DELWINDS INSURANCE ACQUISITION CORP. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References to the "Company," "us," "our" or "we" refer to
Acquisition Corp.
condition and results of operations should be read in conjunction with the
unaudited condensed financial statements and related notes included under "Item
1. Financial Statements". Certain information contained in the discussion and
analysis set forth below includes forward-looking statements that involve risks
and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Report
including, without limitation, statements under this "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations"
regarding our financial position, business strategy and the plans and objectives
of management for future operations, are forward- looking statements. When used
in this Report, words such as "anticipate," "believe," "estimate," "expect,"
"intend" and similar expressions, as they relate to us or our management,
identify forward-looking statements. Such forward-looking statements are based
on the beliefs of management, as well as assumptions made by, and information
currently available to, the Company's management. Actual results could differ
materially from those contemplated by the forward- looking statements as a
result of certain factors detailed in our filings with the
written or oral forward-looking statements attributable to us or persons acting
on the our behalf are qualified in their entirety by this paragraph.
Overview
We are a blank check company incorporated as a
2020
efforts to identify a target business may span many industries and regions
worldwide, we have focused our search for prospects within the insurance
industry. We intend to effectuate our initial Business Combination using cash
from the proceeds of our Initial Public Offering and the sale 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, such as
those entered into with the
owners of the target, debt issued to banks or other lenders or the owners of the
target, or a combination of the foregoing.
The issuance of additional shares in connection with an initial Business
Combination to the owners of the target or other investors:
? may significantly dilute the equity interest of investors in the
Initial Public Offering, which dilution would if increase if the
anti-dilution provisions in the Class B common stock resulted in the
issuance of shares of Class A common stock on a greater than one-to-one
basis upon conversion of the Class B common stock;
? may subordinate the rights of holders of our common stock if preferred
stock is issued with rights senior to those afforded our common stock;
1
? could cause a change in control if a substantial number of shares of
our common stock is issued, which may affect, among other things, our
ability to use our net operating loss carry forwards, if any, and could
result in the resignation or removal of our present officers and
directors;
? may have the effect of delaying or preventing a change of control of us
by diluting the stock ownership or voting rights of a person seeking to
obtain control of us; and
? may adversely affect prevailing market prices for our Units, Class A
common stock and/or warrants.
Similarly, if we issue debt securities, it could result in:
? default and foreclosure on our assets if our operating revenues after
an initial Business Combination are insufficient to repay our debt
obligations;
? acceleration of our obligations to repay the indebtedness even if we
make all principal and interest payments when due if we breach certain
covenants that require the maintenance of certain financial ratios or
reserves without a waiver or renegotiation of that covenant;
? our immediate payment of all principal and accrued interest, if any, if
the debt security is payable on demand;
? our inability to obtain necessary additional financing if the debt
security contains covenants restricting our ability to obtain such
financing while the debt security is outstanding;
? our inability to pay dividends on our common stock;
? using a substantial portion of our cash flow to pay principal and
interest on our debt, which will reduce the funds available for
dividends on our common stock if declared, our ability to pay expenses,
make capital expenditures and acquisitions, and fund other general
corporate purposes;
? limitations on our flexibility in planning for and reacting to changes
in our business and in the industry in which we operate;
? increased vulnerability to adverse changes in general economic,
industry and competitive conditions and adverse changes in government
regulation; and
? limitations on our ability to borrow additional amounts for expenses,
capital expenditures, acquisitions, debt service requirements, and
execution of our strategy and other purposes and other disadvantages
compared to our competitors who have less debt.
As indicated in the unaudited condensed financial statements and related notes
included under "Item 1. Financial Statements", at
2021
expect to continue to incur significant costs in the pursuit of our acquisition
plans. We cannot assure you that our plans to complete our initial Business
Combination will be successful.
The FOXO Business Combination
On
as amended on
Representative. Pursuant to the FOXO Transaction Agreement, subject to the terms
and conditions set forth therein, Merger Sub will merge with and into FOXO, with
FOXO surviving the merger as a wholly-owned subsidiary of our Company.
