References to the "Company," "Health Sciences Acquisitions Corporation 2,"
"our," "us" or "we" refer to Health Sciences Acquisitions Corporation 2. The
following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the unaudited interim
condensed consolidated financial statements and the notes thereto contained
elsewhere in this report. 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
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
U.S. Securities and Exchange Commission ("SEC") filings.
Overview
We are a blank check company incorporated as a Cayman Islands exempted company
on May 25, 2020. We were formed for the purpose of entering into a merger, share
exchange, asset acquisition, share purchase, recapitalization, reorganization or
other similar business combination with one or more target businesses (the
"Business Combination"). Although there is no restriction or limitation on what
industry our target operates in, it is our intention to pursue prospective
targets that are focused on healthcare innovation. We are an emerging growth
company and, as such, we are subject to all of the risks associated with
emerging growth companies.
Our sponsor is HSAC 2 Holdings, LLC (the "Sponsor"). The registration statement
for our initial public offering (the "Initial Public Offering") was declared
effective on August 3, 2020. On August 6, 2020, we consummated an Initial Public
Offering of 16,000,000 ordinary shares (the "Public Shares"), including the
2,086,956 Public Shares as a result of the underwriters' full exercise of their
over-allotment option, at an offering price of $10.00 per Public Share,
generating gross proceeds of $160.0 million, and incurring offering costs of
approximately $9.4 million, inclusive of $5.6 million in deferred underwriting
commissions.
Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement (the "Private Placement") with the Sponsor of (i) 450,000
ordinary shares (the "Private Placement Shares") at $10.00 per Private Placement
Share (for a total purchase price of $4.5 million) and (ii) 1,500,000 warrants
(the "Private Placement Warrants") at a price of $1.00 per Private Placement
Warrant (for a total purchase price of $1.5 million), generating gross proceeds
of $6.0 million.
Upon the closing of the Initial Public Offering and the Private Placement
(including the exercise of the over-allotment option), $160.0 million ($10.00
per Public Share) of the net proceeds of the sale of the Public Shares in the
Initial Public Offering and the Private Placement were placed in a trust account
(the "Trust Account") located in the United States with Continental Stock
Transfer & Trust Company acting as trustee, and held as cash or invested only in
U.S. "government securities," within the meaning set forth in Section 2(a)(16)
of the Investment Company Act, with a maturity of 185 days or less, or in money
market funds meeting certain conditions under the Investment Company Act, which
invest only in direct U.S. government treasury obligations, as determined by us,
until the earlier of: (i) the completion of a Business Combination and (ii) the
distribution of the Trust Account as described below. As of September 30, 2022,
the funds are solely held in cash.
We paid a total of $3.2 million in underwriting discounts and commissions (not
including the $5.6 million deferred underwriting commissions payable at the
consummation of the initial Business Combination) and approximately $0.6 million
for other costs and expenses related to our formation and the Initial Public
Offering.
18
We will have until February 6, 2023 (taking into account the Extension Proposal
described below, the "Combination Period"), or such later time as our
shareholders may approve in accordance with the Amended and Restated Memorandum
and Articles of Association, to complete our initial business combination. If we
do not complete a Business Combination by that date, it will trigger the
Company's automatic winding up, liquidation and dissolution and, upon notice
from us, the trustee of the Trust Account will distribute the amount in the
Trust Account to the Public Shareholders. Concurrently, we shall pay, or reserve
for payment, from funds not held in trust, its liabilities and obligations,
although we cannot assure that there will be sufficient funds for such purpose.
If there are insufficient funds held outside the Trust Account for such purpose,
our Sponsor has agreed that it will be liable to ensure that the proceeds in the
Trust Account are not reduced by the claims of target businesses or claims of
vendors or other entities that are owed money by us for services rendered or
contracted for or products sold to us and which have not executed a waiver
agreement. However, we cannot assure that the liquidator will not determine that
he or she requires additional time to evaluate creditors' claims (particularly
if there is uncertainty over the validity or extent of the claims of any
creditors). We also cannot assure that a creditor or shareholder will not file a
petition with the Cayman Islands Court which, if successful, may result in the
Company's liquidation being subject to the supervision of that court. Such
events might delay distribution of some or all of our assets to the Public
Shareholders. The holders of the Insider Shares (as defined below) prior to the
Initial Public Offering (the "Initial Shareholders") have agreed to waive their
liquidation rights with respect to the Insider Shares and the Private Placement
Shares held by them if we fail 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 we fail to complete a Business Combination within the Combination
Period. The underwriters have agreed to waive their rights to their deferred
underwriting commissions held in the Trust Account in the event we do 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 our Public Shares. In the event
of such distribution, it is possible that the per ordinary share value of the
residual assets remaining available for distribution (including Trust Account
assets) will be only $10.00 per ordinary share initially held in the Trust
Account.
