10-K
1
f10k2020_finservacq.htm
ANNUAL REPORT
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: 001-39116
FinServ Acquisition Corp.
(Exact name of registrant as specified
in its charter)
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including
area code: (646) 965-8218
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 Section 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, smaller reporting company or an emerging growth company.
See 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 Act). Yes ☒ No ☐
The aggregate market value of the Class
A common stock outstanding, other than shares held by persons who may be deemed affiliates of the registrant, computed by reference
to the closing sales price for the Class A common stock on June 30, 2020, as reported on the Nasdaq Capital Market, was approximately
$248,750,000.
As of March 8, 2021, there were
25,665,000 shares of Class A common stock and 6,250,000 shares of Class B common stock of the registrant issued and outstanding.
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 1
Item 1A. Risk Factors 20
Item 1B. Unresolved Staff Comments 49
Item 2. Properties 49
Item 3. Legal Proceedings 49
Item 4. Mine Safety Disclosures 49
PART II
Item 6. Selected Financial Data 50
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 55
Item 8. Financial Statements and Supplementary Data 56
Item 9A. Controls and Procedures 56
Item 9B. Other Information 57
PART III
Item 10. Directors, Executive Officers and Corporate Governance 58
Item 11. Executive Compensation 63
Item 14. Principal Accounting Fees and Services 67
PART IV
Item 15. Exhibits and Financial Statement Schedules 68
i
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 (as
defined below) and Section 21E of the Exchange Act (as defined below). 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 pool of prospective target businesses;
● our public securities’ potential liquidity and trading;
● the lack of a market for our securities;
● 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.” 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.
ii
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 or 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.
Unless otherwise stated
in this Report, or the context otherwise requires, references to:
● “Board of Directors” or “Board” are to the board of directors of the Company;
● “DGCL” are to the Delaware General Corporation Law;
● “Exchange Act” are to the Securities Exchange Act of 1934, as amended;
● “FinTech” are to technology for traditional financial services;
● “FINRA” are to the Financial Industry Regulatory Authority;
● “JOBS Act” are to the Jumpstart Our Business Startups Act of 2012;
● “Katapult” are to Katapult Holdings, Inc., a Delaware corporation;
iii
● “management” or our “management team” are to our officers and directors;
● “Merger Subs” are to Merger Sub 1 and Merger Sub 2;
● “Nasdaq” are to the Nasdaq Stock Market;
● “PCOAB” are to the Public Company Accounting Oversight Board (United States);
iv
● “SEC” are to the U.S. Securities and Exchange Commission;
● “Securities Act” are to the Securities Act of 1933, as amended;
● “sponsor” are to FinServ Holdings LLC, a Delaware limited liability company;
● “we,” “us,” “Company” or “our Company” are to FinServ Acquisition Corp; and
v
RISK FACTORS SUMMARY
The following is
a summary of risks, uncertainties and other factors related to our Company. You should carefully consider all of the risk factors
presented in “Item 1A. Risk Factors” and all other information contained in this Report including the financial statements.
For risks relating
to Katapult and the Katapult Business Combination, please see the Katapult Registration Statement.
vi
PART I
Item 1. Business.
Overview
We are a blank check
company recently 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. Throughout this Report we will refer
to this as our “initial business combination.”
Initial Public Offering
On November 5, 2019,
the Company consummated the initial public offering of 25,000,000 units at $10.00 per unit, which includes the partial exercise
by the underwriter of the over-allotment option to purchase an additional 3,000,000 units, at $10.00 per unit, generating gross
proceeds of $250,000,000.
Simultaneously with
the closing of the initial public offering, the Company consummated the sale of 665,000 placement units at a price of $10.00 per
placement unit in a private placement to the Company’s sponsor, generating gross proceeds of $6,650,000.
A total of $250,000,000
from the net proceeds of the sale of the units in the initial public offering and the sale of the placement units was placed in
the trust account.
Our units, public
shares and public warrants are each traded on the Nasdaq Capital Market under the symbols “FSRVU,” “FSRV”
and “FSRVW,” respectively. Our units commenced public trading on November 1, 2019, and our public shares and public
warrants commenced separate public trading on December 23, 2019.
Katapult Business Combination
On December 18, 2020,
we entered into the Merger Agreement with Katapult, the Merger Subs, and Orlando Zayas, in his capacity as the representative
of all Pre-Closing Holders (as defined in the Merger Agreement).
