Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Exchange Act. We have based these forward-looking statements
on our current expectations and projections about future events. These
forward-looking statements are subject to known and unknown risks, uncertainties
and assumptions about us that may cause our actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "should," "could," "would," "expect,"
"plan," "anticipate," "believe," "estimate," "continue," or the negative of such
terms or other similar expressions. Factors that might cause or contribute to
such a discrepancy include, but are not limited to, those described in our other
SEC filings.
Overview
The Company is a blank check company incorporated as a Cayman Islands exempted
company on February 5, 2021. The Company was incorporated for the purpose of
effecting a Business Combination. The Company is an early stage and emerging
growth company and, as such, the Company is subject to all of the risks
associated with early stage and emerging growth companies.
As of June 30, 2021, the Company had not yet commenced operations. All activity
for the period from February 5, 2021 (inception) through June 30, 2021 relates
to the Company's formation and the Initial Public Offering, which is described
below. The Company will not generate any operating revenues until after the
completion of its initial Business Combination, at the earliest. The Company
will generate non-operating income in the form of interest income from the
proceeds derived from the Initial Public Offering. The Company has selected
December 31 as its fiscal year end.
The registration statement for the Company's Initial Public Offering was
declared effective on April 28, 2021. On May 17, 2021, the Company consummated
its Initial Public Offering generating gross proceeds of $200.0 million, and
incurring offering costs of approximately $11.6 million, of which $7.0 million
was for deferred underwriting commissions (see Note 5). The Company granted the
underwriter a 45-day option to purchase up to an additional 3,000,000 Units at
the Initial Public Offering price to cover over-allotments, if any. On June 28,
2021, the over-allotment option expired and was not exercised.
Simultaneously with the closing of the Initial Public Offering, the Company
consummated the Private Placement at a price of $1.50 per Private Placement
Warrant to the Sponsor, generating proceeds of $6.5 million (see Note 4).
Upon the closing of the Initial Public Offering and the Private Placement,
$200.0 million ($10.00 per Unit) of the net proceeds of the sale of the Units in
the Initial Public Offering and of the Private Placement Warrants in the Private
Placement were invested in Government Securities that were placed in the Trust
Account with Continental Stock Transfer & Trust Company acting as trustee, until
the earlier of: (i) the completion of a Business Combination and (ii) the
distribution of the Trust Account as described below.
The Company's management has broad discretion with respect to the specific
application of the net proceeds of its Initial Public Offering and the sale of
the Private Placement Warrants, although substantially all of the net proceeds
are intended to be applied generally toward consummating a Business Combination.
The Company's initial Business Combination must be with one or more operating
businesses or assets with a fair market value equal to at least 80% of the net
assets held in the Trust Account (excluding the deferred underwriting
commissions and taxes payable on the income earned on the Trust Account) at the
time the Company signs a definitive agreement in connection with the initial
Business Combination. However, the Company will only complete a Business
Combination if the post-Business Combination company owns or acquires 50% or
more of the outstanding voting securities of the target business or otherwise
acquires a controlling interest in the target business sufficient for it not to
be required to register as an investment company under the Investment Company
Act.
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The Company will provide the "Public Shareholders" with the opportunity to
redeem all or a portion of their Public Shares upon the completion of a Business
Combination either (i) in connection with a general meeting called to approve
the Business Combination or (ii) by means of a tender offer. The decision as to
whether the Company will seek shareholder approval of a Business Combination or
conduct a tender offer will be made by the Company. The Public Shareholders will
be entitled to redeem their Public Shares for a pro rata portion of the amount
then in the Trust Account (initially at $10.00 per share). The per-share amount
to be distributed to Public Shareholders who redeem their Public Shares will not
be reduced by the deferred underwriting commissions the Company will pay to the
underwriter (as discussed in Note 5). These Public Shares were recorded at a
redemption value and classified as temporary equity upon the completion of the
Initial Public Offering, in accordance with ASC 480. In such case, the Company
will proceed with a Business Combination if the Company has net tangible assets
of at least $5,000,001 upon such consummation of a Business Combination and a
majority of the shares voted are voted in favor of the Business Combination. If
a shareholder vote is not required by applicable law or stock exchange listing
requirements and the Company does not decide to hold a shareholder vote for
business or other reasons, the Company will, pursuant to the Amended and
Restated Memorandum and Articles of Association, conduct the redemptions
pursuant to the tender offer rules of the SEC, and file tender offer documents
with the SEC prior to completing a Business Combination. If, however, a
shareholder approval of the transactions is required by applicable law or stock
exchange listing requirements, or the Company decides to obtain shareholder
approval for business or other reasons, the Company will offer to redeem shares
in conjunction with a proxy solicitation pursuant to the proxy rules and not
pursuant to the tender offer rules. Additionally, each Public Shareholder may
elect to redeem their Public Shares irrespective of whether they vote for or
against the proposed transaction or whether they were a Public Shareholder on
the record date for the general meeting held to approve the proposed
transaction. If the Company seeks shareholder approval in connection with a
Business Combination, Initial Shareholders agreed to vote their Founder Shares
(as defined in Note 4) and any Public Shares purchased during or after the
Initial Public Offering in favor of a Business Combination. In addition, the
Initial Shareholders agreed to waive their redemption rights with respect to
their Founder Shares and Public Shares in connection with the completion of a
Business Combination. In addition, the Company agreed not to enter into a
definitive agreement regarding an initial Business Combination without the prior
consent of the Sponsor.