Proposed Business Combination
On July 4, 2022, we entered into an agreement and plan of merger agreement (as
amended on July 21, 2022, the "Merger Agreement") with HSAC Olympus Merger Sub,
Inc., a Delaware corporation and our wholly owned subsidiary ("Merger Sub"), and
Orchestra BioMed, Inc., a Delaware corporation ("Orchestra"). Pursuant to the
terms of the Merger Agreement, a business combination between us and Orchestra
(the "Orchestra Business Combination") will be effected in two steps. First,
before the closing of the Orchestra Business Combination, we will deregister in
the Cayman Islands and domesticate as a Delaware corporation. Second, at the
closing of the Orchestra Business Combination, Merger Sub will merge with and
into Orchestra, with Orchestra surviving such merger as the surviving entity
(the "Merger"). Upon consummation of the Orchestra Business Combination,
Orchestra will become our wholly owned subsidiary. We will then change our name
to "Orchestra BioMed Holdings, Inc." We refer to the Company, after giving
effect to the Orchestra Business Combination, as "New Orchestra."
The Merger Agreement contains customary representations, warranties and
covenants of the parties thereto. The consummation of the proposed Merger is
subject to certain conditions as further described in the Merger Agreement.
Simultaneously with the execution of the Merger Agreement, we and Orchestra
entered into separate forward purchase agreements (the "Forward Purchase
Agreements") with certain funds managed by RTW Investments, LP (the "RTW Funds")
and Covidien Group S.à.r.l., an affiliate of Medtronic plc ("Medtronic" and the
RTW Funds, each a "Purchasing Party"), pursuant to which each of the Purchasing
Parties agreed to purchase approximately $10.0 million of our ordinary shares,
for a total of approximately $20.0 million, less the dollar amount of our
ordinary shares holding redemption rights that the Purchasing Party acquires and
holds until immediately prior to the domestication.
Simultaneously with the execution of the Merger Agreement and Forward Purchase
Agreements, we, Orchestra, and the RTW Funds entered into a Backstop Agreement
(the "Backstop Agreement") pursuant to which the RTW Funds, jointly and
severally, agreed to purchase such number of our ordinary shares at a price of
$10.00 per share to the extent that the amount of Parent Closing Cash (as
defined in the Merger Agreement) as of immediately prior to the closing of the
Orchestra Business Combination is less than $60.0 million (inclusive of the
$10.0 million commitment by the RTW Funds pursuant to the Forward Purchase
Agreement described above).
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On October 21, 2022, the parties amended both the Backstop Agreement and the
Forward Purchase Agreement to provide that: (1) the per share purchase price
under each of the Backstop Agreement and the Forward Purchase Agreement will not
exceed the redemption price available to Public Shareholders exercising
redemption rights at the shareholder meeting held to approve the Business
Combination; (2) any shares purchased pursuant to the Backstop Agreement or the
Forward Purchase Agreement, or otherwise acquired by the RTW Funds outside of
the existing redemption offer, will not be voted in favor of approving the
Business Combination; and (3) the RTW Funds will waive redemption rights with
respect to such purchases in the vote to approve the Business Combination. The
amendments have been filed with the SEC on a Current Report on Form 8-K on
October 21, 2022.
The closing under the Forward Purchase Agreement with the RTW Funds occurred on
July 22, 2022, pursuant to which the RTW Funds purchased 1,000,000 of our
ordinary shares at a price of $10.01 per share from an accredited investor in a
privately negotiated transaction. The closing under the Forward Purchase
Agreement with Medtronic and the closing under the Backstop Agreement, if any,
will occur immediately prior to the domestication. Our Sponsor and the
Purchasing Parties will have registration rights pursuant to the Amended and
Restated Registration Rights and Lock-Up Agreement with respect to our ordinary
shares received in the domestication. We refer to our ordinary shares, after
giving effect to the Business Combination, as "New Orchestra Common Stock."