Upon the Closing of the Transaction, each securityholder of FOXO will receive
newly-issued securities of the Company, including, as applicable, shares of our
common stock and/or securities convertible into or exchangeable for our common
stock, as further described below. At the Closing, holders of shares of FOXO
Class B common stock, which have ten votes per share, will receive shares of
newly-issued Class V common stock of the Combined Company, which will also have
ten votes per share on matters brought to a vote of stockholders of the Combined
Company; holders of FOXO Class A common stock, which have one vote per share,
will receive shares of Class A common stock of the Combined Company, which also
have one vote per share. Upon the Closing, all of the outstanding shares of our
Class B common stock will convert automatically into shares of our Class A
common stock in accordance with the terms of our Amended and Restated
Certificate of Incorporation.
2
In connection with the FOXO Transaction Agreement, we also entered into several
ancillary agreements, including: (i) a Common Stock Purchase Agreement with
Cantor, pursuant to which, the Combined Company after the Closing has the right
from time to time to sell to Cantor up to
common stock, subject to certain limitations and conditions set forth therein
and (ii) certain subscription agreements with the
pursuant to which, in the event that, at the Closing, we have cash or cash
equivalents of less than
for up to 1,000,000 shares of our Class A common stock, subject to certain
limitations and conditions set forth therein.
On
must consummate our initial Business Combination from
15, 2022
approved. If the initial Business Combination is not consummated by
15, 2022
the Trust Account as provided in the Amended and Restated Certificate of
Incorporation. At the meeting related to the Extension Amendment, public
stockholders holding 9,077,422 Public Shares exercised their right to redeem
their Public Shares for a pro rata portion of the funds in the Trust Account. As
a result,
from the Trust Account to pay such holders.
Recent Developments
The FOXO Transaction Agreement was further amended on
12, 2022
entered into the Second FOXO Amendment, pursuant to which the number of shares
of Purchase Class A Common Stock to be issued as Merger Consideration to certain
members of FOXO's management and certain strategic partners of FOXO at the
Closing under the Management Contingent Plan was reduced from ten million
(10,000,000) shares to nine million two hundred thousand (9,200,000) shares. In
addition, the parties agreed that FOXO will be permitted to issue additional
shares of FOXO Class A Common Stock to an existing stockholder of FOXO as
consideration for certain services. The Second FOXO Amendment will have no
effect on the aggregate amount to be paid by the Company for FOXO.
On
into the Third FOXO Amendment, pursuant to which the parties agreed to (i)
eliminate dual-class shares from the capitalization structure of the Combined
Company following the FOXO Business Combination and, in connection therewith,
agreed that, at the Closing, all of the outstanding shares of Class B common
stock shall be exchanged for shares of Class A common stock on a one-to-one
basis, as Stockholder Merger Consideration, and the Proposed Purchaser Charter
would be amended to reflect the elimination of the Company's Class V common
stock from the Combined Company's capitalization structure and (ii) expand the
national securities exchanges on which the Company's securities may be listed at
or prior to the Closing to include additional national securities exchanges. The
Third FOXO Amendment will have no effect on the aggregate amount to be paid by
the Company for FOXO.
Copies of the Second and Third FOXO Transaction Agreement are attached as
Exhibits 2.1 and 2.2 to this Report and are incorporated herein by reference.
The disclosures set forth herein are intended to be a summary only and is
qualified in its entirety by reference to the Second and Third FOXO Transaction
Agreement.
On
Statement.
On
installment of the FOXO Note. The proceeds of this draw were sent to the Trust
Account.
On
reimbursement for estimated franchise tax payments.
3
Results of Operations
Our entire activity through
preparation for our Initial Public Offering. Since the Initial Public Offering,
our activity has been limited to the evaluation of Business Combination
candidates, including FOXO, and the execution of the FOXO Transaction Agreement,
and we have not and will not be generating any operating revenues until the
closing of our initial Business Combination. We generate non-operating income in
the form of interest on marketable securities held in the Trust Account. We are
incurring expenses as a result of being a public company (for legal, financial
reporting, accounting and auditing compliance), as well as expenses as we
conduct due diligence on prospective Business Combinations, including the FOXO
Business Combination. In addition, we recognize non-cash losses related to the
changes in recurring fair value measurement of our warrant liability at each
reporting period.
