elected for a three-year term.
Removal of Directors
The Proposed Certificate of Incorporation will provide that
shareholders may only remove a director for cause and only by the affirmative vote of the holders of a majority of the issued and outstanding capital stock of the Company entitled to vote in the election of directors, voting together as a single
class.
Board of Directors Vacancies
The Proposed Certificate of Incorporation and Proposed Bylaws authorize
only a majority of the remaining members of the Company’s board of directors, although less than a quorum, to fill vacant directorships, including newly created directorships. In addition, subject to the rights of holders of any series of the
Company’s preferred stock, the number of directors constituting the Company’s board of directors will be permitted to be set only by a resolution of the Company’s board of directors. These provisions would prevent a shareholder from increasing
the size of the Company’s board of directors and then gaining control of the Company’s board of directors by filling the resulting vacancies with its own nominees. This will make it more difficult to change the composition of the Company’s board
of directors and will promote continuity of management.
Shareholder Action; Special Meeting of Shareholders
The Proposed Certificate of Incorporation and Proposed Bylaws will
provide that the Company’s shareholders may not take action by written consent but may only take action at annual or special meetings of the shareholders. As a result, a holder controlling a majority of the Company’s capital stock would not be
able to amend the Proposed Bylaws, amend the Proposed Certificate of Incorporation or remove directors without holding a meeting of the Company’s shareholders called in accordance with the Proposed Certificate of Incorporation and Proposed
Bylaws. The Proposed Certificate of Incorporation and Proposed Bylaws will further provide that special meetings of shareholders of the Company may be called only by the Company’s board of directors, the Chairperson of the Company’s board of
directors, or the Chief Executive Officer or the President of the Company, thus prohibiting shareholder action to call a special meeting. These provisions might delay the ability of the Company’s shareholders to force consideration of a proposal
or for shareholders controlling a majority of the Company’s capital stock to take any action, including the removal of directors.
Advance notice requirements for shareholder
proposals and director nominations
The Proposed Certificate of Incorporation will provide that advance
notice of shareholder nominations for the election of directors and of business to be brought by shareholders before any meeting of the shareholders of the Company must be given in the manner and to the extent provided in the bylaws of the
Company. The Proposed Bylaws provide that, with respect to an annual meeting of the Company’s shareholders, nominations of persons for election to the board of directors and the proposal of other business to be transacted by the shareholders may
be made only (i) pursuant to the Company’s notice of the meeting, (ii) by or at the direction of the Company’s board of directors, (iii) as provided in the certificate of designation for any class or series of
360
preferred stock or (iv) by any shareholder who was a shareholder of record at the time
of giving the notice required by the Proposed Bylaws, at the record date(s) set by the board of directors for the purpose of determining shareholders entitled to notice of, and to vote at, the meeting, and at the time of the meeting, and who
complies with the advance notice provisions of the Proposed Bylaws.
With respect to special meetings of shareholders, only the business
specified in the Company’s notice of meeting may be brought before the meeting. Nominations of persons for election to the board of directors may be made only (i) by or at the direction of the Company’s board of directors or (ii) if the meeting
has been called for the purpose of electing directors, by any shareholder who was a shareholder of record at the time of giving the notice required by the Proposed Bylaws, at the record date(s) set by the board of directors for the purpose of
determining shareholders entitled to notice of, and to vote at, the meeting, and at the time of the meeting, and who complies with the advance notice provisions of the Proposed Bylaws.
The advance notice procedures of the Proposed Bylaws provide that, to
be timely, a shareholder’s notice with respect to director nominations or other proposals for an annual meeting must be delivered to the Company’s Secretary at the principal executive office of the Company not earlier than the 150th
day nor later than 5:00 p.m., local time, on the 120th day prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting. In the event that the date of the annual meeting is advanced by more
than 30 days before or delayed by more than 60 days after the first anniversary of the date of the preceding year’s annual meeting, to be timely, a shareholder’s notice must be delivered not earlier than the 120th day prior to the date
of such annual meeting and not later than 5:00 p.m., local time, on the later of the 90th day prior to the date of such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first
made.
These provisions might preclude shareholders of the Company from
bringing matters before the annual meeting of shareholders or from making nominations for directors at the annual meeting of shareholders if the proper procedures are not followed. These provisions may also 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 Company.
No cumulative voting
The DGCL provides that shareholders are not entitled to cumulate votes
in the election of directors unless a corporation’s certificate of incorporation provides otherwise. The Proposed Certificate of Incorporation will not provide for cumulative voting and will provide that no shareholder will be permitted to
cumulate votes at any election of directors.
Amendments to Certificate of Incorporation and
Bylaws
Except for those amendments permitted to be made without shareholder
approval under Delaware law or the Proposed Certificate of Incorporation, the Proposed Certificate of Incorporation generally may be amended only if the amendment is first declared advisable by the board of directors and thereafter approved by
holders of a majority of the outstanding stock of the Company entitled to vote thereon. Any amendment of certain provisions in the Proposed Certificate of Incorporation will require approval by holders of at least two-thirds of the voting power
of the then-outstanding voting securities of the Company entitled to vote thereon, voting together as a single class. These provisions include, among others, provisions related to the classified board structure, board composition, removal of
directors, indemnification and exculpation, cumulative voting rights, preferred stock, exclusive forum provisions, provisions related to shareholder action and advance notice, corporate opportunities and amendments to the charter, in each case as
summarized in this proxy statement/prospectus.
The Company’s board of directors will have the power to adopt, amend or
repeal any provision of the Proposed Bylaws. In addition, shareholders of the Company may adopt, amend or repeal any provision of the Proposed Bylaws with the approval by the holders of a majority of the voting power of the shares present in
person or by proxy at the meeting of shareholders and entitled to vote on the matter. Any amendment of certain provisions in the Proposed Bylaws will require approval by holders of at least two-thirds of the voting power of the then-outstanding
voting securities of the Company entitled to vote thereon, voting together as a single class. These provisions include, among others, provisions related to meetings of shareholders, the powers and composition of the board of directors, removal of
directors, indemnification of directors and officers and amendments to the Proposed Bylaws.
