UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☒ ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,
2020
☐ TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to
_____
Commission file number: 001-38306
LEISURE ACQUISITION CORP.
(Exact name of registrant as specified
in its charter)
(Address of principal executive offices) (Zip Code)
Issuer’s telephone number: (646)565-6940
Securities registered pursuant to Section
12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.0001 per share LACQ The Nasdaq Stock Market LLC
Warrants to purchase one share of Common Stock LACQW The Nasdaq Stock Market LLC
Securities registered pursuant to Section
12(g) of the Act: None
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check
mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
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 definition of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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 13(a) of the Exchange Act ☐
Indicate by check
mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No ☐
The aggregate market
value of the common stock outstanding, other than shares held by persons who may be deemed affiliates of the registrant, computed
by reference to the closing price for the common stock as of the last business day of the registrant’s most recently completed
second fiscal quarter, as reported on the Nasdaq Capital Market, was approximately $3.7 million.
As of March 15, 2021,
there were 6,224,268 shares of common stock, par value $0.0001 per share, of the registrant issued and outstanding.
TABLE OF CONTENTS
PAGE
PART I 1
Item 1. Business 1
Item 1A. Risk Factors 18
Item 1B. Unresolved Staff Comments 43
Item 2. Properties 43
Item 3 Legal Proceedings 43
Item 4. Mine Safety Disclosures 43
Item 6. Selected Financial Data 44
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 50
Item 8. Financial Statements and Supplementary Data 50
Item 9A. Controls and Procedures 50
Item 9B. Other Information 51
PART III 52
Item 10. Directors, Executive Officers and Corporate Governance 52
Item 11. Executive Compensation 60
Item 14. Principal Accountant Fees and Services 65
PART IV
Item 15. Exhibits, Financial Statement Schedules 65
Signatures 68
i
Unless otherwise stated in this Annual Report on Form 10-K
(this “Report”), references to:
● “we,” “us,” “company”, “our company” or LACQ are to Leisure Acquisition Corp.;
ii
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This Report, including, without limitation,
statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements can be identified by the use of forward-looking terminology, including
the words “believes,” “estimates,” “anticipates,” “expects,” “intends,”
“plans,” “may,” “will,” “potential,” “projects,” “predicts,”
“continue,” or “should,” or, in each case, their negative or other variations or comparable terminology.
There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not
limited to, any statements relating to our ability to consummate any acquisition or other Business Combination and any other statements
that are not statements of current or historical facts. These statements are based on management’s current expectations,
but actual results may differ materially due to various factors, including, but not limited to:
● our public securities’ potential liquidity and trading;
● the lack of a market for our securities;
● the Trust Account not being subject to claims of third parties; or
● our financial performance.
The forward-looking statements contained
in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on
us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number
of risks, uncertainties (some of which are beyond our control) and 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, those factors described under the heading “Risk Factors” in this Report. 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. These risks and others described under “Risk Factors” may not be exhaustive.
By their nature, forward-looking statements
involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.
We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations,
financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made
in or suggested by the forward-looking statements contained in this Report. In addition, even if our results of operations, financial
condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements
contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods.
iii
PART I
Item 1. Business
Introduction
We are a blank check company incorporated
on September 11, 2017 as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset
acquisition, stock purchase, reorganization or similar Business Combination with one or more businesses (a “Business Combination”).
We have neither engaged in any operations nor generated any revenue to date. Based on our business activities, we are a “shell
company” as defined under the Securities Exchange Act of 1934 (the “Exchange Act”) because we have no operations
and nominal assets consisting solely of cash and/or cash equivalents.
On January 31, 2021, we entered into an
Agreement and Plan of Merger (the “Merger Agreement”), by and among us, Ensysce, and EB Merger Sub, Inc., a Delaware
corporation and wholly owned subsidiary of LACQ (“Merger Sub”), relating to a proposed business combination transaction
between our company and Ensysce (the transactions contemplated thereunder referred to as the “Transactions”). Ensysce
is a clinical stage pharmaceutical company with innovative solutions for severe pain relief while reducing the fear of and the
potential for addiction, opioid misuse, abuse and overdose. Ensysce has also incorporated a 79.2%-owned subsidiary, Covistat Inc.
(“Covistat”), a clinical stage pharmaceutical company that is developing a compound utilized in Ensysce’s overdose
protection program for the treatment of COVID-19. The Transactions are described in more detail under the section “Our Proposed
Business Combination with Ensysce” below.
Consummation of the Transactions contemplated
by the Merger Agreement is subject to customary conditions of the respective parties, including the approval of the Business Combination
by our stockholders.
