aao
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Joan S. Guilfoyle
901 New
York Avenue NW3rd Floor EastWashington, DC 20001-4432
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Direct 202.524.8467
Main 202.618.5000
Fax 202.618.5001
jguilfoyle@loeb.com
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July
14, 2023
Benjamin
Holt
Jeffrey
Gabor
Shannon
Menjivar
Howard
Efron
Division
of Corporation Finance
Office
of Real Estate & Construction
U.S.
Securities and Exchange Commission
100 F
Street, N.E.
Washington,
D.C. 20549
Re:
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American Acquisition Opportunity Inc.
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Proposed
Changes to References to the Valuation Expert for
Amendment
No. 3 to Registration Statement on Form S-4
File No. 333-268817
Dear
Mr. Holt, Mr. Gabor, Ms. Menjivar, and Mr. Efron:
On
behalf of our client, American Acquisition Opportunity Inc., a
Delaware corporation (the “Company”) and in accordance with
our telephone conversations on July 13, 2023, we submit to the
staff (the “Staff”) of the U.S. Securities and
Exchange Commission the attached proposed changes regarding
references to the valuation expert, in response to Comment #4 in
the Staff’s letter dated May 22, 2023 regarding Amendment No.
2 to the Company’s Registration Statement on Form
S-4.
Please
do not hesitate to contact Mitchell Nussbaum at (212) 407-4159 or
Joan S. Guilfoyle at (202) 524-8567 at Loeb & Loeb LLP with any
questions or comments regarding this letter.
Sincerely,
Joan S.
GuilfoyleSenior Counsel
Q:
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Does the American Acquisition Opportunity Board have a
recommendation?
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The
American Acquisition Opportunity Board believes that the Business
Combination and the other proposals to be presented at the special
meeting are in the best interest of American Acquisition
Opportunity’s stockholders and unanimously recommends that
its stockholders vote “FOR” the approval of the
Business Combination Proposal, “FOR” the approval of
the Charter Proposal, “FOR” the approval of the Nasdaq
Proposal, “FOR” the approval, on an advisory basis, of
each of the separate Advisory Charter Proposals, and
“FOR” the approval of the Adjournment Proposal, in each
case, if presented to the special meeting.
The
existence of financial and personal interests of one or more of
American Acquisition Opportunity’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 American
Acquisition Opportunity and its stockholders and what he or they
may believe is best for himself or themselves in determining to
recommend that stockholders vote for the proposals. The American
Acquisition Opportunity Board was aware of and considered these
interests, among other matters, in approving the Business
Combination and in determining to recommend to the stockholders to
vote in favor of the proposals at the special meeting. See the
section of this proxy statement/prospectus entitled
“The Business Combination
Proposal - Interests of Certain Persons in the Business
Combination.”
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Q.
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Did the American Acquisition Opportunity Board obtain a third-party
valuation or fairness opinion in determining whether or not to
proceed with the Business Combination?
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A.
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No, the
American Acquisition Opportunity Board did not obtain a fairness
opinion in connection with the Business Combination. In
connection with the Board’s determination as to the value of
Royalty, the American Acquisition Opportunity Board consulted with
third parties to assist in its valuation of Royalty and its revenue
streams, it was the American Acquisition Opportunity Board that
determined the ultimate terms of the Business Combination.
The American Acquisition Opportunity Board did initially seek to
obtain a fairness opinion as well but determined that the cost
associated with obtaining such an opinion would exceed the
perceived value as the holders of American Acquisition Opportunity
Class B Common Stock had committed to vote in favor of the Business
Combination and their vote was sufficient to approve the Business
Combination. In analyzing the Business Combination, the American
Acquisition Opportunity Board and management conducted due
diligence on Royalty and researched the industry in which Royalty
operates and concluded that the Business Combination was in the
best interest of American Acquisition Opportunity’s
stockholders. In reaching this conclusion, the American Acquisition
Opportunity Board considered a number of factors and a broad range
of information, including industry knowledge, market comparable
financial data for similar royalty companies, financial
projections, existing revenue contracts and as well as an
evaluation of the pipeline of potential revenue contracts. For a
complete discussion of the factors utilized by the American
Acquisition Opportunity Board in approving the Business
Combination, see the section titled, “Proposal No. 1 — The Business
Combination — American Acquisition Opportunity Board’s
Reasons for the Approval of the Business Combination.”