361
Authorized but Unissued Capital Stock
Delaware law does not require shareholder approval for any issuance of
authorized shares. However, the listing requirements of the Nasdaq Stock Market, which would apply if and so long as the common stock remains listed on the Nasdaq Stock Market, require shareholder approval of certain issuances equal to or
exceeding 20% of the then-outstanding voting power or then-outstanding number of shares of common stock. Additional shares that may be issued in the future may be used for a variety of corporate purposes, including future public offerings, to
raise additional capital or to facilitate acquisitions.
One of the effects of the existence of unissued and unreserved common
stock may be to enable the Company’s board of directors to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of the Company by means of a merger, tender
offer, proxy contest or otherwise and thereby protect the continuity of management and possibly deprive shareholders of opportunities to sell their shares of common stock at prices higher than prevailing market prices.
Exclusive Forum
The Proposed Certificate of Incorporation will provide that, unless
otherwise consented to by the Company in writing, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in 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 the following types of actions or proceedings: (i) any derivative action or proceeding brought on behalf of the Company; (ii) any action asserting a claim of breach
of a duty (including any fiduciary duty) owed by any current or former director, officer, shareholder, employee or agent of the Company to the Company or the Company’s shareholders; (iii) any action asserting a claim against the Company or any
current or former director, officer, shareholder, employee or agent of the Company relating to any provision of the DGCL or the Proposed Certificate of Incorporation or the Proposed Bylaws or as to which the DGCL confers jurisdiction on the Court
of Chancery of the State of Delaware; (iv) any action asserting a claim against the Company or any current or former director, officer, shareholder, employee or agent of the Company governed by the internal affairs doctrine of the State of
Delaware, in each such case unless the Court of Chancery (or such other state or federal court located within the State of Delaware, as applicable) has dismissed a prior action by the same plaintiff asserting the same claims because such court
lacked personal jurisdiction over an indispensable party named as a defendant therein. The Proposed Certificate of Incorporation will further provide that, unless otherwise consented to by the Company in writing to the selection of an alternative
forum, the federal district courts of the United States will, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint against any person in connection with any offering of the Company’s
securities, asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in the Company’s securities will be deemed to have notice of and consented to this provision.
Although the Proposed Certificate of Incorporation contains the choice
of forum provisions described above, it is possible that a court could rule that such provisions are inapplicable for a particular claim or action or that such provisions are unenforceable. For example, under the Securities Act, federal courts
have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. In addition,
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, therefore, the exclusive forum provisions
described above do not apply to any actions brought under the Exchange Act.
Although we believe these provisions will benefit us by limiting costly
and time-consuming litigation in multiple forums and by providing increased consistency in the application of applicable law, these exclusive forum provisions may limit the ability of our shareholders to bring a claim in a judicial forum that
such shareholders find favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers and other employees.
Corporate Opportunities
The Proposed Certificate of Incorporation provides that, to the fullest
extent permitted by applicable law, none of our non-employee directors nor his or her affiliates has any duty to refrain from, directly or indirectly, (x) engaging in the same or similar business activities or lines of business as the Company or
(y) otherwise
362
competing with the Company or its affiliates. In the event that any non-employee
director or his or her affiliates acquire knowledge of a potential transaction or other business opportunity which may be a corporate opportunity for the non-employee director, his or her affiliates or the Company, such non-employee director
will, to the fullest extent permitted by applicable law, have no duty to communicate or offer such transaction or business opportunity to the Company or any of its affiliates and will not be liable to the Company, its affiliates or the
shareholders of the Company for breach of any fiduciary duty as a director or officer of the Company solely by reason of the fact that such non-employee director or his or her affiliate pursues or acquires such opportunity for themselves, offers
or directs such opportunity to another person, or does not communicate such opportunity to the Company; provided, that the Company does not renounce its interest in any corporate opportunity expressly offered or presented to any non-employee
director solely in his or her capacity as a director of the Company.
Limitations on Liability and Indemnification of Directors and Officers
The DGCL authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their shareholders for monetary damages for breaches of directors’ fiduciary duties, subject to certain exceptions. The Company’s Proposed Certificate of Incorporation includes a provision that
eliminates the personal liability of directors for monetary damages for any breach of fiduciary duty as a director to the fullest extent permitted by the DGCL as the same exists or as may hereafter be amended from time to time. The effect of
these provisions is to eliminate the rights of the Company and its shareholders, through shareholders’ derivative suits on the Company’s behalf, to recover monetary damages from a director for breach of fiduciary duty as a director, including
breaches resulting from grossly negligent behavior. However, exculpation does not apply to any director if the director has acted in bad faith, knowingly or intentionally violated the law, authorized illegal dividends or redemptions or derived an
improper benefit from his or her actions as a director.
The Company’s Proposed Certificate of Incorporation will permit and the
Proposed Bylaws will obligate the Company to indemnify, to the fullest extent permitted by the DGCL, any director or officer of the Company who was or is a party or is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”) by reason of the fact that he or she is or was a director or officer of the Company or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with any such Proceeding. The Company will not be obligated to indemnify a person in connection with a Proceeding (or part thereof) initiated by such person unless the Proceeding (or part thereof) was, or is, authorized by
the board of directors, the Company determines to provide the indemnification or is otherwise required by applicable law. In addition, the Proposed Bylaws require the Company, to the fullest extent permitted by law, to pay, in advance of the
final disposition of a Proceeding, expenses (including attorneys’ fees) actually and reasonably incurred by an officer or director of the Company in defending any Proceeding, upon receipt of a written request therefor (together with documentation
reasonably evidencing such expenses) and an undertaking by or on behalf of the person to repay such amounts if it shall ultimately be determined that the person is not entitled to be indemnified under the Proposed Bylaws or the DGCL.
The Company expects to enter into an indemnification agreement with
each of its directors and executive officers that provide for indemnification to the maximum extent permitted by Delaware law.
The Company believes that these indemnification and advancement
provisions and insurance are useful to attract and retain qualified directors and executive officers. The limitation of liability and indemnification provisions in the Company’s Proposed Certificate of Incorporation and Proposed Bylaws may
discourage shareholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such
an action, if successful, might otherwise benefit the Company and its shareholders. In addition, your investment may be adversely affected to the extent the Company pays the costs of settlement and damage awards against directors and officers
pursuant to these indemnification provisions. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors or executive officers, we have been informed that in the opinion of the SEC such
indemnification is against public policy and is therefore unenforceable.
