S-4/A: Registration of securities issued in business combination transactions
Published on October 8, 2021
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As filed with the U.S. Securities and Exchange Commission on October 7, 2021
Registration No. 333-259237
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PERIMETER SOLUTIONS, SA
(Exact name of registrant as specified in its charter)
Grand Duchy of Luxembourg | 2800 | Not Applicable | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
12E rue Guillaume Kroll, L-1882 Luxembourg
Grand Duchy of Luxembourg
352 2668 62-1
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Barry Lederman
8000 Maryland Avenue
Suite 350
Clayton, Missouri 63105
(314) 396-7343
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Alan I. Annex, Esq. Flora R. Perez, Esq. Brian J. Gavsie, Esq. Greenberg Traurig, P.A. 333 S.E. 2nd Avenue Miami, Florida 33131 (305) 579-0500 |
Tim Cruickshank, Esq. Jeffrey A. Fine, Esq. Jeremy S. Liss, Esq. |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective and after all conditions under the Merger Agreement to consummate the proposed merger are satisfied or waived.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company and emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ | Smaller reporting company ☐ | Emerging growth company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) | ☐ | |
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) | ☐ |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the SEC, acting pursuant to Section 8(a), may determine.
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CALCULATION OF REGISTRATION FEE
|
||||||||
Title of Each Class of Securities to be Registered |
Amount to be |
Proposed Maximum Offering Price per Share |
Proposed Offering Price |
Amount of Registration Fee(2) |
||||
Ordinary Shares (3)(4) |
40,832,600 |
$12.50(5) |
$510,407,500 (5) |
$55,685.46 |
||||
Warrants to purchase Ordinary Shares (4)(6) |
34,020,000(7) | $0.18(7) | $6,123,600(7) | 668.08(7) | ||||
Ordinary Shares issuable upon exercise of warrants (4)(8) |
8,505,000 | $12.00(9) | | (9) | ||||
Total |
$516,531,100 |
$56,353.54(10) |
||||||
|
||||||||
|
(1) | All securities being registered will be issued by Perimeter Solutions, SA, a newly-formed public company limited by shares (société anonyme) governed by the laws of the Grand Duchy of Luxembourg (Holdco). In connection with the business combination described in this registration statement and the enclosed prospectus (the Business Combination), among other things, (a) EverArc (BVI) Merger Sub Limited, a company limited by shares incorporated with limited liability in the British Virgin Islands and a wholly-owned subsidiary of Holdco (Merger Sub) will merge with and into EverArc Holdings Limited, a company limited by shares incorporated with limited liability in the British Virgin Islands and the parent company of Holdco (EverArc), with EverArc surviving such merger as a direct wholly-owned subsidiary of Holdco (the Merger); (b) in the context of such Merger, all ordinary shares of EverArc (the EverArc Ordinary Shares) outstanding immediately prior to the Merger shall be exchanged for ordinary shares of Holdco (the Holdco Ordinary Shares); (c) SK Invictus Holdings, S.à r.l., a limited liability company (société à responsabilité limitée) governed by the laws of the Grand Duchy of Luxembourg (SK Holdings) will (i) contribute a portion of its ordinary shares in SK Invictus Intermediate S.à r.l., a limited liability company (société à responsabilité limitée) governed by the laws of the Grand Duchy of Luxembourg (Perimeter) to Holdco in exchange for preferred shares of Holdco and (ii) sell its remaining ordinary shares in Perimeter to Holdco for cash and (d) all of the outstanding warrants of EverArc (EverArc Warrants), in each case, entitling the holder thereof to purchase one-fourth of an EverArc Ordinary Share at an exercise price of $12.00 per whole EverArc Ordinary Share, will be converted into the right to purchase one-fourth of a Holdco Ordinary Share on substantially the same terms as the EverArc Warrants (the Holdco Warrants). |
(2) | Determined in accordance with Section 6(b) of the Securities Act at a rate equal to $109.10 per $1,000,000 of the proposed maximum aggregate offering price. |
(3) | Represents Holdco Ordinary Shares issuable in exchange for all outstanding EverArc Ordinary Shares in connection with the Merger. The EverArc Founder Shares will automatically convert into EverArc Ordinary Shares on a one-for-one basis in connection with the Business Combination. |
(4) | Pursuant to Rule 416(a), an indeterminable number of additional securities are also being registered to prevent dilution resulting from stock splits, stock dividends or similar transactions. |
(5) | Pursuant to Rules 457(c) and 457(f)(1) under the Securities Act, and solely for the purpose of calculating the registration fee, the proposed maximum aggregate offering price is equal to the product obtained by multiplying $12.50, which represents the average of the high and low prices of EverArc Ordinary Shares on the London Stock Exchange on August 24, 2021, by 40,832,600, the estimated number of shares of EverArc Ordinary Shares that will be outstanding immediately prior to the closing of the Business Combination. |
(6) | EverArc Warrants will automatically convert into Holdco Warrants upon consummation of the Business Combination as described in the prospectus included herein. |
(7) | The maximum number of Holdco Warrants and Holdco Ordinary Shares of the registrant issuable upon exercise of the Holdco Warrants are being simultaneously registered hereunder. Consistent with the response to Question 240.06 of the Securities Act Rules Compliance and Disclosure Interpretations, the registration fee with respect to such Holdco Warrants has been allocated to the Holdco Ordinary Shares underlying such warrants and those Holdco Ordinary Shares are included in the registration fee as calculated in footnote (8) below. |
(8) | Consists of Holdco Ordinary Shares issuable upon exercise of Holdco Warrants. Each Holdco Warrant will entitle the warrant holder to purchase one-fourth of a Holdco Ordinary Share at a price of $12.00 per whole Holdco Ordinary Share (subject to adjustment). |
(9) | No separate registration fee is required pursuant to Rule 457(g) under the Securities Act. Pursuant to Rule 457(g)(1) of the Securities Act and solely for the purpose of calculating the registration fee, the proposed maximum aggregate offering price of the Holdco Ordinary Shares underlying the Holdco Warrants is calculated based on an exercise price of $12.00 per share. |
(10) | Previously paid. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
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The information in this prospectus is not complete and may be changed. We may not issue or sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED OCTOBER 7, 2021
PRELIMINARY PROSPECTUS
Perimeter Solutions, SA
49,337,600 Ordinary Shares
34,020,000 Warrants
This prospectus relates to the issuance of (i) 40,832,600 ordinary shares of Perimeter Solutions, SA, a newly-formed public company limited by shares (société anonyme) governed by the laws of the Grand Duchy of Luxembourg (Holdco), (ii) 34,020,000 Holdco Warrants (as defined below) to purchase Holdco Ordinary Shares (as defined below) and (iii) 8,505,000 Holdco Ordinary Shares issuable upon exercise of the Holdco Warrants, in each case, in connection with the business combination described in this prospectus (the Business Combination).
On June 15, 2021, we entered into a Business Combination Agreement with EverArc Holdings Limited, a company limited by shares incorporated with limited liability in the British Virgin Islands and the parent company of Holdco (EverArc), SK Invictus Holdings S.à r.l., a limited liability company (société à responsabilité limitée) governed by the laws of the Grand Duchy of Luxembourg (SK Holdings), SK Invictus Intermediate S.à r.l., a limited liability company (société à responsabilité limitée) governed by the laws of the Grand Duchy of Luxembourg (Perimeter), and EverArc (BVI) Merger Sub Limited, a company limited by shares incorporated with limited liability in the British Virgin Islands and a wholly-owned subsidiary of Holdco (Merger Sub) (such agreement, as may be amended, supplemented, or otherwise modified from time to time, the Business Combination Agreement).
Pursuant to the Business Combination Agreement:
| on the business day prior to the closing of the Business Combination, Merger Sub will merge with and into EverArc, with EverArc surviving such merger as a direct wholly-owned subsidiary of Holdco (the Merger); |
| pursuant to the Merger, all ordinary shares of EverArc (the EverArc Ordinary Shares) outstanding immediately prior to the Merger shall be exchanged for ordinary shares of Holdco (the Holdco Ordinary Shares); |
| SK Holdings will (i) contribute a portion of its ordinary shares in Perimeter to Holdco in exchange for 10,000,000 preferred shares of Holdco valued at $100 million and (ii) sell its remaining ordinary shares in Perimeter to Holdco for approximately $1.9 billion in cash subject to certain customary adjustments; and |
| all of the outstanding warrants of EverArc (EverArc Warrants), in each case, entitling the holder thereof to purchase one-fourth of an EverArc Ordinary Share at an exercise price of $12.00 per whole EverArc Ordinary Share, will be converted into the right to purchase Holdco Ordinary Shares on substantially the same terms as the EverArc Warrants (the Holdco Warrants). |
In connection with the execution of the Business Combination Agreement, EverArc, SK Holdings and Holdco entered into separate subscription agreements (collectively, the Subscription Agreements) with a number of institutional investors, investors affiliated with SK Holdings and individual accredited investors (collectively, the EverArc Subscribers), pursuant to which the EverArc Subscribers agreed to purchase an aggregate of 115,000,000 EverArc Ordinary Shares at $10.00 per share which will be converted into Holdco Ordinary Shares in connection with the closing of the Business Combination. In addition, members of management of Perimeter (collectively, the Management Subscribers and together with the EverArc Subscribers, the PIPE Subscribers) agreed to purchase an aggregate of 1,100,212 Holdco Ordinary Shares at $10.00 per share in connection with the closing of the Business Combination.
In connection with the execution of the Business Combination, EverArc obtained a debt commitment letter from certain financial institutions pursuant to which the banks party to the debt commitment letter have agreed to provide financing for the Business Combination through a senior secured revolving credit facility and a senior secured first lien increasing rate bridge facility as further described in this prospectus.
The EverArc Ordinary Shares and EverArc Warrants are currently listed on the Official List of the UK Financial Conduct Authority and admitted to trading on the main market of the London Stock Exchange (LSE) under the symbols EVRA and EVWA, respectively. Holdco intends to apply to list the Holdco Ordinary Shares and Holdco Warrants on the New York Stock Exchange under the symbols PRM and PRMW, respectively.
No action or vote of the EverArc shareholders is required to effect the Business Combination. We are not asking you for a proxy and you are requested not to send us a proxy. See The Business Combination.
Investing in our ordinary shares and warrants involves risks. See Risk Factors beginning on page 26 of this prospectus. You are encouraged to read this prospectus carefully.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
Holdco is an emerging growth company as defined under U.S. federal securities laws and, as such, has elected to comply with certain reduced public company reporting requirements with respect to the registration statement.
Prospectus dated , 2021
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EVERARC MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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CERTAIN EVERARC RELATIONSHIPS AND RELATED PERSON TRANSACTIONS |
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PERIMETER MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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CERTAIN PERIMETER RELATIONSHIPS AND RELATED PERSON TRANSACTIONS |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
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This document, which forms part of a registration statement on Form S-4 filed with the U.S. Securities and Exchange Commission (the SEC) by Holdco, constitutes a prospectus of Holdco under Section 5 of the Securities Act, with respect to the Holdco Ordinary Shares and Holdco Warrants (to be issued to the EverArc shareholders if the Business Combination described herein is consummated) and the Holdco Ordinary Shares issuable upon exercise of the Holdco Warrants.
This document does not constitute an offer to sell or the solicitation of an offer to buy securities in any jurisdiction or to any person to whom it would be unlawful to make such offer.
The securities are not intended to be offered, sold or otherwise made available to, and should not be offered, sold or otherwise made available to, any persons in member states of the European Economic Area which apply Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (this Regulation together with any implementing measures in any member state, the Prospectus Regulation), unless they are qualified investors for the purposes of the Prospectus Regulation in such member state or in any other circumstances falling within Article 1(4) of the Prospectus Regulation, and no person in member states of the European Economic Area that is not a relevant person or qualified investor may act or rely on this document or any of its contents.
This prospectus includes trademarks, tradenames and service marks, certain of which belong to us or Perimeter and others that are the property of other organizations. Solely for convenience, trademarks, tradenames and service marks referred to in this prospectus appear without the ®, TM and SM symbols, but the absence of those symbols is not intended to indicate, in any way, that we or Perimeter will not assert our or their rights or that the applicable owner will not assert its rights to these trademarks, tradenames and service marks to the fullest extent under applicable law. We do not intend our use or display of other parties trademarks, trade names or service marks to imply, and such use or display should not be construed to imply a relationship with, or an endorsement or sponsorship of us by, these other parties.
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This prospectus contains estimates, projections, and other information concerning Perimeters industry and business, as well as data regarding market research, estimates, and forecasts prepared by Perimeters management. Information that is based on estimates, forecasts, projections, market research, or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. The industry in which Perimeter operates is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled Risk Factors. Unless otherwise expressly stated, Perimeter obtained this industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry and general publications, government data, and similar sources. In some cases, Perimeter does not expressly refer to the sources from which this data is derived. In that regard, when Perimeter refers to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from sources which Perimeter paid for, sponsored, or conducted, unless otherwise expressly stated or the context otherwise requires. While Perimeter has compiled, extracted, and reproduced industry data from these sources, Perimeter has not independently verified the data. Forecasts and other forward-looking information with respect to industry, business, market, and other data are subject to the same qualifications and additional uncertainties regarding the other forward-looking statements in this prospectus. See Cautionary Note Regarding Forward-Looking Statements.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus may constitute forward-looking statements for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management teams expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words anticipate, believe, continue, could, estimate, expect, intends, may, might, plan, possible, potential, predict, project, should, would and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this prospectus may include, for example, statements about:
| our ability to consummate the Business Combination; |
| the benefits from the Business Combination; |
| our ability to initially list, and once listed, maintain the listing of the Holdco Ordinary Shares on the Trading Market following the Business Combination; |
| the Companys future financial performance following the Business Combination, including any expansion plans and opportunities; |
| the Companys success in retaining or recruiting, or changes required in, its officers, key employees or directors following the Business Combination; |
| the ability of EverArc and the Company to consummate the PIPE or raise additional financing concurrently with the consummation of the Business Combination or otherwise in the future; |
| expectations concerning sources of revenue; |
| expectations about demand for fire retardant products, equipment and services; |
| the size of the markets in which we compete and potential opportunities in such markets; |
| our ability to foster highly responsive and collaborative relationships with existing and potential customers and stakeholders; |
| expectations concerning tax consequences of the Business Combination and other tax treatments; |
| expectations concerning certain of our products ability to protect life and property as population settlement locations change; |
| expectations concerning the markets in which we will operate in the coming years; |
| our ability to maintain a leadership position in any market following the consummation of the Business Combination; |
| the expected outcome of litigation matters and the effect of such claims on business, financial condition, results of operations or cash flows; |
| our ability to increase the size of our selling, general and administrative functions to support the growth of our business and whether administrative expenses will decrease as a percentage of revenue over time; and |
| expectations about compensation policies following the Business Combination. |
These forward-looking statements are based on information available as of the date of this prospectus, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
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You should not place undue reliance on these forward-looking statements. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause our actual results to differ include:
| our substantial dependence on sales to the USDA Forest Service and the state of California and the risk of decreased sales to these customers; |
| changes in the regulation of the petrochemical industry, a downturn in the oil additives and/or fire-retardant end markets or our failure to accurately predict the frequency, duration, timing, and severity of changes in demand in such markets; |
| changes in customer relations or service levels; |
| improper conduct of, or use of our products, by employees, agents, government contractors or collaborators; |
| changes in the availability of products from our suppliers on a long-term basis; |
| production interruptions or shutdowns, which could increase our operating or capital expenditures or negatively impact the supply of our products resulting in reduced sales; |
| changes in the availability of third-party logistics suppliers for distribution, storage and transportation; |
| increases in supply and raw material costs, supply shortages, long lead times for components or supply changes; |
| failure to continuously innovate and to provide products that gain market acceptance, which may cause us to be unable to attract new customers or retain existing customers; |
| adverse effects on the demand for our products or services due to the seasonal or cyclical nature of our business or severe weather events; |
| introduction of new products, which are considered preferable, which could cause demand for some of our products to be reduced or eliminated; |
| current ongoing and future litigation, including multi-district litigation and other legal proceedings; |
| heightened liability and reputational risks due to certain of our products being provided to emergency services personnel and their use to protect lives and property; |
| future products liabilities claims where indemnity and insurance coverage could be inadequate or unavailable to cover these claims due to the fact that some of the products we produce may cause adverse health consequences; |
| compliance with export control or economic sanctions laws and regulations; or |
| environmental impacts and side effects of our products, which could have adverse consequences for our business. |
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In this document:
1915 Law means the Luxembourg law of August 10, 1915 on commercial companies, as amended.
Additional Offering means EverArcs placing of 6,800,000 EverArc Ordinary Shares, consummated on January 15, 2020 at a placing price of $10.50 per ordinary share.
Business Combination means the transactions contemplated by the Business Combination Agreement.
Business Combination Agreement means the Business Combination Agreement, dated as of June 15, 2021 as may be amended, by and among EverArc, Perimeter, Holdco, Merger Sub and SK Holdings.
Business Day means any day, except Saturday or Sunday, on which banks are not required or authorized to close in Luxembourg, Grand Duchy of Luxembourg, New York, NY, London, United Kingdom, or the British Virgin Islands.
BVI Companies Act means the BVI Business Companies Act, 2004 (as amended).
Closing means the consummation of the Business Combination.
Closing Date means the date upon which the Closing is to occur.
Code means the U.S. Internal Revenue Code of 1986, as amended.
Combined Company means Holdco and its consolidated subsidiaries after giving effect to the Business Combination.
Computershare BVI means Computershare Investor Services (BVI) Limited, EverArcs transfer agent and warrant agent prior to the Closing.
Computershare UK means Computershare Investor Services plc., EverArcs depositary interest agent prior to the Closing.
Computershare US means Computershare Inc., Holdcos transfer agent and warrant agent following the Closing.
Contribution and Sale means (i) the contribution by SK Holdings of part of its Perimeter Ordinary Shares to Holdco in exchange for Holdco Preferred Shares and (ii) the sale by SK Holdings of its remaining Perimeter Ordinary Shares to Holdco for cash.
EverArc refers to EverArc Holdings Limited, a company limited by shares incorporated with limited liability under the laws of the British Virgin Islands.
EverArc Articles means the Memorandum and Articles of Association of EverArc.
EverArc Founder Entity means EverArc Founders, LLC, a Delaware limited liability company.
EverArc Founders means William N. Thorndike, Jr., W. Nicholas Howley, Tracy Britt Cool, Vivek Raj and Haitham Khouri.
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EverArc Founder Shares means EverArcs founder shares of no-par value having the rights, privileges and designations set out in the EverArc Articles.
EverArc Ordinary Shares means EverArcs ordinary shares, no par value.
EverArc Securities means the EverArc Ordinary Shares and EverArc Warrants, collectively.
EverArc Shares means the EverArc Ordinary Shares and the EverArc Founder Shares, collectively.
EverArc Subscribers means the institutional investors, investors affiliated with SK Holdings and individual accredited investors that entered into Subscription Agreements with EverArc, SK Holdings and Holdco, to purchase an aggregate of 115,000,000 EverArc Ordinary Shares at $10.00 per share which will be converted into Holdco Ordinary Shares in connection with the closing of the Business Combination.
EverArc Subscription Agreements means the subscription agreements entered into with the EverArc Subscribers for the purchase of the PIPE Shares.
EverArc Subscription Founder Entities means TVR EverArc, LLC and Llanerch EverArc, LLC.
EverArc Warrants means the warrants issued in the IPO, each of which is exercisable for one-fourth of an EverArc Ordinary Share, in accordance with its terms.
EverArc Warrant Instrument means the warrant instrument executed by EverArc, dated December 12, 2019, setting for the terms and conditions of the EverArc Warrants.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Founder Advisory Agreement means that certain Founder Advisory Agreement dated as of December 12, 2019, by and between EverArc and the EverArc Founder Entity.
Founder Advisory Agreement Calculation Number means such number of Holdco Ordinary Shares outstanding immediately following the Business Combination, including any Holdco Ordinary Shares issued upon the exercise of Holdco Warrants, but excluding any Holdco Ordinary Shares issued to shareholders or other beneficial owners of Perimeter in connection with the Business Combination.
Holdco means Perimeter Solutions, SA, a public company limited by shares (société anonyme) governed by the laws of the Grand Duchy of Luxembourg with its registered office at 12E, rue Guillaume Kroll, L-1882, Grand Duchy of Luxembourg and registered with the Luxembourg trade and companies register (Registre de Commerce et des Sociétés, Luxembourg) under number B256.548.
Holdco Ordinary Shares means the ordinary shares of Holdco, with a nominal value of $1.00 per share.
Holdco Preferred Shares means the redeemable preferred shares of Holdco, with a nominal value of $10.00 per share.
Holdco Warrant Instrument means the warrant instrument by and between Holdco and Computershare US, as warrant agent, governing the Holdco Warrants, to be entered into at the Closing.
Holdco Warrants means the EverArc Warrants, as amended at the Merger Effective Time such that each EverArc Warrant becomes a right to acquire one-fourth of a Holdco Ordinary Share on substantially the same terms as were in effect immediately prior to the Merger Effective Time under the terms of the Holdco Warrant Instrument.
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IFRS means International Financial Reporting Standards as issued by the International Accounting Standards Board.
IPO means EverArcs initial public offering by way of a placing of ordinary shares with matching warrants, consummated on December 17, 2019.
IRS means the Internal Revenue Service of the United States of America.
LSE means the London Stock Exchange.
Management Subscribers means members of management of Perimeter that entered into Subscription Agreements with Holdco to purchase an aggregate of 1,100,212 Holdco Ordinary Shares at $10.00 per share in connection with the closing of the Business Combination.
Management Subscription Agreements means the subscription agreements entered into with the Management Subscribers for the purchase of the PIPE Shares.
Merger means the merger of Merger Sub with and into EverArc, with EverArc surviving the Merger as a wholly owned subsidiary of Holdco.
Merger Effective Time means 12:01 a.m. New York time on the business day immediately following the day of the filing of the Plan and Articles of Merger.
Merger Sub means EverArc (BVI) Merger Sub Limited, a company limited by shares incorporated with limited liability in the British Virgin Islands.
NYSE means the New York Stock Exchange.
Payment Price means the Average Price (as defined in the Founder Advisory Agreement) per Holdco Ordinary Share for the last ten consecutive trading days in the relevant payment year, or as otherwise determined in accordance with the terms of the Founder Advisory Agreement in the event that the Founder Advisory Agreement is terminated in certain circumstances, including if there is a Sale of the Company (as defined in the Founder Advisory Agreement).
PCAOB means the U.S. Public Company Accounting Oversight Board.
Perimeter means SK Invictus Intermediate S.à r.l., a limited liability company (société à responsabilité limitée) governed by the laws of the Grand Duchy of Luxembourg with its registered office at 6, rue Eugène Ruppert, L-2453 Luxembourg, Grand Duchy of Luxembourg and registered with the Luxembourg trade and companies register (Registre de Commerce et des Sociétés, Luxembourg) under number B 221.545.
Perimeter Ordinary Shares means the ordinary shares of Perimeter, with a nominal value of $1.00 per share.
PIPE means the private placement or placements of PIPE Shares in connection with the consummation of the Transactions.
PIPE Shares means the Holdco Ordinary Shares (1) issuable to the EverArc Subscribers in exchange for the EverArc Ordinary Shares purchased by them pursuant to the EverArc Subscription Agreements and (2) purchased by the Management Subscribers pursuant to the Management Subscription Agreements.
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PIPE Share Price means $10.00, the price per share at which EverArc Ordinary Shares (and with respect to the Management Subscribers, Holdco Ordinary Shares) are being sold in the PIPE.
PIPE Subscribers means, collectively, the EverArc Subscribers and the Management Subscribers.