The American Acquisition Opportunity Board believes that based upon
the financial skills and background of its directors, it was
qualified to conclude that the Business Combination was fair to its
stockholders. The American Acquisition Opportunity Board also
determined that Royalty’s fair market value was at least 80%
of American Acquisition Opportunity’s net assets, excluding
any taxes payable on interest earned. Accordingly, investors will
be relying on the judgment of the American Acquisition Opportunity
Board, as described above, in valuing Royalty’s business and
assuming the risk that the American Acquisition Opportunity Board
may not have properly valued such business.
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Q.
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Do I have redemption rights?
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A. If
you are a holder of Public Shares, you may redeem your Public
Shares for cash equal to their pro rata share of the aggregate
amount on deposit in the Trust Account, which holds the remaining
proceeds of the IPO and a concurrent private placement of warrants
to the Founders (after redemptions that took place in March 2022
and September 2022 in connection with the approval of charter
amendments to extend the period of time in which a business
combination may be completed), 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 American Acquisition Opportunity to pay its income taxes or
franchise taxes payable. Holders of the outstanding Public Warrants
do not have redemption rights with respect to such warrants in
connection with the Business Combination. All of the Founders have
agreed to waive their redemption rights with respect to their
Founder Shares and any Public Shares that they may have acquired
during or after the IPO in connection with the completion of
American Acquisition Opportunity’s business combination. The
Founder Shares will be excluded from the pro rata calculation used
to determine the per share redemption price. For illustrative
purposes, based on funds in the Trust Account of approximately
$___ million on ___________, 2023 the estimated per share
redemption price would have been approximately $___. Additionally,
Public Shares properly tendered for redemption will only be
redeemed if the Business Combination is consummated. otherwise,
holders of such shares will only be entitled to a pro rata portion
of the Trust Account, including interest (which interest shall be
net of taxes payable by American Acquisition Opportunity), in
connection with the liquidation of the Trust Account.
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Q.
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Will how I vote affect my ability to exercise redemption
rights?
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A. No.
You may exercise your redemption rights whether you vote your
Public Shares for or against the Business Combination Proposal and
other Stockholder Proposals or do not vote your shares at all. As a
result, the Business Combination Proposal can be approved by
stockholders who will redeem their Public Shares and no longer
remain stockholders, leaving stockholders who choose not to redeem
their Public Shares holding shares in a company with a less liquid
trading market, fewer stockholders, less cash and the potential
inability to meet the listing standards of Nasdaq.
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American
Acquisition Opportunity’s management (Mark Jensen and Kirk
Taylor) discussed the revised draft of the non-binding letter of
intent internally on April 19, 2022 and decided to submit the
non-binding letter of intent to the American Acquisition
Opportunity Board (including the three disinterested members) for
review and approval of the binding exclusivity terms without
further changes.
On
April 21, 2022, the American Acquisition Opportunity Board held a
meeting to review and discuss the terms of the non-binding letter
of intent and other strategic transactions. The American
Acquisition Opportunity Board (including three disinterested
directors) unanimously authorized American Acquisition
Opportunity’s management to continue discussions with Royalty
regarding the proposed business combination under the rollover
equity valuation of $111 million, to conduct more intensive due
diligence on Royalty and to enter into the non-binding letter of
intent, including the binding exclusivity terms.
On May
3, 2022, at the direction of the American Acquisition Opportunity
Board, American Acquisition Opportunity management engaged an
independent CPA firm to assist the American Acquisition
Opportunity Board in its financial due diligence on Royalty
and on May 6, 2022, American Acquisition Opportunity management
engaged Loeb & Loeb LLP (“Loeb”) as its external
counsel for the transaction.
On May
10, May 13 and May 17, 2022, Kirk Taylor and Loeb held detailed due
diligence and structural discussions about Royalty and the proposed
transaction.
On May
19, 2022, Kirk Taylor of American Acquisition Opportunity held a
detailed discussion with the independent CPA firm assisting
the American Acquisition Opportunity Board regarding
Royalty’s financial model. These discussions and model
development included:
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Royalty’s internally-prepared forecasts, underlying contracts
of existing royalty and lease streams, commodity index pricing,
estimates for administrative costs including accounting, legal and
costs related to being a public company, review of organizational
chart and capitalization.