363
Transfer Agent
The Transfer Agent for the New ZeroFox Common Stock and New ZeroFox
Public Warrants following the Business Combination will be .
Listing of Common Stock and Warrants
L&F has applied for the listing of the common stock and warrants of
the Company on Nasdaq following the completion of the Business Combination under the symbols “ZFOX” and “ZFOXW,” respectively.
ZeroFox and IDX Options and Warrants
See “Proposal No. 2 — The Business
Combination Proposal — Consideration to be Received in the Business Combination” for a description of the treatment of outstanding stock options and warrants of ZeroFox and IDX in connection with the Business Combination.
Warrants
New ZeroFox Public Warrants
Each New ZeroFox whole warrant entitles the registered holder to
purchase one share of New ZeroFox Common Stock at a price of $11.50 per share, subject to adjustment as discussed below, at any time commencing on the later of one year from the closing of the L&F IPO and 30 days after the completion of the
Business Combination, provided in each case that New ZeroFox has an effective registration statement under the Securities Act covering the New ZeroFox Common Stock issuable upon exercise of the warrants and a current prospectus relating to them
is available (or we permit holders to exercise their warrants on a cashless basis under the circumstances specified in the warrant agreement) and such shares are registered, qualified or exempt from registration under the securities, or blue sky,
laws of the state of residence of the holder. Pursuant to the warrant agreement, a warrant holder may exercise its warrants only for a whole number of shares of New ZeroFox Common Stock. This means only a whole warrant may be exercised at a given
time by a warrant holder. No fractional warrants will be issued upon separation of the units and only whole warrants will trade. Accordingly, unless you hold at least two units, you will not be able to receive or trade a whole warrant. The
warrants will expire five years after the completion of the Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
We will not be obligated to deliver any shares of New ZeroFox 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 New ZeroFox Common Stock underlying the warrants is then
effective and a prospectus relating thereto is current, subject to our satisfying our obligations described below with respect to registration. No warrant will be exercisable and we will not be obligated to issue a share of New ZeroFox Common
Stock upon exercise of a warrant unless the share of New ZeroFox 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. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value
and expire worthless. In no event will we be required to net cash settle any warrant.
We have agreed that as soon as practicable, but in no event later than
20 business days after the closing of the Business Combination, we will use our best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the shares of New ZeroFox Common Stock issuable upon
exercise of the warrants. We will use our best efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the warrants in
accordance with the provisions of the warrant agreement. If a registration statement covering the shares of New ZeroFox Common Stock issuable upon exercise of the warrants is not effective by the 60th business day after the closing of the
Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when we will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in
accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if our shares of New ZeroFox Common Stock are at the time of any exercise of a warrant not listed on a national securities exchange such that
they satisfy the definition of a
364
“covered security” under Section 18(b)(1) of the Securities Act, we may, at our option,
require holders of public warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a
registration statement, and in the event we do not so elect, we will use our best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Redemption of New ZeroFox Warrants when the price
per share of New ZeroFox Common Stock equals or exceeds $18.00. Once the warrants become exercisable, we may redeem the outstanding warrants (except as described herein with respect to the private placement
warrants):
|
•
|
in whole and not in part;
|
|
•
|
at a price of $0.01 per warrant;
|
|
•
|
upon a minimum of 30 days’ prior written notice of redemption; and
|
|
•
|
if, and only if, the closing price of the shares of New ZeroFox Common Stock equals or exceeds $18.00 per share (as adjusted for
share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending three business days before we send the notice of redemption to the warrant holders.
|
If and when the warrants become redeemable by us, we may exercise our
redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.
We have established the last of the redemption criterion discussed
above to prevent a redemption call unless there is at the time of the call a significant premium to the warrant exercise price. If the foregoing conditions are satisfied and we issue a notice of redemption of the warrants, each warrant holder
will be entitled to exercise his, her or its warrant prior to the scheduled redemption date. However, the price of the shares of New ZeroFox Common Stock may fall below the $18.00 redemption trigger price (as adjusted for share sub-divisions,
share capitalizations, reorganizations, recapitalizations and the like) as well as the $11.50 warrant exercise price after the redemption notice is issued.
Redemption of New ZeroFox Warrants when the price
per share of New ZeroFox Common Stock equals or exceeds $10.00. Once the warrants become exercisable, we may redeem the outstanding warrants (except as described herein with respect to the private placement
warrants):
|
•
|
in whole and not in part;
|
|
•
|
at a price of $0.10 per warrant;
|
|
•
|
upon a minimum of 30 days’ prior written notice of redemption; provided that holders will be able to exercise their warrants on a
cashless basis prior to redemption and receive that number of shares determined by reference to the table below, based on the redemption date and the “fair market value” (as defined below) of our shares of New ZeroFox Common Stock except
as otherwise described below;
|
|
•
|
if, and only if, the closing price of the shares of New ZeroFox Common Stock equals or exceeds $10.00 per share (as adjusted for
share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within the 30 trading-day period ending three trading days before we send the notice of redemption to the warrant
holders; and
|
|
•
|
if the closing price of the shares of New ZeroFox Common Stock for any 20 trading days within a 30 trading day period ending on
the third trading day prior to the date on which we send the notice of redemption to the warrant holders is less than $18.00 per share (as adjusted for share sub-divisions, share capitalizations, reorganizations, recapitalizations and the
like), the private placement warrants must also be concurrently called for redemption on the same terms as the outstanding public warrants, as described above.
|
Beginning on the date the notice of redemption is given and until the
warrants are redeemed or exercised, holders may elect to exercise their warrants on a cashless basis. The numbers in the table below represent the number of shares of New ZeroFox Common Stock that a warrant holder will receive upon such cashless
exercise in connection with a redemption by us pursuant to this redemption feature, based on the “fair market value” of the shares of New ZeroFox Common Stock on the corresponding redemption date (assuming holders elect to
365
exercise their warrants and such warrants are not redeemed for $0.10 per warrant),
determined for these purposes based on the volume-weighted average price of our shares of New ZeroFox Common Stock during the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of warrants, and
the number of months that the corresponding redemption date precedes the expiration date of the warrants, each as set forth in the table below. We will provide our warrant holders with the final fair market value no later than one business day
after the 10-trading day period described above ends.
