10-K
1
f10k2020_alphahealthcare.htm
ANNUAL REPORT
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K
(Mark
One)
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the Fiscal Year Ended December 31, 2020
OR
☐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: 001-39532
Alpha
Healthcare Acquisition Corp.
(Exact
name of Registrant as specified in its charter)
1177
Avenue of the Americas, 5th Floor
New York, New York 10036
(646) 494-3296
(Address,
Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol(s) Name of each exchange on which registered
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 15(d) of the 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 the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ Accelerated Filer ☐
Non-accelerated Filer ☒ Smaller Reporting Company ☒
Emerging growth company ☒
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 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 ☐
As
of December 31, 2020, the last day of the registrant’s most recently completed fiscal quarter, the aggregate market value
of the Class A common stock held by non-affiliates of the registrant was approximately $102.2 million based on the closing price
of the registrant’s Class A common stock on December 31, 2020. The calculation excludes shares of the registrant’s
common stock held by current executive officers, directors and stockholders that the registrant has concluded are affiliates of
the registrant. This determination of affiliate status is not a determination for other purposes.
As
of February 16, 2021, there were 10,355,000 shares of Class A common stock and 2,500,000 shares of Class B common stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
Table
of Contents
Page
PART I 1
Item 1 Business 1
Item 1A. Risk Factors 21
Item 1B. Unresolved Staff Comments 51
Item 2 Properties 51
Item 3 Legal Proceedings 51
Item 4 Mine Safety Disclosures 51
Item 6 Selected Financial Data. 53
Item 7A Quantitative and Qualitative Disclosures About Market Risk 58
Item 8 Financial Statements and Supplementary Data 58
Item 9A Controls and Procedures 58
Item 9B. Other Information 59
PART III 60
Item 10 Directors, Executive Officers and Corporate Governance 60
Item 11 Executive Compensation 69
Item 14 Principal Accountant Fees and Services 74
Item 15 Exhibits, Financial Statement Schedules 75
i
CERTAIN
TERMS
Unless
otherwise stated in this Annual Report on Form 10-K or the context otherwise requires, references to:
● “management” or our “management team” are to our officers and directors;
● “sponsor” are to AHAC Sponsor LLC, a Delaware limited liability company;
ii
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some
of the statements contained in this Annual Report on Form 10-K may constitute “forward-looking statements” for purposes
of the federal securities laws. 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. The words “anticipate,” “believe,” “continue,” “could,”
“estimate,” “expect,” “intend,” “may,” “might,” “plan,”
“possible,” “potential,” “predict,” “project,” “should,” “would”
and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement
is not forward-looking. Forward-looking statements in this Annual Report on Form 10-K may include, for example, statements about:
● our pool of prospective target businesses in the healthcare industry;
● 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 following our initial public offering.
The
forward-looking statements contained in this Annual Report on Form 10-K 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. These risks and uncertainties include, but are not limited to, those factors described
under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of
our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.
We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise, except as may be required under applicable securities laws.
iii
PART
I
Item
1 Business
Our
Company
We
are a blank check company formed as a Delaware corporation for the purpose of effecting a merger, capital stock exchange, asset
acquisition, stock purchase, reorganization or similar business combination with one or more businesses, which we refer to as
our initial business combination. While we may pursue an acquisition opportunity in any business industry or sector, we intend
to capitalize on our management team’s differentiated ability to source, acquire and manage a business in the healthcare
industry in the United States. Our management team has an extensive track record of creating value for stockholders by acquiring
attractive businesses at disciplined valuations, investing in growth while fostering financial discipline and ultimately improving
financial results.
Our
Management Team
Our
management team is led by Rajiv Shukla, our Chairman and Chief Executive Officer, and Patrick A. Sturgeon, our Chief
Financial Officer.