For the three and six months ended
and
interest income of
securities of
Liquidity and Capital Resources
Until the consummation of the Initial Public Offering, our only sources of
liquidity were an initial purchase of Founder Shares for
and a total of
30, 2022
On
sold 20,125,000 Units at a price of
632,500 Placement Units at a price of
gross proceeds of
In connection with the Initial Public Offering, we incurred offering costs of
underwriting commissions of
principally of preparation fees related to the Initial Public Offering. A total
of
Private Placement were deposited in the Trust Account established for the
benefit of our public stockholders.
As of
evaluate target businesses, perform business, legal, and accounting due
diligence on prospective target businesses, travel to and from the offices,
plants or similar locations of prospective target businesses or their
representatives or owners, review corporate documents and material agreements of
prospective target businesses, and structure, negotiate and complete a Business
Combination, such as the FOXO Business Combination. As of
had
Account to pay for our tax obligations. During the periods ended
and
our tax obligations.
4
In order to fund working capital deficiencies or finance transaction costs in
connection with an intended initial Business Combination, our Sponsor or an
affiliate of our Sponsor or certain of our officers and directors may, but are
not obligated to, loan us funds as may be required. If we complete our initial
Business Combination, we would repay such loaned amounts out of the proceeds of
the Trust Account released to us. In the event that our initial Business
Combination does not close, we may use a portion of the working capital held
outside the Trust Account to repay such loaned amounts but no proceeds from our
Trust Account would be used for such repayment. Up to
may be convertible into Units at a price of
lender. The Units would be identical to the Placement Units. The terms of such
loans by our officers and directors, if any, have not been determined and no
written agreements exist with respect to such loans. We do not expect to seek
loans from parties other than our Sponsor or an affiliate of our Sponsor as we
do not believe third parties will be willing to loan such funds and provide a
waiver against any and all rights to seek access to funds in our Trust Account.
On
amount of up to
advances our Sponsor has made, and may make in the future, to us for working
capital expenses. As of
Sponsor Note.
In connection with the Extension Amendment, on
Note, a promissory note in the aggregate principal amount of up to
to FOXO. Pursuant to the FOXO Note, FOXO agreed to loan the Company an aggregate
principal amount of up to
for each Public Share that was not redeemed in connection with the extension of
our termination date for each month past
which may be drawn down in three equal amounts of
between the 15th and 22nd of each of June, July and
Trust Account to cover the first month of the extension. As of
have drawn down
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, if our estimates of
the costs of identifying a target business, undertaking in-depth due diligence
and negotiating an initial Business Combination are less than the actual amount
necessary to do so, we may have insufficient funds available to operate our
business prior to our initial Business Combination. Moreover, 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, in which case we may
issue additional securities or incur debt in connection with such Business
Combination. In addition, we 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 only complete such financing simultaneously
with the completion of our initial Business Combination. 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, we may need to obtain additional financing in order to
meet our obligations.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities which would be considered
off-balance sheet arrangements. We do not participate in transactions that
create relationships with unconsolidated entities or financial partnerships,
often referred to as variable interest entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements,
established any special purpose entities, guaranteed any debt or commitments of
other entities, or entered into any non-financial assets.
5
Contractual Obligations
In
pursuant to which it pays its Sponsor, an affiliate of our Executive Chairman
and our Chief Executive Officer, a total of
utilities and secretarial support. Upon completion of our initial Business
Combination or liquidation, we will cease paying these monthly fees.
At
obligations or operating lease obligations.
The underwriters in our Initial Public Offering were paid a cash underwriting
fee of 2% of gross proceeds of the Initial Public Offering or
addition, the underwriters, RBCCM, entitled to aggregate deferred underwriting
commissions of
Initial Public Offering. The deferred underwriting commissions will become
payable to the underwriters from the amounts held in the Trust Account solely in
the event that we complete an initial Business Combination, subject to the terms
of the underwriting agreement.
On
effective as of
with its role as a financial advisor and capital markets advisor to the Company.
RBCCM also contemporaneously waived its entitlement to the payment of any
deferred compensation (in an aggregate amount of
its role as underwriter in the Initial Public Offering.