Placing Agents means Morgan Stanley & Co. International plc and UBS AG London Branch.
Plan and Articles of Merger means that certain Articles of Merger between EverArc and Merger Sub, a copy of which is attached to the Business Combination Agreement as Exhibit F.
Prospectus means the prospectus included in this Registration Statement on Form S-4 (Registration No. 333-259237) filed with the SEC.
SEC means the U.S. Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended.
SK Holdings means SK Invictus Holdings S.à r.l., a limited liability company (société à responsabilité limitée) governed by the laws of the Grand Duchy of Luxembourg with its registered office at 6, rue Eugène Ruppert, L-2453 Luxembourg, Grand Duchy of Luxembourg and registered with the Luxembourg trade and companies register (Registre de Commerce et des Sociétés, Luxembourg) under number B 221.541.
Subscription Agreements means the EverArc Subscription Agreements and the Management Subscription Agreements.
Trading Market means the national stock exchange on which the Holdco Ordinary Shares will be listed for trading, which is expected to be the NYSE.
Transactions means the transactions contemplated by the Business Combination Agreement, the Plan and Articles of Merger and all other ancillary agreements thereto, including the Merger and the Contribution and Sale.
U.K. Corporate Governance Code means the U.K. Corporate Governance Code issued by the Financial Reporting Council in the U.K. from time to time.
USDA Forest Service means the United States Department of Agriculture Forest Service.
U.S. GAAP means U.S. generally accepted accounting principles.
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This summary highlights selected information from this prospectus and does not contain all of the information that may be important to you. To better understand the Business Combination, you should read this entire prospectus carefully, including the annexes. See also the section entitled Where You Can Find More Information. Certain figures included in this section have been rounded for ease of presentation and, as a result, percentages may not sum to 100%.
Parties to the Business Combination
EverArc
EverArc was formed in the British Virgin Islands on November 8, 2019 to consummate an acquisition of a target company or business (which may be in the form of a merger, capital stock exchange, asset acquisition, stock purchase, scheme of arrangement, reorganization or similar business combination).
EverArc completed its IPO on December 17, 2019 and its Additional Offering on January 15, 2020. EverArc Ordinary Shares and EverArc Warrants are currently listed for trading on the London Stock Exchange under the symbols EVRA, and EVWA, respectively.
The mailing address of EverArcs principal executive office is 55 Water Street, 3rd Floor, Brooklyn, New York 11201.
Perimeter
Perimeter is a limited liability company (société à responsabilité limitée) governed by the laws of the Grand Duchy of Luxembourg with its registered office at 6, rue Eugene Ruppert, L-2453 Luxembourg, Grand Duchy of Luxembourg and registered with the Luxembourg trade and companies register (Registre de Commerce et des Sociétés, Luxembourg) under number B221.545.
Perimeter is a leading global solutions provider for the fire safety and oil additives industries.
The Fire Safety business is a formulator and manufacturer of fire management products that help our customers combat various types of fires, including wildland, structural, flammable liquids and other types of fires. Our Fire Safety business also offers specialized equipment and services, typically in conjunction with our fire management products, to support our customers firefighting operations. Our specialized equipment includes airbase retardant storage, mixing, and delivery equipment; mobile retardant bases; retardant ground application units; mobile foam equipment; and equipment that we custom design and manufacture to meet specific customer needs. Our service network can meet the emergency resupply needs of over 150 air tanker bases in North America, as well as many other customer locations in North America and internationally. The segment is built on the premise of superior technology, exceptional responsiveness to our customers needs, and a never-fail service network. The segment sells products to government agencies and commercial customers around the world. Our wildfire retardant products are the only qualified products for use by the USDA Forest Service.
Perimeters Oil Additives business provides high quality P2S5 primarily used in the preparation of ZDDP-based lubricant additives for critical engine anti-wear solutions. P2S5 is also used in pesticide and mining chemicals applications.
The mailing address of Perimeters principal executive office is 6, rue Eugene Ruppert, L-2453 Luxembourg, Grand Duchy of Luxembourg.
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For more information about Perimeter, see the sections entitled Information About Perimeter and Perimeters Managements Discussion and Analysis of Financial Condition and Results of Operation.
Holdco
Holdco was incorporated under the laws of the Grand Duchy of Luxembourg on June 21, 2021 as a public company limited by shares (société anonyme) having its registered office at 12E, rue Guillaume Kroll, L-1882, Grand Duchy of Luxembourg, registered with the Luxembourg register of commerce and companies (Registre de Commerce et des Sociétés de Luxembourg) under number B256.548. Holdco was formed solely in contemplation of the Business Combination, has not commenced any operations, has only nominal assets and has no liabilities or contingent liabilities, nor any outstanding commitments other than in connection with the Business Combination.
Holdco expects to apply to list its Holdco Ordinary Shares and Holdco Warrants on the Trading Market.
The address of Holdcos registered office is 12E, rue Guillaume Kroll, L-1882, Grand Duchy of Luxembourg.
Merger Sub
Merger Sub is a company limited by shares incorporated with limited liability in the British Virgin Islands and is a direct wholly owned subsidiary of Holdco. Merger Sub was formed solely in contemplation of the Business Combination, has not commenced any operations, has only nominal assets and has no liabilities or contingent liabilities, nor any outstanding commitments other than in connection with the Business Combination.
The mailing address of Merger Subs principal executive office is Kingston Chambers, PO Box 173, Road Town, Tortola, British Virgin Islands.
The Business Combination
The Business Combination Agreement
On June 15, 2021, EverArc, Perimeter, SK Holdings, Holdco and Merger Sub entered into the Business Combination Agreement pursuant to which, following the effectiveness of the transactions contemplated therein, Perimeter and EverArc will become direct, wholly-owned subsidiaries of Holdco. Pursuant to the Business Combination Agreement, each of the following transactions will occur, in the following order:
| on the Business Day prior to the Closing Date, Merger Sub, a wholly-owned subsidiary of Holdco will merge with and into EverArc, with EverArc surviving such merger as a direct wholly-owned subsidiary of Holdco (the Merger); |
| in the context of such Merger, all EverArc Ordinary Shares outstanding immediately prior to the Merger shall be exchanged for the right to receive Holdco Ordinary Shares pursuant to a share capital increase of Holdco, as set forth in the Business Combination Agreement; |
| on the Closing Date, SK Holdings, which holds 100% of the outstanding ordinary shares of Perimeter, will (i) contribute part of its Perimeter Ordinary Shares to Holdco in exchange for 10,000,000 Holdco Preferred Shares valued at $100 million and (ii) sell its remaining Perimeter Ordinary Shares to Holdco for approximately $1.9 billion in cash, subject to customary adjustments (the Contribution and Sale); |
| in connection with the Contribution and Sale, the nominal Holdco Ordinary Share held by EverArc will be cancelled via a share capital reduction without any consideration for EverArc; and |
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| all of the outstanding EverArc Warrants, in each case, entitling the holder thereof to purchase one-fourth of an EverArc Ordinary Share at an exercise price of $12.00 per whole EverArc Ordinary Share, will be converted into the right to purchase one-fourth of a Holdco Ordinary Share on substantially the same terms as the EverArc Warrants. |
On the business day immediately prior to the Closing Date, EverArc, Holdco and Merger Sub shall execute and file articles of merger and a plan of merger with the Registrar of Corporate Affairs of the British Virgin Islands (the Registrar), in accordance with, the relevant provisions of the BVI Companies Act, together with all other filings or recordings required under the BVI Companies Act in connection with the Merger. The Plan and Articles of Merger shall specify that the Merger shall become effective at such time as the Plan and Articles of Merger are duly registered by the Registrar, or at such later time as the Parties agree in writing (subject to the requirements of the BVI Companies Act). The parties will hold the Closing on the date of the Merger Effective Time, following the satisfaction or waiver of the conditions set forth in the Business Combination Agreement.
For more information, see the section entitled The Business Combination AgreementThe Structure of the Business Combination.
A copy of the Business Combination Agreement is attached hereto as Annex A to this prospectus and is incorporated by reference into this prospectus.
Consideration to be Received in the Business Combination
At the Merger Effective Time, SK Holdings will receive approximately $1.9 billion in cash subject to customary adjustments for working capital, transaction expenses, cash and indebtedness, and 10,000,000 Holdco Preferred Shares valued at $100 million. At the Merger Effective Time, each EverArc Ordinary Share issued and outstanding immediately prior to the Merger Effective Time will automatically be converted into and exchanged for the right to receive one Holdco Ordinary Share, which will be valued at $10.00 per share.
The Holdco Preferred Shares are entitled to a preferred annual cumulative right to a dividend equal to 6.5% of its nominal value (the Preferential Dividend). The Holdco Preferred Shares are not entitled to vote, except for the matters provided for by the 1915 Law, including any amendment, alteration or change to the rights attached to the Holdco Preferred Shares in a manner adverse to the Holdco Preferred Shares for which the consent of holders owning a majority of the Holdco Preferred Shares is required.
For more information, see the section entitled The Business Combination AgreementConsideration to be Received in the Business Combination.
Conditions to Closing
The obligations of SK Holdings, Perimeter, EverArc, Holdco and Merger Sub to consummate the Business Combination and the transactions contemplated thereby, are subject to customary conditions and waivers. For more information, see the section entitled The Business Combination AgreementConditions to Closing the Business Combination.
Termination Rights
The Business Combination Agreement includes customary provisions allowing for the termination or abandonment of the Business Combination at any time prior to the Merger Effective Time including, but not limited to:
| by mutual written consent of EverArc and SK Holdings; |
| by either EverArc or SK Holdings, if the Merger Effective Time shall not have occurred prior to 5:00 p.m. (New York time) on March 31, 2022, provided that the terminating party is not, either directly or indirectly through its affiliates, in breach or violation of any representation, warranty, covenant, |
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agreement or obligation under the Business Combination Agreement and such breach or violation is the principal cause of the failure of a condition set forth in the Business Combination Agreement prior to 5:00 p.m. (New York time) on March 31, 2022; |
| by either EverArc or SK Holdings on January 1, 2022 if the Merger Effective Time shall not have occurred prior to 5:00 p.m. (New York time) on December 31, 2021; |
| by SK Holdings if (A)(i) certain of the conditions to closing set forth in the Business Combination have been satisfied, (ii) SK Holdings confirms to EverArc in writing that all of the conditions to the obligations of EverArc to consummate the Closing have been satisfied or waived by EverArc and that SK Holdings and Perimeter are ready to consummate the Business Combination and (iii) EverArc has not consummated the Business Combination within three business days of such date or (B)(i) EverArc is in material breach of its covenants under the Business Combination Agreement and such breach results in EverArc being incapable of consummating the Business Combination and (iv) SK Holdings notifies EverArc, in writing, of such material breach and EverArc does not cure such breach by the earlier of (x) the date that is thirty (30) days after written notice of such breach is provided by SK Holdings to EverArc and (y) December 31, 2021, if such written notice of such breach is provided prior to December 31, 2021, or March 31, 2022, if such written notice of such breach is provided after December 31, 2021; or |
| by EverArc, on or after December 31, 2021, if as of December 21, 2021, EverArc is unable to consummate the Business Combination solely due to the unavailability of sufficient funds available to EverArc under its financing sources. |
In the event that the Business Combination Agreement is validly terminated, subject to certain terms in the Business Combination Agreement, all transaction expenses incurred in connection with the Business Combination will be paid by the party incurring such transaction expenses, except that EverArc shall pay all fees and expenses incurred in connection with any filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act) or other applicable antitrust laws. If the Business Combination is consummated, subject to restrictions, Holdco will bear the reasonable and documented transaction expenses of all of the parties.
In the event that the Business Combination Agreement is validly terminated under certain circumstances, EverArc will be obligated to pay to SK Holdings an amount equal to $50 million less the amount of the PCAOB Financials Expenses (as defined in the Business Combination Agreement) and the Financing Cooperation Expenses (as defined in the Business Combination Agreement) actually reimbursed by EverArc to Perimeter pursuant to the Business Combination Agreement.
For more information, see the section entitled The Business Combination AgreementTermination of the Business Combination Agreement.
Other Agreements Related to the Business Combination Agreement
Debt Agreements
Debt Commitment. In order to finance a portion of the cash consideration payable in the Business Combination and the costs and expenses incurred in connection therewith, EverArc entered into a debt commitment letter with Morgan Stanley Senior Funding, Inc. (MSSF), Barclays Bank PLC (Barclays) and Goldman Sachs Bank USA (GS and, together with MSSF and Barclays, the Commitment Parties), dated June 15, 2021 (the Debt Commitment Letter).
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Revolving Credit Facility. Pursuant to the Debt Commitment Letter, in connection with the consummation of the Business Combination, SK Invictus Intermediate II S.à r.l., a private limited liability company governed by the laws of the Grand Duchy of Luxembourg (Invictus II) and a direct wholly owned subsidiary of Perimeter, expects to enter into a five-year revolving credit facility (the Revolving Credit Facility), which is expected to, subject to the satisfaction of customary closing conditions, provide for a senior secured revolving credit facility in an aggregate principal amount of up to $100.0 million. Borrowings under the Revolving Credit Facility are expected to bear interest at a rate equal to (i) an applicable margin, plus (ii) at Invictus IIs option, either (x) LIBOR determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs (but which will not be less than a 0.00% LIBOR floor) or (y) a base rate determined by reference to the highest of (a) the prime commercial lending rate published by the Wall Street Journal, (b) the federal funds rate plus 0.50%, (c) the one-month LIBOR rate plus 1.00% and (d) a minimum floor of 1.0%,
Invictus II is expected to be the borrower under the Revolving Credit Facility. The Revolving Credit Facility is expected to be fully and unconditionally guaranteed by Perimeter and each of Invictus IIs existing and future wholly-owned material restricted subsidiaries (subject to certain exceptions), and is expected to be secured by a valid and perfected first priority lien (subject to certain permitted liens) on substantially all of Invictus IIs and each of the guarantors existing and future property and assets (subject to certain exceptions).
Senior Notes. Also in connection with the Business Combination, on October 5, 2021, EverArc Escrow S.à r.l. (Escrow Issuer), a newly-formed limited liability company governed by the laws of the Grand Duchy of Luxembourg and a wholly owned subsidiary of EverArc launched a private offering of $600,000,000 principal amount of % senior secured notes due 2029 (the Senior Notes) pursuant to that certain Indenture dated as of October , 2021 between Invictus II and U.S. Bank National Association, as Trustee and Collateral Agent (the Trustee). Upon the consummation of the Business Combination, Invictus II will assume the Escrow Issuers obligations under the Senior Notes.
The Senior Notes will bear interest at an annual rate of %. Interest on the Senior Notes will be payable in cash semi-annually in arrears on and of each year, commencing on , 2022.
From and after the Closing, the Senior Notes will be fully and unconditionally guaranteed on a senior secured basis, jointly and severally, by all of Invictus IIs existing or future restricted subsidiaries (other than certain excluded subsidiaries) that guarantee the Revolving Credit Facility.
From and after the Closing, the Senior Notes will be general, secured, senior obligations of Invictus II; will rank equally in right of payment with all existing and future senior indebtedness of Invictus II (including, without limitation, the Revolving Credit Facility); and together with the Revolving Credit Facility, will be effectively senior to all existing and future indebtedness of Invictus II that is not secured by the Collateral (as defined in the Indenture), to the extent of the value of the Collateral.
For more information about the Revolving Credit Facility and Senior Notes, see the section entitled Certain Agreements Related to the Business CombinationDebt Agreements.
Subscription Agreements
In connection with the execution of the Business Combination Agreement, EverArc, SK Holdings and Holdco entered into Subscription Agreements with the EverArc Subscribers pursuant to which the EverArc Subscribers agreed to purchase an aggregate of 115,000,000 EverArc Ordinary Shares at $10.00 per share which will be converted into Holdco Ordinary Shares in connection with the closing of the Business Combination. In addition, the Management Subscribers entered into Subscription Agreements with Holdco pursuant to which they agreed
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to purchase an aggregate of 1,100,212 Holdco Ordinary Shares at $10.00 per share in connection with the closing of the Business Combination.
The issuance of the PIPE Shares pursuant to the Subscription Agreements is contingent upon, among other customary closing conditions, the substantially concurrent consummation of the Business Combination.
Pursuant to the Subscription Agreements, Holdco agreed that, within 30 calendar days after the Closing Date, it will file with the SEC (at Holdcos sole cost and expense) a registration statement registering the resale of the PIPE Shares, and Holdco will use its commercially reasonable efforts to have the registration statement declared effective as soon as practicable after the filing thereof, but no later than the earlier of (i) the 60th calendar day (or 90th calendar day if the SEC notifies Holdco that it will review the registration statement) following the closing of the sale of the PIPE Shares and (ii) the 5th business day after the date Holdco is notified (orally or in writing, whichever is earlier) by the SEC that the Registration Statement will not be reviewed or will not be subject to further review.
For more information about the Subscription Agreements, see the section entitled Certain Agreements Related to the Business CombinationSubscription Agreements.
Non-Compete Agreements
In connection with the execution of the Subscription Agreements entered into with the Management Subscribers, EverArc, Holdco and each Management Subscriber entered into Non-Compete Agreements, which placed restrictive employment covenants on such Management Subscriber for a period of three years.
For more information about the Non-Compete Agreements, see the section entitled Certain Agreements Related to the Business CombinationNon-Compete Agreements.
Warrant Amendment
In connection with the Closing, Holdco will enter into the Holdco Warrant Instrument with EverArc and Computershare Inc., as warrant agent (the Warrant Agent) to, among other things, assume EverArcs obligations under the existing EverArc Warrant Instrument.
For more information about the Warrant Amendment, see the section entitled Certain Agreements Related to the Business Combination Warrant Amendment.
EverArcs Board of Directors Reasons for the Approval of the Business Combination
After careful consideration, EverArcs board of directors approved the Business Combination. For a complete discussion of the factors utilized by EverArcs board of directors in approving the Business Combination, see the section entitled, The Business CombinationEverArcs Board of Directors Reasons for the Approval of the Business Combination.
Interests of Certain Persons in the Business Combination
EverArcs shareholders should be aware that, aside from their interests as shareholders, the EverArc Founders indirectly through the EverArc Founder Entity and EverArcs directors and officers have interests in the Business Combination that are different from, or in addition to, those of other shareholders and warrant holders generally.
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EverArcs directors were aware of and considered these interests, among other matters, in evaluating the Business Combination. These interests include, among other things:
| the amounts payable to the EverArc Founder Entity pursuant to the Founder Advisory Agreement entered into by EverArc and the EverArc Founder Entity which is designed to provide incentives to the EverArc Founders to achieve EverArcs objectives which includes: |
| a fixed annual advisory amount equal to 1.5% of the Founder Advisory Agreement Calculation Number (in each case, payable in Holdco Ordinary Shares or partly in cash, at the election of the EverArc Founder Entity provided that at least 50% of such amounts are paid in Holdco Ordinary Shares). Based on the assumptions described in this prospectus, the fixed annual advisory amount is currently expected to be 2,353,992 Holdco Ordinary Shares which, assuming a stock price of $12.50 per Holdco Ordinary Share, would have a value of $29,424,902. Each additional $1 increase in the stock price of Holdco Ordinary Shares above $12.50 will increase the value of the fixed annual advisory amount payable to the EverArc Founder Entity by $2,353,992; and |
| a variable annual advisory amount based on the appreciation of the market price of Holdco Ordinary Shares if such market price exceeds certain trading price minimums (in each case, payable in Holdco Ordinary Shares or partly in cash, at the election of the EverArc Founder Entity provided that at least 50% of such amounts are paid in Holdco Ordinary Shares). Based on assumptions described in this prospectus and assuming a stock price of $12.50 per Holdco Ordinary Share, the variable annual advisory amount payable to the EverArc Founder Entity in year one would have a value of $70,619,765. For each $1 increase in the stock price of Holdco Ordinary Shares above $12.50, or such higher stock price on which a variable annual advisory amount was previously paid to the EverArc Founder Entity, the EverArc Founder Entity will receive a variable annual advisory amount valued at $28,247,906. |
The EverArc Founders have advised Holdco that their intention is to elect, via the EverArc Founder Entity, to receive any advisory amounts in Holdco Ordinary Shares and for any cash element to only be such amount as is required to pay any related taxes;
With respect to the fixed annual advisory fee, the EverArc Founder Entity will earn such advisory fee even if Holdcos public shareholders earn a negative return following the consummation of the Business Combination;
| the potential continuation of certain of EverArcs directors as directors of Holdco; |
| the EverArc Founder Entity and EverArcs directors have agreed that none of the EverArc Founder Shares nor any EverArc Ordinary Shares or EverArc Warrants owned by them will be sold or transferred by them until one year after EverArc has completed a business combination, subject to limited exceptions; |
| approximately $100,000 in unreimbursed expenses due to the EverArc Founder Entity; |
| the continued indemnification of current directors and officers of EverArc and the continuation of directors and officers liability insurance after the Business Combination; |
| to the extent that the EverArc Founders or directors identify business opportunities that may be suitable for EverArc or other companies on whose boards of directors they may sit or to whom they owe a contractual obligation, the EverArc Founders and directors will honor those pre-existing fiduciary and contractual obligations ahead of their obligations to EverArc. Accordingly, they may refrain from presenting certain opportunities to EverArc that come to their attention in the performance of their duties as directors of such other entities or in observance of contractual obligations unless the other companies have declined to accept such opportunities or waive the contractual obligations. EverArc considered the pre-existing duties or contractual obligations of the EverArc Founders or directors and does not believe that they materially impacted its search for an acquisition target, or the negotiation or approval of the Business Combination; and |
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| the beneficial ownership by the EverArc Founders, directly and indirectly through the EverArc Founder Entity, of: |
| 100 EverArc Founder Shares, acquired for an aggregate purchase price of $1,000, which following the Closing will have an aggregate market value of approximately $1,250 based on the closing price of EverArc Ordinary Shares of $12.50 on the LSE on September 30, 2021; and |
| 1,595,239 EverArc Ordinary Shares and 1,500,000 EverArc Warrants, acquired for an aggregate purchase price of $16,000,010, which have an aggregate market value of approximately $20,202,988 based on the closing price of EverArc Ordinary Shares of $12.50 and EverArc Warrants of $0.175 on the LSE on September 30, 2021; if the Business Combination is not consummated and EverArc is liquidated, the EverArc Founders will suffer a loss on their investment, if any, equal to the difference between the price paid for their EverArc Ordinary Shares and EverArc Warrants and the liquidation value of their EverArc Ordinary Shares which loss would, based on EverArcs publicly reported statement of financial position as of April 30, 2021, equal, in the aggregate, $398,573; |
| the beneficial ownership by the EverArc non-founder directors of an aggregate of 30,000 EverArc Ordinary Shares and 30,000 EverArc Warrants granted to them in lieu of their first years annual remuneration at a fair value of $10.00 per EverArc Ordinary Share, which have an aggregate market value of approximately $380,250 based on the closing price of EverArc Ordinary Shares of $12.50 and EverArc Warrants of $0.175 on the LSE on September 30, 2021; if the Business Combination is not consummated and EverArc is liquidated, the EverArc non-founder directors will suffer a loss, if any, equal to the difference between the value of their EverArc Ordinary Shares and EverArc Warrants upon issuance and the liquidation value of their EverArc Ordinary Shares which loss would, based on EverArcs publicly reported statement of financial position as of April 30, 2021, equal, in the aggregate, $6,600. |
The existence of the interests described above may result in a conflict of interest on the part of EverArcs officers and directors and the EverArc Founder Entity in approving the Business Combination. In particular, the existence of the interests described above may incentivize EverArcs directors and the EverArc Founder Entity to complete an initial business combination, even if on terms less favorable to EverArcs shareholders compared to liquidating EverArc, because, among other things, if EverArc is liquidated without completing an initial business combination, the EverArc Founders and directors could suffer a loss on their investment in the EverArc Ordinary Shares they purchased, their EverArc Warrants would be worthless (which, if unrestricted and freely tradable, would be worth an aggregate of approximately $267,750 based on the closing price of EverArc Warrants on September 30, 2021), and the EverArc Founder Entity would not receive any future advisory fees, which at the current price of EverArc could be worth, in the aggregate, as much as $100,044,667 at December 31, 2021.