The Merger Agreement and related agreements
are further described in the Form 8-K filed by us on February 2, 2021. For additional information regarding the Merger Agreement
and the Transactions, see the Registration Statement on Form S-4, as may be amended from time to time, and the Definitive
Proxy Statement on Schedule 14A, each when filed by us with the Securities and Exchange Commission.
Because the period of time we have to complete our Business
Combination (the “Combination Period”) will expire on June 30, 2021, it is likely that, if the proposed Business Combination
with Ensysce is not consummated, we will not be able to seek another Business Combination and we will be required to liquidate.
See “Redemption of Public Shares and Liquidation if No Business Combination.”
In addition,we
received a notice from Nasdaq as to our continued listing on Nasdaq due, in part, to our not meeting the requirement that a special
purpose acquisition company complete one or more business combinations within 36 months of the effectiveness of its registration
statement. We were granted an extension, subject to certain milestones, through June 1, 2021 for completion of a business combination
and we could be delisted from Nasdaq if we do not complete a business combination by that date. See “Item 1A. Risk Factors
— The Nasdaq may not continue to list our securities, which could limit investors’ ability to make transactions in
our securities and subject us to additional trading restrictions”.
Other than as specifically discussed,
this report does not assume the closing of the Business Combination.
Background
On December 5, 2017, we consummated
our initial public offering of 20,000,000 units (“Units”), with each unit consisting of one share of our common stock,
and one-half (1/2) of one warrant, each whole warrant entitling the holder to purchase one share of common stock at a price of
$11.50. Simultaneously with the closing of the initial public offering, we consummated a private placement of 6,825,000 Private
Placement Warrants at a price of $1.00 per warrant to affiliates of our sponsors, our strategic investor and certain members of
our management team (the “Concurrent Private Placement”), which generated gross proceeds of $6,825,000.
Immediately following the closing of our
initial public offering and the Concurrent Private Placement, $200,000,000 of the gross proceeds from the initial public offering
and the Concurrent Private Placement was deposited in a U.S.-based Trust Account (the “Trust Account”) with Continental
Stock Transfer and Trust Company acting as trustee (the “Trustee”). Since the completion of the initial public offering,
our activity has been limited to the evaluation of business combination candidates and seeking to complete an initial business
combination.
In connection with special stockholders
meetings at which the completion window was extended, an aggregate of 18,775,732 public shares were redeemed for cash from the
trust account, for an aggregate redemption amount of approximately $196.4 million. As of December 31, 2020, there was approximately
$12,628,170 held in the trust account.
Our charter, as amended, currently provides
that it will have until June 30, 2021 to complete a business combination.
Our Units, Common Stock and Warrants are
listed on Nasdaq Capital Market under the symbols “LACQU,” “LACQ,” and “LACQW,” respectively.
Our Proposed Business Combination with
Ensysce
Ensysce is a clinical stage pharmaceutical
company with innovative solutions for severe pain relief while reducing the fear of and the potential for addiction, opioid misuse,
abuse and overdose. Ensysce has also incorporated a 79.2%-owned subsidiary, Covistat, a clinical stage pharmaceutical company
that is developing a compound utilized in Ensysce’s overdose protection program for the treatment of COVID-19.
On January 31, 2021, we entered into the
Merger Agreement with Merger Sub, our wholly-owned subsidiary, and Ensysce, providing for, among other things, and subject to
the terms and conditions therein, a business combination between Ensysce and LACQ pursuant to the proposed merger of Merger Sub
with and into Ensysce, with Ensysce continuing as the surviving entity providing for, subject to the terms of the Merger Agreement,
total Merger consideration of no more than (i) 17,500,000 shares of our common stock (includes shares issuable on conversion of
the Ensysce convertible notes (other than up to $5,000,000 of newly issued Ensysce convertible notes (which are convertible notes
issued after the date of the Merger Agreement) and the shares underlying the Ensysce options and Ensysce warrants) plus (ii) up
to 500,000 shares of our common stock issuable in respect of the newly issued Ensysce Convertible Notes.
At the reference price of $10.00 per share
of LACQ common stock, the total Merger consideration of 17,051,830 shares of LACQ common stock (based on the number of shares
of Ensysce common stock outstanding at January 31, 2021) (excluding the shares underlying outstanding options and warrants of
Ensysce which will be automatically converted into options and warrants to acquire shares of LACQ common stock at closing of the
business combination and excluding up to 500,00 shares of LACQ common stock which may be issuable with respect to the newly issued
Ensysce convertible notes would have a value of $170,518,300.
In connection with the Merger Agreement,
officers and directors of Ensysce entered Lock-up Agreements pursuant to which they have agreed not to sell, transfer, pledge
or otherwise dispose of shares of LACQ common stock they hold or receive for certain time periods specified therein.