Pursuant to a registration rights agreement entered into on
holders of the Founder Shares, Placement Units (including securities contained
therein) and Units (including securities contained therein) that may be issued
upon conversion of Working Capital Loans, and any shares of Class A common stock
issuable upon the exercise of the Placement Warrants and any shares of Class A
common stock and warrants (and underlying Class A common stock) that may be
issued upon conversion of Units issued as part of the Working Capital Loans and
Class A common stock issuable upon conversion of the Founder Shares, are
entitled to registration rights, requiring us to register such securities for
resale (in the case of the Founder Shares, only after conversion to Class A
common stock). The holders of the majority of these securities are entitled to
make up to three demands, excluding short form demands, that we register such
securities. In addition, the holders have certain "piggy-back" registration
rights with respect to registration statements filed subsequent to the
completion of a Business Combination and rights to require us to register for
resale such securities pursuant to Rule 415 under the Securities Act. We will
bear the expenses incurred in connection with the filing of any such
registration statements. The registration rights agreement does not contain
liquidated damages or other cash settlement provisions resulting from delays in
registering the Company's securities.
6
Critical Accounting Policies
The preparation of the unaudited condensed financial statements and related
notes included under "Item 1. Financial Statements" and related disclosures in
conformity with GAAP requires the Company's management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and income and expenses during the periods reported. Actual results
could materially differ from those estimates. The Company has identified the
following as its critical accounting policies:
Common Stock Subject to Possible Redemption
The Company accounts for its common stock subject to possible redemption in
accordance with the guidance in ASC 480. Common stock subject to mandatory
redemption (if any) is classified as a liability instrument and is measured at
fair value. Conditionally redeemable common stock (including common stock that
features redemption rights that are either within the control of the holder or
subject to redemption upon the occurrence of events not solely within the
Company's control) is classified as temporary equity. At all other times, common
stock is classified as stockholders' equity (deficit). The Company's common
stock features certain redemption rights that are considered to be outside of
the Company's control and subject to occurrence of uncertain future events.
Accordingly, common stock subject to possible redemption is presented at
redemption value as temporary equity, outside of the stockholders' equity
(deficit) section of the Company's balance sheet.
Loss Per Common Share
Basic loss per common share is computed by dividing net income applicable to
common stockholders by the weighted average number of common shares outstanding
during the period. Consistent with ASC 480, common stock subject to possible
redemption, as well as their pro rata share of undistributed trust earnings
consistent with the two-class method, have been excluded from the calculation of
loss per common share for the periods ended
if redeemed, only participate in their pro rata share of trust earnings. Diluted
loss per share includes the incremental number of shares of common stock to be
issued to settle warrants, as calculated using the treasury method. For the
periods ended
warrants, securities or other contracts that could potentially, be exercised or
converted into common stock, since the exercise of the warrants is contingent on
the occurrence of future events. As a result, diluted loss per common share is
the same as basic loss per common share for the period presented.
Warrant Liability
We account for our outstanding Public Warrants and Placement Warrants in
accordance with ASC 815-40, under which the Warrants do not meet the criteria
for equity classification and must be recorded as liabilities. As both the
Public Warrant and Placement Warrants meet the definition of a derivative under
ASC 815, they are measured at fair value at inception and at each reporting date
in accordance with the guidance in ASC 820, with any subsequent changes in fair
value recognized in the statement of operations in the period of change.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective,
accounting pronouncements, if currently adopted, would have a material effect on
the unaudited condensed financial statements and related notes included under
"Item 1. Financial Statements".
Factors That May Adversely Affect our Results of Operations
Our results of operations and our ability to complete an initial Business
Combination, such as the FOXO Business Combination, may be adversely affected by
various factors that could cause economic uncertainty and volatility in the
financial markets, many of which are beyond our control. Our business could be
impacted by, among other things, downturns in the financial markets or in
economic conditions, increases in oil prices, inflation, increases in interest
rates, supply chain disruptions, declines in consumer confidence and spending,
the ongoing effects of the COVID-19 pandemic, including resurgences and the
emergence of new variants, and geopolitical instability, such as the military
conflict in the
one or more of the above events, their duration or magnitude or the extent to
which they may negatively impact our business and our ability to complete an
initial Business Combination, such as the FOXO Business Combination.
7
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