10-K
1
f10k2020_bctgacq.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
or
☐
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from _____________ to ________________
Commission
file number: 001-39485
BCTG
ACQUISITION CORP.
(Exact
name of registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
(Address of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code: (858) 400-3120
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock The Nasdaq Stock Market LLC
Securities
registered pursuant to Section 12(g) of the Act: None.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act. Yes ☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
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. Yes
☐ No ☒
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒
No ☐
At June 30, 2020, the aggregate market value of the
Registrant’s shares of common stock held by non-affiliates of the Registrant was $0.00.
The number of shares outstanding of the Registrant’s
shares of common stock as of March 31, 2021 was 21,377,250.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
BCTG
ACQUISITION CORP.
Annual
Report on Form 10-K for the Year Ended December 31, 2020
part I 1
ITEM 1. BUSINESS 1
ITEM 1A. RISK FACTORS 12
ITEM 1B. UNRESOLVED STAFF COMMENTS 12
ITEM 2. PROPERTIES 12
ITEM 3. LEGAL PROCEEDINGS 12
ITEM 4. MINE SAFETY DISCLOSURES 12
ITEM 6. [RESERVED] 14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 19
ITEM 9A. CONTROLS AND PROCEDURES 19
ITEM 9B. OTHER INFORMATION 19
part III 20
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 20
ITEM 11. EXECUTIVE COMPENSATION 29
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 32
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 33
i
FORWARD
LOOKING STATEMENTS
This
Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. The statements
contained in this report that are not purely historical are forward-looking statements. Our forward-looking statements include,
but are not limited to, statements regarding our or our management’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 “anticipates,” “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 report may include, for
example, statements about our:
● ability to complete our initial business combination;
● pool of prospective target businesses;
● the potential liquidity and trading of our securities;
● the lack of a market for our securities;
● financial performance following our initial public offering.
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. 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. 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 and/or if and when management knows or has a reasonable basis on which
to conclude that previously disclosed projections are no longer reasonably attainable.
ii
part
I
ITEM 1. BUSINESS
Introduction
We
are a blank check company incorporated in May 2020 as a Delaware corporation formed for the purpose of effecting a merger, capital
stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses,
which we refer to throughout this report as our initial business combination. While we may pursue an acquisition opportunity in
any business, industry, sector or geographical location, we intend to focus on innovative companies in the biotechnology sector
in North America and Europe in order to most effectively leverage our management team’s background and expertise.
To
date, our efforts have been limited to organizational activities, completing our initial public offering (the “Initial Public
Offering”) and searching for a target business. We have generated no operating revenues to date, and we do not expect that
we will generate operating revenues until we consummate our initial business combination.
Our
Sponsor and Investment Focus
Our
sponsor is an affiliate of Boxer Capital, LLC, or Boxer Capital, a private biopharmaceutical investment firm based in San Diego,
California. Boxer Capital was founded in 2005 by its managing founders and Tavistock Group, which is the family office of Joseph
C. Lewis. Aaron Davis, our Chief Executive Officer and Chairman, and Christopher Fuglesang, our President, are among the co-founders
of Boxer Capital and serve as its Chief Executive Officer and Managing Director, respectively. Boxer Capital’s investment
focus is on identifying new therapeutics that will improve patient care and outcomes and investing behind these opportunities
to fund their advancement. Boxer Capital invests in the entire drug development lifecycle from early-stage preclinical discovery
assets to late-stage clinical and commercial stage companies.
The
team at Boxer Capital is comprised of individuals with backgrounds in finance, drug development, medicine and science. The majority
of the team has doctorates in medicine and science, and some have been responsible for multiple Investigational New Drug Applications
and New Drug Applications. The in-house team is supplemented by a proprietary network of key opinion leaders, expert consultants,
healthcare executives, and biotechnology investors. We believe their holistic approach will enable us to identify and evaluate
innovative companies that can address unmet needs in healthcare.
A
fundamental area of strength for Boxer Capital has been targeted oncology, having focused on investing in this sector of healthcare
for most of the last ten years. Over time, Boxer Capital has built a network of research scientists, chemists, physicians, and
other experts in areas like manufacturing, intellectual property and food and drug regulations who have expertise in targeted
oncology and can be called upon as needed to assist with diligence. To further bolster our support in this area, we have assembled
a board of individuals who each have particular expertise in the area of targeted oncology, among other areas. Although we may
pursue an acquisition opportunity in any business, industry, or sector, we believe targeted oncology is an area of particular
strength where we may have a competitive advantage in finding, evaluating and capitalizing an attractive target company.