Notwithstanding the foregoing, the Company's Amended and Restated Memorandum and
Articles of Association will provide that a public shareholder, together with
any affiliate of such shareholder or any other person with whom such shareholder
is acting in concert or as a "group" (as defined under Section 13 of the
Exchange Act), will be restricted from redeeming its shares with respect to more
than an aggregate of 15% or more of the Class A ordinary shares sold in the
Initial Public Offering, without the prior consent of the Company.
The Company's Sponsor, officers, directors and director nominees agreed not to
propose an amendment to the Company's Amended and Restated Memorandum and
Articles of Association (A) to modify the substance or timing of the Company's
obligation to allow the redemption of its Public Shares in connection with a
Business Combination or to redeem 100% of its Public Shares if the Company does
not complete a Business Combination the Combination Period or (B) with respect
to any other provisions relating to shareholders' rights or pre-initial business
combination activity, unless the Company provides the public shareholders with
the opportunity to redeem their Class A ordinary shares in conjunction with any
such amendment.
If the Company is unable to complete a Business Combination within the
Combination Period, the Company 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 the Public Shares, at a per-share price,
payable in cash, equal to the aggregate amount then on deposit in the Trust
Account, including interest (which interest shall be net of taxes payable and up
to $100,000 of interest to pay dissolution expenses), divided by the number of
then issued and outstanding Public Shares, which redemption will completely
extinguish Public Shareholders' rights as shareholders (including the right to
receive further liquidation distributions, if any) and (iii) as promptly as
reasonably possible following such redemption, subject to the approval of the
remaining shareholders and the board of directors, liquidate and dissolve,
subject, in the case of clauses (ii) and (iii), to the Company's obligations
under Cayman Islands law to provide for claims of creditors and in all cases
subject to the other requirements of applicable law.
In connection with the redemption of 100% of the Company's outstanding Public
Shares for a portion of the funds held in the Trust Account, each holder 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 the Company to pay the Company's taxes payable (less
taxes payable and up to $100,000 of interest to pay dissolution expenses).
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The Initial Shareholders agreed to waive their liquidation rights with respect
to the Founder Shares if the Company fails to complete a Business Combination
within the Combination Period. However, if the Initial Shareholders should
acquire Public Shares in or after the Initial Public Offering, they will be
entitled to liquidating distributions from the Trust Account with respect to
such Public Shares if the Company fails to complete a Business Combination
within the Combination Period. The underwriter agreed to waive its rights to its
deferred underwriting commission (see Note 5) held in the Trust Account in the
event the Company does not complete a Business Combination within the
Combination Period and, in such event, such amounts will be included with the
funds held in the Trust Account that will be available to fund the redemption of
the Company's Public Shares. In the event of such distribution, it is possible
that the per share value of the residual assets remaining available for
distribution in the Trust Account will be less than the $10.00 per share
initially held in the Trust Account. In order to protect the amounts held in the
Trust Account, the Sponsor agreed that it will be liable to the Company if and
to the extent any claims by a third party for services rendered or products sold
to the Company, or a prospective target business with which the Company has
entered into a written letter of intent, confidentiality or other similar
agreement or business combination agreement, reduce the amount of funds in the
Trust Account to below the lesser of (i) $10.00 per public share and (ii) the
actual amount per public share held in the trust account as of the date of the
liquidation of the Trust Account, if less than $10.00 per share due to
reductions in the value of the trust assets, less taxes payable, provided that
such liability will not apply to any claims by a third party or prospective
target business who executed a waiver of any and all rights to the monies held
in the Trust Account (whether or not such waiver is enforceable) nor will it
apply to any claims under the Company's indemnity of the underwriter of the
Initial Public Offering against certain liabilities, including liabilities under
the Securities Act. In the event that an executed waiver is deemed to be
unenforceable against a third party, the Sponsor will not be responsible to the
extent of any liability for such third-party claims. The Company will seek to
reduce the possibility that the Sponsor will have to indemnify the Trust Account
due to claims of creditors by endeavoring to have vendors, service providers
(except the Company's independent registered public accounting firm),
prospective target businesses or other entities with which the Company does
business, execute agreements with the Company waiving any right, title, interest
or claim of any kind in or to monies held in the Trust Account. There can be no
guarantee that the Company will be successful in obtaining such waivers from its
targeted vendors and service providers.