Further, we and sponsors entered into
a Warrant Surrender Agreement pursuant to which each of the Hydra sponsor and the Matthews Lane sponsor agreed to irrevocably
forfeit and surrender 250,000 LACQ warrants immediately prior to, and contingent upon, the closing of the Merger Agreement.
The Company is incurring significant costs
in the pursuit of its acquisition plans. LACQ may be required to seek additional resources in the future to fund general corporate
purposes. LACQ cannot assure you that its plans to complete the Transactions will be successful.
Our Acquisition Process
In evaluating a prospective target business,
our process involves conducting a thorough due diligence review that encompasses, among other things, meetings with incumbent
management and employees, document reviews, as well as a review of financial, operational, legal and other information made available
to us. We will also utilize our operational and capital planning experience. In connection with the proposed Business Combination
with Ensysce, our officers and directors primary industry experience relates to the leisure sector and they do not have experience
with companies in the biotechnology sector
We are not prohibited from pursuing a
business combination with a company that is affiliated with our sponsors, strategic investor, officers or directors. In the event
we seek to complete our Business Combination with a company that is affiliated with our sponsors, strategic investor, officers
or directors, we, or a committee of independent directors, will obtain an opinion from an independent investment banking firm
that is a member of Financial Industry Regulatory Authority, or FINRA, or an independent accounting firm that our Business Combination
is fair to our company from a financial point of view.
Members of our management team and our
independent directors directly or indirectly own founder shares and/or private placement warrants and, accordingly, may have a
conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate our
Business Combination. Further, each of our officers and directors may have a conflict of interest with respect to evaluating a
particular Business Combination if the retention or resignation of any such officers and directors was included by a target business
as a condition to any agreement with respect to our Business Combination.
Each of our officers and directors presently
has, and any of them in the future may have additional, fiduciary or contractual obligations to other entities pursuant to which
such officer or director is or will be required to present a Business Combination opportunity. Accordingly, if any of our officers
or directors becomes aware of a Business Combination opportunity which is suitable for an entity to which he or she has then-current
fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such opportunity
to such entity and not to us. We do not believe, however, that the fiduciary duties or contractual obligations of our officers
or directors will materially affect our ability to complete our Business Combination. Our amended and restated certificate of
incorporation provides that we renounce our interest in any corporate opportunity offered to any director or officer unless such
opportunity is expressly offered to such person solely in his or her capacity as a director or officer of our company and such
opportunity is one we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue.
In addition to the above, our executive
officers, including our Executive Chairman and our Chief Executive Officer, have certain duties to Inspired Entertainment, Inc.
(“Inspired”), a global gaming technology company, including but not limited to fiduciary and/or contractual duties.
As a result, our executive officers will have certain duties to offer acquisition opportunities to Inspired before we can pursue
such opportunities. However, we do not expect these duties to present a significant conflict of interest with our search for a
Business Combination. In addition, our executive officers are not required to commit any specified amount of time to our affairs,
and, accordingly, will have conflicts of interest in allocating management time among various business activities, including identifying
potential business combinations and monitoring the related due diligence. Moreover, our executive officers have time and attention
requirements with respect to their duties to Inspired.
Our officers and directors have agreed
not to participate in the formation of, or become an officer or director of, any other blank check company until we have entered
into a definitive agreement regarding our Business Combination or we have failed to complete our Business Combination within the
required timeframe.
Business Combination
The Nasdaq rules require that our Business
Combination must occur with one or more target businesses that together have an aggregate fair market value of at least 80% of
the assets held in the Trust Account (excluding the deferred underwriting commissions and taxes payable on the income earned on
the Trust Account) at the time of the agreement to enter into the Business Combination. If our board is not able to independently
determine the fair market value of the target business or businesses, we will obtain an opinion from an independent investment
banking firm that is a member of FINRA or an independent accounting firm with respect to the satisfaction of such criteria.
We anticipate structuring our Business
Combination so that the post-transaction company in which our public stockholders own shares will own or acquire 100% of the equity
interests or assets of the target business or businesses. We may, however, structure our Business Combination such that the post-transaction
company owns or acquires less than 100% of such interests or assets of the target business in order to meet certain objectives
of the target management team or stockholders or for other reasons, but we will only complete such Business Combination if the
post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires
a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment
Company Act. Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our stockholders
prior to the Business Combination may collectively own a minority interest in the post-transaction company, depending on valuations
ascribed to the target and us in the Business Combination transaction. For example, we could pursue a transaction in which we
issue a substantial number of new shares in exchange for all of the outstanding capital stock of a target. In this case, we would
acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares,
our stockholders immediately prior to our Business Combination could own less than a majority of our outstanding shares subsequent
to our Business Combination. If less than 100% of the equity interests or assets of a target business or businesses are owned
or acquired by the post-transaction company, the portion of such business or businesses that is owned or acquired is what will
be valued for purposes of the 80% of net assets test. If the Business Combination involves more than one target business, the
80% of net assets test will be based on the aggregate value of all of the target businesses and we will treat the target businesses
together as the Business Combination for purposes of a tender offer or for seeking stockholder approval, as applicable.