Industry
Opportunity
We
believe that the biotechnology sector represents a tremendous opportunity for growth, with many promising pre-commercial companies
seeking funding and guidance from knowledgeable investment firms. There are multiple trends in the sector that contribute to this
growth potential, including but not limited to rising U.S. healthcare spending, an accelerated pace of biotechnology innovation,
and robust financing and capital markets activity.
1
Acquisition
Strategy & Investment Criteria
Our
strategy is to leverage our management team’s expertise and network of key opinion leaders, expert consultants, healthcare
executives, biotechnology investors and investment bankers to identify and acquire an attractive target business in the biotechnology
industry. We believe that Boxer Capital’s reputation and track record of favorable investments are an additional competitive
advantage that will make us an attractive partner for companies in this competitive environment.
As
part of our overall strategy, we have identified a set of criteria by which we will evaluate prospective target businesses. While
we may enter into a business combination with a company that does not meet all of these criteria, we intend to focus on companies
that we believe:
The
above criteria are not meant to be exhaustive, and our management team may adopt new or unique criteria over time and depending
on each particular situation.
Effecting
a Business Combination
General
We
intend to effectuate our initial business combination using cash from the proceeds of our initial public offering and the private
placement of the private shares, our shares, new debt, or a combination of these, as the consideration to be paid in our initial
business combination. We may seek to consummate our initial business combination with a company or business that may be financially
unstable or in its early stages of development or growth (such as a company that has begun operations but is not yet at the stage
of commercial manufacturing and sales), which would subject us to the numerous risks inherent in such companies and 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.
If
our initial business combination is paid for using shares or debt securities, or not all of the funds released from the trust
account are used for payment of the purchase price in connection with our business combination or used for redemptions of purchases
of our common stock, we may apply the cash released to us from the trust account that is not applied to the purchase price for
general corporate purposes, including for maintenance or expansion of operations of acquired businesses, the payment of principal
or interest due on indebtedness incurred in consummating our initial business combination, to fund the purchase of other companies
or for working capital.
We
have not signed a definitive agreement with any acquisition targets. Subject to the requirement that our initial business combination
must be with one or more target businesses or assets having an aggregate fair market value of at least 80% of the value of the
trust account (excluding any taxes payable) at the time of the agreement to enter into such initial business combination, we have
virtually unrestricted flexibility in identifying and selecting one or more prospective target businesses. Although our management
team will assess the risks inherent in a particular target business with which we may combine, this assessment may not 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.
2
We
may seek to raise additional funds through a private offering of debt or equity securities in connection with the consummation
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. Subject to compliance with applicable securities laws, we would consummate
such financing only simultaneously with the consummation of our business combination. In the case of an initial business combination
funded with assets other than the trust account assets, our tender offer documents or proxy materials disclosing the business
combination would disclose the terms of the financing and, only if required by law or Nasdaq, 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.
Our
sponsor has entered into an agreement with us to purchase at least an aggregate of 2,500,000 shares of common stock, for
an aggregate purchase price of $25,000,000, or $10.00 per share of common stock, prior to, concurrently with, or following the
closing of our business combination in a private placement. The capital from such transaction may be used as part of the consideration
to the sellers in our initial business combination, and any excess capital from such private placement would be used for working
capital in the post-transaction company. If we sell shares to our sponsor (or any other investor) in connection with our
initial business combination, the equity interest of IPO investors in the combined company may be diluted and the market prices
for our securities may be adversely affected. In addition, if the per share trading price of our shares of common stock is greater
than the price per share paid in the private placement, the private placement will result in value dilution to our shareholders.
Sources
of Target Businesses
We
anticipate that target business candidates will be brought to our attention from various unaffiliated sources, including investment
bankers, venture capital funds, private equity groups, leveraged buyout funds, management buyout funds and other members of the
financial community. Target businesses may be brought to our attention by such unaffiliated sources as a result of being solicited
by us through calls or mailings. These sources also 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 the prospectus from our Initial Public Offering, or this report,
and know what types of businesses we are targeting. Our officers and directors, as well as their affiliates, also may 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 proprietary deal flow opportunities that would not otherwise necessarily be available to us as a result of the business relationships
of our officers and directors. 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 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. Although some of our officers and directors may enter into employment or consulting agreements with the acquired business
following our initial business combination, the presence or absence of any such arrangements will not be used as a criterion in
our selection process of an acquisition candidate.
