The following discussion and analysis of the Company's financial condition and
results of operations of Landcadia Holdings III, Inc. (the "Company") should be
read in conjunction with the financial statements and the notes thereto
contained elsewhere in this report (the "Quarterly Report"). Certain information
contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report includes forward-looking statements. These forward-looking
statements are based on our current expectations and beliefs concerning future
developments and their potential effects on us. There can be no assurance that
future developments affecting us will be those that we have anticipated. These
forward-looking statements involve a number of risks, uncertainties (some of
which are beyond our control) or other assumptions that may cause actual results
or performance to be materially different from those expressed or implied by
these forward-looking statements. Our forward-looking statements include, but
are not limited to, statements regarding our or our management team's
expectations, hopes, beliefs, intentions or strategies regarding the future. In
addition, any statements that refer to projections, forecasts or other
characterizations of future events or circumstances, including any underlying
assumptions, are forward-looking statements. For example, statements made
relating to future business combinations, use of proceeds of past securities
offerings, future loans and conversions of warrants 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. Factors that might cause or contribute to such
forward-looking statements include, but are not limited to, those set forth in
the Risk Factors section of the Company's annual report on Form 10-K/A filed
with the SEC on May 3, 2021. The following discussion should be read in
conjunction with our financial statements and related notes thereto included
elsewhere in this report.
Overview
We are a blank check company incorporated 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 ("Business Combination"). We consummated the Public
Offering on October 14, 2020. We intend to use the cash proceeds from our public
offering and the private placement of warrants described below as well as
additional issuances, if any, of our capital stock, debt or a combination of
cash, stock and debt to complete the Business Combination.
We expect to incur significant costs in the pursuit of our acquisition plans.
There can be no assurance that our plans to raise capital or to complete our
initial Business Combination will be successful.
The Company's management team is led by Tilman Fertitta, our Co-Chairman and
Chief Executive Officer, and Richard Handler, our Co-Chairman and President. Mr.
Fertitta is the sole shareholder of TJF, LLC ("TJF") and Mr. Handler is the
Chief Executive Officer of Jefferies Financial Group Inc. ("JFG"), and its
largest operating subsidiary, Jefferies Group LLC, a global investment banking
firm. The Company's sponsors are TJF and JFG (collectively, the "Sponsors").
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Liquidity and Capital Resources
On October 14, 2020 we consummated a $500,000,000 public offering consisting of
50,000,000 units at a price of $10.00 per unit ("Units"). Each Unit consists of
one share of the Company's Class A common stock, $0.0001 par value (the "Class A
Common Stock") and one-third of one redeemable warrant (each, a "Public
Warrant"). Simultaneously, with the closing of the Public Offering, we
consummated the $12,000,000 private placement ("Private Placement") of an
aggregate of 8,000,000 private placement warrants ("Sponsor Warrants") Sponsor
Warrants at a price of $1.50 per warrant. Upon closing of the Public Offering
and Private Placement on October 14, 2020, $500,000,000 in proceeds (including
$17,500,000 of deferred underwriting commissions) from the public offering and
private placement was placed in a U.S.-based trust account maintained by
Continental Stock Transfer & Trust Company, acting as trustee. The remaining
$12,000,000 held outside of trust was used to pay underwriting commissions of
$10,000,000, loans to our Sponsors, and deferred offering and formation costs.
As of March 31, 2021, we had an unrestricted balance of $510,864 as well as cash
and accrued interest held in the Trust Account of $500,026,153. Our working
capital needs will be satisfied through the funds, held outside of the Trust
Account, from the public offering. Interest on funds held in the Trust Account
may be used to pay income taxes and franchise taxes, if any. Further, our
Sponsors may, but are not obligated to, loan us funds as may be required in
connection with the Business Combination. Up to $1,500,000 of these loans may be
converted into warrants of the post business combination entity at a price of
$1.50 per warrant at the option of the lender and would be identical to the
Sponsor Warrants.