The share prices set forth in the column headings of the table below
will be adjusted as of any date on which the number of shares issuable upon exercise of a warrant or the exercise price of a warrant is adjusted as set forth under the heading “—Anti-Dilution Adjustments”
below. If the number of shares issuable upon exercise of a warrant is adjusted, the adjusted share prices in the column headings will equal the share prices immediately prior to such adjustment, multiplied by a fraction, the numerator of which is
the number of shares deliverable upon exercise of a warrant immediately prior to such adjustment and the denominator of which is the number of shares deliverable upon exercise of a warrant as so adjusted. The number of shares in the table below
shall be adjusted in the same manner and at the same time as the number of shares issuable upon exercise of a warrant. If the exercise price of a warrant is adjusted, (a) in the case of an adjustment pursuant to the fifth paragraph under the
heading “—Anti-Dilution Adjustments” below, the adjusted share prices in the column headings will equal the unadjusted share prices multiplied by a fraction, the numerator of which is the higher of the Market Value and the Newly Issued Price as
set forth under the heading “—Anti-Dilution Adjustments” and the denominator of which is $10.00 and (b) in the case of an adjustment pursuant to the second paragraph under the heading “—Anti-Dilution Adjustments” below, the adjusted share prices in the column headings will equal the unadjusted share prices less the decrease in the exercise price of a warrant pursuant to such exercise price
adjustment.
|
Redemption Date
(Period to Expiration
of Warrants)
|
| |
Fair Market Value of Shares of New ZeroFox Common Stock
|
||||||||||||||||||||||||
| |
≤$10.00
|
| |
$11.00
|
| |
$12.00
|
| |
$13.00
|
| |
$14.00
|
| |
$15.00
|
| |
$16.00
|
| |
$17.00
|
| |
≥$18.00
|
||
|
60 months
|
| |
0.261
|
| |
0.281
|
| |
0.297
|
| |
0.311
|
| |
0.324
|
| |
0.337
|
| |
0.348
|
| |
0.358
|
| |
0.361
|
|
57 months
|
| |
0.257
|
| |
0.277
|
| |
0.294
|
| |
0.310
|
| |
0.324
|
| |
0.337
|
| |
0.348
|
| |
0.358
|
| |
0.361
|
|
54 months
|
| |
0.252
|
| |
0.272
|
| |
0.291
|
| |
0.307
|
| |
0.322
|
| |
0.335
|
| |
0.347
|
| |
0.357
|
| |
0.361
|
|
51 months
|
| |
0.246
|
| |
0.268
|
| |
0.287
|
| |
0.304
|
| |
0.320
|
| |
0.333
|
| |
0.346
|
| |
0.357
|
| |
0.361
|
|
48 months
|
| |
0.241
|
| |
0.263
|
| |
0.283
|
| |
0.301
|
| |
0.317
|
| |
0.332
|
| |
0.344
|
| |
0.356
|
| |
0.361
|
|
45 months
|
| |
0.235
|
| |
0.258
|
| |
0.279
|
| |
0.298
|
| |
0.315
|
| |
0.330
|
| |
0.343
|
| |
0.356
|
| |
0.361
|
|
42 months
|
| |
0.221
|
| |
0.246
|
| |
0.269
|
| |
0.290
|
| |
0.309
|
| |
0.325
|
| |
0.340
|
| |
0.354
|
| |
0.361
|
|
39 months
|
| |
0.228
|
| |
0.252
|
| |
0.274
|
| |
0.294
|
| |
0.312
|
| |
0.328
|
| |
0.342
|
| |
0.355
|
| |
0.361
|
|
36 months
|
| |
0.213
|
| |
0.239
|
| |
0.263
|
| |
0.285
|
| |
0.305
|
| |
0.323
|
| |
0.339
|
| |
0.353
|
| |
0.361
|
|
33 months
|
| |
0.205
|
| |
0.232
|
| |
0.257
|
| |
0.280
|
| |
0.301
|
| |
0.320
|
| |
0.337
|
| |
0.352
|
| |
0.361
|
|
30 months
|
| |
0.196
|
| |
0.224
|
| |
0.250
|
| |
0.274
|
| |
0.297
|
| |
0.316
|
| |
0.335
|
| |
0.351
|
| |
0.361
|
|
27 months
|
| |
0.185
|
| |
0.214
|
| |
0.242
|
| |
0.268
|
| |
0.291
|
| |
0.313
|
| |
0.332
|
| |
0.350
|
| |
0.361
|
|
24 months
|
| |
0.173
|
| |
0.204
|
| |
0.233
|
| |
0.260
|
| |
0.285
|
| |
0.308
|
| |
0.329
|
| |
0.348
|
| |
0.361
|
|
21 months
|
| |
0.161
|
| |
0.193
|
| |
0.223
|
| |
0.252
|
| |
0.279
|
| |
0.304
|
| |
0.326
|
| |
0.347
|
| |
0.361
|
|
18 months
|
| |
0.146
|
| |
0.179
|
| |
0.211
|
| |
0.242
|
| |
0.271
|
| |
0.298
|
| |
0.322
|
| |
0.345
|
| |
0.361
|
|
15 months
|
| |
0.130
|
| |
0.164
|
| |
0.197
|
| |
0.230
|
| |
0.262
|
| |
0.291
|
| |
0.317
|
| |
0.342
|
| |
0.361
|
|
12 months
|
| |
0.111
|
| |
0.146
|
| |
0.181
|
| |
0.216
|
| |
0.250
|
| |
0.282
|
| |
0.312
|
| |
0.339
|
| |
0.361
|
|
9 months
|
| |
0.090
|
| |
0.125
|
| |
0.162
|
| |
0.199
|
| |
0.237
|
| |
0.272
|
| |
0.305
|
| |
0.336
|
| |
0.361
|
|
6 months
|
| |
0.065
|
| |
0.099
|
| |
0.137
|
| |
0.178
|
| |
0.219
|
| |
0.259
|
| |
0.296
|
| |
0.331
|
| |
0.361
|
|
3 months
|
| |
0.034
|
| |
0.065
|
| |
0.104
|
| |
0.150
|
| |
0.197
|
| |
0.243
|
| |
0.286
|
| |
0.326
|
| |
0.361
|
|
0 months
|
| |
—
|
| |
—
|
| |
0.042
|
| |
0.115
|
| |
0.179
|
| |
0.233
|
| |
0.281
|
| |
0.323
|
| |
0.361
|
The exact fair market value and redemption date may not be set forth in
the table above, in which case, if the fair market value is between two values in the table or the redemption date is between two redemption dates in the table, the number of shares of New ZeroFox Common Stock to be issued for each warrant
exercised will be determined by a straight-line interpolation between the number of shares set forth for the higher and lower fair market values and the earlier and later redemption dates, as applicable, based on a 365 or 366-day year, as
applicable. For example, if the volume weighted average price of the shares of New ZeroFox Common Stock during the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of the warrants is $11.00
per share, and at such time there are 57 months until the expiration of the
366
warrants, holders may choose to, in connection with this redemption feature, exercise
their warrants for 0.277 shares of New ZeroFox Common Stock for each whole warrant. For an example where the exact fair market value and redemption date are not as set forth in the table above, if the volume-weighted average price of the shares
of New ZeroFox Common Stock during the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of the warrants is $13.50 per share, and at such time there are 38 months until the expiration of the
warrants, holders may choose to, in connection with this redemption feature, exercise their warrants for 0.298 shares of New ZeroFox Common Stock for each whole warrant. In no event will the warrants be exercisable on a cashless basis in
connection with this redemption feature for more than 0.361 shares of New ZeroFox Common Stock per warrant (subject to adjustment). Finally, as reflected in the table above, if the warrants are out of the money and about to expire, they cannot be
exercised on a cashless basis in connection with a redemption by us pursuant to this redemption feature, since they will not be exercisable for any shares of New ZeroFox Common Stock.