Our Management Team
Members of our management team are not
obligated to devote any specific number of hours to our matters but they intend to devote as much of their time as they deem necessary
to our affairs until we have completed our Business Combination. The amount of time that any member of our management team will
devote in any time period will vary based on whether a target business has been selected for our Business Combination and the
current stage of the Business Combination process.
Status as a Public Company
We believe our structure makes us an attractive
business combination partner to target businesses. As an existing public company, we offer a target business an alternative to
the traditional initial public offering through a merger or other business combination. In this situation, the owners of the target
business would exchange their shares of stock in the target business for shares of our stock or for a combination of shares of
our stock and cash, allowing us to tailor the consideration to the specific needs of the sellers. Although there are various costs
and obligations associated with being a public company, we believe target businesses will find this method a more certain and
cost effective method to becoming a public company than the typical initial public offering. In a typical initial public offering,
there are additional expenses incurred in marketing, road show and public reporting efforts that may not be present to the same
extent in connection with a Business Combination with us.
Furthermore, once a proposed business
combination is completed, the target business will have effectively become public, whereas an initial public offering is always
subject to the underwriters’ ability to complete the offering, as well as general market conditions, which could delay or
prevent the offering from occurring or could have negative valuation consequences. Once public, we believe the target business
would then have greater access to capital and an additional means of providing management incentives consistent with stockholders’
interests. It can offer further benefits by augmenting a company’s profile among potential new customers and vendors and
aid in attracting talented employees.
We are an “emerging growth company,”
as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart
Our Business Startups Act (the “JOBS Act”). 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 IPO Closing Date, (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 common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we
have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
Contingent Forward Purchase Contract
On December 1, 2017, our strategic investor
entered into a Contingent Forward Purchase Contract with us to purchase, in a private placement for gross proceeds of approximately
$62,500,000 to occur concurrently with the consummation of the business combination, 6,250,000 units on substantially the same
terms as the sale of units in our initial public offering at $10.00 per unit. The Contingent Forward Purchase Contract was waived
by our strategic investor in the connection with the proposed Business Combination with Ensysce.
Effecting our Business Combination
General
We are not presently engaged in, and we
will not engage in, any operations for an indefinite period of time. We intend to effectuate our Business Combination using cash
held in the Trust Account from the proceeds of our Initial Public Offering. We may also use our capital stock, debt or a combination
of these to provide capital in connection with our Business Combination. We may seek to complete our Business Combination with
a company or business that may be financially unstable or in its early stages of development or growth, which would subject us
to the numerous risks inherent in such companies and businesses.
If our Business Combination is paid for
using equity or debt securities, or not all of the funds released from the Trust Account are used for payment of the consideration
in connection with our Business Combination or used for redemptions of purchases of our common stock, we may apply the balance
of the cash released to us from the Trust Account, for general corporate purposes, including for maintenance or expansion of operations
of the post-transaction company, the payment of principal or interest due on indebtedness incurred in completing our Business
Combination or for working capital.
We may seek to raise additional funds
through a private offering of debt or equity securities in connection with the completion of our Business Combination.
Subject to compliance with applicable
securities laws, we would expect to complete such financing only simultaneously with the completion of our Business Combination.
In the case of any financing in connection with closing of a Business Combination funded our tender offer documents or proxy materials
disclosing the Business Combination would disclose the terms of the financing and, only if required by law, we would seek stockholder
approval of such financing. There are no prohibitions on our ability to raise funds privately or through loans in connection with
our Business Combination. At this time, we are not a party to any arrangement or understanding with any third party with respect
to raising any additional funds through the sale of securities or otherwise.
Sources of Target Businesses
We are not prohibited from pursuing our
Business Combination with a target that is affiliated with our sponsors, strategic investor, officers or directors or making the
acquisition through a joint venture or other form of shared ownership with our sponsors, strategic investor, officers or directors.
In the event we seek to complete our Business Combination with a target that is affiliated with our sponsors, strategic investor,
officers or directors, we, or a committee of independent directors, would obtain an opinion from an independent investment banking
firm that is a member of FINRA or an independent accounting firm that such an initial Business Combination is fair to our company
from a financial point of view. We are not required to obtain such an opinion in any other context.