In addition, the Sponsor has agreed that 25% or 1,000,000 shares of its New
Orchestra Common Stock received in the domestication will be forfeited to New
Orchestra on the first business day following the fifth anniversary of the
closing unless, as to 500,000 shares, the VWAP (as defined in the Merger
Agreement) of the New Orchestra Common Stock is greater than or equal to $15.00
per share over any 20 Trading Days (as defined in the Merger Agreement) within
any 30-Trading Day period, and as to the remaining 500,000 shares, the VWAP of
the New Orchestra Common Stock is greater than or equal to $20.00 per share over
any 20-Trading Days within any 30-Trading Day period. In addition, subject to
the closing of the Orchestra Business Combination, the Sponsor has agreed to
forfeit 50% of its Private Placement Warrants, comprising 750,000 Private
Placement Warrants, for no consideration. Further, the Sponsor and our other
Initial Shareholders prior to our Initial Public Offering have agreed to subject
the 4,000,000 shares of New Orchestra Common Stock to be received in the
domestication in exchange for the 4,000,000 Insider Shares and 450,000 shares of
New Orchestra Common Stock to be received in the domestication in exchange for
the 450,000 Private Placement Shares, to a lock-up for up to 12 months.
See the preliminary proxy statement/prospectus included in the Registration
Statement on Form S-4 filed by us with the SEC on August 8, 2022, and any
amendments thereto and the final proxy statement/prospectus that we may
subsequently file with the SEC, for additional information.
Extension, Redemptions and Private Purchase
On July 26, 2022, we held an extraordinary general meeting of our shareholders,
where the shareholders approved a special resolution (the "Extension Proposal")
to amend our amended and restated memorandum and articles of association to: (i)
extend from August 6, 2022 (the "Original Termination Date") to November 6, 2022
(the "Extended Date"), the date by which, if we have not consummated a merger,
amalgamation, share exchange, asset acquisition, share purchase, reorganization
or similar business combination involving one or more businesses or entities, we
must liquidate and dissolve, and (ii) allow us, without another shareholder
vote, to elect to extend the date to consummate a business combination on a
monthly basis for up to three times by an additional one month each time after
the Extended Date, upon five days' advance notice prior to the applicable
deadlines, until February 6, 2023 or a total of up to six months after the
Original Termination Date, unless the closing of our initial business
combination shall have occurred. On October 31, 2022, our directors elected to
extend the deadline until December 6, 2022.
In connection with the vote to approve the Extension Proposal, the holders of
9,237,883 Public Shares properly exercised their right to redeem their shares
for cash at a redemption price of approximately $10.02 per share, for an
aggregate redemption amount of approximately $92.6 million. As such,
approximately 57.7% of the Public Shares were redeemed and approximately 42.3%
of the Public Shares remain outstanding. After the satisfaction of such
redemptions, the balance in our Trust Account was $67.8 million.
20
On July 22, 2022, the RTW Funds purchased 1,000,000 of our ordinary shares at a
price of $10.01 per share from an accredited investor in a privately negotiated
transaction, in order to fulfill their obligations under the Forward Purchase
Agreements and to ensure that such shares purchased were not redeemed and the
amounts that would have been paid by us if such shares were redeemed remain in
our trust account at the closing of the Orchestra Business Combination.
See the preliminary proxy statement/prospectus included in the Registration
Statement on Form S-4 filed by us with the SEC on August 8, 2022, and any
amendments thereto and the final proxy statement/prospectus that we may
subsequently file with the SEC for additional information.
Liquidity and Going Concern
As of September 30, 2022, we had approximately $735,000 of cash in our operating
account and a working capital deficit of approximately $568,000.
Prior to the completion of the Initial Public Offering, our liquidity needs had
been satisfied through a payment of $28,750 from our Sponsor to exchange for the
issuance of 3,593,750 ordinary shares to the Sponsor, and a loan of $300,000
pursuant to a promissory note originally issued to our Sponsor on June 11, 2020
(the "Note"), which was repaid in full on August 7, 2020. Subsequent to the
consummation of the Initial Public Offering and the Private Placement, our
liquidity needs have been satisfied with the net proceeds from the Private
Placement not held in the Trust Account. In addition, in order to finance
transaction costs in connection with a Business Combination, the Initial
Shareholders or their affiliates may, but are not obligated to, provide us
loans, from time to time or at any time, in whatever amount they deem reasonable
in their sole discretion (the "Working Capital Loans"). As of September 30, 2022
and December 31, 2021, there were no amounts outstanding under any Working
Capital Loans.