This redemption feature differs from the typical warrant redemption
features used in many other blank check company offerings, which typically only provide for a redemption of warrants for cash (other than the private placement warrants) when the trading price for the shares of New ZeroFox Common Stock exceeds
$18.00 per share for a specified period of time. This redemption feature is structured to allow for all of the outstanding warrants to be redeemed when the shares of New ZeroFox Common Stock are trading at or above $10.00 per public share, which
may be at a time when the trading price of the shares of New ZeroFox Common Stock is below the exercise price of the warrants. We have established this redemption feature to provide us with the flexibility to redeem the warrants without the
warrants having to reach the $18.00 per share threshold set forth above. Holders choosing to exercise their warrants in connection with a redemption pursuant to this feature will, in effect, receive a number of shares of New ZeroFox Common Stock
for their warrants based on an option pricing model with a fixed volatility input. This redemption right provides us with an additional mechanism by which to redeem all of the outstanding warrants, and therefore have certainty as to our capital
structure as the warrants would no longer be outstanding and would have been exercised or redeemed. We will be required to pay the applicable redemption price to warrant holders if we choose to exercise this redemption right and it will allow us
to quickly proceed with a redemption of the warrants if we determine it is in our best interest to do so. As such, we would redeem the warrants in this manner when we believe it is in our best interest to update our capital structure to remove
the warrants and pay the redemption price to the warrant holders.
As stated above, we can redeem the warrants when the shares of New
ZeroFox Common Stock are trading at a price starting at $10.00, which is below the exercise price of $11.50, because it will provide certainty with respect to our capital structure and cash position while providing warrant holders with the
opportunity to exercise their warrants on a cashless basis for the applicable number of shares. If we choose to redeem the warrants when the shares of New ZeroFox Common Stock are trading at a price below the exercise price of the warrants, this
could result in the warrant holders receiving fewer shares of New ZeroFox Common Stock than they would have received if they had chosen to wait to exercise their warrants for shares of New ZeroFox Common Stock if and when such shares of New
ZeroFox Common Stock were trading at a price higher than the exercise price of $11.50.
No fractional shares of New ZeroFox Common Stock will be issued upon
exercise. If, upon exercise, a holder would be entitled to receive a fractional interest in a share, we will round down to the nearest whole number of shares of New ZeroFox Common Stock to be issued to the holder. If, at the time of redemption,
the warrants are exercisable for a security other than the shares of New ZeroFox Common Stock pursuant to the warrant agreement, the warrants may be exercised for such security. At such time as the warrants become exercisable for a security other
than the shares of New ZeroFox Common Stock, New ZeroFox (or surviving company) will use its commercially reasonable efforts to register under the Securities Act the security issuable upon the exercise of the warrants.
Holder Election to Limit Exercise. A holder of a warrant may notify us in writing in the event it elects to be subject to a requirement that such holder will not have the right to exercise such warrant, to the extent that after giving effect to such
exercise, such person (together with such person’s affiliates), to the warrant agent’s actual knowledge, would beneficially own in excess of 4.9% or 9.8% (as specified by the holder) of the shares of New ZeroFox Common Stock outstanding
immediately after giving effect to such exercise.
Anti-Dilution Adjustments. If the number of outstanding shares of New ZeroFox Common Stock is increased by a share capitalization payable in shares of New ZeroFox Common Stock, or by a sub-division of common
367
stock or other similar event, then, on the effective date of such share capitalization,
sub-division or similar event, the number of shares of New ZeroFox Common Stock issuable on exercise of each warrant will be increased in proportion to such increase in the outstanding shares of common stock. A rights offering made to all or
substantially all holders of common stock entitling holders to purchase shares of New ZeroFox Common Stock at a price less than the fair market value will be deemed a share capitalization of a number of shares of New ZeroFox Common Stock equal to
the product of (i) the number of shares of New ZeroFox Common Stock actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for shares of New
ZeroFox Common Stock) and (ii) one minus the quotient of (x) the price per share of New ZeroFox Common Stock paid in such rights offering and (y) the fair market value. For these purposes (i) if the rights offering is for securities convertible
into or exercisable for shares of New ZeroFox Common Stock, in determining the price payable for shares of New ZeroFox Common Stock, there will be taken into account any consideration received for such rights, as well as any additional amount
payable upon exercise or conversion and (ii) fair market value means the volume weighted average price of shares of New ZeroFox Common Stock as reported during the ten (10) trading day period ending on the trading day prior to the first date on
which the shares of New ZeroFox Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.