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 such a company, 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 on the type of target business we seek to acquire that such an initial business combination is fair to our
unaffiliated stockholders from a financial point of view.
3
Selection
of a Target Business and Structuring of a Business Combination
Subject
to the requirement that our initial business combination must be with one or more target businesses or assets having an aggregate
fair market value of at least 80% of the value of the trust account (excluding any taxes payable) at the time of the agreement
to enter into such initial business combination, our management will have virtually unrestricted flexibility in identifying and
selecting one or more prospective target businesses. In any case, we will only consummate an initial business combination in which
we become the majority shareholder of the target (or control the target through contractual arrangements in limited circumstances
for regulatory compliance purposes as discussed below) or are otherwise not required to register as an investment company under
the Investment Company Act or to the extent permitted by law we may acquire interests in a variable interest entity, in which
we may have less than a majority of the voting rights in such entity, but in which we are the primary beneficiary. 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 (such as a company that has begun operations but is not yet at the stage of commercial manufacturing
and sales), 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 may not properly ascertain or assess all significant risk factors.
In
evaluating a prospective target business, we expect to conduct a thorough due diligence review that will encompass, among other
things, meetings with incumbent management and employees, document reviews, interviews of customers and suppliers, inspection
of facilities, as well as a review of financial and other information which 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 a 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. We will not
pay any finders or consulting fees to members of our management team, or any of their respective affiliates, for services rendered
to or in connection with our initial business combination.
Fair
Market Value of Target Business or Businesses
The
target business or businesses or assets with which we effect our initial business combination must have a collective fair market
value equal to at least 80% of the value of the trust account (excluding any taxes payable) at the time of the agreement to enter
into such initial business combination. If we acquire less than 100% of one or more target businesses in our initial business
combination, the aggregate fair market value of the portion or portions we acquire must equal at least 80% of the value of the
trust account at the time of the agreement to enter into such initial business combination. However, we will always acquire at
least a controlling interest in a target business. The fair market value of a portion of a target business or assets will likely
be calculated by multiplying the fair market value of the entire business by the percentage of the target we acquire. We may seek
to consummate our initial business combination with an initial target business or businesses with a collective fair market value
in excess of the balance in the trust account. In order to consummate such an initial business combination, we may issue a significant
amount of debt, equity or other securities to the sellers of such business and/or seek to raise additional funds through a private
offering of debt, equity or other securities. If we issue securities in order to consummate such an initial business combination,
our stockholders could end up owning a minority of the combined company’s voting securities as there is no requirement that
our stockholders own a certain percentage of our company (or, depending on the structure of the initial business combination,
an ultimate parent company that may be formed) after our business combination.
The
fair market value of a target business or businesses or assets will be determined by our board of directors based upon standards
generally accepted by the financial community, such as actual and potential gross margins, the values of comparable businesses,
earnings and cash flow, book value, enterprise value and, where appropriate, upon the advice of appraisers or other professional
consultants. Investors will be relying on the business judgment of our board of directors, which will have significant discretion
in choosing the standard used to establish the fair market value of a particular target business. If our board of directors is
not able to independently determine that the target business or assets has a sufficient fair market value to meet the threshold
criterion, we will obtain an opinion from an unaffiliated, independent investment banking firm or another independent entity that
commonly renders valuation opinions on the type of target business we seek to acquire with respect to the satisfaction of such
criterion. Notwithstanding the foregoing, unless we consummate a business combination with an affiliated entity, we are not required
to obtain an opinion from an independent investment banking firm, or another independent entity that commonly renders valuation
opinions on the type of target business we seek to acquire, that the price we are paying is fair to our stockholders.