Based on the foregoing, management believes that we 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, we will be using these funds 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. However, in
connection with our assessment of going concern considerations in accordance
with FASB Accounting Standards Update ("ASU") 2014-15, "Disclosures of
Uncertainties about an Entity's Ability to Continue as a Going Concern," we have
determined that the mandatory liquidation and subsequent dissolution raises
substantial doubt about our ability to continue as a going concern. Management
intends to complete the Business Combination prior to the liquidation date. No
adjustments have been made to the carrying amounts of assets or liabilities
should we be required to liquidate after February 6, 2023. The unaudited
condensed consolidated financial statements do not include any adjustment that
might be necessary if we are unable to continue as a going concern.
Various social and political circumstances in the United States and around the
world (including wars and other forms of conflict, including rising trade
tensions between the United States and China, and other uncertainties regarding
actual and potential shifts in the United States and foreign, trade, economic
and other policies with other countries, terrorist acts, security operations and
catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes
and global health epidemics), may also contribute to increased market volatility
and economic uncertainties or deterioration in the United States and worldwide.
Specifically, the rising conflict between Russia and Ukraine and resulting
market volatility could adversely affect our ability to complete a business
combination. In response to the conflict between Russia and Ukraine, the United
States and other countries have imposed sanctions or other restrictive actions
against Russia. Any of the above factors, including sanctions, export controls,
tariffs, trade wars and other governmental actions, could have a material
adverse effect on our ability to complete a business combination and the value
of our securities.
Management continues to evaluate the impact of these types of risks on the
industry and has concluded that while it is reasonably possible that these types
of risks could have a negative effect on our financial position, results of our
operations and/or search for a target company, the specific impact is not
readily determinable as of the date of these unaudited condensed consolidated
financial statements. The unaudited condensed consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
21
Results of Operations
We will not be generating any operating revenues until the closing and
completion of our initial Business Combination, at the earliest. We generate
non-operating income in the form of interest income on investments 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) and
expenses related to our search for an initial Business Combination.
For the three months ended September 30, 2022, we had a net loss of
approximately $686,000, which consisted of approximately $784,000 in general and
administrative expenses and related party administrative fees of $30,000,
partially offset by approximately $128,000 of interest income from investments
held in the Trust Account.
For the three months ended September 30, 2021, we had a net loss of
approximately $90,000 which consisted of approximately $64,000 in general and
administrative expenses and $30,000 in related party administrative fees,
partially offset by approximately $4,000 of interest income from investments
held in the Trust Account.
For the nine months ended September 30, 2022, we had a net loss of approximately
$1.9 million, which consisted of approximately $2.1 million in general and
administrative expenses and related party administrative fees of $90,000,
partially offset by approximately $345,000 of interest income from investments
held in the Trust Account.
For the nine months ended September 30, 2021, we had a net loss of approximately
$291,000, which consisted of approximately $213,000 in general and
administrative expenses and $90,000 in related party administrative fees,
partially offset by approximately $12,000 of interest income from investments
held in the Trust Account.
Related Party Transactions
Insider Shares
On June 11, 2020, we issued 3,593,750 ordinary shares to the Sponsor (the
"Insider Shares") for an aggregate purchase price of $28,750. On August 3, 2020,
we effected a share dividend of 0.113043478 ordinary shares for each outstanding
share (an aggregate of 406,250 ordinary shares), resulting in an aggregate of
4,000,000 ordinary shares outstanding. All shares and associated amounts have
been retroactively restated to reflect the share dividend. The holders of the
Insider Shares had agreed to forfeit an aggregate of up to 521,739 Insider
Shares, on a pro rata basis, to the extent that the option to purchase
additional ordinary shares is not exercised in full by the underwriters. On
August 6, 2020, the underwriters fully exercised the over-allotment option;
thus, the 521,739 Insider Shares were no longer subject to forfeiture.