If any of our officers or directors becomes
aware of a Business Combination opportunity that falls within the line of business of any entity to which he or she has pre-existing
fiduciary or contractual obligations, he or she may be required to present such Business Combination opportunity to such entity
prior to presenting such Business Combination opportunity to us. Our officers and directors currently have certain relevant fiduciary
duties or contractual obligations that may take priority over their duties to us. If any of our officers or directors becomes
aware of a Business Combination opportunity that is suitable for one of these entities to which he has a fiduciary or contractual
obligation, he will honor such obligation to present such opportunity to such entity rather than to us. Our directors and officers
will only have an obligation to present an opportunity to us if such opportunity is expressly offered to such person solely in
his capacity as a director or officer of our company and such opportunity is one we are legally and contractually permitted to
undertake and would otherwise be reasonable for us to pursue.
Selection of a Target Business and Structuring of our Initial
Business Combination
The Nasdaq rules require that our Business
Combination must occur with one or more target businesses that together have an aggregate fair market value of at least 80% of
our assets held in the Trust Account (excluding the deferred underwriting commissions and taxes payable on the income earned on
the Trust Account) at the time of the agreement to enter into the Business Combination. The fair market value of the target or
targets will be determined by our board of directors based upon one or more standards generally accepted by the financial community,
such as discounted cash flow valuation or value of comparable businesses. If our board is not able to independently determine
the fair market value of the target business or businesses, we will obtain an opinion from an independent investment banking firm
that is a member of FINRA, or from an independent accounting firm, with respect to the satisfaction of such criteria. Subject
to this requirement, our management will have virtually unrestricted flexibility in identifying and selecting one or more prospective
target businesses, although we will not be permitted to effectuate our Business Combination with another blank check company or
a similar company with nominal operations.
In any case, we will only complete a Business
Combination in which we own or acquire 50% or more of the outstanding voting securities of the target or otherwise acquire a controlling
interest in the target sufficient for it not to be required to register as an investment company under the Investment Company
Act. If we own or acquire less than 100% of the equity interests or assets of a target business or businesses, the portion of
such business or businesses that are owned or acquired by the post-transaction company is what will be valued for purposes of
the 80% of net assets test.
To the extent we effect our Business Combination
with a company or business that may be financially unstable or in its early stages of development or growth we may be affected
by numerous risks inherent in such company or business. Although our management will endeavor to evaluate the risks inherent in
a particular target business, we cannot assure you that we will properly ascertain or assess all significant risk factors.
In evaluating a prospective target business,
we expect to conduct a thorough due diligence review, which will encompass, among other things, meetings with incumbent management
and employees, document reviews, interviews of customers and suppliers, inspection of facilities, as well as a review of financial,
operational, legal and other information that will be made available to us.
The time required to select and evaluate
a target business and to structure and complete our Business Combination, and the costs associated with this process, are not
currently ascertainable with any degree of certainty. Any costs incurred with respect to the identification and evaluation of
a prospective target business with which our Business Combination is not ultimately completed will result in our incurring losses
and will reduce the funds we can use to complete another Business Combination.
Lack of Business Diversification
For an indefinite period of time after
the completion of our Business Combination, the prospects for our success will depend entirely on the future performance of a
single business. Unlike other entities that have the resources to complete Business Combinations with multiple entities in one
or several industries, it is probable that we will not have the resources to diversify our operations and mitigate the risks of
being in a single line of business. By completing our Business Combination with only a single entity, our lack of diversification
may:
Limited Ability to Evaluate the Target’s Management Team
Although as part of our process in reviewing
potential Business Combinations, including the proposed Business Combination with Ensysce, we scrutinize the management of a prospective
target business when evaluating the desirability of effecting our Business Combination with that business, our assessment of the
target business’ management may not prove to be correct. In addition, the future management may not have the necessary skills,
qualifications or abilities to manage a public company. Furthermore, the future role of members of our management team, if any,
in the target business cannot presently be stated with any certainty. While it is possible that one or more of our directors will
remain associated in some capacity with us following our Business Combination, it is unlikely that any of them will devote their
full efforts to our affairs subsequent to our Business Combination. Moreover, we cannot assure you that members of our management
team will have significant experience or knowledge relating to the operations of the particular target business and, in connection
with the proposed Business Combination with Ensysce, our officers and directors do not have experience in connection with the
biotechnology sector.
We cannot assure you that any of our key
personnel will remain in senior management or advisory positions with the combined company. The determination as to whether any
of our key personnel will remain with the combined company will be made at the time of our initial Business Combination.
Following a Business Combination, we may
seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure you that we
will have the ability to recruit additional managers, or that additional managers will have the requisite skills, knowledge or
experience necessary to enhance the incumbent management.