Results of Operations
Our entire activity from February 5, 2021 (inception) through June 30, 2021 was
in preparation for our formation and the Initial Public Offering. We will not be
generating any operating revenues until the closing and completion of our
initial Business Combination.
For the three months ended June 30, 2021, we had a net loss of approximately
$2.0 million, which consisted of approximately $139,000 of general and
administrative expenses, $15,000 of general and administrative expenses -
related party, approximately $1.5 million in change of fair value of derivative
warrant liabilities, approximately $239,000 in offering cost associated with
derivative warrant liabilities, and approximately $107,000 loss on forward
purchase agreement, partially offset by approximate 2,000 of interest income
from the trust account.
For the period from February 19, 2021 (inception) through June 30, 2021, we had
a net loss of approximately $2.1 million, which consisted of approximately
$184,000 of general and administrative expenses, $15,000 of general and
administrative expenses - related party, approximately $1.5 million in change of
fair value of derivative warrant liabilities, approximately $239,000 in offering
cost associated with derivative warrant liabilities, and approximately $107,000
loss on forward purchase agreement, partially offset by approximate 2,000 of
interest income from the trust account.
Liquidity and Capital Resources
As of June 30, 2021, the Company had approximately $881,000 in its operating
bank account and working capital of approximately $1.7 million.
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The Company's liquidity needs prior to the consummation of the Initial Public
Offering were satisfied through the payment of $25,000 from the Sponsor to cover
certain expenses on the Company's behalf in exchange for issuance of Founder
Shares (as defined in Note 4), a loan from the Sponsor of approximately $120,000
under the Note (as defined in Note 4). The Company repaid the Note in full upon
closing of the Initial Public Offering. Subsequent to the consummation of the
Initial Public Offering, the Company's liquidity has been satisfied through the
net proceeds from the Private Placement held outside of the Trust Account. In
addition, in order to finance transaction costs in connection with a Business
Combination, the Sponsor or an affiliate of the Sponsor, or certain of the
Company's officers and directors may, but are not obligated to, provide the
Company Working Capital Loans (as defined in Note 4). As of June 30, 2021, there
were no amounts outstanding under any Working Capital Loan.
Based on the foregoing, management believes that the Company will have
sufficient working capital and borrowing capacity to meet its needs through the
earlier of the consummation of a Business Combination or one year from this
filing. Over this time period, the Company will be using the funds held outside
of the Trust Account for paying existing accounts payable, identifying and
evaluating prospective initial Business Combination candidates, performing due
diligence on prospective target businesses, paying for travel expenditures,
selecting the target business to merge with or acquire, and structuring,
negotiating and consummating the Business Combination.