In addition, if we, at any time while the warrants are outstanding
and unexpired, pay a dividend or make a distribution in cash, securities or other assets to all or substantially all the holders of shares of New ZeroFox Common Stock on account of such shares of New ZeroFox Common Stock (or other securities
into which the warrants are convertible), other than (a) as described above, (b) certain ordinary cash dividends, (c) to satisfy the redemption rights of the Public Shareholders in connection with the Business Combination, or (d) in connection
with the redemption of our Public Shares upon our failure to complete our initial business combination, then the warrant exercise price will be decreased, effective immediately after the effective date of such event, by the amount of cash
and/or the fair market value of any securities or other assets paid on each share of New ZeroFox Common Stock in respect of such event.
If the number of outstanding shares of New ZeroFox Common Stock is
decreased by a consolidation, combination, reverse share sub-division or reclassification of shares of New ZeroFox Common Stock or other similar event, then, on the effective date of such consolidation, combination, reverse share sub-division,
reclassification or similar event, the number of shares of New ZeroFox Common Stock issuable on exercise of each warrant will be decreased in proportion to such decrease in outstanding shares of New ZeroFox Common Stock.
Whenever the number of shares of New ZeroFox Common Stock purchasable
upon the exercise of the warrants is adjusted, as described above, the warrant exercise price will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which will be the
number of shares of New ZeroFox Common Stock purchasable upon the exercise of the warrants immediately prior to such adjustment, and (y) the denominator of which will be the number of shares of New ZeroFox Common Stock so purchasable immediately
thereafter.
In case of any reclassification or reorganization of the outstanding
shares of New ZeroFox Common Stock (other than those described above or that solely affects the par value of such shares of New ZeroFox Common Stock), or in the case of any merger or consolidation of us with or into another corporation (other
than a consolidation or merger in which we are the continuing corporation and that does not result in any reclassification or reorganization of our issued and outstanding shares of New ZeroFox Common Stock), or in the case of any sale or
conveyance to another corporation or entity of the assets or other property of us as an entirety or substantially as an entirety in connection with which we are dissolved, the holders of the warrants will thereafter have the right to purchase and
receive, upon the basis and upon the terms and conditions specified in the warrants and in lieu of the shares of New ZeroFox Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the
kind and amount of shares of New ZeroFox Common Stock or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that
the holder of the warrants would have received if such holder had exercised their warrants immediately prior to such event. If less than 70% of the consideration receivable by the holders of shares of New ZeroFox Common Stock in such a
transaction is payable in the form of shares of New ZeroFox Common Stock in the successor entity that is listed for trading on a national securities exchange or is quoted in an established over-the-counter market, or is
368
to be so listed for trading or quoted immediately following such event, and if the
registered holder of the warrant properly exercises the warrant within thirty days following public disclosure of such transaction, the warrant exercise price will be reduced as specified in the warrant agreement based on the Black-Scholes
Warrant Value (as defined in the warrant agreement) of the warrant. The purpose of such exercise price reduction is to provide additional value to holders of the warrants when an extraordinary transaction occurs during the exercise period of the
warrants pursuant to which the holders of the warrants otherwise do not receive the full potential value of the warrants.
The warrants are issued in registered form under a warrant agreement
between Continental Stock Transfer & Trust Company, as warrant agent, and New ZeroFox. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder for the purpose of (i) curing any ambiguity
or to correct any defective provision or mistake, including to conform the provisions of the warrant agreement to the description of the terms of the warrants and the warrant agreement set forth in L&F’s prospectus for the L&F IPO, (ii)
adjusting the provisions relating to cash dividends on ordinary shares as contemplated by and in accordance with the warrant agreement or (iii) adding or changing any provisions with respect to matters or questions arising under the warrant
agreement as the parties to the warrant agreement may deem necessary or desirable and that the parties deem to not adversely affect the rights of the registered holders of the warrants, provided that the
approval by the holders of at least 50% of the then-outstanding public warrants is required to make any change that adversely affects the interests of the registered holders of public warrants, and, solely with respect to any amendment to the
terms of the private placement warrants, 50% of the then outstanding private placement warrants. You should review a copy of the warrant agreement, which is filed as an exhibit to the registration statement of which this proxy
statement/prospectus is a part, for a complete description of the terms and conditions applicable to the warrants.
The warrants may be exercised upon surrender of the warrant certificate
on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (or on a cashless
basis, if applicable), by certified or official bank check payable to us, for the number of warrants being exercised. The warrant holders do not have the rights or privileges of holders of shares of New ZeroFox Common Stock and any voting rights
until they exercise their warrants and receive shares of New ZeroFox Common Stock. After the issuance of shares of New ZeroFox Common Stock upon exercise of the warrants, each holder will be entitled to one vote for each share held of record on
all matters to be voted on by shareholders.
We have agreed that, subject to applicable law, any action,
proceeding or claim against us arising out of or relating in any way to the warrant agreement will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and we
irrevocably submit to such jurisdiction, which jurisdiction will be the exclusive forum for any such action, proceeding or claim. See “Risk Factors—The L&F Warrant Agreement designates
the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of New
ZeroFox Warrants, which could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with New ZeroFox.” This provision applies to claims under the Securities Act but does not apply to
claims under the Exchange Act or any claim for which the federal district courts of the United States of America are the sole and exclusive forum.
Private Placement Warrants
The private placement warrants (including the shares of New ZeroFox
Common Stock issuable upon exercise of such warrants) will not be transferable, assignable or salable until 30 days after the completion of the Business Combination (except to our officers and directors and other persons or entities affiliated
with the initial purchasers of the private placement warrants) and they will not be redeemable by us so long as they are held by the Sponsor, members of the Sponsor, Jefferies LLC or their permitted transferees, except as described above when the
price per share of New ZeroFox Common Stock equals or exceeds $10.00. The Sponsor, Jefferies LLC or their permitted transferees, have the option to exercise the private placement warrants on a cashless basis. Except as described below, the
private placement warrants have terms and provisions that are identical to those of the public warrants. If the private placement warrants are held by holders other than the Sponsor, Jefferies LLC or their permitted transferees, the private
placement warrants will be redeemable by us and exercisable by
369
the holders on the same basis as the public warrants. In accordance with FINRA Rule
5110(g)(8)(A), the warrants purchased by Jefferies LLC will not be exercisable for more than five years from the effective date of the registration statement in connection with the L&F IPO for so long as they are held by the Jefferies.