4
Lack
of Business Diversification
For
an indefinite period of time after consummation 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. By consummating 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 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. Members of our management team may not become a part of the target’s management team, and the future management
may not have the necessary skills, qualifications or abilities to manage a public company. Further, it is also not certain whether
one or more of our directors will remain associated in some capacity with us following our initial business combination. Moreover,
members of our management team may not have significant experience or knowledge relating to the operations of the particular target
business. Our key personnel may not 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
our initial business combination, we may seek to recruit additional managers to supplement the incumbent management of the target
business. We may not 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 an Initial Business Combination
In
connection with any proposed business combination, we will either (1) seek stockholder approval of our initial business combination
at a meeting called for such purpose at which public stockholders may seek to convert their public shares, regardless of whether
they vote for or against the proposed business combination, into their pro rata share of the aggregate amount then on deposit
in the trust account (net of taxes payable) or (2) provide our public stockholders with the opportunity to sell their public shares
to us by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount equal to their pro rata
share of the aggregate amount then on deposit in the trust account (net of taxes payable), in each case subject to the limitations
described herein. Notwithstanding the foregoing, our initial stockholders have agreed, pursuant to written letter agreements with
us, not to convert any public shares held by them into their pro rata share of the aggregate amount then on deposit in
the trust account. If we determine to engage in a tender offer, such tender offer will be structured so that each stockholder
may tender any or all of his, her or its public shares rather than some pro rata portion of his, her or its shares. The
decision as to whether we will seek stockholder approval of a proposed business combination or will allow stockholders to sell
their shares to us in a tender offer will be made by us based on a variety of factors such as the timing of the transaction and
whether the terms of the transaction would otherwise require us to seek stockholder approval. If we so choose and we are legally
permitted to do so, we have the flexibility to avoid a stockholder vote and allow our stockholders to sell their shares pursuant
to Rule 13e-4 and Regulation 14E of the Exchange Act which regulate issuer tender offers. In that case, we will file tender offer
documents with the SEC which will contain substantially the same financial and other information about the initial business combination
as is required under the SEC’s proxy rules. We will consummate our initial business combination only if we have net tangible
assets of at least $5,000,001 upon such consummation and, solely if we seek stockholder approval, a majority of the issued and
outstanding shares of common stock voted are voted in favor of the business combination.
5
We
chose our net tangible asset threshold of $5,000,001 to ensure that we would avoid being subject to Rule 419 promulgated under
the Securities Act. However, if we seek to consummate an initial business combination with a target business that imposes any
type of working capital closing condition or requires us to have a minimum amount of funds available from the trust account upon
consummation of such initial business combination, our net tangible asset threshold may limit our ability to consummate such initial
business combination (as we may be required to have a lesser number of shares converted or sold to us) and may force us to seek
third party financing which may not be available on terms acceptable to us or at all. As a result, we may not be able to consummate
such initial business combination and we may not be able to locate another suitable target within the applicable time period,
if at all. Public stockholders may therefore have to wait 24 months from the closing of our Initial Public Offering in order to
be able to receive a pro rata share of the trust account.
Our
initial stockholders and our officers and directors have agreed (1) to vote any shares of common stock owned by them in favor
of any proposed business combination, (2) not to convert any shares of common stock in connection with a stockholder vote to approve
a proposed initial business combination and (3) not sell any shares of common stock in any tender in connection with a proposed
initial business combination. As a result, if we sought stockholder approval of a proposed transaction, we would need only 734,064
of our public shares (or approximately 3.4% of our public shares) to be voted in favor of the transaction in order to have such
transaction approved (assuming that only a quorum was present at the meeting).
If
we hold a meeting to approve a proposed business combination and a significant number of stockholders vote, or indicate an intention
to vote, against such proposed business combination, our officers, directors, initial stockholders or their affiliates could make
purchases of our stock in the open market or in private transactions in order to influence the vote. Notwithstanding the foregoing,
our officers, directors, initial stockholders and their affiliates will not make purchases of common stock if the purchases would
violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act, which are rules designed to stop potential manipulation of a company’s
stock.
Conversion/Tender
Rights
At
any meeting called to approve an initial business combination, public stockholders may seek to convert their public shares, regardless
of whether they vote for or against the proposed business combination, into their pro rata share of the aggregate amount
then on deposit in the trust account, less any taxes then due but not yet paid. Notwithstanding the foregoing, our initial stockholders
have agreed, pursuant to written letter agreements with us, not to convert any public shares held by them into their pro rata
share of the aggregate amount then on deposit in the trust account. If we hold a meeting to approve an initial business combination,
a holder will always have the ability to vote against a proposed business combination and not seek conversion of his shares.