You should also read the section entitled The Business CombinationInterests of EverArcs Directors and Officers in the Business Combination.
Description of Holdcos Securities
As a result of the Business Combination, Holdco will issue Holdco Ordinary Shares, Holdco Preferred Shares and Holdco Warrants. For a complete description of Holdcos securities, see the section entitled Description of Holdco Securities.
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Redemption Rights
Pursuant to the EverArc Articles, holders of EverArc Ordinary Shares do not have any right to have EverArc redeem their EverArc Ordinary Shares in connection with the consummation of the Business Combination.
Shareholder Rights Following the Business Combination
The rights of EverArc shareholders will change as a result of the Business Combination due to the differences in EverArcs and Holdcos governing documents. A description of shareholder rights under each of the EverArc and Holdco governing documents, and the material differences between them, is included in the section entitled Comparison of Shareholder Rights.
Ownership of Holdco Following the Business Combination
It is anticipated that, upon completion of the Business Combination, (i) EverArcs existing shareholders will own approximately 26.0% of the issued and outstanding Holdco Ordinary Shares (including 1% owned by the EverArc Founders) and (ii) the PIPE Subscribers will own approximately 74.0% of the issued and outstanding Holdco Ordinary Shares. These relative percentages assume no additional exercise of EverArc Warrants and no additional equity issuances by EverArc at or prior to Closing. If the actual facts are different than these assumptions, the percentage ownership retained by EverArcs existing shareholders will be different. Additionally, upon completion of the Business Combination, SK Holdings will own 10,000,000 Holdco Preferred Shares which represent 100% of the issued and outstanding Holdco Preferred Shares.
The following table illustrates the ownership percentages of Holdco Ordinary Shares (excluding the impact of the shares underlying the Holdco Warrants) immediately after the Closing based on the assumptions described above:
Number of Holdco Ordinary Shares |
Percentage | |||||||
EverArc existing shareholders |
40,832,600 | 26.0 | % | |||||
PIPE Subscribers |
||||||||
Institutional Subscribers |
114,240,000 | 72.8 | % | |||||
SK Subscribers |
429,000 | 0.3 | % | |||||
Individual Subscribers |
331,000 | 0.2 | % | |||||
Management Subscribers |
1,100,212 | 0.7 | % | |||||
Total |
156,932,812 | 100 | % |
For more information, see the section entitled Summary Pro Forma Condensed Consolidated Combined Financial Information.
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Organizational Structure
Prior to the Business Combination
The following diagram shows the current ownership structure of EverArc (excluding the impact of the shares underlying the EverArc Warrants).
(1) | For more information about the ownership interests of our EverArc Founders and the EverArc Founder Entity, prior to the Business Combination, please see the section entitled Security Ownership of Certain Beneficial Owners and Management. |
The following diagram shows the current ownership structure of Perimeter.
(1) | The diagram above only shows select subsidiaries of Perimeter. |
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Following the Business Combination
The following diagram shows the pro forma ownership percentages (excluding the impact of the shares underlying the Holdco Warrants) and structure of Holdco immediately following the consummation of the Business Combination.
Board of Directors of Holdco Following the Business Combination
EverArc and Perimeter anticipate that the current executive officers of Perimeter will become the executive officers of Holdco. Following the Business Combination, Holdcos board of directors will expand to 9 members and will consist of W. Nicholas Howley, William N. Thorndike, Jr., Haitham Khouri, Edward Goldberg, Vivek Raj, Tracy Britt Cool, Kevin Stein, Sean Hennessy and Robert S. Henderson. We believe a majority of our board of directors will meet the independence standards under the applicable Trading Market rules. Please see the section entitled Management of Holdco After the Business Combination.
Material Tax Consequences
For a detailed discussion of certain U.S. federal income tax consequences and Luxembourg tax consequences of the Business Combination, see the sections titled Material U.S. Federal Income Tax Considerations and Material Luxembourg Income Tax Considerations in this prospectus.
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Accounting Treatment
The Merger between Holdco and EverArc will be accounted for as a common control transaction, where substantially all of the net assets of Holdco will be those previously held by EverArc. The acquisition of Perimeter through the Contribution and Sale will be treated as a business acquisition under Financial Accounting Standards Boards Accounting Standards Codification Topic 805, Business Combinations with Holdco determined to be the legal and accounting acquirer.
Appraisal or Dissenters Rights
The BVI Companies Act provides that any member of a BVI company is entitled to payment of the fair value of his, her or its shares upon dissenting from a merger, unless the company is the surviving company of the merger and the member continues to hold the same or similar shares.
Following delivery of the required notice from the Company, a dissenter is in most circumstances is required to follows certain procedures in order to properly assert their dissenters rights under BVI law including giving the Company a written notice of their decision to elect to dissent
Upon the giving of a notice of election to dissent, the dissenter ceases to have any of the rights of a shareholder except the right to be paid the fair value of his, her or its shares, and the right to institute proceedings to obtain relief on the ground that the action is illegal.
The Company shall make a written offer to each dissenter to purchase his shares at a specified price that the Company determines to be their fair value. If the Company and the dissenter fail, within 30 days immediately following the date on which the offer is made, to agree on the price to be paid for the shares owned by the dissenter, then fair value shall be determined through a statutory appraisal process.
EverArc caused the required notice to be given to shareholders on July 7, 2021. No member elected to exercise his, her or its right to dissent.
Risk Factor Summary
You should carefully read this prospectus, including the annexes, and especially consider the factors discussed in the section entitled Risk Factors. Some of the risks related to EverArc and Perimeter are summarized below:
Risks Related to Perimeter and Our Industry
| a small number of our customers represent a significant portion of our revenue particularly the USDA Forest Service and the state of California; |
| as a supplier and service provider to the U.S. government and many foreign governments, states, and municipalities, we are subject to certain heightened risks; |
| our profitability could be negatively impacted by price and inventory risk; |
| changes in the regulation of the petrochemical industry, a downturn in the oil additives and/or fire-retardant end markets or our failure to accurately predict the frequency, duration, timing, and severity of changes in demand in such markets could adversely affect our business, financial condition and results of operations; |
| risks from the improper conduct of, or use of our products, by employees, agents, government contractors, or collaborators could adversely affect our reputation; |
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| there can be no assurance that we will be able to continue purchasing products from our suppliers on a long-term basis and production interruptions or shutdowns could increase our operating or capital expenditures or negatively impact the supply of our products resulting in reduced sales; |
| we rely on third-party logistics suppliers for distribution, storage, transportation, operating supplies and products; |
| we are susceptible to supply and raw material cost increases, supply shortages, long lead times for components, and supply changes; |
| if we fail to continuously innovate and to provide products that gain market acceptance, we may be unable to attract new customers or retain existing customers; |
| the seasonal or cyclical nature of our business and severe weather events may cause demand for our products and services to be adversely affected; |
| our industry and the markets in which we operate have few large competitors and increased competitive pressures could reduce our share of the markets we serve; |
| our competitive position could be adversely affected if we fail to protect our patents, trade secrets or other intellectual property rights, if our patents expire or if we become subject to infringement claims and our patents may not provide full protection; |
| risks inherent in our global operations; |
Risks Related to Regulatory and Legal Matters
| certain of our products are provided to emergency services personnel and are intended to protect lives and property, so we are subject to heightened liability and reputational risks; |
| some of the products we produce may cause adverse health consequences and we are and may be subject in the future to product liability claims, and indemnity and insurance coverage could be inadequate or unavailable to cover these claims; |
| we are exposed to risks related to litigation, including multi-district litigation and other legal proceedings; |
| a failure to comply with export control or economic sanctions laws and regulations U.S. FCPA and similar anticorruption, anti-bribery and anti-kickback laws, environmental laws and laws related to PFAS substances could have a material adverse impact on our business; |
| our contracts with the federal government subject us to additional oversight and risks; |
| our products are subject to extensive government scrutiny and regulation, including the USDA Forest Service qualification process; |
| increased regulations or limitations of carriers willing to ship materials considered to be hazardous can significantly increase the costs to acquire raw materials or ship finished goods to customers in the oil additives segment; |
| legal and regulatory claims, investigations and proceedings may be initiated against us in the ordinary course of business; |
Risks Related to Holdco
| Holdco will incur increased costs as a result of operating as a public company, and its management will devote substantial time to new compliance initiatives; |
| there can be no assurance that the Holdco Ordinary Shares that will be issued in connection with the Business Combination or the Holdco Warrants will be approved for listing on the Trading Market or, if approved, that Holdco will be able to comply with the continued listing standards of the Trading Market; |
| We have identified material weaknesses in our internal control over financial reporting which we may not successfully remediate; |
| the Combined Companys failure to timely and effectively implement controls and procedures required by Section 404(a) of the Sarbanes-Oxley Act could have a material adverse effect on its business, operating results and financial condition; |
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Risks Related to EverArc and the Proposed Business Combination
| we may fail to realize the strategic and financial benefits currently anticipated from the Business Combination which could negatively impact the Combined Companys stock price; |
| the requirements of being a public company may strain the Combined Companys resources and divert managements attention; |
| the Combined Company may be required to take write-downs or write-offs, or the Combined Company may be subject to restructuring, impairment or other charges; |
| failure to consummate the Business Combination would result in a termination fee payable by EverArc; |
| EverArc may not be able to complete its initial business combination prior to December 17, 2022; |
| EverArcs board of directors did not obtain a fairness opinion in determining whether or not to proceed with the Business Combination; |
| the EverArc Founders and EverArcs board of directors have potential conflicts of interest in the Business Combination; |
| the EverArc shareholders are becoming shareholders of Holdco through the Business Combination rather than acquiring securities of Perimeter directly in an underwritten public offering; |
| Pursuant to the Founder Advisory Agreement, Holdco will be required to make a termination payment if the Founder Advisory Agreement is terminated under certain circumstances; |
| EverArcs shareholders may be held liable for claims by third parties against EverArc to the extent of distributions received by them; |
| risks related to holders of Holdco Warrants following the Business Combination; |
| Holdco may have limited recourse for indemnity claims under the Business Combination Agreement; |
| EverArcs and Perimeters ability to consummate the Business Combination may be materially adversely affected by the COVID-19 pandemic; |
Risks Related to Investment in a Luxembourg Company
| Holdco is organized under the laws of the Grand Duchy of Luxembourg. It may be difficult for you to obtain or enforce judgments or bring original actions against Holdco or the members of its board of directors in the U.S.; |
| Luxembourg and European insolvency and bankruptcy laws are substantially different from U.S. insolvency and bankruptcy laws and may offer Holdcos shareholders less protection than they would have under U.S. insolvency and bankruptcy laws; |
| the rights of Holdcos shareholders may differ from the rights they would have as shareholders of a U.S. corporation, which could adversely impact trading in Holdcos Ordinary Shares and its ability to conduct equity financings; |
General Risk Factors
| the Combined Company may require additional capital to fund our operations; |
| cybersecurity attack, acts of cyber-terrorism, failure of technology systems and other disruptions to our information technology systems may adversely impact us; |
| the Combined Company results of operations are subject to exchange rate and other currency risks; |
| the Combined Company insurance may not fully cover all of our operational risks; |
| the continuing impacts of the COVID-19 pandemic may have an adverse effect on the Combined Company; and |
| the loss of key personnel or the Combined Company inability to attract and retain new qualified personnel could hurt its business and inhibit our ability to operate and grow successfully. |
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SELECTED HISTORICAL FINANCIAL DATA OF EVERARC
The summary historical statements of income data of EverArc for the period from November 8, 2019 (inception) to October 31, 2020 and the historical balance sheet data as of October 31, 2020 are derived from EverArcs audited financial statements included elsewhere in this prospectus. The summary historical statements of income data of EverArc for the six months ended April 30, 2021 and the balance sheet data as of April 30, 2021 are derived from EverArcs unaudited interim condensed financial statements included elsewhere in this prospectus.
EverArcs historical results are not necessarily indicative of the results that may be expected in the future. The information below is only a summary and should be read in conjunction with the section entitled EverArcs Managements Discussion and Analysis of Financial Condition and Results of Operations and the EverArc financial statements, and the notes and schedules related thereto, which are included elsewhere in this prospectus.
As of and for the six months ended April 30, 2021 |
As of and for the period from November 8, 2019 (inception) through October 31, 2020 |
|||||||
Statement of Income Data: |
||||||||
Operating Expenses |
$ | 1,028,961 | $ | 2,620,712 | ||||
|
|
|
|
|||||
Operating Loss |
(1,028,961 | ) | (2,620,712 | ) | ||||
Other income (expense) |
||||||||
Gain on investments |
84,098 | 1,646,166 | ||||||
Other income |
| 6 | ||||||
Total other income |
84,098 | 1,646,172 | ||||||
|
|
|
|
|||||
Net loss |
$ | (944,863 | ) | $ | (974,540 | ) | ||
|
|
|
|
|||||
Unrealized (loss) gain on investments |
(9,381 | ) | 26,708 | |||||
Total Comprehensive Loss |
(954,244 | ) | (947,832 | ) | ||||
|
|
|
|
|||||
Balance Sheet Data: |
||||||||
Total assets |
$ | 399,566,250 | $ | 400,463,434 | ||||
Total liabilities |
111,782 | 87,599 | ||||||
Total equity |
399,454,468 | 400,375,835 |
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SELECTED HISTORICAL FINANCIAL DATA OF PERIMETER
The summary historical statements of income data of Perimeter for the year ended December 31, 2020 and the historical balance sheet data as of December 31, 2020 are derived from Perimeters audited financial statements included elsewhere in this prospectus. The summary historical statements of income data of Perimeter for the six months ended June 30, 2021 and the balance sheet data as of June 30, 2021 are derived from Perimeters unaudited interim condensed financial statements included elsewhere in this prospectus.
Perimeters historical results are not necessarily indicative of the results that may be expected in the future. The information below is only a summary and should be read in conjunction with the section entitled Perimeters Managements Discussion and Analysis of Financial Condition and Results of Operations and the Perimeter financial statements, and the notes and schedules related thereto, which are included elsewhere in this prospectus.
(in thousands, except per share data) |
As of and for the six months ended June 30, 2021 |
As of and for the year ended December 31, 2020 |
||||||
(Unaudited) | ||||||||
Statement of Income Data: |
||||||||
Net sales |
$ | 121,046 | $ | 339,577 | ||||
Cost of goods sold |
73,814 | 177,532 | ||||||
|
|
|
|
|||||
Gross profit |
47,232 | 162,045 | ||||||
Operating expenses |
$ | 54,506 | $ | 90,569 | ||||
|
|
|
|
|||||
Operating (loss) income |
(7,274 | ) | 71,476 | |||||
Other (expense) income |
||||||||
Interest expense |
(15,886 | ) | (42,017 | ) | ||||
Other (expense) income- net |
(4,703 | ) | 5,273 | |||||
|
|
|
|
|||||
Total other (expense) |
(20,589 | ) | (36,744 | ) | ||||
|
|
|
|
|||||
Income (loss) before income taxes |
$ | (27,863 | ) | $ | 34,732 | |||
|
|
|
|
|||||
Income tax benefit (expense) |
5,486 | (10,483 | ) | |||||
|
|
|
|
|||||
Net (loss) income |
(22,377 | ) | 24,249 | |||||
|
|
|
|
|||||
Foreign translation adjustments |
(404 | ) | 4,787 | |||||
|
|
|
|
|||||
Total comprehensive (loss) income |
(22,781 | ) | $ | 29,036 | ||||
|
|
|
|
|||||
Net income (loss) per share |
||||||||
Basic |
$ | (0.42 | ) | $ | 0.46 | |||
Diluted |
$ | (0.42 | ) | $ | 0.46 | |||
Weighted-average shares used in computing net income (loss) per share |
||||||||
Basic |
53,045,510 | 53,045,510 | ||||||
Diluted |
53,045,510 | 53,045,510 | ||||||
Balance Sheet Data: |
||||||||
Total assets |
$ | 1,154,474 | $ | 1,138,206 | ||||
Total liabilities |
885,833 | 846,784 | ||||||
Total equity |
268,641 | 291,422 |
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SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED FINANCIAL INFORMATION
The following summary unaudited pro forma condensed consolidated combined financial data (the summary pro forma data) gives effect to the Business Combination and related transactions described in the section entitled Unaudited Pro Forma Condensed Consolidated Combined Financial Information. The Business Combination will be accounted for as a business acquisition under ASC 805. Under this method of accounting, Holdco will be treated as the legal and accounting acquirer. The Merger will be accounted for as a common control transaction. Accordingly, the net assets of Perimeter will be stated at fair value; and the net assets of EverArc will be stated at historical cost, with no goodwill or other intangible assets recorded. The summary unaudited pro forma condensed consolidated combined balance sheet data as of June 30, 2021 gives pro forma effect to the Business Combination and related transactions as if they had occurred on June 30, 2021. The summary unaudited pro forma condensed consolidated combined statement of operations data for the year ended December 31, 2020 and the six months ended June 30, 2021 give pro forma effect to the Business Combination and related transactions as if they had been consummated on January 1, 2020.
The summary pro forma data have been derived from, and should be read in conjunction with, the unaudited pro forma condensed consolidated combined financial information of the combined company appearing elsewhere in this prospectus and the accompanying notes. The unaudited pro forma condensed consolidated combined financial information is based upon, and should be read in conjunction with, the historical financial statements and related notes of Holdco, EverArc, and Perimeter, which are included in this prospectus. The summary pro forma data have been presented for informational purposes only and are not necessarily indicative of what the combined companys financial position or results of operations actually would have been had the Business Combination and related transactions been completed as of the dates indicated. In addition, the summary pro forma data do not purport to project the future financial position or operating results of the combined company.
Pro Forma Combined (in thousands, except share and per share data) |
||||
Statement of Operations Data for the Six Months Ended June 30, 2021 |
||||
Net sales |
$ | 121,046 | ||
Net loss |
$ | (72,963 | ) | |
Net loss per share attributable to common stockholders - basic and diluted |
$ | (0.47 | ) | |
Weighted average common shares outstanding - basic and diluted |
156,900,000 | |||
Statement of Operations Data for the Year Ended December 31, 2020 |
||||
Net sales |
$ | 339,577 | ||
Net loss |
$ | (310,553 | ) | |
Net loss per share attributable to common stockholders - basic and diluted |
$ | (1.98 | ) | |
Weighted average common shares outstanding - basic and diluted |
156,900,000 |
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The value of your investment in EverArc following consummation of the Business Combination will be subject to the significant risks affecting Perimeter and inherent to the industry in which it operates. You should carefully consider the risks and uncertainties described below and other information included in this prospectus. If any of the events described below occur, the post-acquisition business and financial results could be adversely affected in a material way. This could cause the trading price of its common stock to decline, perhaps significantly, and you therefore may lose all or part of your investment.
As used in the risks described in this subsection, references to we, us and our are intended to refer to Perimeter unless the context clearly indicates otherwise. The risk factors described below are not necessarily exhaustive and you are encouraged to perform your own investigation with respect to the businesses of EverArc and Perimeter.
Risks Related to Perimeter and Our Industry
A small number of customers represent a significant portion of our revenue, and a loss of one or more of these customers could have a material adverse effect on our business, financial condition and results of operations.
A small number of customers represent a significant portion of our revenue. A certain number of contracts with these customers are on an on-demand, as-needed basis, and there are no guaranteed minimums included in such contracts. In other cases, manufacturing disruptions at customer sites can significantly decrease customer demand. Because of the concentrated nature of our customer base and contract terms applicable to such customers, our quarterly revenue and results of operations may fluctuate from quarter to quarter and are difficult to estimate. In addition, any cancellation of orders or any acceleration or delay in anticipated product purchases by our larger customers could materially affect our revenue and results of operations in any quarterly period. We may be unable to sustain or increase our revenue from our larger customers, or offset any discontinuation or decrease of purchases by our larger customers with purchases by new or other existing customers. To the extent one or more of our larger customers experience significant financial difficulty, bankruptcy or insolvency, this could have a material adverse effect on our sales and our ability to collect on receivables, which could harm our business, financial condition and results of operations.
In addition, certain customers, including some of our larger customers, have negotiated, or may in the future negotiate, volume-based discounts or other more favorable terms from us, which can and have had a negative effect on our gross margins or revenue.
We expect that such concentrated purchases will continue to contribute materially to our revenue for the foreseeable future and that our results of operations may fluctuate materially as a result of such larger customers buying patterns.
We are substantially dependent on sales to the USDA Forest Service and the state of California, which account for approximately 58% of our revenue related to our fire safety segment.
Sales to the USDA Forest Service and the state of California represent a substantial portion of our revenues and this concentration of our sales makes us substantially dependent on those customers. In fiscal year 2020, sales to the USDA Forest Service and the state of California accounted for approximately 58% of our revenue related to our fire-safety segment. This customer concentration makes us subject to the risk of nonpayment, nonperformance, re-negotiation of terms or non-renewal by these major customers under our commercial agreements. If the USDA Forest Services and/or the state of California reduce their spend on our fire-retardant products, we may experience a reduction in revenue and may not be able to sustain profitability, and our business, financial condition and results of operations would be materially harmed.
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As a supplier and service provider to the U.S. government, we are subject to certain heightened risks, such as those associated with the governments rights to audit and conduct investigations and with its rights to terminate contracts for convenience or default.
As a supplier and service provider to the U.S. government, we are subject to certain heightened risks, such as those associated with the governments rights to audit and conduct investigations and with its rights to terminate contracts for convenience or default. We may in the future be the subject of U.S. government investigations relating to our U.S. government contracts. Such investigations often take years to complete and could result in administrative, civil or criminal liabilities, including repayments, fines, treble and other damages, forfeitures, restitution or penalties, or could lead to suspension or debarment of U.S. government contracting or of export privileges. For instance, if a business unit were charged with wrongdoing in connection with a U.S. government investigation (including fraud, or violation of certain environmental or export laws), the U.S. government could suspend us from bidding on or receiving awards of new U.S. government contracts or subcontracts. If convicted or found liable, the U.S. government could fine and debar us from receiving new awards for a period generally not to exceed three years and could void any contracts found to be tainted by fraud. We also could suffer reputational harm if allegations of impropriety were made against us, even if such allegations are later determined to be unsubstantiated.
Some of our sales are to foreign buyers, which exposes us to additional risks such as foreign political, foreign exchange, economic and regulatory risks.
We derived approximately 22% of our revenues from customers located in foreign countries in fiscal 2020. The amount of foreign sales we make may increase in the future. The additional risks of foreign sales include:
| potential adverse fluctuations in foreign currency exchange rates; |
| higher credit risks; |
| restrictive trade policies of the U.S. or foreign governments; |
| currency hyperinflation and weak banking institutions; |
| changing economic conditions in local markets; |
| compliance risk related to local rules and regulations; |
| political and economic instability in foreign markets; |
| changes in leadership of foreign governments; and |
| export restrictions due to local states of emergency for disease or illness. |
Some or all of these risks may negatively impact our business, financial condition and results of operations.
Our profitability could be negatively impacted by price and inventory risk related to our business, including commodity price exposure.
Our realized margins depend on the differential of sales prices over our total supply costs. Our profitability is therefore sensitive to changes in product prices caused by changes in supply, transportation and storage capacity or other market conditions.