The Initial Shareholders have agreed not to transfer, assign or sell any of
their Insider Shares (except to certain permitted transferees) until, with
respect to 50% of the Insider Shares, the earlier of six months after the date
of the consummation of the initial Business Combination and the date on which
the closing price of our ordinary shares equals or exceeds $12.50 per ordinary
share for any 20 trading days within a 30-trading day period following the
consummation of the initial Business Combination, and, with respect to the
remaining 50% of the Insider Shares, six months after the date of the
consummation of the initial Business Combination, or earlier in each case if,
subsequent to the initial Business Combination, we complete a liquidation,
merger, stock exchange or other similar transaction which results in all of the
shareholders having the right to exchange their ordinary shares for cash,
securities or other property.
Related Party Loans
On June 11, 2020, our Sponsor agreed to loan us up to $300,000 to be used for
the payment of costs related to the Initial Public Offering pursuant to the
Note. The Note was non-interest bearing, unsecured and due on the date we
consummate the Initial Public Offering. We borrowed $300,000 under the Note and
repaid the Note in full on August 7, 2020. Subsequent to the repayment, the
facility was no longer available to us.
In addition, in order to finance transaction costs in connection with a Business
Combination, the Initial Shareholders or their affiliates may, but are not
obligated to, loan us the Working Capital Loans, from time to time or at any
time, in whatever amount they deem reasonable in their sole discretion. Each
loan would be evidenced by a promissory note. The notes would either be paid
upon consummation of the initial Business Combination, without interest, or, at
the lender's discretion, up to $500,000 of such loans may be converted upon
consummation of the Business Combination into additional private warrants at a
price of $1.00 per warrant. If we do not complete a Business Combination within
the Combination Period, the Working Capital Loans will be repaid only from
amounts remaining outside the Trust Account, if any. The warrants would be
identical to the Private Placement Warrants. As of September 30, 2022 and
December 31, 2021, the Company had no borrowings under the Working Capital
Loans.
22
Administrative Services Agreement
Commencing on the effective date of the registration statement relating to the
Initial Public Offering, we agreed to pay the Sponsor a total of $10,000 per
month for office space and certain office and secretarial services. Upon
completion of the Business Combination or our liquidation, we will cease paying
these monthly fees. For the three months ended September 30, 2022 and 2021, we
incurred $30,000 in expenses for these services. For the nine months ended
September 30, 2022 and 2021, we incurred $90,000 in expenses for these services.
As of September 30, 2022 and December 31, 2021, $0 and $150,000 were due to the
Sponsor and are included in accrued expenses - related party on the accompanying
condensed consolidated balance sheets, respectively.
Purchase Agreements and Backstop Agreement
On August 3, 2020, in connection with the consummation of the Initial Public
Offering, we entered into a purchase agreement ("FPA") with our Sponsor pursuant
to which the Sponsor agreed that it will purchase an aggregate of 2,500,000
ordinary shares of our Company at a price of $10.00 per share, for an aggregate
purchase price of $25.0 million prior to, currently with, or following the
consummation of a Business Combination, either in open market transactions (to
the extent permitted by law) or in a private placement with us. This FPA
commitment has been satisfied by the RTW Funds through: (a) an investment of
$15 million in Orchestra's Series D Financing, and (b) the Forward Purchase
Agreements described below.
Simultaneously with the execution of the Merger Agreement, our Company and
Orchestra entered into separate the Forward Purchase Agreements with the RTW
Funds Medtronic, pursuant to which each of the Purchasing Parties agreed to
purchase approximately $10.0 million of our ordinary shares, for a total of
approximately $20.0 million, less the dollar amount of the our ordinary shares
holding redemption rights that the Purchasing Party acquires and holds until
immediately prior to the domestication.
Simultaneously with the execution of the Merger Agreement and Forward Purchase
Agreements, our Company, Orchestra, and the RTW Funds entered into the Backstop
Agreement, pursuant to which the RTW Funds, jointly and severally, agreed to
purchase such number of the our ordinary shares at a price of $10.00 per share
to the extent that the amount of Parent Closing Cash (as defined in the Merger
Agreement) as of immediately prior to the closing of the Orchestra Business
Combination is less than $60.0 million (inclusive of the $10.0 million
commitment by the RTW Funds pursuant to the Forward Purchase Agreement described
above).