Alternatively,
if we engage in a tender offer, each public stockholder will be provided the opportunity to sell his public shares to us in such
tender offer. The tender offer rules require us to hold the tender offer open for at least 20 business days. Accordingly, this
is the minimum amount of time we would need to provide holders to determine whether they want to sell their public shares to us
in the tender offer or remain an investor in our company.
Our
initial stockholders, officers and directors will not have conversion rights with respect to any shares of common stock owned
by them, directly or indirectly, whether acquired prior to our Initial Public Offering or purchased by them in it or in the aftermarket.
6
We
may also require public stockholders, whether they are a record holder or hold their shares in “street name,” to either
tender their certificates (if any) to our transfer agent or to deliver their shares to the transfer agent electronically using
Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option, at any time at or
prior to the vote on the business combination. The proxy solicitation materials that we will furnish to stockholders in connection
with the vote for any proposed business combination will indicate whether we are requiring stockholders to satisfy such delivery
requirements. Accordingly, a stockholder would have from the time our proxy statement is mailed through the vote on the business
combination to deliver his shares if he wishes to seek to exercise his conversion rights. Under Delaware law and our bylaws, we
are required to provide at least 10 days’ advance notice of any stockholder meeting, which would be the minimum amount of
time a stockholder would have to determine whether to exercise conversion rights. As a result, if we require public stockholders
who wish to convert their shares of common stock into the right to receive a pro rata portion of the funds in the trust
account to comply with the foregoing delivery requirements, holders may not have sufficient time to receive the notice and deliver
their shares for conversion. Accordingly, investors may not be able to exercise their conversion rights and may be forced to retain
our securities when they otherwise would not want to. The conversion rights will include the requirement that a beneficial holder
must identify itself in order to validly redeem its shares.
There
is a nominal cost associated with this tendering process and the act of certificating the shares or delivering them through the
DWAC System. The transfer agent will typically charge the tendering broker $45 and it would be up to the broker whether or not
to pass this cost on to the converting holder. However, this fee would be incurred regardless of whether or not we require holders
seeking to exercise conversion rights. The need to deliver shares is a requirement of exercising conversion rights regardless
of the timing of when such delivery must be effectuated. However, in the event we require stockholders seeking to exercise conversion
rights to deliver their shares prior to the consummation of the proposed business combination and the proposed business combination
is not consummated, this may result in an increased cost to stockholders.
Any
request to convert or tender such shares once made, may be withdrawn at any time up to the vote on the proposed business combination
or expiration of the tender offer. Furthermore, if a holder of a public share delivered his certificate in connection with an
election of their conversion or tender and subsequently decides prior to the vote on the business combination or the expiration
of the tender offer not to elect to exercise such rights, he may simply request that the transfer agent return the certificate
(physically or electronically).
If
the initial business combination is not approved or completed for any reason, then our public stockholders who elected to exercise
their conversion or tender rights would not be entitled to convert their shares for the applicable pro rata share of the
trust account. In such case, we will promptly return any shares delivered by public holders.
Liquidation
of Trust Account if No Business Combination
If
we do not complete a business combination within 24 months from the closing of our Initial Public Offering, we will (i) cease
all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days
thereafter, redeem 100% of the outstanding public shares and (iii) as promptly as reasonably possible following such redemption,
subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject (in the case
of (ii) and (iii) above) to our obligations under Delaware law to provide for claims of creditors and the requirements of other
applicable law.
Under
the Delaware General Corporation Law, stockholders may be held liable for claims by third parties against a corporation to the
extent of distributions received by them in a dissolution. The pro rata portion of our trust account distributed to our public
stockholders upon the redemption of 100% of our outstanding public shares in the event we do not complete our initial business
combination within the required time period may be considered a liquidation distribution under Delaware law. If the corporation
complies with certain procedures set forth in Section 280 of the Delaware General Corporation Law intended to ensure that it makes
reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought
against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day
waiting period before any redemptions are made to stockholders, any liability of stockholders with respect to a redemption is
limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and
any liability of the stockholder would be barred after the third anniversary of the dissolution.