Generally, we attempt to maintain an inventory position that is substantially balanced between our purchases and sales, including our future delivery obligations. We attempt to obtain a certain margin for our purchases by selling our product to our customers. However, market, weather or other conditions beyond our control may disrupt our expected supply of product, and we may be required to obtain supply at increased prices
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that cannot be passed through to our customers. For example, some of our supply contracts follow market prices, which may fluctuate through the year, while our product prices may be fixed on a quarterly or annual basis, and therefore, fluctuations in our supply may not be passed through to our customers and can produce an adverse effect on our margins.
Changes in the regulation of the petrochemical industry, a downturn in the oil additives and/or fire-retardant end markets or our failure to accurately predict the frequency, duration, timing, and severity of changes in demand in such markets and the broader necessity for oil additives and/or firefighting related materials could adversely affect our business, financial condition and results of operations.
Our end markets experience constantly changing demand depending on a number of factors that are out of our control. In our oil additives business, we supply phosphorus pentasulfide which is primarily used in the lubricant additives market to produce a critical compound in engine oils. As more electric vehicles emerge on the automobile market, use of the internal combustion engine may decline, thereby lessening demand for our oil additive products. In our fire-retardant business, demand is dependent on the occurrence of fires, which are seasonal and dependent on environmental and other factors. Changes in the occurrence, severity and duration of fires may change demand for our fire-retardant products. For example, in 2019 we experienced the lowest U.S. fire season in 16 years. Seasonality in the fire-retardant end market could periodically result in higher or lower levels of revenue and revenue concentration with a single or small number of customers. See The seasonal or cyclical nature of our business and severe weather events may cause demand for our products and services to be adversely affected while certain of our fixed costs remain the same, and prior performance is not necessarily indicative of our future results. Our inability to offset the volatility of these end markets through diversification into other markets, could materially and adversely affect our business, financial condition and results of operations.
There can be no assurance that we will maintain our relationship with, or serve, our customers at current levels.
There can be no assurance that we will maintain our relationship with, or serve, our customers at current levels. In addition, there is no assurance that any new agreement we enter into to supply or share services or facilities will have terms as favorable as those contained in current arrangements. Less favorable contract terms and conditions under any customer contract or contract for supply, purchase or shared services or facilities, could have a material adverse effect on our business, financial condition and results of operations.
Risks from the improper conduct of, or use of our products by, employees, agents, government contractors, or collaborators could adversely affect our reputation as well as our business, financial condition and results of operations.
Unapproved or improper use of our products, or inadequate disclosure of risks or other information relating to the use of our products can lead to injury or other serious adverse events. These events could lead to recalls or safety alerts relating to our products (either voluntary or as required by governmental authorities), and could result, in certain cases, in the removal of a product from the market. A recall could result in significant costs and lost sales and customers, enforcement actions and/or investigations by state and federal governments or other enforcement bodies, as well as negative publicity and damage to our reputation that could reduce future demand for our products. Personal injuries relating to the use of our products can also result in significant product liability claims being brought against us. See Some of the products we produce may cause adverse health consequences, which exposes us to product liability and other claims, and we may, from time to time, be the subject of indemnity claims. Indemnity and insurance coverage could be inadequate or unavailable to cover such product liability and other claims.
We cannot ensure that our compliance controls, policies, and procedures will in every instance protect us from acts committed by our employees, agents, contractors, or collaborators that would violate the laws or regulations of the jurisdictions in which we operate, including, without limitation, employment, foreign corrupt practices, trade restrictions and sanctions, environmental, competition, and privacy laws and regulations. Such
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improper actions could subject us to civil or criminal investigations, and monetary and injunctive penalties, and could adversely impact our reputation as well as our business, financial condition and results of operations.
There can be no assurance that we will be able to continue purchasing products from our suppliers on a long-term basis.
There can be no assurance that we will be able to continue purchasing products from our suppliers on a long-term basis. Although some of these contracts are renewable or renew automatically unless notice of termination is given, there can be no assurance that they will be renewed or that notice of termination will not be given. There are also no assurances that if such contracts are not renewed, that we will be able to find suppliers who can provide products at a similar price and of a similar quality. Finding a new supplier may take a significant amount of time and resources, and once we have identified such new supplier, we would have to ensure that they meet our standards for quality control and have the necessary technical capabilities, responsiveness, high-quality service and financial stability. Further, any changes in our supply could result in changes in the quality of our products and may also require approval by the USDA Forest Service. If we are unable to manage our supply chain effectively and ensure that our products are available to meet consumer demand, our operating costs could increase and our profit margins could decrease. Any of these factors could impact our ability to supply our products to customers and consumers and may adversely affect our business, financial condition and results of operations.
Production interruptions or shutdowns could increase our operating or capital expenditures or negatively impact the supply of products resulting in reduced sales.
Manufacturing of our oil additives and fire-retardant products is concentrated at certain facilities. In the event of a significant manufacturing difficulty, disruption or delay, we may not be able to develop alternate or secondary manufacturing locations without incurring material additional costs and substantial delays. Furthermore, these risks could materially and adversely affect our business if our facilities are impacted by a natural disaster or other interruption at a particular location. Transferring manufacturing to another location may result in significant delays in the availability of our products. As a result, protracted regional crises, issues with manufacturing facilities, or the COVID-19 pandemic, could lead to eventual shortages of necessary components. It could be difficult or impossible, costly and time consuming to obtain alternative sources for these components, or to change products to make use of alternative components. In addition, difficulties in transitioning from an existing supplier to a new supplier could create delays in component availability that would have a significant impact on our ability to fulfill orders for our products.
The operation of manufacturing plants involves many risks, including suspension of operations and increased costs or requirements stemming from new government statutes, regulations, guidelines and policies, including evolving environmental regulations.
The operation of manufacturing plants involves many risks, including suspension of operations and increased costs or requirements stemming from new government statutes, regulations, guidelines and policies, including evolving environmental regulations. We need environmental and operational registrations, licenses, permits, inspections and other approvals to operate. The loss or delay in receiving a significant permit or license or the inability to renew it and any loss or interruption of the operations of our facilities may harm our business, financial condition and results of operations.
We rely on third-party logistics suppliers for the distribution, storage and transportation of raw materials, operating supplies and products.
We rely on third-party logistics suppliers for the distribution, storage and transportation of raw materials, operating supplies and products. Delays or disruptions in the supply chain may adversely impact our ability to manufacture and distribute products thus impacting business financials. Any failure to properly store
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our products may similarly impact our manufacturing and distribution capabilities, impacting business financials. Although no single third-party logistics supplier and no one country is critical to our production needs, if we were to lose a supplier it could result in interruption of product shipments, cancellation of orders by customers and termination of relationships. This, along with the damage to our reputation, could have a material adverse effect on our revenues and, consequently, our business, financial condition and results of operations.
In addition, actions by a third-party logistics supplier that fail to comply with contract terms or applicable laws and regulations could result in such third-party logistics supplier exposing us to claims for damages, financial penalties and reputational harm, any of which could have a material adverse effect in our business, financial condition and results of operations.
Raw materials necessary for the production of our products and with limited sources of supply are susceptible to supply cost increases which we may not be able to pass onto customers, disruptions to the supply chain, and supply changes, any of which could disrupt our supply chain and could lead to us not meeting our contractual requirements.
All of the raw materials that go into the manufacture of our fire-retardant and oil additive products are sourced from third-party suppliers. Some of the key raw materials used to manufacture our products come from limited or sole sources of supply. We are therefore subject to the risk of shortages and long lead times in the supply of these raw materials and the risk that our suppliers discontinue or modify raw materials used in our products. We have a global supply chain and the COVID-19 pandemic has and may continue to adversely affect our ability to source raw materials in a timely or cost-effective manner from our suppliers. For example, reduction in shipping resources have resulted in longer lead times for key raw materials to be transported to our facilities. In addition, the lead times associated with certain raw materials are lengthy and preclude rapid changes in quantities and delivery schedules. We have in the past experienced and may in the future experience raw materials shortages and price fluctuations of certain key raw materials and materials, and the predictability of the availability and pricing of these raw materials may be limited. Raw materials shortages or pricing fluctuations could be material in the future. In the event of a raw materials shortage, supply interruption or material pricing change from suppliers of these raw materials, we may not be able to develop alternate sources in a timely manner or at all in the case of sole or limited sources. Developing alternate sources of supply for these raw materials is time-consuming, difficult, and costly as they require extensive qualifications and testing, and we may not be able to source these raw materials on terms that are acceptable to us, or at all, which may undermine our ability to meet our requirements or to fill customer orders in a timely manner. Any interruption or delay in the supply of any of these raw materials, or the inability to obtain these raw materials from alternate sources at acceptable prices and within a reasonable amount of time, would adversely affect our ability to meet our scheduled product deliveries to our customers. This could adversely affect our relationships with our customers and could cause delays in shipment of our products and adversely affect our business, financial condition and results of operations. In addition, increased raw materials costs could result in lower gross margins. Even where we are able to pass increased raw materials costs along to our customers, there may be a lapse of time before we are able to do so such that we must absorb the increased cost. If we are unable to buy these raw materials in quantities sufficient to meet our requirements on a timely basis, we will not be able to deliver products to our customers, which may result in such customers using competitive products instead of Perimeters products.
If the cost of our raw materials fluctuates significantly, this may adversely impact our profit margin and financial position.
Our business uses phosphorus as a key raw material. The price of this raw material may fluctuate in the future. If the price for this raw material increases, our profit margin could decrease for certain business lines.
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The industries in which we operate and which we intend to operate in the future are subject to change. If we fail to continuously innovate and to provide products that gain market acceptance, we may be unable to attract new customers or retain existing customers, and hence our business, financial condition and results of operations may be adversely affected.
The industries in which we operate and intend to operate in the future are subject to change, including shifts in customer demands and regulatory requirements and emergence of new industry standards and practices. Thus, our success will depend, in part, on our ability to respond to these changes in a cost-effective and timely manner. We need to anticipate the emergence of new technologies and assess their market acceptance. We also need to invest significant resources in research and development in order to keep our products competitive in the market.
However, research and development activities are inherently uncertain, and we might encounter practical difficulties in commercializing our research and development results, which could result in excessive research and development expenses or delays. If we are unable to keep up with the technological developments and anticipate market trends, or if new technologies render our products obsolete, customers may no longer be attracted to our products. As a result, our business, financial condition and results of operations would be materially and adversely affected.
The seasonal or cyclical nature of our business and severe weather events may cause demand for our products and services to be adversely affected while certain of our fixed costs remain the same, and prior performance is not necessarily indicative of our future results.
Our operating revenues of our fire-retardant business tend to be somewhat higher in summer months primarily due to the hotter/drier weather, which is generally correlated with a higher prevalence of wildfires. This is in part offset by the disbursement of our operations in both the northern and southern hemispheres, so that the summer seasons alternate.
Fires caused by severe storms, extended periods of inclement weather or climate extremes resulting from climate change can significantly affect demand for our fire-retardant products in the areas affected. While weather-related and other event-driven increases in demand can boost revenues through additional demand for our products for a limited time, we may incur increased costs in our efforts to produce enough products and to transport our products to our customers in a timely matter.
For these and other reasons, operating results in any interim period are not necessarily indicative of operating results for an entire year, and operating results for any historical period are not necessarily indicative of operating results for a future period. Our stock price may be negatively or positively impacted by interim variations in our results.
Our industry and the markets in which we operate have few large competitors and increased competitive pressures could reduce our share of the markets we serve and adversely affect our business, financial condition and results of operations.
Increased interest and potential competition in our markets from existing and potential competitors may reduce our market share and could negatively impact our business, financial condition and results of operations. Historically we have had relatively few large competitors. Existing and potential competitors may have more resources and better access to capital markets to facilitate continued expansion. If there are new entrants into our markets, the resulting increase in competition may adversely impact our results of operations.
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If new products are introduced into the market that are lower in cost, have enhanced performance characteristics or are considered preferable for environmental or other reasons, demand for some of our products could be reduced or eliminated.
New fire retardants based on different chemistry or raw materials may be introduced by competitors in the future. These products may be lower in cost, or have enhanced performance characteristics compared to our existing products, and our customers may find them preferable. Replacement of one or more of our products in significant volumes could have a material adverse effect on our business, financial condition and results of operations.
Our businesses depend upon many proprietary technologies, including patents, licenses, trademarks and trade secrets. Our competitive position could be adversely affected if we fail to protect our patents, trade secrets or other intellectual property rights, if our patents expire or if we become subject to claims that we are infringing upon the rights of others.
Our intellectual property is of particular importance for a number of the specialty products that we manufacture and sell. The trademarks and patents that we own may be challenged, and because of such challenges, we could eventually lose our exclusive rights to use and enforce such patented technologies and trademarks, which could adversely affect our competitive position, business, financial condition and results of operations. We are licensed to use certain patents and technology owned by other companies to manufacture products complementary to our own products. We pay royalties for these licenses in amounts not considered material, in the aggregate, to our consolidated results.
We also rely on unpatented proprietary know-how and continuing technological innovation and other trade secrets in all regions to develop and maintain our competitive position. Although it is our policy to enter into confidentiality agreements with our employees and third parties to restrict the use and disclosure of trade secrets and proprietary know-how, those confidentiality agreements may be breached. Additionally, adequate remedies may not be available in the event of an unauthorized use or disclosure of such trade secrets and know-how, and others could obtain knowledge of such trade secrets through independent development or other access by legal means. The failure of our patents, trademarks or confidentiality agreements to protect our processes, technology, trade secrets or proprietary know-how and the brands under which we market and sell our products could have a material adverse effect on our business, financial condition and results of operations.
Our patents may not provide full protection against competing manufacturers in the United States, or in countries outside of the United States, including members of the European Union and certain other countries, and patent terms may also be inadequate to protect our products for an adequate amount of time. Weaker protection may adversely impact our sales, business, financial condition and results of operations.
In some of the countries in which we operate, the laws protecting patent holders are significantly weaker than in the United States, countries in the European Union and certain other countries. Weaker protection may assist competing manufacturers in becoming more competitive in markets in which they might not have otherwise been able to introduce competing products for a number of years. As a result, we tend to rely more heavily upon trade secret and know-how protection in these regions, as applicable, rather than patents and this may adversely impact our sales, business, financial condition and results of operations.
Our commercial success will depend in part on our success in obtaining and maintaining issued patents and other intellectual property rights in the United States and elsewhere. If we do not adequately protect our intellectual property, competitors may be able to use our processes and erode or negate any competitive advantage we may have, which could harm our business.
We cannot provide any assurances that any of our patents have, or that any of our pending patent applications that mature into issued patents will include, claims with a scope sufficient to protect our products, any additional features we develop or any new products. Patents, if issued, may be challenged, deemed unenforceable, invalidated or circumvented. We also cannot provide any assurances that any of our pending patent applications will be approved and a rejection of a patent application could have a materially adverse effect on our ability to protect our intellectual property from competitors.
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Furthermore, though an issued patent is presumed valid and enforceable, its issuance is not conclusive as to its validity or its enforceability and it may not provide us with adequate proprietary protection or competitive advantages against competitors with similar products. Competitors may also be able to design around our patents. Other parties may develop and obtain patent protection for more effective technologies, designs or methods. We may not be able to prevent the unauthorized disclosure or use of our knowledge or trade secrets by consultants, suppliers, vendors, former employees and current employees. The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these countries. Such claims and proceedings can also distract and divert management and key personnel from other tasks important to the success of our business. In addition, intellectual property litigation or claims could force us to do one or more of the following:
| cease selling products that contain asserted intellectual property; |
| pay substantial damages for past use of the asserted intellectual property; |
| obtain a license from the holder of the asserted intellectual property, which may not be available on reasonable terms; and |
| redesign or rename, in the case of trademark claims, our products to avoid infringing the rights of third parties. |
Such requirements could adversely affect our revenue, increase costs, and harm our business, financial condition and results of operations.
Several of our niche products and services are sold in select markets. There can be no assurance that these markets will not attract additional competitors that could have greater financial, technological, manufacturing and/or marketing resources.
Select markets for some of our niche products and services may attract additional competitors. We cannot assure you that we will have the financial resources to fund capital improvements to more effectively compete with such competitors or that even if financial resources are available to us, that projected operating results will justify such expenditures. Smaller companies may be more innovative, better able to bring new products to market and better able to quickly exploit and serve niche markets.
There are other risks that are inherent in our global operations.
A portion of our revenues and earnings are generated by non-U.S. operations. Risks inherent in our global operations include:
| the potential for changes in socio-economic conditions, laws and regulations, including antitrust, import, export, labor and environmental laws, and monetary and fiscal policies; |
| unsettled or unstable political conditions; |
| government-imposed plant or other operational shutdowns; |
| corruption; |
| natural and man-made disasters, |
| hazards and losses; and |
| violence, civil and labor unrest, and possible terrorist attacks. |
There can be no assurance that any or all of these events will not have a material adverse effect on our business, financial condition and results of operations.
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Risks Related to Regulatory and Legal Matters
We are the subject of litigation by customers, suppliers and other third parties and may be the subject of such litigation in the future.
We are the subject of litigation by customers, suppliers and other third parties and may be the subject of such litigation in the future. From time to time, such lawsuits are filed against us and the outcome of any litigation, particularly class or collective action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend any such lawsuits may be significant and may negatively affect our operating results if changes to our business operations are required. There may also be negative publicity associated with litigation that could decrease customer acceptance of our products, regardless of whether the allegations are valid or whether we are ultimately found liable. A significant judgment against us, the loss and/or expiration of a significant permit, license or other approval, or a significant fine, penalty or contractual dispute could have a material adverse effect on our business, financial condition and results of operations.
Certain of our products are provided to emergency services personnel and are intended to protect lives and property, so we are subject to heightened liability and reputational risks if our products fail to provide such protection as intended.
Our fire-retardant products are provided to emergency services personnel and are intended to protect lives and property, so we are subject to heightened liability risks if our products fail to provide such protection. While our products are effective in retarding fires, there is no guarantee such products will be able to stop all fires due to their unpredictability and variation in size and/or speed in which a fire is burning. In addition, fires need to be fought with the cooperation and assistance of local fire authorities as well as the additional tools and resources that they bring. Therefore, while we recognize the importance of the role our products play in these critical efforts, our products are not the only factor in fighting fires and therefore we cannot guarantee that our products will always be able to protect life and property. Any failure to do so could have an adverse effect on our business.
Some of the products we produce may cause adverse health consequences, which exposes us to product liability and other claims, and we may, from time to time, be the subject of indemnity claims. Indemnity and insurance coverage could be inadequate or unavailable to cover such product liability and other claims.
Some of the products we produce may cause adverse health consequences, which exposes us to product liability and other possible claims including indemnity claims by our distributors pursuant to the terms of our distributor arrangements. A successful class action proceeding or one or a series of claims related to degradation of natural resources, product liability or exposure from usage of a product that exceeds our insurance or indemnity coverage could have a material adverse effect on our business, financial condition and results of operations. Such litigation and indemnity claim resolution is expensive, time consuming and may divert managements attention away from the operation of the business. The outcome of litigation and disputes can never be predicted with certainty and not resolving such matters favorably could have a material adverse effect on our business, financial condition, results of operations and/or reputation, as they may require us to pay substantial damages or make substantial indemnification payments, among other consequences.
We manufacture, among other things, products used to extinguish fires. The products that we manufacture are typically used in applications and situations that involve high levels of risk of personal injury. Failure to use our products for their intended purposes, failure to use our products properly or the malfunction of our products could result in serious bodily injury or death of the user. In such cases, we may be subject to product liability claims arising from the design, manufacture or sale of our products. If these claims are decided against us, and we are found to be liable, we may be required to pay substantial damages, and our insurance costs may
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increase significantly as a result. We cannot assure you that our indemnity and insurance coverage would be sufficient to cover the payment of any potential claim. In addition, we cannot assure you that this or any other indemnity or insurance coverage will continue to be available or, if available, that we will be able to obtain insurance at a reasonable cost. Any material uninsured loss could have a material adverse effect on our business, financial condition and results of operations.
We are exposed to risks related to litigation, including multi-district litigation and other legal proceedings.
We operate in a highly regulated and litigious environment. We and/or one or more of our subsidiaries are regularly involved in a variety of legal proceedings arising in the ordinary course of our business, including arbitration, litigation (and related settlement discussions), and other claims, and are subject to regulatory proceedings including governmental audits and investigations. Legal proceedings, in general, and class action and multi-district litigation, in particular, can be expensive and disruptive, and may not be insured or exceed any applicable insurance coverage. Additionally, defending against these lawsuits and proceedings may involve significant expense and diversion of managements attention and resources. Some of these suits may purport or may be determined to be class actions and/or involve parties seeking large and/or indeterminate amounts, including punitive or exemplary damages, and may remain unresolved for several years.
For example, we are a defendant in a multi-district litigation pending in the United States District Court for the District of South Carolina (MDL) relating to the manufacture, sale, and distribution of aqueous film forming foam (AFFF). The cases allege, among other things, groundwater contamination, drinking water contamination, property damage, damages to natural resources, and bodily injuries from exposure to Per- and polyfluoroalkyl substances (PFAS) chemicals in AFFF. There are over 1,300 cases currently pending in the MDL. The plaintiffs include, among others, individual firefighters, municipalities and corporate water providers, and state attorneys general. The lead defendants include 3M Company, Tyco Fire Products LP, and DuPont de Nemours, Inc./The Chemours Company, and approximately 10 to 12 other defendants including, among others, Amerex Corporation (Amerex). Amerex was named as a defendant in many of the lawsuits based on its prior ownership of The Solberg Company (Solberg), which Perimeter acquired from Amerex on January 1, 2019. Although Amerex retained certain pre-closing liabilities for Solberg, there are indemnity claims, and a very small number of potential direct claims, that have been made against Perimeter Solutions on the basis of Perimeter Solutions ownership of Solberg after January 1, 2019. There are also cases pending against Perimeter Solutions on the basis of its manufacturing, distribution, and sale of non-Solberg AFFF products.
We cannot predict with certainty the outcomes of these legal proceedings and other contingencies, and the costs incurred in litigation can be substantial, regardless of the outcome. Proceedings that we believe are insignificant may develop into material proceedings and subject us to unforeseen outcomes or expenses. Additionally, the actions of certain participants in our industry may encourage legal proceedings against us or cause us to reconsider our litigation strategies. As a result, we could from time to time incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such developments could harm our reputation and have a material adverse effect on our business, financial condition and results of operations.
A failure to comply with export control or economic sanctions laws and regulations could have a material adverse impact on our business, financial condition and results of operations. We may be unable to ensure that our distributors comply with applicable sanctions and export control laws.
We operate on a global basis, with 22% of our revenues in fiscal 2020 made to destinations outside the United States, including Canada, Europe, Australia, Mexico and Israel. We face several risks inherent in conducting business internationally, including compliance with applicable economic sanctions laws and regulations, such as laws and regulations administered by U.S. Department of Treasurys Office of Foreign Assets Control (OFAC), the U.S. Department of State and the U.S. Department of Commerce. We must also comply with all applicable export control laws and regulations of the United States and other countries.
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Violations of these laws or regulations could result in significant additional sanctions including criminal or civil fines or penalties, more onerous compliance requirements, more extensive debarments from export privileges or loss of authorizations needed to conduct aspects of our international business.
In certain countries, we may engage third party agents or intermediaries, such as customs agents, to act on our behalf and if these third-party agents or intermediaries violate applicable laws, their actions may result in criminal or civil fines or penalties or other sanctions being assessed against us. We take certain measures designed to ensure our compliance with U.S. export and economic sanctions law and we believe that we have never sold our products to Crimea, Cuba, Iran, North Korea or Syria through third party agents or intermediaries or made any effort to attract business from any of these countries. We also take steps to prevent our products from being sold, without the necessary legal authorization, to individuals or entities that are the subject or target of U.S. export and economic sanctions laws. However, it is possible that some of our products were sold or will be sold to distributors or other parties that, without our knowledge or consent, re-exported or will re-export such products to these countries or sanctioned persons. Although none of our non-U.S. distributors are located in, or to our knowledge, conduct business with Crimea, Cuba, Iran, North Korea or Syria, we may not be successful in ensuring compliance with limitations or restrictions on business with these or other countries subject to economic sanctions. There can be no assurance that we will be in compliance with export control or economic sanctions laws and regulations in the future.