- Key
assumptions used in the model including contracted
terms, commodity pricing, anticipated costs including costs for
administrative items such as accounting, legal and the costs of
being public and macroeconomic trends that may affect operating
margins including interest rate fluctuations and inflation
rates.
- In
formulating Royalty’s value, the American Acquisition
Opportunity Board utilized three valuation approaches were
reviewed; income approach, asset approach, and market approach.
When reviewing the market approach the comparable companies as
outlined by EF Hutton were used.
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Initial ranges of value from the work performed and analyses were
$268 Million to $83 Million with a mid-point of $129
million.
On May
23, 2022, American Acquisition Opportunity management consisting of
Mark Jensen and Kirk Taylor and Thomas Sauve of Royalty held a
discussion regarding the expected timing of audited 2021 Royalty
financial statements. American Acquisition Opportunity management
and Loeb held a discussion on timing of a draft Business
Combination Agreement.
On May
24, 2022, American Acquisition Opportunity received a draft
Business Combination Agreement from Loeb which was then shared with
management of Royalty. On May 25, 2022, Mark Jensen and Kirk
Taylor of American Acquisition Opportunity and Thomas Sauve of
Royalty met to discuss certain of the business terms of the
Business Combination Agreement. In particular, Key provisions that
were discussed included the structure of the transaction, required
lock up agreements, surviving company board representation, the
timing of Royalty audited financial statements, indemnification for
American Acquisition Opportunity management and board members,
American Acquisition Opportunity stockholder approval requirements,
Royalty shareholder approval requirements, a minimum cash condition
of $15,000,000, the minimum net tangible assets requirement in the
Charter of American Acquisition Opportunity, the convertibility of
Royalty’s outstanding convertible notes and warrants of
Royalty and the necessity that the transaction be completed by
September 22, 2022.
On May
26, 2022, American Acquisition Opportunity received comments and
clarifications from Royalty on the draft Business Combination
Agreement and American Acquisition Opportunity discussed the
comments and clarifications of the draft Business Combination
Agreement with Loeb. Both American Acquisition Opportunity and
Royalty provided the other with an initial draft of its disclosure
schedules.
On May
27, 2022, Loeb sent a revised draft of the Business Combination
Agreement to American Acquisition Opportunity and Royalty. The
revised Business Combination Agreement addressed post Business
Combination structure, provided for an employment agreement for the
Royalty CEO and also provided that American Acquisition Opportunity
could seek an extension of the time period in which it must
complete an initial business combination.
On May
31, 2022, American Acquisition Opportunity and Loeb discussed
additional due diligence requests of Royalty which were conveyed to
Royalty. Royalty responded that day by uploading the requested
information into the data room. A revised draft of the Business
Combination Agreement was shared with the working group as well.
Initial drafts of the various ancillary agreements were also shared
with the working group.
On June
1, 2022, the American Acquisition Opportunity Board had a detailed
discussion on Royalty valuation with its outside
consultants. Each line of the Royalty financial model was
discussed. Both micro and macro global economic conditions were
discussed. Current contractual revenue streams and current cash
flows were discussed. Potential revenue streams being negotiated
were discussed. Cost structure and margins of both the current and
future contracted revenue streams were discussed. Risks related to
inflation, recession, supply chain and employment markets were
discussed. Interest rates and capital market access for potential
partners were discussed.
On June
1, 2022, Royalty informed American Acquisition Opportunity that the
Royalty board (including its disinterested members) had approved
the draft Business Combination Agreement.
On June
2, 2022, Mark Jensen and Kirk Taylor of American Acquisition
Opportunity and Thomas Sauve of Royalty held a discussion on a
number of remaining due diligence items and updates to their
business and outlook into future contracted revenue. Royalty also
updated the American Acquisition team on the status of
Royalty’s audit and provided American Acquisition Opportunity
with updated year-to-date financial information which showed
continued progression on capital raising and cash flow from current
contracted revenue sources.
On June
2, 2022, Mr. Jensen and Mr. Taylor held a detailed discussion
with its outside consultants on the Royalty business
model. Stressed tested revenue and expense lines were
discussed.