Rajiv
S. Shukla has been our Chairman and Chief Executive Officer since inception and has two decades of buyouts, investments and operations
experience in the healthcare industry. Mr. Shukla served as Chairman and Chief Executive Officer of Constellation Alpha Capital
Corp. (“CNAC”), a Nasdaq-listed special purpose acquisition company, from June 2017 to August 2019.
CNAC raised $144 million in proceeds from a Nasdaq initial public offering and successfully closed its initial business combination
with DermTech, Inc., or DermTech, in August 2019. DermTech is a molecular dermatology company that develops and markets non-invasive diagnostic
tests. The transaction was financed in part with proceeds from a private placement transaction with investors including Farallon
Capital, Victory RS Science and Technology Fund, Irwin Jacobs, RTW and HLM Venture Partners.
Since
August 2019, Mr. Shukla has served as an independent director on the board of directors of Ocunexus Therapeutics, a
clinical stage biotech company. From June 2013 to May 2015, Mr. Shukla served as Chief Executive Officer of Pipavav
Defence & Offshore Engineering Company (now Reliance Naval and Engineering Ltd.), an Indian listed shipbuilding and defense
manufacturing company. In this role, he successfully implemented an extensive financial restructuring project and sold control
to the Reliance ADA Group. Between 2008 and 2013, Mr. Shukla worked as an investor at ICICI Venture, Morgan Stanley
Investment Management and Citi Venture Capital International. Throughout his investment career, Mr. Shukla has been involved
with numerous investments in healthcare companies. As a private equity investor, Mr. Shukla was involved with numerous control
and minority healthcare investments and served as a member of the board of directors of I-ven Medicare, a hospital roll-up platform
comprising multiple control investments and significant minority stakes in tertiary care hospitals and outpatient treatment centers,
Ranbaxy Fine Chemicals Ltd, a roll-up of specialty chemicals and animal health businesses, Swiss Bio, a U.S. based clinical
CRO, Bharat Biotech, a vaccine company, three specialty pharma companies: Arch Pharmalabs, Malladi Drugs and Unimark Remedies.
From 2001 to 2006, Mr. Shukla served as Senior Director at Pfizer, Inc. (NYSE:PFE). In this role, he played a key role in
several acquisitions including Pharmacia in 2003, Meridica in 2004, Vicuron Pharmaceuticals and Idun Pharmaceuticals in 2005,
and Rinat Neuroscience in 2006. Mr. Shukla also led the operational integration of these organizations into Pfizer across
multiple sites around the world. Mr. Shukla graduated from Harvard University with a Masters in Healthcare Management and
Policy and received a Bachelors in Pharmaceutics from the Indian Institute of Technology.
Patrick
A. Sturgeon has been our Chief Financial Officer since inception and has nearly two decades of experience with M&A and
equity capital market transactions in the healthcare and other sectors. He has served as a Managing Director at Brookline Capital
Markets, a division of Arcadia Securities, LLC (“Brookline”) since March 2016. At Brookline, Mr. Sturgeon
focuses on mergers and acquisitions, public financing, private capital raising, secondary offerings, and capital markets. On the
public financing front, he focuses on SPAC transactions, primarily underwritten initial public offerings and initial business
combinations. From July 2013 to February 2016, Mr. Sturgeon served as a Managing Director at Axiom Capital Management.
He worked at Freeman & Co. from October 2002 to November 2011, where he focused on mergers and acquisitions
in the financial services sector. Mr. Sturgeon received his B.S. in Economics from the University of Massachusetts, Amherst
and his M.B.A in Finance from New York University.
1
Past
performance of our management team does not guarantee either (i) success with respect to any business combination we
may consummate or (ii) that we will be able to identify a suitable candidate for our initial business combination. The historical
performance record of our management team is not an indication of our future performance. Additionally, in the course of their
respective careers, members of our management team have been involved in businesses and deals that were unsuccessful. Other than
Rajiv Shukla, our Chief Executive Officer, and Patrick A. Sturgeon, our Chief Financial Officer, none of our directors has experience
with blank check companies or special purpose acquisition companies. In addition, our executive officers and directors may have
conflicts of interest with other entities to which they owe fiduciary or contractual obligations with respect to initial business
combination opportunities.