Any such violation could result in significant criminal or civil fines, penalties or other sanctions and repercussions, including reputational harm that could have a material adverse impact on our business, financial condition and results of operations.
Because of our international operations, we could be materially adversely affected by violations of the U.S. FCPA and similar anticorruption, anti-bribery and anti-kickback laws.
Our business operations and sales in countries outside the United States are subject to anti-corruption, anti-bribery and anti-kickback laws and regulations, including restrictions imposed by the U.S. Foreign Corrupt Practices Act (the FCPA), as well as the United Kingdom Bribery Act of 2010 (the UK Bribery Act). The FCPA, UK Bribery Act, and similar anti-corruption, anti-bribery and anti-kickback laws in other jurisdictions generally prohibit companies, their employees, their intermediaries and their agents from providing anything of value to government officials or any other persons for the purpose of improperly obtaining or retaining business. We operate and sell our products in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-corruption, anti-bribery and anti-kickback laws may conflict with local customs and practices. We have policies in place that prohibit employees from making improper payments on our behalf. We continue to implement internal controls and procedures designed to promote compliance with anti-corruption, anti-bribery and anti-kickback laws, rules and regulations as well as mitigate and protect against corruption risks. We cannot provide assurance that our internal controls and procedures will protect us from reckless, criminal or other acts committed by our employees or third parties with whom we work. If we are found to be liable for violations of the FCPA or similar anti-corruption, anti-bribery and anti-kickback laws in international jurisdictions, either due to our own acts or omissions, or out of inadvertence, or due to the acts or inadvertence of others, we could suffer criminal or civil fines or penalties or other repercussions, including reputational harm, which could have a material adverse effect on our business, financial condition and results of operations.
Our contracts with the U.S. federal government subject us to additional oversight and risks inherent in the government procurement process.
We provide products and services, directly and indirectly, to a variety of government entities. In fiscal 2020, we derived approximately 41% of our revenue from multiple contracts with agencies of the U.S. federal government. As such, we must comply with and are affected by laws and regulations relating to the award,
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administration and performance of U.S. government contracts. Government contract laws and regulations affect how we do business with our customers and impose certain risks and costs on our business.
Risks associated with selling products and services to government entities include extended sales and collection cycles, varying governmental budgeting processes, and adherence to complex procurement regulations and other government-specific contractual requirements. We may be subject to audits and investigations relating to our government contracts and any violations could result in civil and criminal penalties and administrative sanctions, including termination of contracts, payment of fines, and suspension or debarment from future government business, as well as harm to our business, financial condition and results of operations.
Our products are subject to extensive government scrutiny and regulation, including the USDA Forest Service qualification process. There can be no assurance that such regulations will not change and that our products will continue to be approved for usage.
We are subject to regulation by federal, state, local and foreign government authorities. In some cases, for example, for our firefighting products, we need pass the USDA Forest Service qualification process, which is a rigorous process that requires the product passing several tests and standards, including toxicity corrosion and stability. The USDA Forest Service also requires a lengthy field evaluation, which adds to the difficulty of meeting USDA Forest Service standards. We are also subject to ongoing reviews of our products, manufacturing processes and facilities by government authorities, and must also produce product data and comply with detailed regulatory requirements.
The Registration, Evaluation and Authorization of Chemicals (REACH) legislation may affect our ability to manufacture and sell certain products in the EU: REACH requires chemical manufacturers and importers in the EU to prove the safety of their products. We were required to pre-register certain products and file comprehensive reports, including testing data, on each chemical substance, and perform chemical safety assessments. Additionally, substances of high concern are subject to an authorization process. Authorization may result in restrictions on certain uses of products or even prohibitions on the manufacture or importation of products. The full registration requirements of REACH have been phased in over several years, and we have incurred additional expense to cause the registration of our products under these regulations. REACH may affect our ability to import, manufacture and sell certain products in the EU. In addition, other countries and regions of the world already have or may adopt legislation similar to REACH that affect our business, affect our ability to import, manufacture or sell certain products in these jurisdictions, and have required or will require us to incur increased costs.
The Frank R. Lautenberg Chemical Safety for the 21st Century Act modified the Toxic Control Substances Act (TSCA), by requiring the EPA, to prioritize and evaluate the environmental and health risks of existing chemicals and provided the EPA with greater authority to regulate chemicals posing unreasonable risks. According to this statute, the EPA is required to make an affirmative finding that a new chemical will not pose an unreasonable risk before such chemical can go into production. As a result, TSCA now operates in a similar fashion to the REACH legislation in Europe. These laws and regulations, among others, increase the complexity and costs of transporting our products from the country in which they are manufactured to our customers. Further changes to these and similar regulations could restrict our ability to expand, build or acquire new facilities, require us to acquire costly control equipment, cause us to incur expenses associated with remediation of contamination, cause us to modify our manufacturing or shipping processes or otherwise increase our cost of doing business and have a negative impact on our business, financial condition and results of operations. In addition, the adoption of new laws, rules or regulations related to climate change poses risks that could harm our results of operations or affect the way we conduct our businesses. For example, new or modified regulations could require us to make substantial expenditures to enhance our environmental compliance efforts.
New or stricter laws and regulations may be introduced that could result in additional compliance costs and prevent or inhibit the development, manufacture, distribution and sale of our products. For example,
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perfluorooctanoic acid substances (PFOAs) and perfluorooctanesulfonic acid substances (PFOS) may become regulated as hazardous substances, phased out or banned. The USDA Forest Service may change its qualification process or determine that our products no longer qualify under existing requirements. Such outcomes could adversely impact our business, financial condition and results of operations.
Environmental laws and regulations may subject us to significant liabilities. Changes to existing Environmental, Health and Safety (EHS) requirements or the adoption of new EHS requirements, changes to the enforcement of EHS requirements, and the discovery of additional or unknown conditions at facilities owned, operated or used by us or at or near which our products were, are, or will be used, to the extent not covered by indemnity, insurance or a covenant not to sue, could have a material adverse effect on our business, financial condition and results of operations.
We operate in jurisdictions where legislative initiatives relating to greenhouse gas (GHG) emissions are being considered or adopted. There has been no material effect on any of our facilities to date, and we continue to follow developments closely. Although it is difficult to know what final regulations may be passed in the jurisdictions where our manufacturing facilities are located, we could face increased capital and operating costs to comply with GHG emissions regulations and these costs could be material. The potential impact of current and proposed environmental laws and regulations is uncertain. We cannot predict the nature of these requirements and the impact on our business, but proposed regulations or failure to comply with current and proposed regulations could have a material adverse impact on our business, financial condition and results of operations by substantially increasing capital expenditures and compliance costs, affecting our ability to meet our financial obligations. It may also lead to the modification or cancellation of operating licenses and permits, penalties and other corrective actions.
The regulatory environment in which we operate is subject to change, and new regulations and new or existing claims, such as those related to certain PFAS substances, PFOAs, and PFOS could have a material adverse effect on our business, financial condition and results of operations or make aspects of our business as currently conducted no longer possible. In addition, we are and, in the future may be, subject to claims related to substances such PFAS, including for degradation of natural resources from such PFAS and personal injury or product liability claims as a result of human exposure to such PFAS.
Our operations are subject to extensive environmental regulation in each of the countries in which we maintain facilities. For example, U.S. (federal, state and local), and other countries environmental laws applicable to the Company include statutes and regulations intended to impose certain obligations with respect to the manufacture, sale and distribution of firefighting foam that contains intentionally added PFAS chemicals. In addition, certain regulations also impose restrictions on the discharge of PFAS chemicals in wastewater, and may require allocating the cost of investigating, monitoring and remedying soil and groundwater contamination to a party operating the site, as well as to prevent future soil and groundwater contamination; imposing air ambient standards and, in some cases, emission standards, for air pollutants which present a risk to public health, welfare or the natural environment; governing the handling, management, treatment, storage and disposal of hazardous wastes and substances; regulating the chemical content of products; and regulating the discharge of pollutants into waterways.
With regards to our oil additives business, our use of hazardous substances in our manufacturing processes and the generation of hazardous wastes not only by us, but by prior occupants of our facilities, suggest that hazardous substances may be present at or near certain of our facilities or may come to be located there in the future. Consequently, we are required to closely monitor our compliance under all the various environmental laws and regulations applicable to us. Under certain environmental laws, we may be responsible for remediation costs or other liabilities as a result of the use, release or disposal of hazardous substances at or from any property currently or formerly owned or operated or to which we sent waste for treatment or disposal. Liability under these laws may be imposed without regard to whether we were aware of, or caused, the contamination and, in some cases, liability may be joint or several.
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Our facilities are subject to increasingly more stringent federal, state and local environmental laws and regulations. Some of these laws and regulations relate to what are frequently called emerging contaminants, such as PFAS, PFOAs and PFOS. Some of the Companys products use fluorine as a raw material, which is considered a PFAS chemical. We and some of our competitors have been, are, and in the future may be the target of lawsuits and state enforcement actions because of the alleged discharge of PFAS into the environment, including for degradation of natural resources from such PFAS and personal injury or product liability claims as a result of human exposure to such PFAS. See We are exposed to risks related to litigation, including multi-district litigation and other legal proceedings.
We obtain Phase I or similar environmental site assessments for most of the manufacturing facilities we own or lease at the time we either acquire or lease such facilities. These assessments typically include general inspections. These assessments may not reveal all potential environmental liabilities and current assessments are not available for all facilities. Consequently, there may be material environmental liabilities of which we are not aware. In addition, ongoing cleanup and containment operations may not be adequate for purposes of future laws and regulations. The conditions of our properties could also be affected in the future by neighboring operations or the conditions of the land in the vicinity of our properties. These developments and others, such as increasingly stringent environmental laws and regulations, increasingly strict enforcement of environmental laws and regulations, or claims for damage to property or injury to persons resulting from the environmental, health or safety impact of our operations, may cause us to incur significant costs and liabilities that could have a material adverse effect.
Our facilities are required to maintain numerous environmental permits and governmental approvals for our operations. Some of the environmental permits and governmental approvals that have been issued to us or to our facilities contain conditions and restrictions, including restrictions or limits on emissions and discharges of pollutants and contaminants, or may have limited terms. Maintaining these permits and complying with their terms as well as environmental laws and regulations applicable to our business could require us to incur material costs.
If we fail to satisfy these conditions or to comply with these restrictions or with applicable environmental laws and regulations, we may become subject to enforcement actions and the operation of the relevant facilities could be adversely affected. We may also be subject to fines, penalties, claims for injunctive relief or additional costs. We may not be able to renew, maintain or obtain all environmental permits and governmental approvals required for the continued operation or further development of our facilities, as a result of which the operation of our facilities may be limited or suspended.
Because our oil additives segment manufactures and uses materials that are known to be hazardous, highly combustible and difficult to transport, we are subject to, or affected by, certain product and manufacturing regulations, for which compliance can be costly and time consuming. In addition, we may be subject to personal injury or product liability claims as a result of human exposure to such hazardous materials.
We produce hazardous, highly combustible and difficult to transport chemicals, which subject us to regulation by many U.S. and non-U.S. national, supra-national, state and local governmental authorities. In some circumstances, these authorities must review and, in some cases approve, our products and/or manufacturing processes and facilities before we may manufacture and sell some of these chemicals. To be able to manufacture and sell certain new chemical products, we may be required, among other things, to demonstrate to the relevant authority that the product does not pose an unreasonable risk during its intended uses and/or that we are capable of manufacturing the product in compliance with current regulations. The process of seeking any necessary approvals can be costly, time consuming and subject to unanticipated and significant delays. Approvals may not be granted to us on a timely basis, or at all. Any delay in obtaining, or any failure to obtain or maintain these approvals would adversely affect our ability to introduce new products and to generate revenue from those products. New laws and regulations may be introduced in the future that could result in additional compliance costs, bans on product sales or use, seizures, confiscation, recall or monetary fines, any of which could prevent or
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inhibit the development, distribution or sale of our products and could increase our customers efforts to find less hazardous substitutes for our products. We are subject to ongoing reviews of our products and manufacturing processes.
Phosphorus pentasulfide is transported through a combination of ground and sea. These materials are highly combustible and difficult to transport, so they must be handled carefully and in accordance with applicable laws and regulations. An incident in the transportation of our materials or our failure to comply with laws and regulations applicable to the transfer of such products could lead to human injuries or significant property damage, regulatory repercussions or could make it difficult to fulfill our obligations to our customers, any of which could have a material adverse effect on our business, financial condition and results of operations.
Products we have made or used could be the focus of legal claims based upon allegations of harm to human health. We cannot predict the outcome of suits and claims, and an unfavorable outcome in these litigation matters could exceed reserves or have a material adverse effect on our business, financial condition and results of operations and cause our reputation to decline.
Our products or facilities could have environmental impacts and side effects.
If the products we sell do not have the intended effects, our business may suffer and it may be subject to products liability or other legal actions. Our products contain innovative combinations of materials. While there is data available with respect to the environmental impacts of our fire retardant products that are conducted by governmental agencies, this data is limited to certain locations and periods and therefore, may not capture all the possible environmental impacts and side effects of use or repeated use of our fire retardant products. Similarly, there have been toxicological studies conducted on the impact of our products on certain fish and mammalian species, however, this is limited in scope and therefore, does not present all the potential side effects and/or the products interaction with animal biochemistry. As a result, our products could have certain impact on the environment or the animal population that is currently unknown by the Company.
Legal and regulatory claims, investigations and proceedings may be initiated against us in the ordinary course of business. The outcomes and the amounts of any damages awarded or fines or penalties assessed, cannot be predicted, and could have a material adverse effect on our reputation as well as our business, financial condition and results of operations.
We may be the subject of litigation by customers, suppliers and other third parties. A significant judgment against us, the loss of a significant permit, license or other approval, or a significant fine, penalty or contractual dispute could have a material adverse effect on our business, financial condition and results of operations. Some of the products we produce may cause adverse health consequences, which exposes us to product liability claims. See Some of the products we produce may cause adverse health consequences, which exposes us to product liability and other claims, and we may, from time to time, be the subject of indemnity claims. Litigation is expensive, time consuming and may divert managements attention away from the operation of the business. The outcome of litigation can never be predicted with certainty and an adverse outcome in any of these matters could have a material adverse effect on our reputation as well as our business, financial condition and results of operations.
Risks Related to Holdco
Holdco will incur increased costs as a result of operating as a public company, and its management will devote substantial time to new compliance initiatives.
If Holdco completes the Business Combination and becomes a public company, it will incur significant legal, accounting and other expenses that it did not incur as a private company, and these expenses may increase even more after Holdco is no longer an emerging growth company, as defined in Section 2(a) of the Securities
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Act. As a public company, Holdco will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules adopted, and to be adopted, by the SEC and the Trading Market. Holdcos management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, Holdco expects these rules and regulations to substantially increase its legal and financial compliance costs and to make some activities more time consuming and costly. The increased costs will increase Holdcos net loss. For example, these rules and regulations could make it more difficult and more expensive for Holdco to obtain director and officer liability insurance and as a result, Holdco may be forced to accept reduced policy limits or incur substantially higher costs to maintain the same or similar coverage. Holdco cannot predict or estimate the amount or timing of additional costs it may incur to respond to these requirements. The impact of these requirements could also make it more difficult for Holdco to attract and retain qualified persons to serve on its board of directors or as executive officers.
Holdcos management has limited experience in operating a public company.
Holdcos executive officers have limited experience in the management of a publicly traded company. Holdcos management team may not successfully or effectively manage its transition to a public company that will be subject to significant regulatory oversight and reporting obligations under federal securities laws. Their limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities which will result in less time being devoted to the management and growth of the Combined Company. Holdco may not have adequate personnel with the appropriate level of knowledge, experience, and training in the accounting policies, practices or internal controls over financial reporting required of public companies in the U.S. The development and implementation of the standards and controls necessary for the Combined Company to achieve the level of accounting standards required of a public company in the U.S. may require costs greater than expected. It is possible that the Combined Company will be required to expand its employee base and hire additional employees to support its operations as a public company, which will increase its operating costs in future periods.
There can be no assurance that the Holdco Ordinary Shares that will be issued in connection with the Business Combination or the Holdco Warrants will be approved for listing on the Trading Market or, if approved, will continue to be so listed following the closing of the Business Combination, or that Holdco will be able to comply with the continued listing standards of the Trading Market.
Holdco intends to apply for the listing of the Holdco Ordinary Shares and Holdco Warrants on the Trading Market. If the Trading Market denies its application for failure to meet the listing standards, Holdco and its shareholders could face significant material adverse consequences including:
| a limited availability of market quotations for its securities; |
| reduced liquidity for its securities; |
| a determination that Holdco Ordinary Shares are a penny stock which will require brokers trading in the Holdco Ordinary Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for its securities; |
| a limited amount of news and analyst coverage; and |
| a decreased ability to issue additional securities or obtain additional financing in the future. |
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as covered securities. If the Holdco Ordinary Shares and the Holdco Warrants are listed on the Trading Market, they will be covered securities. Although the states are preempted from regulating the sale of the Combined Companys securities, the
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federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While Holdco is not aware of a state, other than the State of Idaho, having used these powers to prohibit or restrict the sale of securities issued by blank check companies, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if the Combined Company was not listed on the Trading Market, its securities would not be covered securities and it would be subject to regulation in each state in which it offers its securities.
Holdco has no operating or financial history and its results of operations and those of the Combined Company may differ significantly from the unaudited pro forma financial data included in this prospectus.
Holdco has no operating history and no revenues. This prospectus includes unaudited pro forma condensed consolidated combined financial statements for the Combined Company. The unaudited pro forma condensed consolidated combined statement of operations of the Combined Company combines the historical audited results of operations of Perimeter for the fiscal year ended December 31, 2020, with the historical audited results of operations of EverArc for the year ended October 31, 2020, and gives pro forma effect to the Business Combination as if it had been consummated on January 1, 2020. The unaudited pro forma condensed consolidated combined balance sheet of the Combined Company combines the historical balance sheets of EverArc as of October 31, 2020 and of Perimeter as of December 31, 2020 and gives pro forma effect to the Business Combination as if it had been consummated on June 30, 2021.
The unaudited pro forma condensed consolidated combined financial statements are presented for illustrative purposes only, are based on certain assumptions, address a hypothetical situation and reflect limited historical financial data. Therefore, the unaudited pro forma condensed consolidated combined financial statements are not necessarily indicative of the results of operations and financial position that would have been achieved had the Business Combination been consummated on the dates indicated above, or the future consolidated results of operations or financial position of the Combined Company. Accordingly, the Combined Companys business, assets, cash flows, results of operations and financial condition may differ significantly from those indicated by the unaudited pro forma condensed consolidated combined financial statements included in this document.
We have identified material weaknesses in our internal control over financial reporting. If our remediation of the material weaknesses is not effective, or if we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately or timely report our financial condition or results of operations.
In connection with the audit of our financial statements for the years ended December 31, 2019 and 2020, we identified two material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses related to a lack of appropriately designed and implemented controls (i) to maintain segregation of duties between the creation, posting and approval of journal entries and (ii) to ensure the assumptions made in connection with estimates used to value intangible assets acquired in business combinations are sufficiently reviewed. The material weaknesses did not result in a misstatement to our financial statements.
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We have taken and are taking steps to remediate these material weaknesses through the implementation of appropriate segregation of duties and related systems, a system of review of assumptions made in connection with estimates used to value intangible assets. However, we are still in the process of implementing these steps and cannot assure investors that these measures will significantly improve or remediate the material weaknesses described above.
We may in the future discover additional material weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
If the Combined Company fails to maintain effective internal controls over financial reporting, the price of Holdco securities may be adversely affected.
The Combined Company will be required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect the Combined Companys public disclosures regarding its business, financial condition or results of operations. In addition, managements assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in the Combined Companys internal controls over financial reporting, or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in the Combined Companys internal controls over financial reporting, or disclosure of managements assessment of the Combined Companys internal controls over financial reporting, may have an adverse impact on the price of Holdco securities.
The Combined Companys failure to timely and effectively implement controls and procedures required by Section 404(a) (Section 404(a)) of the Sarbanes-Oxley Act that will be applicable to it after the Business Combination is consummated could have a material adverse effect on its business, operating results and financial condition.
Neither Holdco nor Perimeter is currently subject to Section 404 of the Sarbanes-Oxley Act. However, following the consummation of the Business Combination, the Combined Company will be required to provide managements attestation on internal controls. The standards required for a public company under Section 404(a) are significantly more stringent than those required of Holdco or Perimeter as privately held companies. Management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that will be applicable after the Business Combination. If the Combined Company is not able to implement the additional requirements of Section 404(a) in a timely manner or with adequate compliance, it may not be able to assess whether its internal controls over financial reporting are effective or may result in a finding that there is a material weakness in the Combined Companys internal controls over financial reporting, which may subject it to adverse regulatory consequences and could harm investor confidence and the market price of its securities.
A market for Holdcos securities may not continue, which would adversely affect the liquidity and price of its securities.
Following the Business Combination, the price of Holdco Ordinary Shares and Holdco Warrants may fluctuate significantly due to the markets reaction to the Business Combination and general market and
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economic conditions. An active trading market for Holdco Ordinary Shares and Holdco Warrants following the Business Combination may never develop or, if developed, it may not be sustained. In addition, the price of Holdco Ordinary Shares and Holdco Warrants after the Business Combination can vary due to general economic conditions and forecasts, its general business condition and the release of its financial reports. If its securities are not listed on, or become delisted from, the Trading Market for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of its securities may be more limited than if it were quoted or listed on the Trading Market or another national securities exchange. You may be unable to sell your Holdco securities unless a market can be established or sustained.
If, following the Business Combination, securities or industry analysts do not publish or cease publishing research or reports about the Combined Company, its business, or its market, or if they change their recommendations regarding Holdco Ordinary Shares adversely, then the price and trading volume of Holdco Ordinary Shares or Holdco Warrants could decline.
The trading market for Holdco Ordinary Shares and Holdco Warrants will be influenced by the research and reports that industry or securities analysts may publish about the Combined Company, its business, its market, or its competitors. Securities and industry analysts do not currently, and may never, publish research on EverArc or the Combined Company. If no securities or industry analysts commence coverage of the Combined Company, Holdco Ordinary Share and Holdco Warrant price and trading volume would likely be negatively impacted. If any of the analysts who may cover the Combined Company change their recommendation regarding Holdco Ordinary Shares and Holdco Warrants adversely, or provide more favorable relative recommendations about Holdcos competitors, the price of Holdco Ordinary Shares and Holdco Warrants would likely decline. If any analyst who may cover EverArc were to cease coverage of the Combined Company or fail to regularly publish reports on it, Holdco could lose visibility in the financial markets, which could cause the price or trading volume of Holdco Ordinary Shares or Holdco Warrant to decline.
The JOBS Act permits emerging growth companies like Holdco to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies.