Agreement for Business Combination
On January 24, 2021, our board of directors unanimously approved an agreement
and plan of merger, dated January 24, 2021, by and among Landcadia, Helios Sun
Merger Sub, Inc., our wholly owned subsidiary ("Merger Sub"), HMAN Group
Holdings Inc., a Delaware corporation ("Hillman Holdco") and CCMP Sellers'
Representative, LLC, a Delaware limited liability company in its capacity as the
Stockholder Representative thereunder (in such capacity, the "Stockholder
Representative") (as it may be amended and/or restated from time to time, the
"Merger Agreement"). If the Merger Agreement is adopted by our stockholders and
the transactions under the Merger Agreement are consummated, Merger Sub will
merge with and into Hillman Holdco with Hillman Holdco surviving the merger as
our wholly owned subsidiary (the "Proposed Transaction"). Hillman Holdco is a
holding company that indirectly holds all of the issued and outstanding capital
stock of The Hillman Group, Inc., which, together with its direct and indirect
subsidiaries (Hillman Holdco, The Hillman Group, Inc. and its direct and
indirect subsidiaries, collectively, "Hillman" and each such entity, a "Hillman
Group Entity"), is in the business of providing hardware-related products and
related merchandising services to retail markets in North America. In connection
with the consummation of the Proposed Transaction, we will be renamed "Hillman
Solutions Corp." Such entity is referred to herein as "New Hillman" as of the
time following such change of name.
In accordance with the terms and subject to the conditions of the Merger
Agreement, we have agreed to pay aggregate consideration in the form of New
Hillman common stock (the "Aggregate Consideration") calculated as described
below and equal to a value of approximately (i) $911,300,000 plus
(ii) $28,280,000, such amount being the value of 2,828,000 shares of our Class B
common stock, par value $0.0001 per share (the "Class B common stock"), valued
at $10.00 per share that our sponsors, TJF, LLC ("TJF") and Jefferies Financial
Group Inc., ("JFG" and, together with TJF, the "Sponsors"), have agreed to
forfeit at the closing of the Proposed Transaction (the "Closing").
At the effective time of the Proposed Transaction, all outstanding shares of
common stock of Hillman Holdco will be cancelled in exchange for the right to
receive, with respect to each such share, a certain number of shares of New
Hillman common stock valued at $10.00 per share equal to (A) (i) the Aggregate
Consideration plus (ii) the value that would be received by Hillman Holdco upon
the exercise of all outstanding Hillman Holdco options as of immediately prior
to the Closing (the "Adjusted Purchase Price"), divided by (B) (i) the total
number of shares of Hillman Holdco common stock outstanding as of immediately
prior to the Closing plus (ii) the number of shares of Hillman Holdco common
stock underlying all then outstanding Hillman Holdco options and shares of
Hillman Holdco restricted stock outstanding as of immediately prior to the
Closing (the "Adjusted Per Share Merger Value").
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At the effective time, each outstanding option to purchase shares of Hillman
Holdco common stock (a "Hillman Holdco Option"), whether vested or unvested,
will be assumed by New Hillman and will be converted into an option to acquire
common stock of New Hillman ("New Hillman Options") with substantially the same
terms and conditions as applicable to the Hillman Holdco Option immediately
prior to the effective time (including expiration date, vesting conditions and
exercise provisions), except that (i) each such Hillman Holdco Option shall be
exercisable for that number of shares of New Hillman common stock equal to the
product (rounded down to the nearest whole number) of (A) the number of shares
of Hillman Holdco common stock subject to such Hillman Holdco Assumed Option
immediately prior the effective time multiplied by (B) the quotient of (1) the
Adjusted Per Share Merger Value divided by (2) $10.00 (such quotient, with
respect to each Hillman Holdco Option, the "Closing Stock Per Option Amount"),
(ii) the per share exercise price for each share of New Hillman common stock
issuable upon exercise of the New Hillman Option shall be equal to the quotient
(rounded up to the nearest whole cent) obtained by dividing (A) the exercise
price per share of Hillman Holdco subject to such Hillman Holdco Option
immediately prior to the effective time by (B) the Closing Stock Per Option
Amount; (iii) the Hillman Holdco Board (or the compensation committee of the
Hillman Holdco Board) may appropriately adjust the performance conditions