Except as described above regarding redemption procedures and cashless
exercise in respect of the public warrants, if holders of the private placement warrants elect to exercise them on a cashless basis, they would pay the exercise price by surrendering his, her or its warrants for that number of shares of New
ZeroFox Common Stock equal to the quotient obtained by dividing (x) the product of the number of shares of New ZeroFox Common Stock underlying the warrants, multiplied by the excess of the “fair market value” of our shares of New ZeroFox Common
Stock (defined below) over the exercise price of the warrants by (y) the fair market value. The “fair market value” will mean the average reported closing price of the shares of New ZeroFox Common Stock for the 10 trading days ending on the third
trading day prior to the date on which the notice of warrant exercise is sent to the warrant agent.
370
Rule 144
Pursuant to Rule 144 under the Securities Act (“Rule 144”), a person who has beneficially owned restricted common stock or warrants of New ZeroFox for at least six months would be entitled to sell their securities provided that (i) such person is not deemed
to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale and have filed all
required reports under Section 13 or 15(d) of the Exchange Act during the 12 months (or such shorter period as we were required to file reports) preceding the sale.
Persons who have beneficially owned restricted common stock or warrants
of New ZeroFox for at least six months but who are our affiliates at the time of, or at any time during the three months preceding, a sale would be entitled to sell within any three-month period only a number of securities that does not exceed
the greater of:
|
•
|
1% of the total number of shares of New ZeroFox Common Stock then outstanding (as of the date of this proxy statement/prospectus,
L&F has 17,250,000 Class A Ordinary Shares outstanding and 4,312,500 Class B Ordinary Shares outstanding); or
|
|
•
|
the average weekly reported trading volume of New ZeroFox Common Stock during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
|
Sales by our affiliates under Rule 144 are also limited by manner of
sale provisions and notice requirements and to the availability of current public information about us.
Restrictions on the Use of Rule 144 by Shell Companies or Former Shell
Companies
Rule 144 is not available for the resale of securities issued by shell
companies (other than business combination related shell companies) or issuers that have been at any time previously a shell company. However, Rule 144 also includes an important exception to this prohibition if the following conditions are met:
|
•
|
the issuer of the securities that was formerly a shell company has ceased to be a shell company;
|
|
•
|
the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
|
|
•
|
the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the
preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and
|
|
•
|
at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its
status as an entity that is not a shell company (“Form 10 information”).
|
As a result, subject to the provisions of the Sponsor Support Letter
Agreement, the L&F Initial Shareholders will be able to sell their Founder Shares and L&F Private Placement Warrants, as applicable, pursuant to Rule 144 without registration one year after we have completed the Business Combination and
filed our Form 10 information with the SEC.
We anticipate that following the consummation of the Business
Combination, we will no longer be a shell company, and so, once the conditions set forth in the exceptions listed above are satisfied, Rule 144 will become available for the resale of the above noted restricted securities.
371
Unless we have received contrary instructions, we may send a single
copy of this proxy statement/prospectus to any household at which two or more shareholders reside if we believe the shareholders are members of the same family. This process, known as “householding,” reduces the volume of duplicate information
received at any one household and helps to reduce our expenses. However, if shareholders prefer to receive multiple sets of our disclosure documents at the same address this year or in future years, the shareholders should follow the instructions
described below. Similarly, if an address is shared with another shareholder and together both of the shareholders would like to receive only a single set of our disclosure documents, the shareholders should follow these instructions:
If the shares are registered in the name of the shareholder, the
shareholder should contact us at our offices at L&F Acquisition Corp., 150 North Riverside Plaza, Suite 5200 Chicago, IL 60606, to inform us of his or her request; or
If a bank, broker or other nominee holds the shares, the shareholder
should contact the bank, broker or other nominee directly.
The Transfer Agent for our securities is Continental Stock Transfer
& Trust Company and, following the Business Combination, will be .
The Board is aware of no other matter that may be brought before the
Shareholder Meeting. Under the Cayman Islands Companies Act, only business that is specified in the notice of Shareholder Meeting to shareholders may be transacted at the Shareholder Meeting.
For any proposal to be considered for inclusion in our proxy statement
and form of proxy for submission to the shareholders at the first annual meeting of shareholders of New ZeroFox following consummation of the Business Combination, assuming consummation, it must be submitted in writing and comply with the
requirements of Rule 14a-8 of the Exchange Act.
In addition, the Proposed Bylaws provide notice procedures for
shareholders to nominate a person as a director and to propose business to be considered by shareholders at a meeting. To be timely, a shareholder’s notice must be delivered to New ZeroFox’s offices at 1834 S. Charles Street, Baltimore,
Maryland, 21230, not later than 5:00 p.m., local time, on the 120th day nor earlier than 8:00 a.m., local time, on the 150th day before the first anniversary of the date of the proxy statement
for the preceding year's annual meeting of shareholders (which anniversary date will, for purposes of New ZeroFox’s first annual meeting after its shares of stock are first publicly traded, be deemed to be April 15, 2023); provided, however,
that in the event that the annual meeting is called for a date that is not within 30 days before or a date that is more than 60 days after such anniversary date, notice by the shareholder to be timely must be so received no earlier than 8:00
a.m., local time, on the 120th day before the meeting and not later than the later of (x) 5:00 p.m., local time, on the 90th day before the meeting and (y) 5:00 p.m., local time, on the 10th
day following the day on which public announcement of the date of the annual meeting was first made by New ZeroFox. Nominations and proposals also must satisfy other requirements set forth in the Proposed Bylaws. The Chairman of the Board may
refuse to acknowledge the introduction of any shareholder proposal not made in compliance with the foregoing procedures.
Shareholders and interested parties may communicate with the L&F
Board, any committee chairperson or the non-management directors as a group by writing to the board or committee chairperson in care of L&F Acquisition Corp., 150 North Riverside Plaza, Suite 5200, Chicago, IL 60606. Following the Business
Combination, such communications should be sent in care of New ZeroFox, 1834 S. Charles Street, Baltimore, Maryland 21230, and its telephone number is (855) 936-9369. Each communication will be forwarded, depending on the subject matter, to the
board of directors, the appropriate committee chairperson or all non-management directors.