Holdco currently qualifies as an emerging growth company as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). As such, Holdco takes advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as it continues to be an emerging growth company, including the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act. As a result, Holdco shareholders may not have access to certain information they deem important. Holdco will remain an emerging growth company until the earliest of (i) the last day of the fiscal year: (a) following December 17, 2024, the fifth anniversary of the IPO; (b) in which Holdco has total annual gross revenue of at least $1.07 billion; or (c) in which Holdco is deemed to be a large accelerated filer, which means the market value of Holdco Ordinary Shares that are held by non-affiliates exceeds $700 million as of the last business day of Holdcos prior second fiscal quarter, and (ii) the date on which Holdco has issued more than $1.0 billion in non-convertible debt during the prior three-year period.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as it is an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable. If Holdco elects to avail itself of such extended transition period, when a standard is issued or revised and it has different application dates for public or private companies, Holdco, as an emerging growth
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company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of Holdcos financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Holdco cannot predict if investors will find Holdco Ordinary Shares and Holdco Warrants less attractive because it relies on these exemptions. If some investors find Holdco Ordinary Shares or Holdco Warrants less attractive as a result, there may be a less active trading market and share price for Holdco Ordinary Shares or Holdco Warrants may be more volatile. Holdco does not expect to qualify as an emerging growth company after the last day of the fiscal year in which the Business Combination is consummated and may incur increased legal, accounting and compliance costs associated with Section 404 of the Sarbanes-Oxley Act.
Risks Related to EverArc and the Proposed Business Combination
We may fail to realize the strategic and financial benefits currently anticipated from the Business Combination.
The future success of the Business Combination, including anticipated benefits, depends, in part, on our ability to optimize our operations as a public company. The optimization of our operations following the Business Combination will be a complex, costly and time-consuming process and if we experience difficulties in this process, the anticipated benefits may not be realized fully or at all, or may take longer to realize than expected, which could have an adverse effect on us for an undetermined period. There can be no assurances that we will realize the potential operating efficiencies, synergies and other benefits currently anticipated from the Business Combination.
Some of the factors involved in this are outside of our control, and any one of them could result in delays, increased costs, decreases in the amount of potential revenues, potential cost savings, and diversion of managements time and energy, which could materially affect our business, financial condition and results of operations.
Failure to consummate the Business Combination would result in a termination fee payable by EverArc.
If the Business Combination Agreement is terminated under certain circumstances including EverArcs failure to close when all conditions to closing have been satisfied, EverArc would be required to pay a termination fee of $50 million. The payment of such termination fee could have a materially adverse effect on EverArcs financial condition and impact its ability to pursue a different acquisition in the future. For more information, see the section entitled The Business Combination AgreementTermination Fee.
The requirements of being a public company may strain the Combined Companys resources and divert managements attention, and the increases in legal, accounting and compliance expenses that will result from the proposed business combination may be greater than we anticipate.
As a public company, the Combined Company will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the Trading Market rules. The requirements of these rules and regulations will impact the Combined Companys legal, accounting and compliance expenses, make some activities more difficult, time-consuming or costly and place strain on its personnel, systems and resources. The Sarbanes-Oxley Act requires, among other things, that the Combined Company maintain effective disclosure controls and procedures and internal control over financial reporting. Ensuring that the Combined Company will have adequate internal financial and accounting controls and procedures in place is a costly and time-consuming effort that needs to be re-evaluated frequently. We do not expect that the Combined Company will initially have an internal audit group, and the Combined Company may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Implementing any appropriate
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changes to the Combined Companys internal controls may require specific compliance training for the Combined Companys directors, officers and employees, entail substantial costs, and take a significant period of time to complete. Such changes may not, however, be effective in maintaining the adequacy of the Combined Companys internal controls and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase the Combined Companys operating costs and could materially impair its ability to operate its business. Moreover, effective internal controls are necessary for the Combined Company to produce reliable financial reports and are important to help prevent fraud.
In accordance with the Trading Market rules, unless the Combined Company is eligible for an exemption, it will be required to maintain a majority of independent directors on the board. The various rules and regulations applicable to public companies make it more difficult and more expensive for the Combined Company to maintain directors and officers liability insurance, and the Combined Company may be required to accept reduced coverage or incur substantially higher costs to maintain coverage. If the Combined Company is unable to maintain adequate directors and officers insurance, its ability to recruit and retain qualified officers and directors will be significantly curtailed.
We expect that the rules and regulations applicable to public companies will result in the Combined Company incurring substantial additional legal and financial compliance costs. These costs will decrease the Combined Companys net income or increase its net loss and may require it to reduce costs in other areas of its business.
There can be no assurance that the Holdco Ordinary Shares or Holdco Warrants will be approved for listing on the Trading Market or that the Combined Company will be able to comply with the continued listing standards of the Trading Market.
The Combined Company intends to apply to have the Holdco Ordinary Shares and Holdco Warrants listed on the Trading Market, subject to official notice of issuance, and expects that the Holdco Ordinary Shares and Holdco Warrants will begin trading on the Trading Market immediately following the Closing of the Business Combination. Although following the closing of the Business Combination the Combined Company expects to meet the minimum initial listing standards set forth in the Trading Markets listing standards, it cannot assure you that the Holdco Ordinary Shares or Holdco Warrants will be, or will continue to be, listed on the Trading Market in the future. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders equity, minimum share price, and certain corporate governance requirements. We may not be able to comply with the applicable listing standards and the Trading Market could delist our securities as a result.
The Combined Company cannot assure you that our Holdco Ordinary Shares or Holdco Warrants, if delisted from the Trading Market, will be listed on another national securities exchange. If the Holdco Ordinary Shares or Holdco Warrants are delisted by the Trading Market, the Holdco Ordinary Shares or Holdco Warrants would likely trade on the OTCQB where an investor may find it more difficult to sell the securities or obtain accurate quotations as to the market value of such securities.
Subsequent to the consummation of the Business Combination, the Combined Company may be required to take write-downs or write-offs, or the Combined Company may be subject to restructuring, impairment or other charges that could have a significant negative effect on the Combined Companys business, financial condition and results of operations as well as the price of our stock, which could cause you to lose some or all of your investment.
Even though we have conducted extensive due diligence on Perimeter, we cannot assure you that this diligence identified all material issues that may be present, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of Perimeters and outside of our control
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will not later arise. As a result of these factors, we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even if our due diligence successfully identified certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about our securities or us. In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject as a result of assuming pre-existing debt held by Perimeter or by virtue of our obtaining post-combination debt financing. Accordingly, any stockholder or warrant holder who chooses to remain a stockholder or warrant holder, respectively, following our initial business combination could suffer a reduction in the value of their securities. Such stockholders and warrant holders are unlikely to have a remedy for such reduction in value.
If the Business Combinations benefits do not meet the expectations of investors or securities analysts, the market price of our securities or, following the consummation of the business combination, the Combined Companys securities, may decline.
The market price of our common stock may decline as a result of our Business Combination if we do not achieve the perceived benefits of our Business Combination as rapidly, or to the extent anticipated by, financial analysts or the effect of our Business Combination on our financial results is not consistent with the expectations of financial analysts. Accordingly, holders of our common stock following the consummation of our Business Combination may experience a loss as a result of a decline in the market price of such common stock. In addition, a decline in the market price of our common stock following the consummation of our Business Combination could adversely affect our ability to issue additional securities and to obtain additional financing in the future.
EverArc may not be able to complete its initial business combination prior to December 17, 2022, in which case EverArcs directors shall determine whether to recommend to the shareholders if EverArcs operations should be wound up. EverArc may not be able to complete its initial business combination within this time period.
EverArcs Articles provide that if EverArc fails to complete its initial business combination by December 17, 2022, EverArcs directors shall determine whether to recommend to the shareholders if EverArcs operations should be wound up. EverArc may not be able to complete its initial business combination within such time period. EverArcs ability to complete its initial business combination may be negatively impacted by general market conditions, volatility in the capital and debt markets and the other risks described herein. If EverArc has not completed its initial business combination within such time period and its directors and shareholders decide to wind up the business, EverArc will be wound up in accordance with the BVI Companies Act. In such case, the holders of EverArc Ordinary Shares may only receive $10.00 per share, and EverArcs warrants will expire worthless. In certain circumstances, the holders of EverArc Ordinary Shares may receive less than $10.00 per share on the redemption of his, her or its shares.
EverArcs shareholders cannot be sure of the market value of the Holdco Ordinary Shares to be issued upon completion of the Business Combination.
The holders of EverArc Ordinary Shares issued and outstanding immediately prior to the effective time of the Business Combination will receive one Holdco Ordinary Share in exchange for each EverArc Ordinary Share held by them, rather than a number of shares with a particular fixed market value. The market value of EverArc Ordinary Shares at the time of the Business Combination may vary significantly from its price on the date the Business Combination Agreement was executed or the date of the Registration Statement of which this prospectus is a part. Because the exchange ratio of the shares will not be adjusted to reflect any changes in the market prices of EverArc Ordinary Shares, the market value of the Holdco Ordinary Shares issued in the Business Combination and the EverArc Ordinary Shares surrendered in the Business Combination may be higher
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or lower than the value of these shares on earlier dates. 100% of the consideration to be received by EverArcs Shareholders will be Holdco Ordinary Shares. Following consummation of the Business Combination, the market price of Holdcos securities may be influenced by many factors, some of which are beyond its control, including those described above and the following:
| changes in financial estimates by analysts; |
| announcements by it or its competitors of significant contracts, productions, acquisitions or capital commitments; |
| fluctuations in its quarterly financial results or the quarterly financial results of companies perceived to be similar to it; |
| general economic conditions; |
| changes in market valuations of similar companies; |
| terrorist acts; |
| changes in its capital structure, such as future issuances of securities or the incurrence of additional debt; |
| future sales of Holdco Ordinary Shares; |
| regulatory developments in the U.S., foreign countries or both; |
| litigation involving Holdco, its subsidiaries or its general industry; and |
| additions or departures of key personnel. |
EverArcs board of directors did not obtain a fairness opinion in determining whether or not to proceed with the Business Combination and, as a result, the terms may not be fair from a financial point of view to the EverArc shareholders.
In analyzing the Business Combination, the EverArc board of directors conducted significant due diligence on Perimeter. For a complete discussion of the factors utilized by EverArcs board of directors in approving the Business Combination, see the section entitled, The Business CombinationEverArcs Board of Directors Reasons for the Approval of the Business Combination. The EverArc board of directors believes because of the financial skills and background of its directors, it was qualified to conclude that the Business Combination was fair from a financial perspective to its shareholders. Notwithstanding the foregoing, EverArcs board of directors did not obtain a fairness opinion to assist it in its determination. Accordingly, EverArcs board of directors may be incorrect in its assessment of the Business Combination.
Since the EverArc Founders and EverArcs officers and directors have interests that are different, or in addition to (and which may conflict with), the interests of EverArcs public shareholders, a conflict of interest may have existed in determining whether the Business Combination is appropriate as EverArcs initial business combination. Such interests include that the EverArc Founders and directors could suffer a loss on their investment in the EverArc Ordinary Shares they purchased, their EverArc Warrants would be worthless (which, if unrestricted and freely tradable, would be worth an aggregate of approximately $267,750 based on the closing price of EverArc Warrants on September 30, 2021), and the EverArc Founder Entity will not receive any advisory fees, which may be significant, if a business combination is not completed. Accordingly, EverArcs officers and directors and the EverArc Founders may be incentivized to complete an initial business combination, even on terms less favorable to EverArcs public shareholders than liquidating EverArc.
You should keep in mind that the EverArc Founders and EverArcs officers and directors have interests that are different from, or in addition to, your interests as an EverArc public shareholder and warrant holders generally. The EverArc board of directors was aware of and considered these interests, among other matters, in
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evaluating and negotiating the Business Combination and transaction agreements and in determining whether to approve the Business Combination. These interests include, among other things:
| the amounts payable to the EverArc Founder Entity pursuant to the Founder Advisory Agreement entered into by EverArc and the EverArc Founder Entity which is designed to provide incentives to the EverArc Founders to achieve EverArcs objectives which includes: |
| a fixed annual advisory amount equal to 1.5% of the Founder Advisory Agreement Calculation Number (in each case, payable in Holdco Ordinary Shares or partly in cash, at the election of the EverArc Founder Entity provided that at least 50% of such amounts are paid in Holdco Ordinary Shares). Based on the assumptions described in this prospectus, the fixed annual advisory amount is currently expected to be 2,353,992 Holdco Ordinary Shares which, assuming a stock price of $12.50 per Holdco Ordinary Share, would have a value of $29,424,902. Each additional $1 increase in the stock price of Holdco Ordinary Shares above $12.50 will increase the value of the fixed annual advisory amount payable to the EverArc Founder Entity by $2,353,992; and |
| a variable annual advisory amount based on the appreciation of the market price of Holdco Ordinary Shares if such market price exceeds certain trading price minimums (in each case, payable in Holdco Ordinary Shares or partly in cash, at the election of the EverArc Founder Entity provided that at least 50% of such amounts are paid in Holdco Ordinary Shares). Based on assumptions described in this prospectus and assuming a stock price of $12.50 per Holdco Ordinary Share, the variable annual advisory amount payable to the EverArc Founder Entity in year one would have a value of $70,619,765. For each $1 increase in the stock price of Holdco Ordinary Shares above $12.50, or such higher stock price on which a variable annual advisory amount was previously paid to the EverArc Founder Entity, the EverArc Founder Entity will receive a variable annual advisory amount valued at $28,247,906; |
The EverArc Founders have advised Holdco that their intention is to elect, via the EverArc Founder Entity, to receive any advisory amounts in Holdco Ordinary Shares and for any cash element to only be such amount as is required to pay any related taxes;
With respect to the fixed annual advisory fee, the EverArc Founder Entity will earn such advisory fee even if Holdcos public shareholders earn a negative return following the consummation of the Business Combination;
| the potential continuation of certain of EverArcs directors as directors of Holdco; |
| the EverArc Founder Entity and EverArcs directors have agreed that none of the EverArc Founder Shares nor any EverArc Ordinary Shares or EverArc Warrants owned by them will be sold or transferred by them until one year after EverArc has completed a business combination, subject to limited exceptions; |
| approximately $100,000 in unreimbursed expenses due to the EverArc Founder Entity; |
| the continued indemnification of current directors and officers of EverArc and the continuation of directors and officers liability insurance after the Business Combination; |
| to the extent that the EverArc Founders or directors identify business opportunities that may be suitable for EverArc or other companies on whose boards of directors they may sit or to whom they owe a contractual obligation, the EverArc Founders and directors will honor those pre-existing fiduciary and contractual obligations ahead of their obligations to EverArc. Accordingly, they may refrain from presenting certain opportunities to EverArc that come to their attention in the performance of their duties as directors of such other entities or in observance of contractual obligations unless the other companies have declined to accept such opportunities or waive the contractual obligations. EverArc considered the pre-existing duties or contractual obligations of the EverArc Founders or directors and does not believe that they materially impacted its search for an acquisition target, or the negotiation or approval of the Business Combination; and |
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| the beneficial ownership by the EverArc Founders, directly and indirectly through the EverArc Founder Entity, of: |
| 100 EverArc Founder Shares, acquired for an aggregate purchase price of $1,000, which following the Closing will have an aggregate market value of approximately $1,250 based on the closing price of EverArc Ordinary Shares of $12.50 on the LSE on September 30, 2021; and |
| 1,595,239 EverArc Ordinary Shares and 1,500,000 EverArc Warrants, acquired for an aggregate purchase price of $16,000,010, which have an aggregate market value of approximately $20,202,988 based on the closing price of EverArc Ordinary Shares of $12.50 and EverArc Warrants of $0.175 on the LSE on September 30, 2021; if the Business Combination is not consummated and EverArc is liquidated, the EverArc Founders will suffer a loss on their investment, if any, equal to the difference between the price paid for their EverArc Ordinary Shares and EverArc Warrants and the liquidation value of their EverArc Ordinary Shares which loss would, based on EverArcs publicly reported statement of financial position as of April 30, 2021, equal, in the aggregate, $398,573; |
| the beneficial ownership by the EverArc non-founder directors of an aggregate of 30,000 EverArc Ordinary Shares and 30,000 EverArc Warrants granted to them in lieu of their first years annual remuneration at a fair value of $10.00 per EverArc Ordinary Share, which have an aggregate market value of approximately $380,250 based on the closing price of EverArc Ordinary Shares of $12.50 and EverArc Warrants of $0.175 on the LSE on September 30, 2021; if the Business Combination is not consummated and EverArc is liquidated, the EverArc non-founder directors will suffer a loss, if any, equal to the difference between the value of their EverArc Ordinary Shares and EverArc Warrants upon issuance and the liquidation value of their EverArc Ordinary Shares which loss would, based on EverArcs publicly reported statement of financial position as of April 30, 2021, equal, in the aggregate, $6,600. |
The existence of the interests described above may result in a conflict of interest on the part of EverArcs officers and directors and the EverArc Founder Entity in approving the Business Combination. In particular, the existence of the interests described above may incentivize EverArcs directors and the EverArc Founder Entity to complete an initial business combination, even if on terms less favorable to EverArcs shareholders compared to liquidating EverArc, because, among other things, if EverArc is liquidated without completing an initial business combination, the EverArc Founders and directors could suffer a loss on their investment in the EverArc Ordinary Shares they purchased, their EverArc Warrants would be worthless (which, if unrestricted and freely tradable, would be worth an aggregate of approximately $267,750 based on the closing price of EverArc Warrants on September 30, 2021), and the EverArc Founder Entity would not receive any future advisory fees, which at the current price of EverArc could be worth, in the aggregate, as much as $100,044,667 at December 31, 2021.
Pursuant to the Founder Advisory Agreement, Holdco will be required to make a termination payment if the Founder Advisory Agreement is terminated under certain circumstances.
In the event the Founder Advisory Agreement is terminated by Holdco upon it ceasing to be traded on the NYSE or by Parent upon a sale of Holdco, Holdco will pay the EverArc Founder a termination payment in cash. This termination payment may be substantial and will be immediately due and payable on the date of termination of the Founder Advisory Agreement. See Certain Relationships and Related Party TransactionsFounder Advisory Agreement.
There are risks to EverArc shareholders who are not affiliates of the EverArc Founder Entity of becoming shareholders of Holdco through the Business Combination rather than acquiring securities of Perimeter directly in an underwritten public offering, including no independent due diligence review by an underwriter and conflicts of interest of the EverArc Founders.
Because there is no independent third-party underwriter involved in the Business Combination or the issuance of Holdco Ordinary Shares and Holdco Warrants in connection therewith, investors will not receive the
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benefit of any outside independent review of EverArcs and Perimeters respective finances and operations. Underwritten public offerings of securities conducted by a licensed broker-dealer are subjected to a due diligence review by the underwriter or dealer manager to satisfy statutory duties under the Securities Act, the rules of Financial Industry Regulatory Authority, Inc. (FINRA) and the national securities exchange where such securities are listed. Additionally, underwriters or dealer-managers conducting such public offerings are subject to liability for any material misstatements or omissions in a registration statement filed in connection with the public offering. As no such review will be conducted in connection with the Business Combination, EverArc shareholders must rely on the information in this prospectus and will not have the benefit of an independent review and investigation of the type normally performed by an independent underwriter in a public securities offering. Although EverArc performed a due diligence review and investigation of Perimeter in connection with the Business Combination, EverArc has different incentives and objectives in the Business Combination than an underwriter would in a traditional initial public offering. The lack of an independent due diligence review and investigation may increase the risk of an investment in Holdco because it may not have uncovered facts that would be important to a potential investor.
In addition, because Holdco will not become a public reporting company by means of a traditional underwritten initial public offering, securities or industry analysts may not provide, or may be less likely to provide, coverage of Holdco. Investment banks may also be less likely to agree to underwrite securities offerings on behalf of Holdco than they might if Holdco became a public reporting company by means of a traditional underwritten initial public offering, because they may be less familiar with Holdco as a result of more limited coverage by analysts and the media. The failure to receive research coverage or support in the market for Holdcos Ordinary Shares could have an adverse effect on Holdcos ability to develop a liquid market for Holdcos Ordinary Shares.
EverArcs shareholders will have a reduced ownership and voting interest after consummation of the Business Combination and will exercise less influence over management.
After the completion of the Business Combination, EverArcs shareholders will own a smaller percentage of Holdco than they currently own of EverArc. Upon completion of the Business Combination, it is anticipated that EverArcs shareholders, will own approximately 26.1%, of the Holdco Ordinary Shares issued and outstanding immediately after the consummation of the Business Combination. Consequently, EverArcs shareholders, as a group, will have reduced ownership and voting power in Holdco compared to their ownership and voting power in EverArc.
Risks for any holders of Holdco Warrants following the Business Combination.
Following the Business Combination, Holdco may redeem your Holdco Warrants prior to their exercise at a time that is disadvantageous to you, thereby significantly impairing the value of such warrants. Holdco will have the ability to redeem outstanding Holdco Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the closing price of the Holdco Ordinary Shares equals or exceeds $18.00 per share (as adjusted for share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like) for any 10 consecutive Trading Days Redemption of the outstanding Holdco Warrants could force you (i) to exercise your Holdco Warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) to sell your Holdco Warrants at the then-current market price when you might otherwise wish to hold your Holdco Warrants, or (iii) to accept the nominal redemption price which, at the time the outstanding Holdco Warrants are called for redemption, is likely to be substantially less than the market value of your Holdco Warrants.
EverArcs shareholders may be held liable for claims by third parties against EverArc to the extent of distributions received by them.
If EverArc is forced to enter into an insolvent liquidation, any distributions received by holders of EverArc Ordinary Shares could be viewed as an unlawful payment if it was proved that immediately after the
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distribution, EverArc was unable to pay its debts as they fell due or the value of its assets did not exceed its liabilities. As a result, a liquidator could seek to recover all amounts received by the holders of EverArc Ordinary Shares. A distribution made to a member at a time when EverArc did not, immediately after the distribution, satisfy the solvency test may be recovered by EverArc (acting by its liquidator) from the member unless (a) the member received the distribution in good faith and without knowledge of EverArcs failure to satisfy the solvency test; (b) the member has altered his or her position in reliance on the validity of the distribution; and (c) it would be unfair to require repayment in full or at all. Furthermore, EverArcs directors may be viewed as having breached their fiduciary duties to EverArc or its creditors and/or may have acted in bad faith, thereby exposing themselves and EverArc to claims, by paying holders of EverArc Ordinary Shares prior to addressing the claims of creditors. EverArc cannot assure you that claims will not be brought against it for these reasons.
Holdco may have limited recourse for indemnity claims under the Business Combination Agreement.
Under the terms of the Business Combination Agreement, Holdco will have limited recourse against SK Holdings or its affiliates for losses and liabilities arising or discovered after the closing of the Business Combination. Except in the event of fraud or for certain specific indemnification matters, Holdco cannot make a claim for indemnification against SK Holdings or its affiliates for a breach of the representations and warranties or covenants in the Business Combination Agreement. In connection with the Business Combination, Holdco obtained a representation and warranty insurance policy to provide indemnification for breaches of certain representations and warranties which policy is subject to certain specified limitations and exclusions. There can be no assurance that, in the event of a claim, the insurance policy will cover the relevant losses, or that proceeds that are recoverable under the insurance policy (if any) will be sufficient to compensate Holdco for any losses incurred. Therefore, Holdco may have limited recourse against SK Holdings or its affiliates and/or the representations and warranties insurance provider in respect of claims for breach of the warranties, covenants and other provisions in the Business Combination Agreement, which could have a material adverse effect on Holdcos business, financial condition and results of operations.
EverArcs and Perimeters ability to consummate the Business Combination may be materially adversely affected by the COVID-19 pandemic.
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout the world, including the U.S. On January 30, 2020, the World Health Organization declared the outbreak of COVID-19 a Public Health Emergency of International Concern. On January 31, 2020, the U.S. Department of Health and Human Services declared a public health emergency for the U.S. to aid the U.S., and on March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic.
The COVID-19 pandemic has resulted, and other infectious diseases could result, in a widespread health crisis that has and could continue to adversely affect the economies and financial markets worldwide, which may delay or prevent the consummation of the Business Combination. The extent of such impact will depend on future developments, which are highly uncertain and cannot be predicted, including new information, which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.