Pursuant to the terms
of the Merger Agreement, at the closing of the transactions contemplated by the Merger Agreement (the “Closing” and
the “Transactions”, respectively), a business combination between the Company and Katapult will be effected through
the merger of Merger Sub 1 with and into Katapult, with Katapult surviving as the surviving company and a wholly-owned subsidiary
of the Company (the “First Merger”), followed immediately by the merger of the resulting company with and into Merger
Sub 2, with Merger Sub 2 surviving as the surviving company and a wholly owned subsidiary of the Company (the “Second Merger”
and together with the First Merger, the “Mergers”), and the Company’s name will be changed from “FinServ
Acquisition Corp.” to “Katapult Holdings, Inc”. Once effective, all equity securities of Katapult will be converted
into the right to receive the applicable portion of merger consideration pursuant to the terms and subject to the conditions set
forth in the Merger Agreement, as further described under “Consideration” below.
Consideration
Under the terms of
the Merger Agreement, the aggregate consideration to be paid in the Mergers is $833,000,000, as adjusted in accordance with the
terms of the Merger Agreement, and apportioned between cash and common stock of the Company, as more specifically set forth therein
(and which shall be adjusted to account for the value of Assumed Options (as defined in the Merger Agreement)). In addition, FinServ
will issue to the Pre-Closing Holders an aggregate 7,500,000 restricted shares of the Company’s common stock, as further
described under “Earn-Out” below. The allocation of the consideration to Katapult’s equityholders will be in
accordance with an allocation schedule to be provided by Katapult,
1
Earn-Out
At the Closing, the
Company will also issue or cause to be issued to the Pre-Closing Holders an aggregate 7,500,000 restricted shares of the Company’s
common stock (subject to vesting, forfeiture and certain other restrictions (including on transfer) set forth in the Merger Agreement
(the “Earn-Out Shares”)). With respect to the Earn-Out Shares: (i) one-half (1/2) of the Earn-Out Shares will vest
if the closing price of the Company’s common stock is greater than or equal to $12.00 over any twenty (20) Trading Days
(as defined in the Merger Agreement) within any thirty (30) consecutive Trading Day period and (ii) one-half (1/2) of the Earn-Out
Shares will vest if the closing price of the Company’s common stock is greater than or equal to $14.00 over any twenty (20)
Trading Days within any thirty (30) consecutive Trading Day period, in each case, during the Earn-Out Period (as defined in the
Merger Agreement) and subject to adjustments as a result of certain recapitalization events and dividends paid prior to the expiration
of the Earn-Out Period.
Conditions to Consummation of the
Transactions
The consummation of
the Transactions is generally subject to customary conditions of the respective parties, and conditions customary to special purpose
acquisition companies, including (a) expiry or termination of all applicable waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, (b) the absence of any law or governmental order preventing the consummation of the
Transactions, (c) the effectiveness of a registration statement on Form S-4 with the SEC relating to the Transactions and containing
a proxy statement of FinServ, (d) the Company’s common stock] to be issued having been listed on Nasdaq upon the Closing
and (e) receipt of the required approvals from stockholders of each of the Company and Katapult for consummation of the Transactions.
In addition, Katapult also has the right to not consummate the Mergers in the event the aggregate cash proceeds available in the
trust account, together with the cash proceeds received by the Company at Closing in respect of the various financing transactions
contemplated by the Merger Agreement (including financing from the PIPE Investors (as defined below)), is less than $225,000,000
(after giving effect to payments in respect of redemptions).
Sponsor Agreement
Concurrent with the
execution of the Merger Agreement, the sponsor, the Company and Katapult entered into a Sponsor Agreement (the “Sponsor
Agreement”), pursuant to which the sponsor has, among other matters, (a) agreed to vote in favor of the Merger Agreement
and the Transactions and (b) agreed to waive any adjustment to the conversion ratio set forth in our amended and restated certificate
of incorporation, with respect to its founder shares in connection with the PIPE Financing (defined below).
Support Agreements
Certain stockholders
of Katapult entered into voting and support agreements (the “Support Agreements”) with the Company. The Support Agreements
provide that, among other things, the stockholders of Katapult party thereto will vote their respective equity securities in Katapult
in favor of the Merger Agreement and the consummation of the transactions contemplated thereby. The foregoing description of the
Support Agreement is not complete and is subject to, and qualified in its entirety by, reference to the form thereof filed herewith.
PIPE Financing
On December 18, 2020,
the Company entered into subscription agreements (each, a “Subscription Agreement”) with certain investors (the “PIPE
Investors”) pursuant to which, among other things, the PIPE Investors have agreed to subscribe for and purchase, and the
Company has agreed to issue and sell to the PIPE Investors, an aggregate of 15,000,000 shares of the Company’s common stock
for an aggregate purchase price of $150,000,000.00 on the date of Closing, on the terms and subject to the conditions set forth
therein.