Stockholders May Not Have the Ability to Approve Our Combination
We may conduct redemptions without a stockholder
vote pursuant to the tender offer rules of the SEC. However, we will seek stockholder approval if it is required by law or applicable
stock exchange rule, or we may decide to seek stockholder approval for business or other legal reasons. In connection with the
proposed Business Combination with Ensysce, we have determined to seek stockholder approval and stockholder approval would be
required to comply with Nasdaq rules. Our initial stockholders and their respective affiliates, including the sponsors and the
strategic investor and directors and officers, have agreed to vote in favor of the Business Combination and have sufficient votes
to approve the Business Combination without the vote of other stockholders. Presented in the table below is a graphic explanation
of the types of initial Business Combinations we may consider and whether stockholder approval is currently required under Delaware
law for each such transaction.
Type of Transaction Whether Stockholder Approval is Required
Purchase of assets No
Purchase of stock of target not involving a merger with the company No
Merger of target into a subsidiary of the company No
Merger of the company with a target Yes
Under Nasdaq’s listing rules, stockholder approval would
be required for our Business Combination if, for example:
Permitted Purchases of our Securities
In the event we seek stockholder approval
of our Business Combination and we do not conduct redemptions in connection with our Business Combination pursuant to the tender
offer rules, our sponsors, strategic investor, directors, officers, advisors or their affiliates may purchase shares in privately
negotiated transactions or in the open market either prior to or following the completion of our Business Combination. However,
they have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions
for any such transactions. They will not make any such purchases when they are in possession of any material non-public information
not disclosed to the seller or if such purchases are prohibited by Regulation M under the Exchange Act. Such a purchase may include
a contractual acknowledgement that such stockholder, although still the record holder of our shares is no longer the beneficial
owner thereof and therefore agrees not to exercise its redemption rights. We have adopted an insider trading policy which requires
insiders to: refrain from purchasing shares during certain blackout periods and when they are in possession of any material nonpublic
information and to clear all trades with our legal counsel prior to execution. We cannot currently determine whether our insiders
will make such purchases pursuant to a Rule 10b5-1 plan, as it will be dependent upon several factors, including but not limited
to, the timing and size of such purchases. Depending on such circumstances, our insiders may either make such purchases pursuant
to a Rule 10b5-1 plan or determine that such a plan is not necessary.
In the event that our sponsors, strategic
investor, directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from public stockholders
who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior
elections to redeem their shares. We do not currently anticipate that such purchases, if any, would constitute a tender offer
subject to the tender offer rules under the Exchange Act or a going-private transaction subject to the going-private rules under
the Exchange Act; however, if the purchasers determine at the time of any such purchases that the purchases are subject to such
rules, the purchasers will comply with such rules.
The purpose of such purchases would be
to (i) vote such shares in favor of the Business Combination and thereby increase the likelihood of obtaining stockholder approval
of the Business Combination or (ii) to satisfy a closing condition in an agreement with a target that requires us to have a minimum
net worth or a certain amount of cash at the closing of our Business Combination, where it appears that such requirement would
otherwise not be met. This may result in the completion of our Business Combination that may not otherwise have been possible.
In addition, if such purchases are made,
the public “float” of our common stock may be reduced and the number of beneficial holders of our securities may be
reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities
exchange.
Our sponsors, strategic investor, officers,
directors and/or their affiliates anticipate that they may identify the stockholders with whom our sponsors, strategic investor,
officers, directors or their affiliates may pursue privately negotiated purchases by either the stockholders contacting us directly
or by our receipt of redemption requests submitted by stockholders following our mailing of proxy materials in connection with
our Business Combination. To the extent that our sponsors, strategic investor, officers, directors, advisors or their affiliates
enter into a private purchase, they would identify and contact only potential selling stockholders who have expressed their election
to redeem their shares for a pro rata share of the Trust Account or vote against the Business Combination. Our sponsors, strategic
investor, officers, directors, advisors or their affiliates will only purchase shares if such purchases comply with Regulation
M under the Exchange Act and the other federal securities laws.
Any purchases by our sponsors, strategic
investor, officers, directors and/or their affiliates who are affiliated purchasers under Rule 10b-18 under the Exchange Act will
only be made to the extent such purchases are able to be made in compliance with Rule 10b-18, which is a safe harbor from liability
for manipulation under Section 9(a)(2) and Rule 10b-5 of the Exchange Act. Rule 10b-18 has certain technical requirements that
must be complied with in order for the safe harbor to be available to the purchaser. Our sponsors, strategic investor, officers,
directors and/or their affiliates will not make purchases of common stock if the purchases would violate Section 9(a)(2) or Rule
10b-5 of the Exchange Act.
None of the funds in the Trust Account
will be used to purchase shares in such transactions.