On October 21, 2022, the parties amended both the Backstop Agreement and the
Forward Purchase Agreement to provide that: (1) the per share purchase price
under each of the Backstop Agreement and the Forward Purchase Agreement will not
exceed the redemption price available to Public Shareholders exercising
redemption rights at the shareholder meeting held to approve the Business
Combination; (2) any shares purchased pursuant to the Backstop Agreement or the
Forward Purchase Agreement, or otherwise acquired by the RTW Funds outside of
the existing redemption offer, will not be voted in favor of approving the
Business Combination; and (3) the RTW Funds will waive redemption rights with
respect to such purchases in the vote to approve the Business Combination. The
amendments have been filed with the SEC on a Current Report on Form 8-K on
October 21, 2022.
On July 22, 2022, the RTW Funds purchased 1,000,000 of the our ordinary shares
at a price of $10.01 per share from an accredited investor in a privately
negotiated transaction, in order to fulfill their obligations under the Forward
Purchase Agreements and to ensure that such shares purchased were not redeemed
and the amounts that would have been paid by us if such shares were redeemed
remain in our Trust Account at the closing of the Orchestra Business
Combination.
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The closing under the Forward Purchase Agreement with Medtronic and the closing
under the Backstop Agreement, if any, will occur immediately prior to the
domestication. Our Sponsor, and the Purchasing Parties will have registration
rights pursuant to the Amended and Restated Registration Rights and Lock-Up
Agreement with respect to our ordinary shares, received in the domestication.
Company Shareholder Support Agreement and Forfeiture
Contemporaneously with the execution of the Merger Agreement, we and Orchestra
entered into a support agreement (the "Parent Support Agreement") with the
Sponsor and certain of our other shareholders (each a "Shareholder") pursuant to
which the Shareholders identified therein have agreed (a) to appear at any
shareholder meetings called to approve the Merger or any proposal to extend the
period of time we are afforded under our organizational documents and our
prospectus to consummate an initial business combination (an "Extension
Proposal"), (b) not to redeem their shares or any other of our equity securities
now or in future acquired or beneficially owned, (c) to vote such shares and
equity securities (i) in favor of the domestication, the Merger and related
transactions, (ii) in favor of any Extension Proposal, (iii) against any change
in our business, management or board contrary to the Merger Agreement and
against any other proposal reasonably expected to breach, prevent or impede the
Merger, and (d) to waive anti-dilution and similar rights with respect to such
shares, whether under our amended and restated memorandum and articles of
association, applicable law, or a contract regarding the Merger and related
transactions with us. In addition, the Sponsor has agreed that 25% or 1,000,000
shares of its New Orchestra Common Stock received in the domestication will be
forfeited to New Orchestra on the first business day following the fifth
anniversary of the closing of the Orchestra Business Combination unless, as to
500,000 shares, the VWAP (as defined in the Merger Agreement) of the New
Orchestra Common Stock is greater than or equal to $15.00 per share over any 20
Trading Days (as defined in the Merger Agreement) within any 30-Trading Day
period, and as to the remaining 500,000 shares, the VWAP of the New Orchestra
Common Stock is greater than or equal to $20.00 per share over any 20-Trading
Days within any 30-Trading Day period. Further, subject to the closing of the
Orchestra Business Combination, the Sponsor has agreed to forfeit 50% of its
warrants, comprising 750,000 warrants for no consideration.
Contractual Obligations
Registration Rights
The holders of the Insider Shares, the Private Placement Shares, the Private
Placement Warrants and warrants that may be issued upon conversion of Working
Capital Loans (and any 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 a registration
rights agreement. The holders of a majority of these securities are entitled to
make up to two demands that we register such securities. The holders of the
majority of the Insider Shares can elect to exercise these registration rights
at any time commencing three months prior to the date on which these ordinary
shares are to be released from escrow. The holders of a majority of the Private
Placement Shares, the Private Placement Warrants or warrants that may be issued
upon conversion of Working Capital Loans made to us can elect to exercise these
registration rights at any time after we consummate a Business Combination. In
addition, the holders have certain "piggy-back" registration rights with respect
to registration statements filed subsequent to our consummation of the initial
Business Combination. We will bear the expenses incurred in connection with the
filing of any such registration statements.
Underwriting Agreement
We granted the underwriters a 45-day option from the effective date of the
registration statement relating to the Initial Public Offering to purchase up to
2,086,956 additional ordinary shares at the Initial Public Offering price less
the underwriting discounts and commissions. On August 6, 2020, the underwriters
fully exercised the over-allotment option.