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, in the exercise of their respective business judgement, deem necessary to our affairs until we have completed
our initial 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 initial business combination and the current stage of the business
combination process. We do not have an employment agreement with any member of our management team.
We
believe our management team’s operating and transaction experience and relationships with companies will provide us with
a substantial number of potential business combination targets. Over the course of their careers, the members of our management
team have developed a broad network of contacts and corporate relationships in the healthcare industry. This network has grown
through the activities of our management team sourcing, acquiring and financing businesses, our management team’s relationships
with sellers, financing sources and target management teams and the experience of our management team in executing transactions
under varying economic and financial market conditions.
Industry
Opportunity
While
we may acquire a business in any industry, our focus will be on the healthcare industry in the United States. We believe
the healthcare industry is attractive for a number of reasons:
Large
Target Market. The healthcare industry represents a significant target market, with total annual U.S. national
health expenditure currently exceeding $3 trillion. The Center for Medicare and Medicaid Services has estimated that total healthcare
spending was approximately 17.7% of total U.S. Gross Domestic Product as of 2018, which CMS estimates will expand to $4.7 trillion
in 2023 (18.6% of estimated total U.S. Gross Domestic Product) reflecting a CAGR of 5.2% from 2018. The number of private companies
in the healthcare industry is significant, with a significant number of firms focused on various sub-sectors of the healthcare
value chain in the United States alone. Additionally, the North American healthcare industry has been characterized by robust
M&A activity in recent years, averaging approximately $300 billion of annual M&A spend from 2015 to 2019 based on
Dealogic data.
Broad
Universe of Potential Targets. We intend to focus our investment effort broadly across the healthcare
industry, which encompasses services, therapeutics, devices, diagnostics, healthcare technology and animal health. We intend to
concentrate on target companies in the healthcare industry with an enterprise value range between $500 million and $3 billion.
We estimate that there are approximately 480 healthcare companies that currently meet this criteria screened for companies that
either (i) have raised venture capital funding of above $100 million or (ii) are private equity portfolio companies
that had an estimated enterprise value of at least $100 million at the time of their acquisition (which occurred between
2010 and 2017), based on data from Pitchbook and Capital IQ. We believe that our investment and operating expertise in healthcare
across multiple industry verticals will give us a large, addressable universe of potential targets. The diversity of the target
universe and the number of largely uncorrelated sub-sectors maximizes the likelihood that the management team will be able
to identify and execute an attractive transaction.
2
Limited
Competition. Our management team believes that the complexity of the healthcare industry acts as a
barrier to entry, requiring investors to have significant sector-specific knowledge and expertise, such as an understanding
of the reimbursement environment and regulatory landscape, complex valuation methodologies, specialized accounting treatments,
and political considerations to identify and appropriately analyze investment opportunities. Since 2016, U.S. healthcare-focused special
purpose acquisition companies, or SPACs, have comprised approximately 3% of all completed U.S. initial public offerings (excluding
closed-end funds and companies with market capitalizations of less than $50 million), based on data from Renaissance
Capital. Over the same time period, there have been seven completed and seven announced U.S. healthcare-focused SPAC business
combinations as of September 11, 2020 which are currently pending, based on data from SPAC Research.
Favorable
Trends. Total global healthcare expenditure has grown at a pace substantially above the rate of inflation
in recent years, and this growth is projected to continue over the years to come, driven by factors such as an aging population,
increased prevalence of chronic disease and improved access to healthcare. While the size of healthcare spending has grown and
will continue to grow, this expense has put significant pressure on payors, including federal and state governments as well as
individuals. This dynamic has offered opportunities to services companies that can both control cost and improve the overall quality
of healthcare. Additionally, the healthcare IPO market has experienced significant activity in the last five years, accounting
for approximately 40% of all U.S. IPOs and consistently being ranked as the number one sector by IPO volume over the past five
years. Private funding by venture capital and private equity firms has also created a robust healthcare IPO pipeline with approximately
$117 billion of funding in U.S. healthcare companies year to date in 2020, up from approximately $58 billion in 2016,
according to Pitchbook. The healthcare sector represents approximately 46% of the total U.S. IPO backlog based on the number of
proposed initial public offerings as of September 13, 2020 according to information from the NYSE IPO Backlog. This market
environment, characterized by clear investor demand, offers an opportune market to execute a healthcare IPO.