On June
3, 2022, Mr. Jensen, Mr. Taylor and Mr. Sauve discussed ongoing
business diligence requests.
On June
6, 2022, Mr. Jensen and Mr. Taylor of American Acquisition
Opportunity and representatives of EF Hutton held a discussion on a
capital markets plan. The discussion included the micro and
macroeconomic factors which would effect a future valuation of the
Combined Company.
On June
7, 2022, Loeb sent a detailed legal due diligence
request.
On June
7, 2022, the American Acquisition Opportunity
Board and its outside consultants held a
model and preliminary valuation discussion. The focus was on the
results of the stress test discussed on June 2, 2022 on revenue and
expense lines.
On June
8, 2022, the American Acquisition Opportunity received a
preliminary report from its outside advisors. This
report was reviewed by Kirk Taylor and Mark Jensen and
an updated preliminary valuation range was determined
by the American Acquisition Opportunity Board of $83,420,246
to $268,477,725 with a midpoint of $129,000,000.
On June
8, 2022, American Acquisition Opportunity management and Loeb held
a detailed due diligence discussion. American Acquisition
Opportunity, Royalty and EF Hutton also held a management
presentation.
On June
8, 2022, Mr. Jensen and Mr. Taylor of American Acquisition
Opportunity, representatives from Loeb and Hunt Law, counsel for
Royalty and Mr. Sauve of Royalty held a detailed discussion
regarding the Business Combination Agreement and items which need
to be completed.
On June
9, 2022, American Acquisition Opportunity management and Royalty
management held a discussion on Royalty business updates and
progression of revenue streams. The parties also discussed the
timing and status of Royalty’s December 31, 2021 audit and
September 30, 2022 quarterly review. Management of American
Acquisition Opportunity stressed the importance of the timing of
receipt of these financials as they would be required for the Form
S-4 that would need to be filed with the SEC to register the shares
to be issued in the Business Combination.
On June
13, 2022, Mr. Jensen and Mr. Taylor of American Acquisition
Opportunity and Thomas Sauve of Royalty held a discussion regarding
the Business Combination Agreement updates; in particular, the
closing conditions. American Acquisition Opportunity held its
quarterly board of directors meeting that same day. Management
updated the full American Acquisition Opportunity Board on the
status of the negotiations. This presentation included an overview
of procedures and analyses performed, assumptions used and
discounts applied to the working financial model. This analysis
provided a range of value of $250 Million to $85 Million with a
midpoint of $128 Million. The change in valuation to a variety of
factors including the progression of Royalty’s business plan,
global commodity pricing and macroeconomic trends.
After
the meeting, the American Acquisition Opportunity management team
met with Thomas Sauve of Royalty to discuss the initial draft of
the Royalty disclosure schedules to be provided in connection with
the Business Combination Agreement.
On June
14, 2022, American Acquisition Opportunity management, Royalty
Management, Loeb and Hunt held a detailed discussion on BCA
regarding terms of conditions of closing, valuation, status of
Royalty audits and Royalty business endeavors.
American
Acquisition Opportunity management had initial discussions with a
firm to be engaged in connection with providing a fairness opinion
to American Acquisition Opportunity as required under its charter .
The parties anticipated that such opinion would be provided
post-signing. American Acquisition Opportunity engaged a firm
to provide a fairness opinion. After payment of a retainer and
initial due diligence work, the Company was informed that it could
not issue a fairness opinion due to the related party nature. The
Company subsequently reached out to other potential providers but
the price would have been cost prohibitive.
On June
15, 2022, Loeb, Hunt, American Acquisition Opportunity and Royalty
discussed various registration questions regarding registration of
current and future stockholders.
On June 16,
2022, Loeb sent an updated draft of the Business Combination
Agreement to American Acquisition Opportunity and Royalty. American
Acquisition Opportunity management and Royalty management discussed
final open issues in the draft Business Combination Agreement which
were closing conditions and post-merger management and board
composition. .
On June 20,
2022, American Acquisition Opportunity and Royalty discussed timing
of the preparation of Royalty’s financial reports. The
parties held a group conference call to discuss the remaining open
issues on the draft Business Combination Agreement, due diligence,
legal and timing discussion. American Acquisition Opportunity
discussed the likely timing for the firm being engaged to provide a
fairness opinion to complete its work.