The disruptions posed by COVID-19 have continued, and other matters of global concern may continue for an extensive period of time, and EverArcs and Perimeters ability to consummate the Business Combination may be materially adversely affected. Each of EverArc, Perimeter and Holdco may also incur additional costs due to delays caused by COVID-19, which could adversely affect EverArcs and Perimeters ability to consummate the Business Combination.
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Risks Related to Investment in a Luxembourg Company
Holdco is organized under the laws of the Grand Duchy of Luxembourg. It may be difficult for you to obtain or enforce judgments or bring original actions against Holdco or the members of its board of directors in the U.S.
Holdco is organized under the laws of the Grand Duchy of Luxembourg. In addition, some of the members of Holdcos board of directors and officers reside outside the U.S. Investors may not be able to effect service of process within the U.S. upon Holdco or these persons or enforce judgments obtained against Holdco or these persons in U.S. courts, including judgments in actions predicated upon the civil liability provisions of the U.S. federal securities laws. Likewise, it also may be difficult for an investor to enforce in U.S. courts judgments obtained against Holdco or these persons in courts located in jurisdictions outside the U.S., including judgments predicated upon the civil liability provisions of the U.S. federal securities laws. Awards of punitive damages in actions brought in the U.S. or elsewhere are generally not enforceable in Luxembourg.
As there is no treaty in force on the reciprocal recognition and enforcement of judgments in civil and commercial matters between the U.S. and Luxembourg, courts in Luxembourg will not automatically recognize and enforce a final judgment rendered by a U.S. court. Pursuant to the general provisions of Luxembourg law for the enforcement of foreign judgments and in particular, but not limited to, section 678 of the Luxembourg New Code of Civil Procedure, a party who obtains a final judgment from a court of competent jurisdiction in the U.S. may initiate enforcement proceedings in Luxembourg (exequatur) and the District Court (Tribunal dArrondissement) may authorize the enforcement in Luxembourg of the U.S. judgment without re-examination of the merits, if it is satisfied that the following conditions are met (which conditions may change):
| the judgment of the U.S. court is final and enforceable (exécutoire) in the U.S.; |
| the U.S. court had jurisdiction over the subject matter leading to the judgment according to the Luxembourg conflict of jurisdictions rules (that is, its jurisdiction was in compliance both with Luxembourg private international law rules and with the applicable domestic U.S. federal or state jurisdictional rules); |
| the U.S. court applied to the dispute the substantive law that would have been applied by Luxembourg courts (based on recent case law and legal doctrine, it is not certain that this condition would still be required for an exequatur to be granted by a Luxembourg court); |
| the judgment was granted following proceedings where the counterparty had the opportunity to appear and, if it appeared, to present a defense, and the decision of the foreign court must not have been obtained by fraud, but with the procedural rules of the jurisdiction in which the judgment was rendered, in particular, in compliance with the rights of the defendant; |
| the U.S. court acted in accordance with its own procedural laws; and |
| the decisions and the considerations of the U.S. court must not be contrary to Luxembourg international public policy rules or have been given in proceedings of a tax or criminal nature or rendered subsequent to an evasion of Luxembourg law (fraude à la loi). Awards of damages made under civil liabilities provisions of the U.S. federal securities laws, or other laws, which are classified by Luxembourg courts as being of a penal or punitive nature (for example, fines or punitive damages), might not be recognized by Luxembourg courts. Ordinarily, an award of monetary damages would not be considered as a penalty, but if the monetary damages include punitive damages, such punitive damages may be considered a penalty. |
In addition, actions brought in a Luxembourg court against Holdco, the members of its board of directors, its officers, or the experts named herein to enforce liabilities based on U.S. federal securities laws may be subject to certain restrictions. In particular, Luxembourg courts generally do not award punitive damages. Litigation in Luxembourg also is subject to rules of procedure that differ from the U.S. rules, including, with
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respect to the taking and admissibility of evidence, the conduct of the proceedings and the allocation of costs. Proceedings in Luxembourg would have to be conducted in the Luxembourgish, French or German language, and all documents submitted to the court would, in principle, have to be translated into Luxembourgish, French or German. For these reasons, it may be difficult for a U.S. investor to bring an original action in a Luxembourg court predicated upon the civil liability provisions of the U.S. federal securities laws against Holdco, the members of its board of directors, its officers, or the experts named herein. In addition, even if a judgment against Holdco, the non-U.S. members of its board of directors, its officers, or the experts named in this prospectus based on the civil liability provisions of the U.S. federal securities laws is obtained, a U.S. investor may not be able to enforce it in U.S. or Luxembourg courts.
The directors and officers of Holdco have entered into, or will enter into, indemnification agreements with Holdco. Under such agreements, the directors and officers will be entitled to indemnification from Holdco to the fullest extent permitted by Luxemburg law against liability and expenses reasonably incurred or paid by him or her in connection with any claim, action, suit, or proceeding in which he or she would be involved by virtue of his or her being or having been a director or officer and against amounts paid or incurred by him or her in the settlement thereof. Luxembourg law permits Holdco to keep directors indemnified against any expenses, judgments, fines and amounts paid in connection with liability of a director towards Holdco or a third party for management errors i.e., for wrongful acts committed during the execution of the mandate (mandat) granted to the director by Holdco, except in connection with criminal offenses, gross negligence or fraud. The rights to and obligations of indemnification among or between Holdco and any of its current or former directors and officers are generally governed by the laws of Luxembourg and subject to the jurisdiction of the Luxembourg courts, unless such rights or obligations do not relate to or arise out of such persons capacities listed above. Although there is doubt as to whether U.S. courts would enforce this indemnification provision in an action brought in the U.S. under U.S. federal or state securities laws, this provision could make it more difficult to obtain judgments outside Luxembourg or from non-Luxembourg jurisdictions that would apply Luxembourg law against Holdcos assets in Luxembourg.
Luxembourg and European insolvency and bankruptcy laws are substantially different from U.S. insolvency and bankruptcy laws and may offer Holdcos shareholders less protection than they would have under U.S. insolvency and bankruptcy laws.
As a company organized under the laws of the Grand Duchy of Luxembourg and with its registered office in Luxembourg, Holdco is subject to Luxembourg insolvency and bankruptcy laws in the event any insolvency proceedings are initiated against it including, among other things, Council and European Parliament Regulation (EU) 2015/848 of 20 May 2015 on insolvency proceedings (recast). Should courts in another European country determine that the insolvency and bankruptcy laws of that country apply to Holdco in accordance with and subject to such European Union (EU) regulations, the courts in that country could have jurisdiction over the insolvency proceedings initiated against Holdco. Insolvency and bankruptcy laws in Luxembourg or the relevant other European country, if any, may offer Holdcos shareholders less protection than they would have under U.S. insolvency and bankruptcy laws and make it more difficult for them to recover the amount they could expect to recover in a liquidation under U.S. insolvency and bankruptcy laws.
The rights of Holdcos shareholders may differ from the rights they would have as shareholders of a U.S. corporation, which could adversely impact trading in Holdcos Ordinary Shares and its ability to conduct equity financings.
Holdcos corporate affairs are governed by Holdcos articles of association and the laws of Luxembourg, including the Luxembourg Company Law (loi du 10 août 1915 sur les sociétés commerciales, telle que modifiée). The rights of Holdcos shareholders and the responsibilities of its directors and officers under Luxembourg law are different from those applicable to a corporation incorporated in the U.S. For example, under Delaware law, the board of directors of a Delaware corporation bears the ultimate responsibility for managing the business and affairs of a corporation. In discharging this function, directors of a Delaware corporation owe fiduciary duties of care and loyalty to the corporation and its shareholders. Luxembourg law imposes, among others, a duty on directors of a
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Luxembourg company to: (i) act in good faith with a view to the best interests of a company; and (ii) exercise the care, diligence, and skill that a reasonably prudent person would exercise in a similar position and under comparable circumstances. Additionally, under Delaware law, a shareholder may bring a derivative action on behalf of a company to enforce a companys rights. Under Luxembourg law, the board of directors has sole authority to decide whether to initiate legal action to enforce a companys rights (other than, in certain circumstances, an action against members of Holdcos board of directors, which may be initiated by the general meeting of the shareholders, or, subject to certain conditions, by minority shareholders holding together at least 10% of the voting rights in the company). See Comparison of Shareholder Rights for an additional explanation of the differences. Further, under Luxembourg law, there may be less publicly available information about Holdco than is regularly published by or about U.S. issuers. In addition, Luxembourg laws governing the securities of Luxembourg companies may not be as extensive as those in effect in the U.S., and Luxembourg laws and regulations in respect of corporate governance matters might not be as protective of minority shareholders as are state corporation laws in the U.S. Therefore, Holdcos shareholders may have more difficulty in protecting their interests in connection with actions taken by Holdcos directors, officers or principal shareholders than they would as shareholders of a corporation incorporated in the United States. As a result of these differences, Holdcos shareholders may have more difficulty protecting their interests than they would as shareholders of a U.S. issuer.
Risks Related to Taxes
If Holdco is or becomes a passive foreign investment company for U.S. federal income tax purposes for any taxable year, U.S. Holders of Holdco Ordinary Shares or Holdco Warrants could be subject to adverse U.S. federal income tax consequences.
If Holdco is or becomes a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year during which a U.S. Holder (as defined in Material U.S. Federal Income Tax Considerations) holds Holdco Ordinary Shares or Holdco Warrants, certain adverse U.S. federal income tax consequences may apply to such U.S. Holder. Assuming the Merger, together with certain related transactions, qualifies as an F Reorganization (see Material U.S. Federal Income Tax ConsiderationsTax Consequences of the Business CombinationThe Merger), Holdco should be treated as the same corporation as EverArc for purposes of the PFIC provisions. Accordingly, Holdcos PFIC status may depend on whether EverArc has qualified for the PFIC start-up exception (see Material U.S. Federal Income Tax ConsiderationsTax Consequences of Ownership and Disposition of Holdco Ordinary Shares and Holdco WarrantsPassive Foreign Investment Company Rules). EverArcs and Holdcos actual PFIC status for any taxable year will not be determinable until after the end of such year and, in the case of the application of the start-up exception to EverArc for its taxable year that ended on October 31, 2020, until after the end of Holdcos second succeeding taxable year. Accordingly, there can be no assurance that Holdco will not be treated as a PFIC for any taxable year.
If Holdco were treated as a PFIC, a U.S. Holder of Holdco Ordinary Shares or Holdco Warrants may be subject to adverse U.S. federal income tax consequences, such as taxation at the highest marginal ordinary income tax rates on capital gains and on certain actual or deemed distributions, interest charges on certain taxes treated as deferred, and additional reporting requirements. Certain elections (including a qualified electing fund or a mark-to-market election) may be available to U.S. Holders of Holdco Ordinary Shares to mitigate some of the adverse tax consequences resulting from PFIC treatment, but U.S. Holders will not be able to make similar elections with respect to Holdco Warrants. See Material U.S. Federal Income Tax ConsiderationsTax Consequences of Ownership and Disposition of Holdco Ordinary Shares and Holdco WarrantsPassive Foreign Investment Company Rules.
If a United States person is treated as owning at least 10% of Holdcos shares, such person may be subject to adverse U.S. federal income tax consequences.
If a United States person is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting power of Holdcos shares, such person may be treated as a United States shareholder with respect to each
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of Holdco and its direct and indirect subsidiaries (Holdco Group) that is a controlled foreign corporation, or CFC, for U.S. federal income tax purposes. If the Holdco Group includes one or more U.S. subsidiaries, certain of Holdcos non-U.S. subsidiaries could be treated as CFCs regardless of whether Holdco is treated as a CFC. Immediately following the Business Combination, the Holdco Group will include a U.S. subsidiary.
A United States shareholder of a CFC may be required to report annually and include in its U.S. taxable income its pro rata share of the CFCs subpart F income and tested income (for purposes of computing global intangible low-taxed income) and earnings invested in U.S. property by the CFC, regardless of whether such CFC makes any distributions. Failure to comply with these reporting obligations (or related tax payment obligations) may subject such United States shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such United States shareholders U.S. federal income tax return for the year for which reporting (or payment of tax) was due from starting. An individual that is a United States shareholder with respect to a CFC generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Holdco cannot provide any assurances that it will assist holders in determining whether any of its non-U.S. subsidiaries is treated as a CFC or whether any holder is treated as a United States shareholder with respect to any of such CFCs or furnish to any holder information that may be necessary to comply with reporting and tax paying obligations.
Changes in tax laws may materially adversely affect Holdcos business, prospects, financial condition and operating results.
New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely affect Holdcos business, prospects, financial condition and operating results. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to Holdco. For example, U.S. federal tax legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act (the Tax Act), enacted many significant changes to the U.S. tax laws. Future guidance from the IRS with respect to the Tax Act may affect Holdco, and certain aspects of the Tax Act could be repealed or modified in future legislation. The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), has already modified certain provisions of the Tax Act. In addition, it is uncertain if and to what extent various states will conform to the Tax Act, the CARES Act or any newly enacted federal tax legislation. In addition, the Biden administration and members of Congress have proposed various changes to the U.S. federal tax regime, including an increase in the U.S. federal corporate income tax rate from the current 21% rate to, in various proposals, 26.5% or 28%. Congress is currently working on draft legislation, that may include the proposed or other changes to the U.S. federal tax law; however, it is not yet clear what changes will be made or when, or what impact any such changes will have on us.
General Risk Factors
We may require additional capital to fund our operations. If we are unable to raise additional capital on terms acceptable to us or at all or generate cash flows necessary to maintain or expand our operations, we may not be able to compete successfully, which would harm our business, financial condition and results of operations.
We expect to devote substantial financial resources to our ongoing and planned activities. We expect our expenses to continue to increase as our volumes and revenues increase. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we may need to obtain additional capital to fund our continuing operations.
We believe that our existing cash and other resources will be sufficient to fund our operations and capital expenditure requirements for at least the next 12 months; however, these assumptions are based on estimates that may be wrong. As a result, we could deplete our capital resources sooner than we currently expect.
In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. In addition, we may seek additional capital due to favorable market conditions or
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strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. If we are unable to raise additional capital on terms acceptable to us or at all or generate cash flows necessary to maintain or expand our operations and invest in our business, we may not be able to compete successfully, which would harm our business, financial condition and results of operations.
Cybersecurity attack, acts of cyber-terrorism, failure of technology systems and other disruptions to our information technology systems could compromise our information, disrupt our operations, and expose us to liability, which may adversely impact our business, financial condition and results of operations.
In the ordinary course of our business, we store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our employees in our information technology systems, including in our data servers and on our networks. The secure processing, maintenance and transmission of this data is critical to our operations. Despite our security measures, our information technology systems may be vulnerable to attacks by hackers or breached or disrupted due to employee error, malfeasance or other disruptions. Any such attack, breach or disruption could compromise our information technology systems and the information stored in them could be accessed, publicly disclosed, lost or stolen and our business operations could be disrupted. Any such access, disclosure or other loss of information or business disruption could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and damage to our reputation, which could adversely impact our business, financial condition and results of operations.
Our results of operations are subject to exchange rate and other currency risks. A significant movement in exchange rates could adversely impact our results of operations.
Although we conduct our business primarily in U.S. dollar we also conduct business in many different currencies. Accordingly, currency exchange rates affect our results of operations. The effects of exchange rate fluctuations on our future operating results are unpredictable because of the number of currencies in which we conduct business and the potential volatility of exchange rates. We are also subject to the risks of currency controls and devaluations. Currency controls may limit our ability to convert currencies into U.S. dollars or other currencies, as needed, or to pay dividends or make other payments from funds held by subsidiaries in the countries imposing such controls, which could adversely affect our liquidity. Currency devaluations could also negatively affect our operating margins and cash flows. For example, if the U.S. dollar were to strengthen against a local currency, our operating margin would be adversely impacted in the country to the extent significant costs are denominated in U.S. dollars while our revenues are denominated in such local currency.
Our insurance may not fully cover all of our operational risks, including, but not limited to, environmental risks, and changes in the cost of insurance or the availability of insurance could materially increase our insurance costs or result in a decrease in our insurance coverage.
We have a significant concentration of our manufacturing facilities. Natural disasters and severe weather events (such as hurricanes, earthquakes, fires, floods, landslides and wind or hailstorms) or other extraordinary events subject us to property loss and business interruption. Illegal or unethical conduct by employees, customers, vendors and unaffiliated third parties can also impact our business. Other potential liabilities arising out of our operations may involve claims by employees, customers or third parties for personal injury, product liability or property damage and potential fines and penalties in connection with alleged violations of regulatory requirements.
In certain instances, our insurance may not fully cover an insured loss depending on the magnitude and nature of the claim. Accordingly, we cannot assure you that we will not be exposed to uninsured or underinsured losses that could have a material adverse effect on our business, financial condition and results of operations. Additionally, changes in the cost of insurance or the availability of insurance in the future could substantially increase our costs to maintain our current level of coverage or could cause us to reduce our insurance coverage.
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We are subject to general governmental regulation and other legal obligations, including those related to privacy, data protection and information security, and our actual or perceived failure to comply with such obligations could harm our business. Compliance with such laws could also impair our efforts to maintain and expand our customer base, and thereby decrease our revenue.
We receive, store and process personal information and other data from and about customers in addition to our employees and services providers. Our handling of data is subject to a variety of laws and regulations, including regulation by various government agencies, such as the U.S. Federal Trade Commission (the FTC) and various state, local and foreign agencies. Our data handling also is subject to contractual obligations and industry standards.
The U.S. federal and various state governments have adopted or proposed limitations on the collection, distribution, use, storage and security of data relating to individuals, including the use of contact information and other data for marketing, advertising and other communications with individuals and businesses. For example, the California Consumer Privacy Act of 2018 (the CCPA) became effective January 1, 2020. The CCPA requires covered businesses to, among other things, make new disclosures to consumers about their data collection, use, and sharing practices, and allows consumers to opt out of certain data sharing with third parties. The CCPA also provides a new private cause of action for certain data breaches. The California Privacy Rights Act (the CPRA) which will become effective on January 1, 2023, will significantly modify the CCPA, and also create a new state agency that will be vested with authority to implement and enforce the CCPA and the CPRA. The effects of the CCPA and the CPRA are potentially significant and may require us to incur substantial costs and expenses in an effort to comply and increase our potential exposure to regulatory enforcement and/or litigation. States such as Virginia have enacted and we expect additional states may also enact legislation similar to the CCPA and CPRA. Additionally, the FTC and many state attorneys general are interpreting federal and state consumer protection laws as imposing standards for the online collection, use, dissemination and security of data.
Several foreign countries and governmental bodies, including the European Union, have laws and regulations dealing with the handling and processing of personal information obtained from their residents, which in certain cases are more restrictive than those in the United States, and we expect additional jurisdictions may enact similar regulations. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure and security of various types of data, including data that identifies or may be used to identify an individual, such as names, email addresses and in some jurisdictions, Internet Protocol (IP) addresses. Within the European Union, legislators have adopted the General Data Protection Regulation (the GDPR) which became effective in May 2018. The GDPR includes more stringent operational requirements for processors and controllers of personal data than previous EU data protection laws and imposes significant penalties for non-compliance.
These domestic and foreign laws and regulations relating to privacy and data security are evolving, can be subject to significant change and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions. Interpretation of certain requirements remains unclear and may evolve, in particular for regulations that have recently been enacted. Application of laws may be inconsistent or may conflict among jurisdictions resulting in additional complexity and increased legal risk. In addition, these regulations have increased our compliance costs and may impair our ability to grow our business or offer our service in some locations, may subject us to liability for non-compliance, may require us to modify our data processing and transferring practices and policies and may strain our technical capabilities.
We also handle credit card and other personal information. Due to the sensitive nature of such information, we have implemented procedures in an effort to preserve and protect our data and our customers data against loss, misuse, corruption, misappropriation caused by systems failures, unauthorized access or misuse. Notwithstanding these procedures, we could be subject to liability claims by individuals and customers whose data resides in our databases for the misuse of that information. If we fail to meet appropriate compliance levels, this could negatively impact our ability to utilize credit cards as a method of payment, and/or collect and store credit card information, which could disrupt our business.
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We may be subject to rules of the FTC, the Federal Communications Commission (the FCC) and potentially other federal agencies and state laws related to commercial electronic mail and other messages. Compliance with these provisions may limit our ability to send certain types of messages. If we were found to have violated such rules and regulations, we may face enforcement actions by the FTC or FCC or face civil penalties, either of which could adversely affect our business.
Any failure or perceived failure by us to comply with laws, regulations, policies, legal or contractual obligations, industry standards, or regulatory guidance relating to privacy or data security, may result in governmental investigations and enforcement actions, litigation, fines and penalties or adverse publicity, and could cause our customers and partners to lose trust in us, which could have an adverse effect on our reputation and business. We expect that there will continue to be new proposed laws, regulations and industry standards relating to privacy, data protection, marketing, consumer communications, information security and local data residency in the United States, the European Union and other jurisdictions, and we cannot determine the impact such future laws, regulations and standards may have on our business, financial condition and results of operations.
The continuing impacts of the COVID-19 pandemic may have an adverse effect on our business, financial condition and results of operations.
In March 2020, the World Health Organization declared COVID-19 a pandemic. Governments and municipalities around the world have instituted measures to control the spread of COVID-19, including quarantines, shelter-in-place orders, school closures, travel restrictions, and closure of non-essential businesses. These measures have led to significant adverse economic impacts which have had, and could continue to have, an adverse impact on our business operations in a number of ways, including, without limitation, (1) disruptions to our sales operations and marketing efforts as a result of the inability of our sales team to travel and meet customers in person, (2) negative impacts on our customers and prospects that could result in (i) extended customer sales cycles, delayed spending on our services, impairment of our ability to collect accounts receivable, and (ii) reduced payment frequencies, demand for our services, renewal rates, and spending on our services, and (3) negative impacts to the financial condition or operations of our vendors and business partners, as well as disruptions to the supply chain of products needed to offer our services. Moreover, as a result of the COVID-19 pandemic, we are temporarily requiring a portion of our employees to work remotely, which may lead to disruptions and decreased productivity and other adverse operational business impacts. The extent to which the COVID-19 pandemic and resultant economic impact affects our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted.
The loss of key personnel or our inability to attract and retain new qualified personnel could hurt our business and inhibit our ability to operate and grow successfully.
Our success depends on the continuing services of certain members of the current management team. Our executive team are incentivized by stock compensation grants that align the interests of investors with the executive team and certain executives have employment retention agreements. The loss of key management, employees or third-party contractors could have a material and adverse effect on our business, financial condition and results of operations. Additionally, the success of our operations will largely depend upon our ability to successfully attract and maintain competent and qualified key management personnel. As with any company with limited resources, there can be no guarantee that we will be able to attract such individuals or that the presence of such individuals will necessarily translate into profitability for our company. If we are successful in attracting and retaining such individuals, it is likely that our payroll costs and related expenses will increase significantly and that there will be additional dilution to existing stockholders as a result of equity incentives that may need to be issued to such management personnel. Our inability to attract and retain key personnel may materially and adversely affect our business operations. Any failure by our management to effectively anticipate, implement, and manage personnel required to sustain our growth would have a material adverse effect on our business, financial condition and results of operations.
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SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES
Holdco and certain of its subsidiaries (the non-U.S. companies) are or will be incorporated under the laws of countries other than the U.S. In addition, certain of the directors and officers of the non-U.S. companies reside outside of the U.S. and most of the assets of the non-U.S. companies and some of the assets of their directors and officers are located outside the U.S. As a result, it may be difficult for investors to effect service of process on the non-U.S. companies or those persons in the U.S. or to enforce in the U.S. judgments obtained in U.S. courts against the non-U.S. companies or those persons based on the civil liability provisions of the U.S. securities laws or other laws. Uncertainty exists as to whether courts in the jurisdiction of organization of the non-U.S. companies will enforce judgments obtained in other jurisdictions, including the U.S., against the non-U.S. companies or their directors or officers under the securities or other laws of those jurisdictions or entertain actions in those jurisdictions against the non-U.S. companies or their directors or officers under the securities or other laws of those jurisdictions.