Competitive
Differentiation
Our
mission is to create attractive risk-adjusted returns for our stockholders. We intend to capitalize on the ability of our
management team to identify, acquire and operate a business that will benefit from their involvement by utilizing the following
differentiating factors to our advantage:
We
believe the collective experience of our management team and their affiliates will lead to many potential acquisition opportunities.
3
Acquisition
Criteria
Consistent
with our strategy, we have identified the following general criteria and guidelines that we believe are important in evaluating
prospective target businesses. We will use these criteria and guidelines in evaluating acquisition opportunities, but we may decide
to enter into our initial business combination with a target business that does not meet these criteria and guidelines. We intend
to filter our opportunities based on the following criteria:
These
criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular initial business combination
may be based, to the extent relevant, on these general guidelines as well as other considerations, factors and criteria that our
management team may deem relevant. In the event that we decide to enter into our initial business combination with a target business
that does not meet the above criteria and guidelines, we will disclose that the target business does not meet the above criteria
in our stockholder communications related to our initial business combination, which would be in the form of proxy solicitation
materials or tender offer documents that we would file with the U.S. Securities and Exchange Commission.
We
may need to obtain additional financing either to complete our initial business combination or because we become obligated to
redeem a significant number of our public shares upon completion of our initial business combination. We intend to acquire a company
with an enterprise value significantly above the net proceeds of our initial public offering and concurrent private placement.
Depending on the size of the transaction or the number of public shares we become obligated to redeem, we may potentially utilize
several additional financing sources, including but not limited to the issuance of additional securities to the sellers of a target
business, debt issued by banks or other lenders or the owners of the target, a private placement to raise additional funds, or
a combination of the foregoing. If we are unable to complete our initial business combination because we do not have sufficient
funds available to us, we will be forced to cease operations and liquidate the trust account. In addition, following our initial
business combination, if cash on hand is insufficient to meet our obligations or our working capital needs, we may need to obtain
additional financing.
4
Initial
Business Combination
Nasdaq
rules require that we must complete one or more business combinations having an aggregate fair market value of at least 80% of
the value of the assets held in the trust account (excluding the deferred underwriting commissions and taxes payable on the interest
earned on the trust account) at the time of our signing a definitive agreement in connection with our initial business combination.
Our board of directors will make the determination as to the fair market value of our initial business combination. If our board
of directors is not able to independently determine the fair market value of our initial business combination, we will obtain
an opinion from an independent investment banking firm or another independent entity that commonly renders valuation opinions
with respect to the satisfaction of such criteria. While we consider it unlikely that our board of directors will not be able
to make an independent determination of the fair market value of our initial business combination, it may be unable to do so if
it is less familiar or experienced with the business of a particular target or if there is a significant amount of uncertainty
as to the value of a target’s assets or prospects. Additionally, pursuant to Nasdaq rules, any initial business combination
must be approved by a majority of our independent directors.
We
anticipate structuring our initial business combination either (i) in such a way 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, or (ii) in such a way so 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. However, we will only complete an initial 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 initial business combination
may collectively own a minority interest in the post-transaction company, depending on valuations ascribed to the target
and us in the initial business combination. 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 initial business combination could own less than a majority of our outstanding shares subsequent to our initial 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 taken into
account for purposes of Nasdaq’s 80% fair market value test. If the initial business combination involves more
than one target business, the 80% fair market value test will be based on the aggregate value of all of the transactions
and we will treat the target businesses together as the initial business combination for purposes of a tender offer or for seeking
stockholder approval, as applicable.