applicable to certain of the New Hillman Options; and (iv) the Hillman Holdco
Board (or the compensation committee of the Hillman Holdco Board) may make such
other immaterial administrative or ministerial changes to the New Hillman
Options as it may determine in good faith are appropriate to effectuate the
administration of the New Hillman Options and to ensure consistency with the
administrative and ministerial provisions of the New Hillman Incentive Equity
Plan;
At the effective time, each share of unvested restricted Hillman Holdco common
stock will be cancelled and converted into the right to receive a number of
shares of restricted New Hillman common stock ("New Hillman Restricted Stock")
equal to the quotient of (a) the Adjusted Per Share Merger Value divided by
(b) $10.00 (such quotient, with respect to each share of unvested Hillman Holdco
restricted stock, the "Closing Stock Per Restricted Share Amount") with
substantially the same terms and conditions as were applicable to the related
share of Hillman Holdco Restricted Stock immediately prior to the effective time
(including with respect to vesting and termination-related provisions), except
that (i) any per-share repurchase price of such New Hillman Restricted Stock
shall be equal to the quotient obtained by dividing (A) the per-share repurchase
price applicable to the Hillman Holdco Restricted Stock, by (B) the Closing
Stock Per Restricted Share Amount, rounded up to the nearest cent and (ii) the
Hillman Holdco Board (or the compensation committee of the Hillman Holdco Board)
may make such other immaterial administrative or ministerial changes to the New
Hillman Restricted Stock as it may determine in good faith are appropriate to
effectuate the administration of the New Hillman Restricted Stock and to ensure
consistency with the administrative and ministerial provisions of the New
Hillman Incentive Equity Plan.
At the effective time, each Hillman Holdco restricted stock unit (each a
"Hillman Holdco RSU") will be assumed by New Hillman and converted into a
restricted stock unit in respect of shares of New Hillman common stock (each, a
"New Hillman RSU") with substantially the same terms and conditions as were
applicable to such Hillman Holdco RSU immediately prior to the effective time
(including with respect to vesting and termination-related provisions), except
that (i) each New Hillman RSU shall represent the right to receive (subject to
vesting) that number of shares of New Hillman common stock equal to the product
(rounded up to the nearest whole number) of the number of shares of Hillman
Holdco common stock underlying the Hillman Holdco RSU immediately prior to the
effective time multiplied by the quotient of (a) the Adjusted Per Share Merger
Value divided by (b) $10.00 (such quotient, with respect to each Hillman Holdco
restricted stock unit, the "Hillman Holdco RSU Exchange Ratio"); and (ii) the
Hillman Holdco Board (or the compensation committee of the Hillman Holdco Board)
may make such other immaterial administrative or ministerial changes to the New
Hillman RSUs as it may determine in good faith are appropriate to effectuate the
administration of the New Hillman RSUs and to ensure consistency with the
administrative and ministerial provisions of the New Hillman Incentive Equity
Plan.
In addition, pursuant to the A&R Letter Agreement, our Sponsors will, at the
Closing of the Proposed Transaction, forfeit a total of 3,828,000 of their
shares of Class B common stock (the "Sponsor Forfeited Shares"), with 2,828,000
shares being forfeited by the Sponsors on a basis pro rata with their ownership
of the Company and 1,000,000 additional shares being forfeited by TJF.
Immediately prior to the effective time of the Business Combination, with the
exception of the Sponsor Forfeited Shares, each of the currently issued and
outstanding shares of our Class B common stock will automatically convert, on a
one-for-one basis, into shares of our Class A common stock in accordance with
the terms of our Charter, and thereafter, in connection with the Closing, our
Class A common stock will be reclassified as New Hillman common stock.
20
Results of Operations
We have neither engaged in any significant business operations nor generated any
revenues to date. All activities to date relate to the Company's formation and
its initial public offering and search for a suitable Business Combination. We
generate non-operating income in the form of interest income on cash, cash
equivalents, and marketable securities held in the Trust Account. We expect to
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 as we locate a suitable Business Combination.