373
Kirkland & Ellis LLP, New York, NY will pass upon the validity of
the securities of New ZeroFox to be issued in connection with the Business Combination and certain other legal matters related to this proxy statement/prospectus.
The financial statements of L&F Acquisition Corp. as of
December 31, 2021 and 2020 and for the year ended December 31, 2021 and for the period from August 20, 2020 (inception) through December 31, 2020, appearing in this proxy statement/prospectus have been audited by WithumSmith+Brown, PC,
independent registered accounting firm, as stated in their report thereon 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 financial statements of ZeroFox, Inc. and subsidiaries as of
January 31, 2022 and 2021, and for each of the three years in the period ended January 31, 2022, appearing in this proxy statement/prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as
stated in their report appearing herein. Such financial statements have been so included in reliance upon the report of such firm given upon their authority experts in accounting and auditing.
The financial statements of ID Experts Holdings, Inc. and subsidiary
as of and for the year ended December 31, 2021, appearing in this proxy statement/prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein. Such
financial statements have been so included in reliance upon the report of such firm given upon their authority experts in accounting and auditing.
The consolidated financial statements of ID Experts Holdings, Inc.
and subsidiary as of December 31, 2020 and for each of the years in the two-year period ended December 31, 2020, have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The audit report covering the December 31, 2020 financial statements refers to a change to the accounting for revenue as of January 1, 2020 due to the
adoption of a new standard.
L&F 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.
L&F files reports, proxy statements and other information with the
SEC as required by the Exchange Act. You may access information on L&F at the SEC web site, which contains reports, proxy statements and other information, at: http://www.sec.gov.
This proxy statement/prospectus is available without charge to
shareholders of L&F upon written or oral request. If you would like additional copies of this proxy statement/prospectus or if you have questions about the Business Combination or the proposals to be presented at the Shareholder Meeting, you
should contact L&F in writing at L&F Acquisition Corp., 150 North Riverside Plaza, Suite 5200, Chicago IL 60606 or by telephone at (312) 701-1777.
If you have questions about the proposals or this proxy
statement/prospectus, would like additional copies of this proxy statement/prospectus, or need to obtain proxy cards or other information related to the proxy solicitation, please contact Morrow Sodali, the proxy solicitor for L&F, by calling
(800) 662-5200 (toll-free), or banks and brokers can call (203) 658-9400, or by emailing LNFA.info@investor.morrowsodali.com. You will not be charged for any of the documents that you request.
To obtain timely delivery of the documents, you must request them no
later than five business days before the date of the Shareholder Meeting, or no later than , 2022.
Information and statements contained in this proxy statement/prospectus
are qualified in all respects by reference to the copy of the relevant contract or other document included as an annex to this proxy statement/prospectus or filed as an exhibit to the registration statement of which this proxy
statement/prospectus is a part.
374
All information contained in this document relating to L&F has
been supplied by L&F and all such information relating to the Target Companies has been supplied by the Target Companies. Information provided by L&F or the Target Companies does not constitute any representation, estimate or projection
of the other.
This document is a proxy statement/prospectus of L&F for the
Shareholder Meeting. L&F has not authorized anyone to give any information or make any representation about the Business Combination, L&F or the Target Companies that is different from, or in addition to, that contained in this proxy
statement/prospectus. Therefore, if anyone does give you information of this sort, you should not rely on it. The information contained in this proxy statement/prospectus speaks only as of the date of this document unless the information
specifically indicates that another date applies.
L&F is a Cayman Islands exempted company. If L&F does not
change its jurisdiction of incorporation from the Cayman Islands to Delaware by effecting the Domestication, you may have difficulty serving legal process within the United States upon L&F. You may also have difficulty enforcing, both in and
outside the United States, judgments you may obtain in U.S. courts against L&F in any action, including actions based upon the civil liability provisions of U.S. federal or state securities laws. Furthermore, there is doubt that the courts of
the Cayman Islands would enter judgments in original actions brought in those courts predicated on U.S. federal or state securities laws. However, L&F may be served with process in the United States with respect to actions against L&F
arising out of or in connection with violation of U.S. federal securities laws relating to offers and sales of L&F’s securities by serving L&F’s U.S. agent irrevocably appointed for that purpose.
375
L&F ACQUISITION CORP.
|
|
| |
Page
|
|
Consolidated Financial Statements as
of December 31, 2021 and 2020, and for the Year Ended December 31, 2021, and for the Period from August 20, 2020 (Inception) through December 31, 2020
|
| |
|
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
|
|
| |
|
ID EXPERTS HOLDINGS, INC. AND SUBSIDIARY
|
|
| |
Page
|
|
Consolidated Financial Statements as
of December 31, 2021 and 2020, and for the Years Ended December 31, 2021, 2020, and 2019 (Audited)
|
| |
|
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | |
ZEROFOX, INC. AND SUBSIDIARIES
|
|
| |
Page
|
|
Consolidated Financial Statements as
of January 31, 2022 and 2021, and for the Years Ended January 31, 2022, 2021, and 2020
|
| |
|
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | |
FS-1
To the Shareholders and the Board of Directors of
L&F Acquisition Corp.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of L&F Acquisition Corp. (the
“Company”) as of December 31, 2021 and 2020 and the related statements of operations, changes in shareholders’ deficit and cash flows for the year ended December 31, 2021 and for the period from August 20, 2020 (inception) through December 31,
2020 and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated 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 year ended December 31, 2021 and for the period from August 20, 2020 (inception) through December 31, 2020, in conformity with accounting principles generally accepted in the
United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, if the Company is unable to raise additional funds to alleviate liquidity needs as well as complete a Business Combination by the close of
business on May 23, 2022, then the Company will cease all operations except for the purpose of liquidating. This date for mandatory liquidation and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going
concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit 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 consolidated
financial statements. Our audit 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
audit provides a reasonable basis for our opinion.
/s/ WithumSmith+Brown, PC
PCAOB 100
We have served as the Company’s auditor since 2020.
New York, New York
March 14, 2022
FS-2