Our
Business Combination Process
In
evaluating prospective business combinations, we expect to conduct a thorough due diligence review process that will encompass,
among other things, a review of historical and projected financial and operating data, meetings with management and their advisors
(if applicable), on-site inspection of facilities and assets, discussion with customers and suppliers, legal reviews and
other reviews as we deem appropriate. We will also seek to utilize the expertise of our management team in analyzing software
and internet technology companies and evaluating operating projections, financial projections and determining the appropriate
return expectations given the risk profile of the target business.
We
are not prohibited from pursuing an initial business combination with a company that is affiliated with our sponsor, officers
or directors. In the event we seek to complete our initial business combination with a company that is affiliated with our sponsor,
officers or directors, we, or a committee of independent directors, will obtain an opinion from an independent investment banking
firm or another independent entity that commonly renders valuation opinions that our initial business combination is fair to our
company from a financial point of view.
5
Certain
of our officers and directors presently have 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 to present the opportunity to such entity, he or she will honor his or her fiduciary or contractual
obligations to present such opportunity to such entity. We believe, however, that the fiduciary duties or contractual obligations
of our officers or directors will not materially affect our ability to complete our initial 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, and to the extent the director or officer is permitted to refer that opportunity to us without violating another
legal obligation.
Our
officers and directors may become officers or directors of another special purpose acquisition company with a class of securities
intended to be registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act, even prior to us entering
into a definitive agreement for our initial business combination.
Status
as a Public Company
We
believe our structure will make us an attractive business combination partner to target businesses. As a public company, we offer
a target business an alternative to the traditional initial public offering through a merger or other business combination with
us. Following an initial business combination, we believe the target business would have greater access to capital and additional
means of creating management incentives that are better aligned with stockholders’ interests than it would as a private
company. A target business can further benefit by augmenting its profile among potential new customers and vendors and aid in
attracting talented employees. In a business combination transaction with us, the owners of the target business may, for example,
exchange their shares of stock in the target business for our shares of Class A common stock (or shares of a new holding
company) or for a combination of our shares of Class A common 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 expeditious and cost effective method to becoming a public company than the typical initial public offering. The typical
initial public offering process takes a significantly longer period of time than the typical business combination transaction
process, and there are significant expenses in the initial public offering process, including underwriting discounts and commissions,
marketing and road show efforts that may not be present to the same extent in connection with an initial business combination
with us.
Furthermore,
once a proposed initial 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. Following
an initial business combination, we believe the target business would then have greater access to capital and an additional means
of providing management incentives consistent with stockholders’ interests and the ability to use its shares as currency
for acquisitions. Being a public company can offer further benefits by augmenting a company’s profile among potential new
customers and vendors and aid in attracting talented employees.
While
we believe that our structure and our management team’s backgrounds will make us an attractive business partner, some potential
target businesses may view our status as a blank check company, such as our lack of an operating history and our ability to seek
stockholder approval of any proposed initial business combination, negatively.
We
are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act.
As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other
public companies that are not “emerging growth companies” including, but not limited to, not being required to comply
with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act,
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from
the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden
parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a
less active trading market for our securities and the prices of our securities may be more volatile.
6
In
addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the
extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting
standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until
those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition
period.
We
will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth
anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least
$1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A
common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the
date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
Additionally,
we are a “smaller reporting company” as defined in Rule 10(f)(1) of Regulation S-K. Smaller reporting companies
may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited
financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market
value of our common stock held by non-affiliates equals or exceeds $250 million as of the end of the prior June 30th,
or (2) our annual revenues equaled or exceeded $100 million during such completed fiscal year and the market value of
our common stock held by non-affiliates exceeds $700 million as of the prior June 30th.