Other than as specifically
discussed, this Report does not assume the closing of the Katapult Business Combination.
2
Our Search for Business Combination
Opportunities
Since our initial
public offering, we have concentrated our efforts on identifying businesses in the FinTech and financial services industries with
an equity value of approximately $500 million to $2.0 billion, with particular emphasis on businesses that are providing or changing
technology for financial services, asset and wealth management, and specialty finance companies. We believe the creation and delivery
of financial services products for consumers and businesses will undergo the most dramatic change over the next several years.
There has been a rise in the level of sophistication and interconnectivity between innovative technology and financial services
providers, and we expect this trend to continue and accelerate. We believe that there are many potential targets, such as Katapult,
within the financial services space that could become attractive public companies. These potential targets exhibit a broad range
of business models and financial characteristics that range from very high growth innovative companies to more mature businesses
with established franchises, recurring revenues and strong cash flows.
We are not, however,
required to complete our initial business combination with a financial services business and, as a result, we may pursue a business
combination outside of that industry. We seek to acquire established businesses that we believe are fundamentally sound but potentially
in need of financial, operational, strategic or managerial redirection to maximize value. We may also look at earlier stage companies
that exhibit the potential to change the industries in which they participate and which will offer the potential of sustained
high levels of revenue and earnings growth.
Business Strategy
There has been significant
disruption and change in the delivery of financial services in recent years, including, among others:
● Retail banking (mobile payments, Neo-Banks);
● Payments for consumers and businesses;
● Wealth management (robo advisors);
● Exchanges and trading platforms;
● Big data moving to the cloud, APIs, data security; and
● Digital assets and blockchain technology.
With increased adoption
of technology solutions by both consumers and businesses, we believe that the sector is poised for continued growth in both overall
market size and penetration. Key industry characteristics include long-term organic growth, attractive competitive dynamics and
further consolidation opportunities. Key business characteristics include high barriers to entry, low risk of technological obsolescence
and public market-ready scale. Key financial metrics include organic revenue growth, recurring revenues and strong cash flow conversion.
We have not limited
our search to one segment of the financial services ecosystem, but are instead targeting a wide variety of companies that deliver
a solution or product to the financial services end-market. We believe that our extensive experience and demonstrated success
in advising and investing in businesses in this industry provides us with a unique set of capabilities that will be utilized in
generating stockholder returns.
We seek to acquire
established businesses that we believe are fundamentally sound but potentially in need of financial, operational, strategic or
managerial improvements to maximize value. We have also looked at earlier stage companies that exhibit the potential to change
the industries in which they participate and which offer the potential of sustained high levels of revenue growth. Consistent
with our industry focus, we have targeted financial services businesses that have strong management teams, demonstrated organic
growth, and differentiated products or services. Opportunities range from high-growth, customer facing technologies in payments,
lending and digital assets to more mature, high-margin, stable businesses which may be engaged in lending, asset management, or
providing critical processing and support to established financial services firms.
3
We believe that the
wide networks of our management team and advisor deliver access to a broad spectrum of opportunities across the financial services
landscape. In addition to any potential business candidates we may identify on our own, we anticipate that other target business
candidates will be brought to our attention from various unaffiliated sources, including investment market participants, private
equity funds and large business enterprises seeking to divest non-core assets or divisions.
Members of our management
team and our advisor communicate with their networks of relationships to articulate the parameters for our search for a target
company and a potential business combination, such as the Katapult Business Combination.
Acquisition Criteria
Consistent with our
business strategy, we have identified the following general criteria and guidelines that we believe are important in evaluating
prospective target businesses. While we have used these criteria and guidelines in evaluating acquisition opportunities, such
as the Katapult Business Combination, we may decide to enter into our initial business combination with a target business that
only meets some but not all of these criteria and guidelines. We expect that no individual criterion will entirely determine a
decision to pursue a particular opportunity. We seek to acquire companies that we believe:
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 do not consummate the Katapult Business Combination and 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, as discussed in this prospectus, would be in the form of proxy solicitation materials or tender offer documents that we
would file with the SEC.
4
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 the sale of the placement units. 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.
Our Search for Business Combination
Opportunities
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. If our securities are not listed on Nasdaq after our initial public offering,
we would not be required to satisfy the 80% requirement. However, we intend to satisfy the 80% requirement even if our securities
are not listed on Nasdaq at the time of our initial business combination.
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. Based on the valuation analysis
of our management and board of directors, we have determined that the fair market value of Katapult was substantially in excess
of 80% of the funds in the trust account and that the 80% test was therefore satisfied.