Forward Purchase Agreement
On May 12, 2021, the Company entered the Forward Purchase Agreement with the
Sponsor, pursuant to which the Sponsor agreed to purchase up to $20,000,000 of
Forward Purchase Units. Each Forward Purchase Unit will consist of one Forward
Purchase Share and one-fifth of one Forward Purchase Warrant and will be sold at
a purchase price of $10.00 per Forward Purchase Unit in a private placement
concurrently with the closing of the initial Business Combination. The
obligations of the Sponsor under the Forward Purchase Agreement do not depend on
whether any Class A ordinary shares held by Public Shareholders are redeemed by
the Company and the amount of Forward Purchase Units sold pursuant to the
Forward Purchase Agreement will be subject to the Sponsor's sole discretion. The
proceeds from the sale of the Forward Purchase Units may be used as part of the
consideration to the sellers in the initial Business Combination, expenses in
connection with the initial Business Combination or for working capital in the
post-transaction company. The Forward Purchase Shares will generally be
identical to the Class A ordinary shares included in the Units being sold in the
Initial Public Offering, except that they will be entitled to certain
registration rights. The Forward Purchase Warrants will have the same terms as
the Private Placement Warrants so long as they are held by MSD Partners or its
permitted assignees and transferees.
Other Contractual Obligations
Registration and Shareholder Rights
The holders of the Founder Shares, Private Placement Warrants, Class A ordinary
shares underlying the Private Placement Warrants and warrants that may be issued
upon conversion of Working Capital Loans (and any Class A ordinary shares
issuable upon the exercise of the Private Placement Warrants and warrants that
may be issued upon conversion of Working Capital Loans) are entitled to
registration rights pursuant to the registration and shareholder rights
agreement. The holders of these securities are entitled to make up to three
demands, excluding short form demands, that the Company registers such
securities. In addition, the holders have certain "piggy-back" registration
rights with respect to registration statements filed subsequent to the
completion of the initial Business Combination. The Company will bear the
expenses incurred in connection with the filing of any such registration
statements.
Pursuant to the forward purchase agreement, the Company has agreed to use
reasonable best efforts (i) to file within 30 days after the closing of the
initial business combination a registration statement with the SEC for a
secondary offering of the forward purchase shares and the forward purchase
warrants (and underlying Class A ordinary shares), (ii) to cause such
registration statement to be declared effective promptly thereafter but in no
event later than sixty (60) days after the initial filing, (iii) to maintain the
effectiveness of such registration statement until the earliest of (A) the date
on which the Sponsor or its assignees cease to hold the securities covered
thereby and (B) the date all of the securities covered thereby can be sold
publicly without restriction or limitation under Rule 144 under the Securities
Act and (iv) after such registration statement is declared effective, causes the
Company to conduct firm commitment underwritten offerings, subject to certain
limitations. In addition, the forward purchase agreement provides for
"piggy-back" registration rights to the holders of forward purchase securities
to include their securities in other registration statements filed by the
Company.
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Underwriting Agreement
The Company granted the underwriter a 45-day option from the date of this
prospectus to purchase up to 3,000,000 additional Units at the Initial Public
Offering price less the underwriting discounts and commissions. On June 28,
2021, the over-allotment option expired and was not exercised.
The underwriter was entitled to an underwriting discount of $0.20 per unit, or
$4.0 million in the aggregate, paid upon the closing of the Initial Public
Offering. In addition, $0.35 per unit, or $7.0 million in the aggregate will be
payable to the representative for deferred underwriting commissions. The
deferred fee will become payable to the representative from the amounts held in
the Trust Account solely in the event that the Company completes a Business
Combination, subject to the terms of the underwriting agreement.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic on the
industry and has concluded that while it is reasonably possible that the virus
could have a negative effect on the Company's financial position, results of its
operations, and/or search for a target company, the specific impact is not
readily determinable as of the date of the financial statement. The financial
statement does not include any adjustments that might result from the outcome of
this uncertainty.
Critical Accounting Policies and Estimates
This management's discussion and analysis of our financial condition and results
of operations is based on our unaudited condensed financial statements, which
have been prepared in accordance with U.S. GAAP. The preparation of these
unaudited condensed financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses and the disclosure of contingent assets and liabilities in our
unaudited condensed financial statements. On an ongoing basis, we evaluate our
estimates and judgments, including those related to fair value of financial
instruments and accrued expenses. We base our estimates on historical
experience, known trends and events and various other factors that we believe to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We have identified the
following as our critical accounting policies:
Derivative Liabilities
The Company does not use derivative instruments to hedge exposures to cash flow,
market, or foreign currency risks. The Company evaluates all of its financial
instruments, including issued stock purchase warrants, to determine if such
instruments are derivatives or contain features that qualify as embedded
derivatives, pursuant to ASC 480 and ASC 815. The classification of derivative
instruments, including whether such instruments should be recorded as
liabilities or as equity, is re-assessed at the end of each reporting period.