Financial
Position
With
funds available for an initial business combination initially in the amount of $96,500,000, after payment of $3,500,000 of deferred
underwriting fees, before fees and expenses associated with our initial business combination (other than deferred underwriting
fees), we offer a target business a variety of options such as creating a liquidity event for its owners, providing capital for
the potential growth and expansion of its operations or strengthening its balance sheet by reducing its debt or leverage ratio.
Because we are able to complete our initial business combination using our cash, debt or equity securities, or a combination of
the foregoing, we have the flexibility to use the most efficient combination that will allow us to tailor the consideration to
be paid to the target business to fit its needs and desires. However, we have not taken any steps to secure third party financing
and there can be no assurance it will be available to us.
Effecting
Our Initial Business Combination
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 initial business combination using cash from the proceeds of our initial public offering and concurrent private placement,
the proceeds of the sale of our shares in connection with our initial business combination (pursuant to backstop agreements we
may enter into), shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target,
or a combination of the foregoing. We may seek to complete our initial 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 initial 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 initial business combination or used for redemptions
of our Class A 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 initial business combination, to fund the purchase of other companies
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 initial business combination, and we may effectuate our initial business combination using the proceeds of such offering rather
than using the amounts held in the trust account. In addition, we intend to target businesses larger than we could acquire with
the net proceeds of our initial public offering and the concurrent private placement, and may as a result be required to seek
additional financing to complete such proposed initial business combination. Subject to compliance with applicable securities
laws, we would expect to complete such financing only simultaneously with the completion of our initial business combination.
In the case of an initial business combination funded with assets other than the trust account assets, our proxy materials or
tender offer documents disclosing the initial business combination would disclose the terms of the financing and, only if required
by applicable law or stock exchange requirements, 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 initial business combination.
7
Although
our management will assess the risks inherent in a particular target business with which we may combine, we cannot assure our
stockholders that this assessment will result in our identifying all risks that a target business may encounter. Furthermore,
some of those risks may be outside of our control, meaning that we can do nothing to control or reduce the chances that those
risks will adversely impact a target business.
Sources
of Target Businesses
We
anticipate that target business candidates will be brought to our attention from various unaffiliated sources, including investment
bankers and investment professionals, as a result of being solicited by us by calls or mailings. These sources may also introduce
us to target businesses in which they think we may be interested on an unsolicited basis, since many of these sources will know
what types of businesses we are targeting. Our officers and directors, as well as our sponsor and their affiliates, may also bring
to our attention target business candidates that they become aware of through their business contacts as a result of formal or
informal inquiries or discussions they may have, as well as attending trade shows or conventions. In addition, we expect to receive
a number of deal flow opportunities that would not otherwise necessarily be available to us as a result of the business relationships
of our officers and directors and our sponsor and their affiliates. While we do not presently anticipate engaging the services
of professional firms or other individuals that specialize in business acquisitions on any formal basis, we may engage these firms
or other individuals in the future, in which event we may pay a finder’s fee, consulting fee, advisory fee or other compensation
to be determined in an arm’s length negotiation based on the terms of the transaction. We will engage a finder only to the
extent our management determines that the use of a finder may bring opportunities to us that may not otherwise be available to
us or if finders approach us on an unsolicited basis with a potential transaction that our management determines is in our best
interest to pursue. Payment of finder’s fees is customarily tied to completion of a transaction, in which case any such
fee will be paid out of the funds held in the trust account. In no event, however, will our sponsor or any of our existing officers
or directors be paid any finder’s fee, reimbursement, consulting fee, monies in respect of any payment of a loan or other
compensation by the company prior to, or in connection with any services rendered for any services they render in order to effectuate,
the completion of our initial business combination (regardless of the type of transaction that it is). None of our sponsor, executive
officers or directors, or any of their respective affiliates, will be allowed to receive any compensation, finder’s fees
or consulting fees from a prospective business combination target in connection with a contemplated initial business combination.