Furthermore,
if the pro rata portion of our trust account distributed to our public stockholders upon the redemption of 100% of our public
shares in the event we do not complete our initial business combination within the required time period is not considered a liquidation
distribution under Delaware law and such redemption distribution is deemed to be unlawful, then pursuant to Section 174 of the
Delaware General Corporation Law, the statute of limitations for claims of creditors could then be six years after the unlawful
redemption distribution, instead of three years, as in the case of a liquidation distribution. It is our intention to redeem our
public shares as soon as reasonably possible following the 24th month from the
closing of our Initial Public Offering and, therefore, we do not intend to comply with the above procedures. As such, our stockholders
could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of
our stockholders may extend well beyond the third anniversary of such date.
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Because
we will not be complying with Section 280 of the Delaware General Corporation Law, Section 281(b) of the Delaware General Corporation
Law requires us to adopt a plan, based on facts known to us at such time that will provide for our payment of all existing and
pending claims or claims that may be potentially brought against us within the subsequent 10 years. However, because we are a
blank check company, rather than an operating company, and our operations will be limited to seeking to complete an initial business
combination, the only likely claims to arise would be from our vendors (such as lawyers, investment bankers, etc.) or prospective
target businesses.
We
will seek to have all third parties (including any vendors or other entities we engage after our Initial Public Offering, other
than our independent registered public accounting firm) and any prospective target businesses enter into valid and enforceable
agreements with us waiving any right, title, interest or claim of any kind they may have in or to any monies held in the trust
account. The underwriters in our Initial Public Offering executed such a waiver agreement.
As
a result, the claims that could be made against us will be limited, thereby lessening the likelihood that any claim would result
in any liability extending to the trust. We therefore believe that any necessary provision for creditors will be reduced and should
not have a significant impact on our ability to distribute the funds in the trust account to our public stockholders. Nevertheless,
there is no guarantee that vendors, service providers and prospective target businesses will execute such agreements. In the event
that a potential contracted party was to refuse to execute such a waiver, we will execute an agreement with that entity only if
our management first determines that we would be unable to obtain, on a reasonable basis, substantially similar services or opportunities
from another entity willing to execute such a waiver. Examples of instances where we may engage a third party that refused to
execute a waiver would be the engagement of a third party consultant who cannot sign such an agreement due to regulatory restrictions,
such as our auditors who are unable to sign due to independence requirements, or whose particular expertise or skills are believed
by management to be superior to those of other consultants that would agree to execute a waiver or a situation in which management
does not believe it would be able to find a provider of required services willing to provide the waiver. There is also no guarantee
that, even if they execute such agreements with us, they will not seek recourse against the trust account. Our insiders have agreed
that they will be jointly and severally liable to us if and to the extent any claims by a vendor for services rendered or products
sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amount
of funds in the trust account to below $10.00 per public share, except as to any claims by a third party who executed a valid
and enforceable agreement with us waiving any right, title, interest or claim of any kind they may have in or to any monies held
in the trust account and except as to any claims under our indemnity of the underwriters of our Initial Public Offering against
certain liabilities, including liabilities under the Securities Act. Our board of directors has evaluated our insiders’
financial net worth and believes they will be able to satisfy any indemnification obligations that may arise. However, our insiders
may not be able to satisfy their indemnification obligations, as we have not required our insiders to retain any assets to provide
for their indemnification obligations, nor have we taken any further steps to ensure that they will be able to satisfy any indemnification
obligations that arise. Moreover, our insiders will not be liable to our public stockholders and instead will only have liability
to us. As a result, if we liquidate, the per-share distribution from the trust account could be less than approximately $10.00
due to claims or potential claims of creditors. We will distribute to all of our public stockholders, in proportion to their respective
equity interests, an aggregate sum equal to the amount then held in the trust account, inclusive of any interest not previously
released to us, (subject to our obligations under Delaware law to provide for claims of creditors as described below).
If
we are unable to consummate an initial business combination and are forced to redeem 100% of our outstanding public shares for
a portion of the funds held in the trust account, we anticipate notifying the trustee of the trust account to begin liquidating
such assets promptly after such date and anticipate it will take no more than 10 business days to effectuate the redemption of
our public shares. Our insiders have waived their rights to participate in any redemption with respect to their insider shares.
We will pay the costs of any subsequent liquidation from our remaining assets outside of the trust account. If such funds are
insufficient, our insiders have agreed to pay the funds necessary to complete such liquidation (currently anticipated to be no
more than approximately $15,000) and have agreed not to seek repayment of such expenses. Each holder of public shares will receive
a full pro rata portion of the amount then in the trust account, plus any pro rata interest earned on the funds held in the trust
account and not previously released to us or necessary to pay our taxes. The proceeds deposited in the trust account could, however,
become subject to claims of our creditors that are in preference to the claims of public stockholders.