Redemption Rights for Public Stockholders
Upon Completion of our Business Combination
We will provide our public stockholders
with the opportunity to redeem all or a portion of their shares of common stock upon the completion of our Business Combination
at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account 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 us to pay our franchise and income taxes, divided by the number of then outstanding public shares, subject
to the limitations described herein. The amount initially held in the Trust Account was $10.00 per public share and is expected
to increase to the extent that interest accrues in the Trust Account. The per-share amount we will distribute to public stockholders
who properly redeem their shares will not be reduced by the deferred underwriting commissions we will pay to the underwriters.
Manner of Conducting Redemptions
We will provide our public stockholders
with the opportunity to redeem all or a portion of their shares of common stock upon the completion of our Business Combination
either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer.
The decision as to whether we will seek stockholder approval of a proposed Business Combination or conduct a tender offer will
be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether
the terms of the transaction would require us to seek stockholder approval under the law or stock exchange listing requirement.
Asset acquisitions and stock purchases would not typically require stockholder approval while direct mergers with our company
where we do not survive and any transactions where we issue more than 20% of our outstanding common stock or seek to amend our
amended and restated certificate of incorporation would require stockholder approval. If we structure a Business Combination transaction
with a target company in a manner that requires stockholder approval, we will not have discretion as to whether to seek a stockholder
vote to approve the proposed business combination. We intend to conduct redemptions without a stockholder vote pursuant to the
tender offer rules of the SEC unless stockholder approval is required by law or stock exchange listing requirements or we choose
to seek stockholder approval for business or other legal reasons.
If a stockholder vote is not required
and we do not decide to hold a stockholder vote for business or other legal reasons, we will, pursuant to our amended and restated
certificate of incorporation:
Upon the public announcement of our Business
Combination, we or our sponsors will terminate any plan established in accordance with Rule 10b5-1 to purchase shares of our common
stock in the open market if we elect to redeem our public shares through a tender offer, to comply with Rule 14e-5 under the Exchange
Act.
In the event we conduct redemptions pursuant
to the tender offer rules, our offer to redeem will remain open for at least 20 business days, in accordance with Rule 14e-1(a)
under the Exchange Act, and we will not be permitted to complete our Business Combination until the expiration of the tender offer
period. In addition, the tender offer will be conditioned on public stockholders not tendering more than a specified number of
public shares which are not purchased by our sponsors or strategic investor, which number will be based on the requirement that
we may not redeem public shares in an amount that would cause our net tangible assets to be less than $5,000,001 (so that we are
not subject to the SEC’s “penny stock” rules) or any greater net tangible asset or cash requirement which may
be contained in the agreement relating to our Business Combination. If public stockholders tender more shares than we have offered
to purchase, we will withdraw the tender offer and not complete the Business Combination.
If, however, stockholder approval of the
transaction is required by law or stock exchange listing requirement, or we decide to obtain stockholder approval for business
or other legal reasons, we will, pursuant to our amended and restated certificate of incorporation:
● file proxy materials with the SEC.
In the event that we seek stockholder
approval of our Business Combination, we will distribute proxy materials and, in connection therewith, provide our public stockholders
with the redemption rights described above upon completion of the Business Combination.
If we seek stockholder approval, we will
complete our Business Combination only if a majority of the outstanding shares of common stock voted are voted in favor of the
Business Combination. A quorum for such meeting will consist of the holders present in person or by proxy of shares of outstanding
capital stock of the company representing a majority of the voting power of all outstanding shares of capital stock of the company
entitled to vote at such meeting. Our initial stockholders will count toward this quorum and have agreed, after approval of our
board, to vote their founder shares and any public shares purchased during or after our Initial Public Offering in favor of our
Business Combination. For purposes of seeking approval of the majority of our outstanding shares of common stock voted, non-votes
will have no effect on the approval of our Business Combination once a quorum is obtained. There are currently 6,224,268 shares
of our common stock outstanding so at least 3,112,135 shares must be voted in favor to pass the Transactions contemplated by the
Merger Agreement. Our Board, officers and other initial stockholders and their respective affiliates (including the Sponsors and
Strategic Investor) own of record and are entitled to vote an aggregate of 6,000,000 shares and have agreed to vote in favor of
Transaction so no additional public shares are required to be voted in favor of the Transactions for it to be approved. We intend
to give not less than 10 days nor more than 60 days prior written notice of any such meeting, if required, at which a vote shall
be taken to approve our Business Combination. These quorum and voting thresholds, and the voting agreements of our initial stockholders,
may make it more likely that we will consummate our Business Combination. Each public stockholder may elect to redeem its public
shares irrespective of whether they vote for or against the proposed transaction. Our initial stockholders and their respective
affiliates, including the sponsors and the strategic investor and directors and officers, have agreed to vote in favor of the
Business Combination and have sufficient votes to approve the Business Combination without the vote of other stockholders
Our amended and restated certificate of
incorporation provides that in no event will we redeem our public shares in an amount that would cause our net tangible assets
to be less than $5,000,001 (so that we are not subject to the SEC’s “penny stock” rules) or any greater net
tangible asset or cash requirement which may be contained in the agreement relating to our Business Combination. For example,
the proposed Business Combination may require: (i) cash consideration to be paid to the target or its owners, (ii) cash to be
transferred to the target for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other
conditions in accordance with the terms of the proposed Business Combination. In the event the aggregate cash consideration we
would be required to pay for all shares of common stock that are validly submitted for redemption plus any amount required to
satisfy cash conditions pursuant to the terms of the proposed Business Combination exceed the aggregate amount of cash available
to us, we will not complete the Business Combination or redeem any shares, and all shares of common stock submitted for redemption
will be returned to the holders thereof.