We have agreed to pay an affiliate of our sponsor a total of $10,000 per month for office space, utilities and secretarial and
administrative support and to reimburse our sponsor for any out-of-pocket expenses related to identifying, investigating
and completing an initial business combination. Some of our officers and directors may enter into employment or consulting agreements
with the post-transaction company following our initial business combination. The presence or absence of any such fees or
arrangements will not be used as a criterion in our selection process of an initial business combination candidate.
We
are not prohibited from pursuing an initial business combination with an initial business combination target that is affiliated
with our sponsor, officers or directors or making the initial business combination through a joint venture or other form of shared
ownership with our sponsor, officers or directors. In the event we seek to complete our initial business combination with an initial
business combination target that is affiliated with our sponsor, officers or directors, we, or a committee of independent directors,
would obtain an opinion from an independent investment banking firm or another independent entity that commonly renders valuation
opinions 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 an initial 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.
8
Selection
of a Target Business and Structuring of our Initial Business Combination
Nasdaq
rules require that we must complete one or more business combinations having an aggregate fair market value of at least 80% of
the value of the assets held in the trust account (excluding the deferred underwriting commissions and taxes payable on the interest
earned on the trust account) at the time of our signing a definitive agreement in connection with our initial business combination.
The fair market value of our initial business combination 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, a valuation based on trading
multiples of comparable public businesses or a valuation based on the financial metrics of M&A transactions of comparable
businesses. If our board of directors is not able to independently determine the fair market value of our initial business combination,
we will obtain an opinion from an independent investment banking firm or another independent entity that commonly renders valuation
opinions with respect to the satisfaction of such criteria. While we consider it unlikely that our board of directors will not
be able to make an independent determination of the fair market value of our initial business combination, it may be unable to
do so if it is less familiar or experienced with the business of a particular target or if there is a significant amount of uncertainty
as to the value of a target’s assets or prospects. We do not intend to purchase multiple businesses in unrelated industries
in conjunction with our initial business combination. Subject to this requirement, our management will virtually have unrestricted
flexibility in identifying and selecting one or more prospective target businesses, although we will not be permitted to effectuate
our initial business combination with another blank check company or a similar company with nominal operations.
In
any case, we will only complete an initial 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 taken into account for purposes of Nasdaq’s 80% fair market value test.
To
the extent we effect our initial 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 provide any assurances that we will properly
ascertain or assess all significant risk factors.
In
evaluating a prospective business target, we expect to conduct a thorough due diligence review, which may 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 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 initial 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 initial 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 initial business combination, the prospects for our success may 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. In addition, we intend to focus our search for an initial business
combination in a single industry. By completing our initial business combination with only a single entity, our lack of diversification
may:
9
Limited
Ability to Evaluate the Target’s Management Team
Although
we intend to closely scrutinize the management of a prospective target business when evaluating the desirability of effecting
our initial 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. The determination as to whether any of the members of our management team will remain with the combined company
will be made at the time of our initial business combination. While it is possible that one or more of our directors will remain
associated in some capacity with us following our initial business combination, it is unlikely that any of them will devote their
full efforts to our affairs subsequent to our initial business combination. Moreover, we cannot provide any assurance that members
of our management team will have significant experience or knowledge relating to the operations of the particular target business.
We
cannot provide any assurance 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
an initial business combination, we may seek to recruit additional managers to supplement the incumbent management of the target
business. We cannot provide any assurance 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 Initial Business 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 applicable law or applicable stock exchange listing requirements, or we may decide to seek stockholder
approval for business or other legal reasons. 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 initial business combination if, for example:
10
Permitted
Purchases of our Securities
If
we seek stockholder approval of our initial business combination and we do not conduct redemptions in connection with our initial
business combination pursuant to the tender offer rules, our sponsor, initial stockholders, directors, officers, advisors or their
affiliates may purchase public shares or public warrants in privately negotiated transactions or in the open market either prior
to or following the completion of our initial business combination. There is no limit on the number of shares our initial stockholders,
directors, officers or their affiliates may purchase in such transactions, subject to compliance with applicable law and Nasdaq