The Public Warrants and the Private Placement Warrants are recognized as
derivative liabilities in accordance with ASC 815. Accordingly, the Company
recognizes the warrant instruments as liabilities at fair value and adjusts the
carrying value of the instruments to fair value at each reporting period until
they are exercised. The fair value of the Public Warrants and the Private
Placement Warrants is estimated using a Monte Carlo simulation. The
determination of the fair value of the warrant liability may be subject to
change as more current information becomes available and accordingly the actual
results could differ significantly. Derivative warrant liabilities are
classified as non-current liabilities as their liquidation is not reasonably
expected to require the use of current assets or require the creation of current
liabilities.
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The Company entered into a forward purchase agreement with forward purchasers
pursuant to which the forward purchasers will purchase up to $20,000,000 of
forward purchase units at a price equal to $10.00 per unit, in a private
placement that will close simultaneously with the closing of the Initial
Business Combination. Each forward purchase unit will consist of one Class A
ordinary share and one-fifth of one warrant to purchase one Class A ordinary
share, with such warrants having the same terms as the Private Placement
Warrants. The forward purchase agreement is recognized as a derivative liability
in accordance with ASC 815. Accordingly, the Company recognizes the instrument
as a liability at fair value and adjusts the instrument to fair value at each
reporting period. The fair value of the forward purchase agreement is determined
as the estimated unit value less the net present value of the forward purchase
agreement.
Class A Ordinary Shares Subject to Possible Redemption
The Company accounts for its Class A ordinary shares subject to possible
redemption in accordance with the guidance in ASC Topic 480 "Distinguishing
Liabilities from Equity." Class A ordinary shares subject to mandatory
redemption (if any) are classified as liability instruments and are measured at
fair value. Conditionally redeemable Class A ordinary shares (including Class A
ordinary shares that feature redemption rights that are either within the
control of the holder or subject to redemption upon the occurrence of uncertain
events not solely within the Company's control) are classified as temporary
equity. At all other times, Class A ordinary shares are classified as
shareholders' equity. The Company's Class A ordinary shares feature certain
redemption rights that are considered to be outside of the Company's control and
subject to the occurrence of uncertain future events. Accordingly, at June 30,
2021, 17,987,066 Class A ordinary shares subject to possible redemption are
presented as temporary equity, outside of the shareholders' equity section of
the Company's unaudited condensed balance sheet.
Net Income (Loss) Per Ordinary Share
The Company's condensed statements of operations include a presentation of net
income (loss) per share for Class A ordinary shares subject to possible
redemption in a manner similar to the two-class method of net income (loss) per
ordinary share. Net income (loss) per ordinary share, basic and diluted, for
Class A ordinary shares is calculated by dividing the interest income earned on
the Trust Account, less interest available to be withdrawn for the payment of
taxes, by the weighted average number of Class A ordinary shares outstanding for
the periods. Net income (loss) per ordinary share, basic and diluted, for Class
B ordinary shares is calculated by dividing the net income (loss), adjusted for
income attributable to Class A ordinary shares, by the weighted average number
of Class B Ordinary shares outstanding for the periods. Class B ordinary shares
include the Founder Shares as these ordinary shares do not have any redemption
features and do not participate in the income earned on the Trust Account.
The calculation of diluted net income (loss) per ordinary shares does not
consider the effect of the warrants issued in connection with the (i) Initial
Public Offering, (ii) exercise of over-allotment and (iii) Private Placement
since the exercise price of the warrants is in excess of the average ordinary
shares price for the period and therefore the inclusion of such warrants would
be anti-dilutive.
Recent accounting pronouncements
In August 2020, the FASB issued ASU 2020-06, which simplifies accounting for
convertible instruments by removing major separation models required under
current GAAP. The ASU also removes certain settlement conditions that are
required for equity-linked contracts to qualify for the derivative scope
exception, and it simplifies the diluted earnings per share calculation in
certain areas. The Company adopted ASU 2020-06 on February 5, 2021 (ordinary).
Adoption of the ASU did not impact the Company's financial position, results of
operations or cash flows.
Management does not believe that any other recently issued, but not yet
effective, accounting pronouncements, if currently adopted, would have a
material effect on the Company's unaudited condensed financial statements.
Off-Balance Sheet Arrangements
As of June 30, 2021, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments
or contractual obligations.
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