The underwriters were entitled to an underwriting discount of $0.20 per share,
or $3.2 million in the aggregate, paid upon the closing of the Initial Public
Offering. In addition, the underwriters will be entitled to a deferred
underwriting commission of $0.35 per share, or $5.6 million in the aggregate
since the underwriters' over-allotment option was exercised in full. The
deferred fee will become payable to the underwriters from the amounts held in
the Trust Account solely in the event that we complete a Business Combination,
subject to the terms of the underwriting agreement.
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Critical Accounting Policies and Estimates
Cash and Investments Held in the Trust Account
Our portfolio of investments held in the Trust Account has been comprised of
U.S. government securities, within the meaning set forth in Section 2(a)(16) of
the Investment Company Act, with a maturity of 185 days or less, or investments
in money market funds that invest in U.S. government securities and generally
have a readily determinable fair value, or a combination thereof. When our
investments held in the Trust Account were comprised of U.S. government
securities, the investments are classified as trading securities. When our
investments held in the Trust Account were comprised of money market funds, the
investments were recognized at fair value. Trading securities and investments in
money market funds are presented on the balance sheets at fair value at the end
of each reporting period. Gains and losses resulting from the change in fair
value of these securities are included in interest income from investments held
in the Trust Account in the accompanying unaudited condensed consolidated
statements of operations. The estimated fair values of investments held in the
Trust Account were determined using available market information. As of
September 30, 2022, only cash is held in the Trust Account.
Ordinary Shares Subject to Possible Redemption
We account for our ordinary shares subject to possible redemption in accordance
with the guidance in ASC Topic 480 "Distinguishing Liabilities from Equity."
Ordinary shares subject to mandatory redemption (if any) are classified as
liability instruments and are measured at fair value. Conditionally redeemable
ordinary shares (including 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 our control) are classified as
temporary equity. At all other times, ordinary shares are classified as
shareholders' equity. Our Public Shares feature certain redemption rights that
are considered to be outside of our control and subject to the occurrence of
uncertain future events. Accordingly, as of September 30, 2022 and December 31,
2021, 6,762,117 and 16,000,000 ordinary shares subject to possible redemption,
respectively, are presented as temporary equity, outside of the shareholders'
deficit section of the accompanying condensed consolidated balance sheets.
Under ASC 480-10-S99, we have elected to recognize changes in the redemption
value immediately as they occur and adjust the carrying value of the security to
equal the redemption value at the end of the reporting period. This method would
view the end of the reporting period as if it were also the redemption date of
the security. Effective with the closing of the Initial Public Offering, we
recognized the accretion from initial book value to redemption amount, which
resulted in charges against additional paid-in capital (to the extent available)
and accumulated deficit.
Net Loss Per Ordinary Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share." Net (loss) per ordinary share is calculated by dividing
the net loss by the weighted average number of ordinary shares outstanding for
the respective period.
The calculation of diluted net loss per ordinary share does not consider the
effect of the Private Placement Warrants to purchase 1,500,000 ordinary shares
since their exercise is contingent upon future events and their inclusion would
be anti-dilutive under the treasury stock method. As a result, diluted net loss
per share is the same as basic net loss per share for the three and nine months
ended September 30, 2022 and 2021. Accretion associated with the redeemable
ordinary shares is excluded from earnings per share as the redemption value
approximates fair value.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We qualify as an "emerging growth company" and
under the JOBS Act are allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded)
companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting
standards on the relevant dates on which adoption of such standards is required
for non-emerging growth companies. As a result, the condensed consolidated
financial statements may not be comparable to companies that comply with new or
revised accounting pronouncements as of public company effective dates.
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Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an "emerging growth
company," we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404, (ii) provide
all of the compensation disclosure that may be required of non-emerging growth
public companies under the Dodd-Frank Wall Street Reform and Consumer Protection
Act, (iii) comply with any requirement that may be adopted by the PCAOB
regarding mandatory audit firm rotation or a supplement to the auditor's report
providing additional information about the audit and the financial statements
(auditor discussion and analysis) and (iv) disclose certain executive
compensation related items such as the correlation between executive
compensation and performance and comparisons of the CEO's compensation to median
employee compensation. These exemptions will apply for a period of five years
following the completion of our Initial Public Offering or until we are no
longer an "emerging growth company," whichever is earlier.
Recent Accounting Pronouncements
Our management does not believe there are any recently issued, but not yet
effective, accounting pronouncements, if currently adopted, that would have a
material effect on our condensed consolidated financial statements.
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