Our Business Combination Process
In evaluating prospective
business combinations, we have conducted and will continue to conduct a thorough due diligence review process that encompasses,
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 also utilize the expertise of our management team in analyzing financial services and FinTech
companies, and evaluating operating projections, financial projections and determining the appropriate return expectations given
the risk profile of the target business.
5
We are not prohibited
from pursuing an initial business combination with a company that is affiliated with our sponsor, officers or directors. While
Katapult is not affiliated with our sponsor, officers or directors, in the event we do not consummate the Katapult Business Combination
and 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.
Certain of our officers
and directors presently have fiduciary or contractual obligations to other entities pursuant to which such officer and 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 officer or director 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 have
agreed not to become an officer or director of any other special purpose acquisition company with a class of securities registered
under the Exchange Act until we have entered into a definitive agreement regarding our initial business combination, such as the
Merger Agreement, or we have liquidated the trust account.
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.
Status as a Public Company
We believe our structure
makes us an attractive business combination partner to target businesses. As a public company, we offer a target business, like
Katapult, an alternative to the traditional initial public offering through a merger or other business combination with us. Following
an initial business combination, such as the Katapult 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. See “Katapult Business Combination” above for more information regarding such
exchange in the Katapult Business Combination.
Although there are
various costs and obligations associated with being a public company, we believe target businesses, such as Katapult, 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.
6
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, such as the Katapult 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 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.
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) (a) December 31, 2024, (b) the last day of the fiscal year in which we have total
annual gross revenue of at least $1.07 billion, or (c) the last day of the fiscal year 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.
Financial Position
With funds available
in the trust account for an initial business combination in the amount of $251,249,193 (as of December 31, 2020), after payment
of $9,350,000 of deferred underwriting fees, in each case before fees and expenses associated with our initial business combination,
we offer a target business, such as Katapult, 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 allow us to tailor the consideration to be
paid to the target business to fit its needs and desires.
Effecting Our Initial Business Combination
We are not presently
engaged in, and we will not engage in, any operations until the consummation of our initial business combination. We intend to
effectuate our initial business combination using cash from the proceeds of our initial public offering and the private placement
of the placement units, 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.
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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 sale of the placement units, 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 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 initial business combination.
See “Katapult
Business Combination” above for more information regarding the financing of and the agreements related to the Katapult Business
Combination.
Sources of Target Businesses
Target business candidates
are brought to our attention from various unaffiliated sources, including investment bankers and investment professionals. Target
businesses are brought to our attention by such unaffiliated sources as a result of being solicited by us by calls or mailings.
These sources may introduce us to target businesses in which they think we may be interested on an unsolicited basis, since many
of these sources will have read our public filings and know what types of businesses we are targeting. Our management team, as
well as our sponsor and their respective affiliates, 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 may receive a number of proprietary deal flow opportunities that would not otherwise
necessarily be available to us as a result of the business relationships of our management team, our sponsor and their respective
affiliates. We may engage the services of professional firms or other individuals that specialize in business acquisitions 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 members of our management team 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). We pay our sponsor a total of $10,000 per month for office
space, utilities and secretarial and administrative support. We reimburse our management team for any out-of-pocket expenses related
to identifying, investigating and completing an initial business combination. Some members of our management team 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.
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We are not prohibited
from pursuing an initial business combination with a 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.
While Katapult is not affiliated with our sponsor, officers or directors, in the event we do not consummate the Katapult Business
Combination and seek to complete our initial business combination with a 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.
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 has virtually unrestricted flexibility
in 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 assure you that we will properly ascertain or assess all
significant risk factors.
In evaluating a prospective
business target, such as Katapult, we have conducted and will continue to conduct a thorough due diligence review, which encompasses,
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.
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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:
Limited Ability to Evaluate the Target’s
Management Team
Although we have closely
scrutinized the management of a prospective target business, including management of Katapult, when evaluating the desirability
of effecting our initial business combination with that business, and plan to continue to do so if the Katapult Business Combination
is not consummated and we seek other business combination opportunities, 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 officers and directors will remain associated in some capacity with us following our initial business combination, including
the Katapult Business Combination in which Lee Einbinder will serve as Director of New Katapult, it is unlikely that any of them
will devote their full efforts to our affairs subsequent to our initial 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.
Other than the expected
appointment of Mr. Einbinder to the board of New Katapult, we cannot assure you that any of our key personnel will remain in senior
management or advisory positions with New Katapult. The determination as to whether any of our key personnel will remain with
New Katapult will be made at the time of the Katapult Business Combination.
Following an initial
business combination, such as the Katapult 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 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 law or applicable stock exchange rule, 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