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Our
public stockholders shall be entitled to receive funds from the trust account only in the event of our failure to complete our
initial business combination in the required time period or if the stockholders seek to have us convert their respective shares
of common stock upon a business combination which is actually completed by us. In no other circumstances shall a stockholder have
any right or interest of any kind to or in the trust account.
If
we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the proceeds
held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject
to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete
the trust account, the per share redemption or conversion amount received by public stockholders may be less than $10.00.
If,
after we distribute the proceeds in the trust account to our public stockholders, we file a bankruptcy petition or an involuntary
bankruptcy petition is filed against us that is not dismissed, any distributions received by stockholders could be viewed under
applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.”
As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. In addition, our board of directors
may be viewed as having breached its fiduciary duty to our creditors and/or having acted in bad faith, thereby exposing itself
and us to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors.
Claims may be brought against us for these reasons.
Certificate
of Incorporation
Our
certificate of incorporation contains certain requirements and restrictions relating to our Initial Public Offering that will
apply to us until the consummation of our initial business combination. If we hold a stockholder vote to amend any provisions
of our certificate of incorporation relating to stockholder’s rights or pre-business combination activity (including the
substance or timing within which we have to complete a business combination), we will provide our public stockholders with the
opportunity to redeem their shares of common stock upon approval of any such amendment at a per-share price, payable in cash,
equal to the aggregate amount then on deposit in the trust account, including interest earned on the funds held in the trust account
and not previously released to us to pay our franchise and income taxes, divided by the number of then outstanding public shares,
in connection with any such vote. Our insiders have agreed to waive any conversion rights with respect to any insider shares and
any public shares they may hold in connection with any vote to amend our certificate of incorporation. Specifically, our certificate
of incorporation provides, among other things, that:
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Potential
Revisions to Agreements with Insiders
Each
of our insiders has entered into letter agreements with us pursuant to which each of them has agreed to do certain things relating
to us and our activities prior to a business combination. We could seek to amend these letter agreements without the approval
of stockholders, although we have no intention to do so. In particular:
Except
as specified above, stockholders would not be required to be given the opportunity to redeem their shares in connection with such
changes. Such changes could result in:
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We
will not agree to any such changes unless we believed that such changes were in the best interests of our stockholders (for example,
if we believed such a modification were necessary to complete a business combination). Each of our officers and directors have
fiduciary obligations to us requiring that they act in our best interests and the best interests of our stockholders.
Competition
In
identifying, evaluating and selecting a target business for our initial business combination, we may encounter intense competition
from other entities having a business objective similar to ours, including other blank check companies, private equity groups
and leveraged buyout funds, and operating businesses seeking strategic acquisitions. Many of these entities are well established
and have significant experience identifying and effecting business combinations directly or through affiliates. Moreover, many
of these competitors possess greater financial, technical, human and other resources than us. Our ability to acquire larger target
businesses will be limited by our available financial resources. This inherent limitation gives others an advantage in pursuing
the acquisition of a target business. Furthermore, the requirement that we acquire a target business or businesses having a fair
market value equal to at least 80% of the value of the trust account (excluding any taxes payable) at the time of the agreement
to enter into the business combination, our obligation to pay cash in connection with our public stockholders who exercise their
redemption rights, may not be viewed favorably by certain target businesses. Any of these factors may place us at a competitive
disadvantage in successfully negotiating our initial business combination.
Facilities
We
pay to an affiliate of our sponsor a fee of $10,000 per month for use of office space and certain office and secretarial services.
The office space is located at 12860 El Camino Real, Suite 300, San Diego, CA 92130.
Employees
We
currently have four executive officers. These individuals are not obligated to devote any specific number of hours to our matters
but they intend to devote as much of their time as they deem necessary to our affairs until we have completed our initial business
combination. The amount of time they will devote in any time period will vary based on whether a target business has been selected
for our initial business combination and the stage of the business combination process we are in. We do not intend to have any
full time employees prior to the consummation of our initial business combination.
Periodic
Reporting and Audited Financial Statements
We
have registered our common stock under the Exchange Act and have reporting obligations, including the requirement that we file
annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, this annual report
contains financial statements audited and reported on by our independent registered public accountants.