For the three months ended March 31, 2021 and 2020, we had a net income of
$10,719,999 and $0, respectively. The income for the three months ended March
31, 2021 relates to $448,918 of general and administrative costs and $60,000 of
management fees for administrative services, offset by $18,917 in earnings on
the Trust Account assets and a gain of $11,210,000 related the change in the
fair value of the warrant derivative liability.
Critical Accounting Policies
The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the unaudited financial statements and accompanying notes. Actual results could
differ from those estimates. The Company has identified the following as its
critical accounting policies:
Warrant Derivative Liability
In accordance with FASB ASC 815-40, Derivatives and Hedging: Contracts in an
Entities Own Equity, entities must consider whether to classify contracts that
may be settled in its own stock, such as warrants, as equity of the entity or as
an asset or liability. If an event that is not within the entity's control could
require net cash settlement, then the contract should be classified as an asset
or a liability rather than as equity. We have determined because the terms of
Public Warrants include a provision that entitles all warrantholders to cash for
their warrants in the event of a qualifying cash tender offer, while only
certain of the holders of the underlying shares of common stock would be
entitled to cash, our warrants should be classified as derivative liability
measured at fair value, with changes in fair value each period reported in
earnings. Further if our Sponsor Warrants are held by someone other than initial
purchasers of the Sponsor Warrants or their permitted transferees, the Sponsor
Warrants will be redeemable by the Company and exercisable by such holders on
the same basis as the Public Warrants. Because the terms of the Sponsor Warrants
and Public Warrants are so similar, we classified both types of warrants as a
derivative liability measured at fair value. Volatility in our Common Stock and
Public Warrants may result in significant changes in the value of the
derivatives and resulting gains and losses on our statement of operations.
Redeemable Shares
All of the 50,000,000 Public Shares sold as part of the Public Offering contain
a redemption feature as described in the Prospectus. In accordance with FASB ASC
480, "Distinguishing Liabilities from Equity", redemption provisions not solely
within the control of the Company require the security to be classified outside
of permanent equity. The Company's amended and restated certificate of
incorporation provides a minimum net tangible asset threshold of $5,000,001. The
Company recognizes changes in redemption value immediately as they occur and
will adjust the carrying value of the security to equal the redemption value at
the end of each reporting period. Increases or decreases in the carrying amount
of redeemable shares will be affected by charges against additional paid-in
capital. At March 31, 2021, there were 50,000,000 Public Shares, of which
43,355,173 were recorded as redeemable shares, classified outside of permanent
equity, and 6,644,827 were classified as Class A common stock.
Income (Loss) per Common Share
Basic income (loss) per common share is computed by dividing net income
applicable to common stockholders by the weighted average number of common
shares outstanding during the period. All shares of Class B common stock are
assumed to convert to shares of Class A common stock on a one-for-one basis.
Consistent with FASB ASC 480, shares of Class A common stock subject to possible
redemption, as well as their pro rata share of undistributed trust earnings
consistent with the two-class method, have been excluded from the calculation of
income (loss) per common share for the three months ended March 31, 2021 and
2020. Such shares, if redeemed, only participate in their pro rata share of
trust earnings. Diluted income (loss) per share includes the incremental number
of shares of common stock to be issued in connection with the conversion of
Class B common stock or to settle warrants, as calculated using the treasury
stock method. For the three months ending March 31, 2021 and 2020, the Company
did not have any dilutive warrants, securities or other contracts that could,
potentially, be exercised or converted into common stock. As a result, diluted
income (loss) per common share is the same as basic income (loss) per common
share for all periods presented. For the three months ended March 31, 2021 and
2020, the Company reported income available to common shareholders of $0.54 and
$0.00, respectively.
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Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on the
accompanying financial statements.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of March 31, 2021.
Contractual Obligations
As of March 31, 2021, we did not have any long-term debt, capital or operating
lease obligations.
The Company entered into an administrative services agreement in which we will
pay Fertitta Entertainment, Inc., (an affiliate of TJF) for office space,
secretarial and administrative services provided to members of our management
team, in an amount not to exceed $20,000 per month commencing on the date of
effectiveness of the Public Offering and ending on the earlier of the completion
of a Business Combination or liquidation.
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