Limitation on Redemption Upon Completion of our Business
Combination if We Seek Stockholder Approval
Notwithstanding the foregoing, if we seek
stockholder approval of our Business Combination and we do not conduct redemptions in connection with our Business Combination
pursuant to the tender offer rules, our amended and restated certificate of incorporation provides that a public stockholder,
together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group”
(as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to more than
an aggregate of 20% of the shares sold in our Initial Public Offering, which we refer to as the “Excess Shares.” We
believe this restriction will discourage stockholders from accumulating large blocks of shares, and subsequent attempts by such
holders to use their ability to exercise their redemption rights against a proposed Business Combination as a means to force us
or our management to purchase their shares at a significant premium to the then-current market price or on other undesirable terms.
Absent this provision, a public stockholder holding more than an aggregate of 20% of the shares sold in our Initial Public Offering
could threaten to exercise its redemption rights if such holder’s shares are not purchased by us or our management at a
premium to the then-current market price or on other undesirable terms. By limiting our stockholders’ ability to redeem
no more than 20% of the shares sold in our Initial Public Offering, we believe we will limit the ability of a small group of stockholders
to unreasonably attempt to block our ability to complete our Business Combination, particularly in connection with a business
combination with a target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. However,
we would not be restricting our stockholders’ ability to vote all of their shares (including Excess Shares) for or against
our Business Combination.
Tendering Stock Certificates in Connection with a Tender
Offer or Redemption Rights
We may require our public stockholders
seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,”
to either tender their certificates to our transfer agent prior to the date set forth in the tender offer documents or proxy materials
mailed to such holders, or up to two business days prior to the vote on the proposal to approve the Business Combination in the
event we distribute proxy materials, or to deliver their shares to the transfer agent electronically using Depository Trust Company’s
DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option. The tender offer or proxy materials, as applicable,
that we will furnish to holders of our public shares in connection with our Business Combination will indicate whether we are
requiring public stockholders to satisfy such delivery requirements. Accordingly, a public stockholder would have from the time
we send out our tender offer materials until the close of the tender offer period, or up to two days prior to the vote on the
Business Combination if we distribute proxy materials, as applicable, to tender its shares if it wishes to seek to exercise its
redemption rights. Given the relatively short exercise period, it is advisable for stockholders to use electronic delivery of
their public shares.
There is a nominal cost associated with
the above-referenced tendering process and the act of certificating the shares or delivering them through the DWAC System. The
transfer agent will typically charge the tendering broker $80.00 and it would be up to the broker whether or not to pass this
cost on to the redeeming holder. However, this fee would be incurred regardless of whether or not we require holders seeking to
exercise redemption rights to tender their shares. The need to deliver shares is a requirement of exercising redemption rights
regardless of the timing of when such delivery must be effectuated.
The foregoing is different from the procedures
used by many blank check companies. In order to perfect redemption rights in connection with their business combinations, many
blank check companies would distribute proxy materials for the stockholders’ vote on a Business Combination, and a holder
could simply vote against a proposed business combination and check a box on the proxy card indicating such holder was seeking
to exercise his or her redemption rights. After the business combination was approved, the company would contact such stockholder
to arrange for him or her to deliver his or her certificate to verify ownership. As a result, the stockholder then had an “option
window” after the completion of the business combination during which he or she could monitor the price of the company’s
stock in the market. If the price rose above the redemption price, he or she could sell his or her shares in the open market before
actually delivering his or her shares to the company for cancellation. As a result, the redemption rights, to which stockholders
were aware they needed to commit before the stockholder meeting, would become “option” rights surviving past the completion
of the business combination until the redeeming holder delivered its certificate. The requirement for physical or electronic delivery
prior to the meeting ensures that a redeeming holder’s election to redeem is irrevocable once the business combination is