Luxembourg
It may be possible to effect service of process within Luxembourg upon Holdco and its respective directors and officers provided that The Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters of November 15, 1965 is complied with.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED FINANCIAL INFORMATION
Introduction
Holdco, EverArc, and Perimeter are providing the following unaudited pro forma condensed consolidated combined financial information to aid you in your analysis of the financial aspects of the business combination. The unaudited pro forma condensed consolidated combined financial information has been prepared in accordance with Article 11 of Regulation S-X and should be read in conjunction with the accompanying notes.
The unaudited pro forma condensed consolidated combined balance sheet as of June 30, 2021 combines the audited balance sheet of Holdco as of June 30, 2021 with the unaudited condensed balance sheet of Perimeter as of June 30, 2021 and the unaudited condensed consolidated combined balance sheet of EverArc as of April 30, 2021, giving effect to the Business Combination.
The unaudited pro forma condensed consolidated combined statement of operations for the six months ended June 30, 2021 combines the unaudited condensed statement of operations of Holdco for the period from June 21, 2021 (inception) to June 30, 2021 with the unaudited condensed statement of operations and comprehensive income (loss) of Perimeter for the six months ended June 30, 2021 and the unaudited condensed consolidated combined statement of operations of EverArc for the six months ended April 30, 2021. The unaudited pro forma condensed consolidated combined statement of operations for the year ended December 31, 2020 combines the audited condensed statement of operations and comprehensive income (loss) of Perimeter for the year ended December 31, 2020 and the audited condensed consolidated combined statement of operations of EverArc for the period from November 8, 2019 (inception) to October 31, 2020, giving effect to the Business Combination as if it had been consummated on January 1, 2020, the beginning of the earliest period presented.
The unaudited pro forma condensed consolidated combined financial information was derived from, and should be read in conjunction with, the following historical financial statements and the accompanying notes, which are included elsewhere in this prospectus:
| The historical audited balance sheet of Holdco as of June 30, 2021 and the unaudited condensed statement of operations for the period from June 21, 2021 (inception) to June 30, 2021; |
| The historical unaudited condensed financial statements of Perimeter as of and for the six months ended June 30, 2021, and the historical audited financial statements of Perimeter as of and for the year ended December 31, 2020; and |
| The historical unaudited condensed consolidated financial statements of EverArc as of and for the six months ended April 30, 2021 and the historical audited consolidated financial statements as of October 31, 2020 and for the period from November 8, 2019 (inception) to October 31, 2020. |
The foregoing historical financial statements have been prepared in accordance with U.S. GAAP. The unaudited pro forma condensed consolidated combined financial information has been prepared based on the aforementioned historical financial statements and the assumptions and adjustments as described in the notes to the unaudited pro forma condensed consolidated combined financial information. The pro forma adjustments reflect transaction accounting adjustments related to the Business Combination, which is discussed in further detail below. The unaudited pro forma condensed consolidated combined financial statements are presented for illustrative purposes only and do not purport to represent Perimeters consolidated results of operations or consolidated financial position that would actually have occurred had the Business Combination been consummated on the dates assumed or to project Perimeters consolidated results of operations or consolidated financial position for any future date or period.
The unaudited pro forma condensed consolidated combined financial information should also be read together with Managements Discussion and Analysis of Financial Condition and Results of Operations of Perimeter
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and Managements Discussion and Analysis of Financial Condition and Results of Operations of EverArc, and other financial information included elsewhere in this prospectus.
Description of the Business Combination and Related Activity
Prior to the acquisition of Perimeter, the Merger will occur, whereby Merger Sub, a wholly-owned subsidiary of Holdco, will merge with and into EverArc, with EverArc surviving such merger and becoming a wholly-owned subsidiary of Holdco. Concurrent with the Merger, PIPE Subscribers will invest $1,150.0 million in EverArc shares pursuant to the PIPE Subscription Agreement (PIPE Financing), which are exchanged for Holdco shares in connection with the closing of the Business Combination. Further financing activities include the refinancing of debt through the pay down of existing debt and the issuance of new debt for a net decrease to total debt of $75.4 million. The Business Combination will then occur, whereby Holdco will acquire 100% of the outstanding ordinary shares of Perimeter. Consideration for the acquisition will be transferred to SK Holdings, which holds 100% of the outstanding ordinary shares of Perimeter, through a combination of Holdco preferred shares, and cash. As part of the Business Combination, all the outstanding shares of EverArc will be exchanged for outstanding shares of Holdco and all of the outstanding EverArc warrants will be converted into the right to purchase one-fourth of a Holdco ordinary share on the substantially the same terms as the EverArc warrants.
Upon Closing, the ownership distribution of the common stock of the successor entity will be as follows:
Total Capitalization (in millions) | ||||||||||||
$ | Shares | % | ||||||||||
EverArc Holdco stockholders |
408 | 40.8 | 26.0 | |||||||||
Management investment in PIPE |
11 | 1.1 | 0.7 | |||||||||
PIPE Investors |
1,150 | 115.0 | 73.3 | |||||||||
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|
|
|
|
|||||||
Total Shares |
1,569 | 156.9 | 100.0 | |||||||||
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|
|
|
|
|
Accounting for the Business Combination and Related Activity
The Merger between Holdco and EverArc will be accounted for as a common control transaction, where substantially all of the net assets of Holdco will be those previously held by EverArc. The acquisition of Perimeter through the Contribution and Sale will be treated as a business acquisition under ASC 805 with Holdco determined to be the legal and accounting acquirer. Accordingly, the net assets of Perimeter will be stated at fair value within the pro formas. This determination was primarily based on i) Holdco being a substantive entity as it engaged in significant pre-combination activities in order to raise capital, market to investors and pursue a business combination; ii) the Holdco equity holders having a relative majority of the voting power of the Post-Combination Company; iii) Holdco having the authority to appoint a majority of directors on the Board of Directors; and iv) that Holdco both transfers cash and issues equity to effect the business combination. In addition, Perimeter has been determined to be the predecessor of the Post-Combination Company. Accordingly, for accounting purposes, the financial statements of the Post-Combination Company will represent a continuation of the financial statements of Perimeter.
Basis of Pro Forma Presentation
The historical financial information has been adjusted to give pro forma effect to the transaction adjustments required for the Business Combination and Merger as well as the financing adjustment related to PIPE Financing, extinguishment of historical debt and the issuance of new debt. The adjustments in the unaudited pro forma condensed consolidated combined financial information have been identified and presented to provide relevant information necessary for an accurate understanding of the Post-Combination Company following the Business Combination.
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Holdco and Perimeter both have December 31st fiscal year-ends, while EverArc has an October 31st fiscal year-end. In accordance with SEC Regulation S-X Article 11-02(c), the information contained within the unaudited pro forma condensed consolidated combined statement of operations and condensed consolidated combined balance sheet will be presented based on the fiscal year-end of Holdco, the Registrant.
Perimeter constitutes a business, with inputs and processes applied to those inputs that have the ability to contribute to the creation of outputs. Accordingly, the acquisition of Perimeter constitutes the acquisition of a business for purposes of ASC 805, and due to the change in control, will be accounted for using the acquisition method. Under the acquisition method, the acquisition-date fair value of the consideration transferred, consisting of preferred shares and cash, by Holdco to effect the acquisition of Perimeter is allocated to the assets acquired and the liabilities assumed based on their estimated fair values, as reflected in adjustment (A) to the pro formas. Management of Holdco has made significant estimates and assumptions in determining the preliminary allocation of the consideration transferred in the unaudited pro forma condensed consolidated combined financial statements. As the unaudited pro forma condensed consolidated combined financial statements have been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.
In order to appropriately reflect Holdco as the accounting acquirer within the pro formas, the Company has presented the historical financial statements of Holdco within the pro formas, followed by columns representing the EverArc Merger and purchase of Perimeter, which will be treated as a common control transaction and as a business combination under ASC 805, respectively. Based on the determination of the EverArc acquisition as a common control transaction, the net assets of EverArc will be stated at their historical value within the pro formas. Fair value adjustments have been applied to Perimeters historical financial statements in order to present the acquisition at fair value. Transaction adjustments related to the Business Combination are then applied to arrive at the combined total pro forma financial statements.
The unaudited pro forma condensed consolidated combined financial information is for illustrative purposes only. The financial results may have been different had the companies always been combined. You should not rely on the unaudited pro forma condensed consolidated combined financial information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the Post-Combination Company will experience. Holdco and EverArc have not had any historical relationship with Perimeter prior to the Merger. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
Lastly, the significant accounting policies of EverArc and Perimeter are aligned and did not require any adjustments to be made by Holdco upon consummation of the Business Combination in order to create the significant accounting policies of the post-consummation entity.
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Unaudited Pro Forma Condensed Combined Balance Sheet | ||||||||||||||||||||||||||||||||||||||||
As of June 30, 2021 | ||||||||||||||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||||||
Holdco Historical |
EverArc Historical |
Perimeter Solutions Historical |
Perimeter Solutions Purchase Price Allocation Adjustments |
Pro Forma Transaction Adjustments |
Pro Forma Financing Adjustments |
Pro Forma Combined |
||||||||||||||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 1 | $ | 4,041 | $ | (1,289,920 | ) | (A | ) | $ | 398,873 | (B | ) | $ | 11,000 | (G | ) | $ | 96,610 | |||||||||||||||||||
(70,000 | ) | (F | ) | 1,150,000 | (H | ) | ||||||||||||||||||||||||||||||||||
(702,385 | ) | (I | ) | |||||||||||||||||||||||||||||||||||||
595,000 | (J | ) | ||||||||||||||||||||||||||||||||||||||
Accounts receivable, net |
| | 64,632 | 64,632 | ||||||||||||||||||||||||||||||||||||
Inventories |
| | 78,710 | 11,393 | (A | ) | 90,103 | |||||||||||||||||||||||||||||||||
Income tax receivable |
| | 17,305 | 17,305 | ||||||||||||||||||||||||||||||||||||
Short-term investments |
| 398,873 | | (398,873 | ) | (B | ) | | ||||||||||||||||||||||||||||||||
Prepaid expenses and other current assets |
| 693 | 6,430 | 7,123 | ||||||||||||||||||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Total current assets |
| 399,567 | 171,118 | (1,278,527 | ) | (70,000 | ) | 1,053,615 | 275,773 | |||||||||||||||||||||||||||||||
Property, plant and equipmentnet |
| | 49,194 | 7,880 | (A | ) | 57,074 | |||||||||||||||||||||||||||||||||
Other assets: |
||||||||||||||||||||||||||||||||||||||||
Goodwill |
| | 486,455 | 592,740 | (A | ) | 1,079,195 | |||||||||||||||||||||||||||||||||
Customer listsnet |
| | 283,061 | 505,939 | (A | ) | 789,000 | |||||||||||||||||||||||||||||||||
Existing technology and patentsnet |
| | 130,245 | 126,755 | (A | ) | 257,000 | |||||||||||||||||||||||||||||||||
Other intangible assetsnet |
| | 33,421 | 66,640 | (A | ) | 100,061 | |||||||||||||||||||||||||||||||||
Other assets |
| | 980 | 980 | ||||||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Total other assets |
| | 934,162 | 1,292,074 | | | 2,226,236 | |||||||||||||||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Total assets |
$ | | $ | 399,567 | $ | 1,154,474 | $ | 21,427 | $ | (70,000 | ) | $ | 1,053,615 | $ | 2,559,083 | |||||||||||||||||||||||||
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|
|||||||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||||||||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||||||||||||||||||
Current portion of long-term debt, net |
$ | | $ | | $ | 5,610 | $ | (5,610 | ) | (I | ) | $ | | |||||||||||||||||||||||||||
Accounts payable |
| 112 | 36,132 | 36,244 | ||||||||||||||||||||||||||||||||||||
Deferred revenue |
| | 6,701 | 6,701 | ||||||||||||||||||||||||||||||||||||
Accrued expenses and other current liabilities |
| | 17,288 | 17,288 | ||||||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Total current liabilities |
112 | 65,731 | | | (5,610 | ) | 60,233 | |||||||||||||||||||||||||||||||||
Other liabilities: |
||||||||||||||||||||||||||||||||||||||||
Long term debt, less current portion, net |
| | 684,746 | (684,746 | ) | (I | ) | 595,000 | ||||||||||||||||||||||||||||||||
595,000 | (J | ) | ||||||||||||||||||||||||||||||||||||||
Deferred income taxes |
| | 114,404 | 188,812 | (A | ) | (7,432 | ) | (E | ) | 295,784 | |||||||||||||||||||||||||||||
Other liabilities |
| | 20,952 | 101,256 | (A | ) | 45,556 | (E | ) | 167,764 | ||||||||||||||||||||||||||||||
|
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|
|
|
|
|
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|
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|
|
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|
|||||||||||||||||||||||||||
Total other liabilities |
| 820,102 | 290,068 | 38,124 | (89,746 | ) | 1,058,548 | |||||||||||||||||||||||||||||||||
Shareholders equity: |
||||||||||||||||||||||||||||||||||||||||
Class A Common stockNewCo |
| | | 4 | (C | ) | 1 | (G | ) | 16 | ||||||||||||||||||||||||||||||
11 | (H | ) | ||||||||||||||||||||||||||||||||||||||
Class A Common stockPerimeter |
| | 53,046 | (53,046 | ) | (A | ) | | ||||||||||||||||||||||||||||||||
Class A Common stockEverArc |
| 401,358 | | (401,358 | ) | (C | ) | | ||||||||||||||||||||||||||||||||
Paid-in capital |
40 | | 289,344 | (289,344 | ) | (A | ) | 401,354 | (C | ) | 10,999 | (G | ) | 1,628,387 | ||||||||||||||||||||||||||
20,449 | (D | ) | 1,149,989 | (H | ) | | ||||||||||||||||||||||||||||||||||
45,556 | (E | ) | ||||||||||||||||||||||||||||||||||||||
Accumulated deficit |
| (1,919 | ) | (70,171 | ) | 70,171 | (A | ) | (20,449 | ) | (D | ) | (12,029 | ) | (I | ) | (188,077 | ) | ||||||||||||||||||||||
(83,680 | ) | (E | ) | |||||||||||||||||||||||||||||||||||||
(70,000 | ) | (F | ) | |||||||||||||||||||||||||||||||||||||
Subscription receivable |
| (1 | ) | | (1 | ) | ||||||||||||||||||||||||||||||||||
Note receivable |
(40 | ) | | | (40 | ) | ||||||||||||||||||||||||||||||||||
Accumulated other comprehensive loss |
| 17 | (3,578 | ) | 3,578 | (A | ) | 17 | ||||||||||||||||||||||||||||||||
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Total shareholders equity |
| 399,455 | 268,641 | (268,641 | ) | (108,124 | ) | 1,148,971 | 1,440,302 | |||||||||||||||||||||||||||||||
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Total liabilities and shareholders equity |
$ | | $ | 399,567 | $ | 1,154,474 | $ | 21,427 | $ | (70,000 | ) | $ | 1,053,615 | $ | 2,559,083 | |||||||||||||||||||||||||
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|
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Unaudited Pro Forma Condensed Combined Statement of Operations | ||||||||||||||||||||||||||||||||||||
For the Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||
(in thousands, except share and per share amounts) | ||||||||||||||||||||||||||||||||||||
Holdco Historical |
EverArc Historical |
Perimeter Solutions Historical |
Perimeter Solutions Purchase Price Allocation Adjustments |
Pro Forma Transaction Adjustments |
Pro Forma Combined |
|||||||||||||||||||||||||||||||
Net sales |
$ | | $ | | $ | 121,046 | $ | 121,046 | ||||||||||||||||||||||||||||
Cost of sales |
| | 73,814 | 73,814 | ||||||||||||||||||||||||||||||||
Selling, general and administrative expenses |
| 1,029 | 27,211 | 7,881 | (CC | ) | 53,782 | |||||||||||||||||||||||||||||
17,661 | (DD | ) | ||||||||||||||||||||||||||||||||||
Amortization expense |
| | 26,542 | 33,777 | (AA.1 | ) | 60,319 | |||||||||||||||||||||||||||||
Other operating (income) expense |
| | 753 | 753 | ||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
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|
|||||||||||||||||||||||||
Total operating expense |
| 1,029 | 128,320 | 33,777 | 25,542 | 188,668 | ||||||||||||||||||||||||||||||
Operating income (loss) |
| (1,029 | ) | (7,274 | ) | (33,777 | ) | (25,542 | ) | (67,622 | ) | |||||||||||||||||||||||||
Interest expense, net |
| | 15,886 | 1,250 | (FF | ) | 17,136 | |||||||||||||||||||||||||||||
Loss on contingent earnout |
| | 2,763 | 2,763 | ||||||||||||||||||||||||||||||||
Unrealized foreign currency (gain) loss |
| | 2,258 | 2,258 | ||||||||||||||||||||||||||||||||
Other (income) expense, net |
| | (318 | ) | (318 | ) | ||||||||||||||||||||||||||||||
Investment income |
| (84 | ) | | 84 | (BB | ) | | ||||||||||||||||||||||||||||
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|
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Income (loss) before income taxes |
| (945 | ) | (27,863 | ) | (33,777 | ) | (26,876 | ) | (89,461 | ) | |||||||||||||||||||||||||
Income tax expense (benefit) |
| | (5,486 | ) | (8,929 | ) | (AA.2 | ) | (2,083 | ) | (EE | ) | (16,498 | ) | ||||||||||||||||||||||
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Net income (loss) |
$ | | $ | (945 | ) | $ | (22,377 | ) | $ | (24,848 | ) | $ | (24,793 | ) | $ | (72,963 | ) | |||||||||||||||||||
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Net earnings: |
||||||||||||||||||||||||||||||||||||
Basic earnings per share |
| (0.03 | ) | (0.42 | ) | (0.47 | ) | (GG | ) | |||||||||||||||||||||||||||
Average shares outstanding |
| 36,301,525 | 53,045,510 | 156,900,000 | (GG | ) |
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Unaudited Pro Forma Condensed Combined Statement of Operations | ||||||||||||||||||||||||||||||||||||
For the Twelve Months Ended December 31, 2020 | ||||||||||||||||||||||||||||||||||||
(in thousands, except share and per share amounts) | ||||||||||||||||||||||||||||||||||||
Holdco Historical |
EverArc Historical |
Perimeter Solutions Historical |
Perimeter Solutions Purchase Price Allocation Adjustments |
Pro Forma Transaction Adjustments |
Pro Forma Combined |
|||||||||||||||||||||||||||||||
Net sales |
$ | | $ | | $ | 339,577 | $ | 339,577 | ||||||||||||||||||||||||||||
Cost of sales |
| | 177,532 | 11,393 | (HH.2 | ) | 188,925 | |||||||||||||||||||||||||||||
Selling, general and administrative expenses |
| 2,621 | 37,747 | 33,165 | (JJ | ) | 306,178 | |||||||||||||||||||||||||||||
20,449 | (KK | ) | ||||||||||||||||||||||||||||||||||
28,114 | (LL | ) | ||||||||||||||||||||||||||||||||||
62,998 | (MM | ) | ||||||||||||||||||||||||||||||||||
15,763 | (NN | ) | ||||||||||||||||||||||||||||||||||
35,321 | (OO | ) | ||||||||||||||||||||||||||||||||||
70,000 | (RR | ) | ||||||||||||||||||||||||||||||||||
Amortization expense |
| | 51,458 | 69,180 | (HH.1 | ) | 120,638 | |||||||||||||||||||||||||||||
Other operating (income) expense |
| | 1,364 | 1,364 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Total operating expense |
| 2,621 | 268,101 | 80,573 | 265,810 | 617,105 | ||||||||||||||||||||||||||||||
Operating income (loss) |
| (2,621 | ) | 71,476 | (80,573 | ) | (265,810 | ) | (277,528 | ) | ||||||||||||||||||||||||||
Interest expense, net |
| | 42,017 | 12,029 | ) | 56,546 | ||||||||||||||||||||||||||||||
2,500 | (SS | ) | ||||||||||||||||||||||||||||||||||
Other (income) expense, net |
| | (5,273 | ) | (5,273 | ) | ||||||||||||||||||||||||||||||
Investment income |
| (1,646 | ) | | 1,646 | (II | ) | | ||||||||||||||||||||||||||||
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Income (loss) before income taxes |
| (975 | ) | 34,732 | (80,573 | ) | (269,956 | ) | (328,801 | ) | ||||||||||||||||||||||||||
Income tax expense (benefit) |
| | 10,483 | (21,299 | ) | (HH.3 | ) | (7,432 | ) | (PP | ) | (18,248 | ) | |||||||||||||||||||||||
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|
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|
|||||||||||||||||||||||||
Net income (loss) |
$ | | $ | (975 | ) | $ | 24,249 | $ | (59,274 | ) | $ | (262,524 | ) | $ | (310,553 | ) | ||||||||||||||||||||
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|
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Net earnings: |
||||||||||||||||||||||||||||||||||||
Basic earnings per share |
| (0.03 | ) | 0.46 | (1.98 | ) | (TT | ) | ||||||||||||||||||||||||||||
Average shares outstanding |
| 36,301,525 | 53,045,510 | 156,900,000 | (TT | ) |
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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED FINANCIAL INFORMATION
1. Basis of Presentation
The pro forma adjustments have been prepared as if the Business Combination had been consummated on June 30, 2021, in the case of the unaudited pro forma condensed consolidated combined balance sheet, and as if the Business Combination had been consummated on January 1, 2020, the beginning of the earliest period presented in the unaudited pro forma condensed consolidated combined statements of operations.
The unaudited pro forma condensed consolidated combined financial information has been prepared assuming the following methods of accounting in accordance with GAAP.
The Merger between Holdco and EverArc will be accounted for as a common control transaction, where substantially all of the net assets of Holdco will be those previously held by EverArc. The acquisition of Perimeter through the Business Combination will be treated as a business acquisition under ASC 805 with Holdco determined to be the legal and accounting acquirer. Accordingly, the net assets of Perimeter will be stated at fair value within the pro formas. Perimeter has been determined to be the predecessor to the Post-Combination Company. In addition to purchase price allocation adjustments and transaction adjustments, a financing adjustment has been reflected within the pro formas; this adjustment relates to the PIPE Financing, which is an additional source of financing associated with the Business Combination.
The pro forma adjustments represent managements estimates based on information available as of the date of this prospectus and are subject to change as additional information becomes available and additional analyses are performed. Management considers this basis of presentation to be reasonable under the circumstances.
2. Adjustments and Assumptions to the Unaudited Pro Forma Condensed Consolidated Combined Balance Sheet as of June 30, 2021
The adjustments included in the unaudited pro forma condensed consolidated combined balance sheet as of June 30, 2021 are as follows:
(A) | Reflects the purchase price allocation adjustments to record Perimeters assets and liabilities at estimated fair value based on the consideration conveyed to SK Holdings of $1,389.9 million, as detailed below. This consideration includes payment to SK Holdings as per the Business Combination Agreement in the form of $1,289.9 million in cash and $100.0 million in Preferred Equity Contributions. Preferred Equity Contributions were issued to existing Perimeter equity holders at par upon the Business Combination. Par value is considered to approximate fair value as this amount is equal to the redemption value as of Closing. These instruments have been assessed for classification, and it was determined that the instrument should be classified as a liability due to mandatory redemption features. In addition to the consideration conveyed to SK Holdings, $702.3 million will be used to pay down debt, which is discussed further at adjustment (I). As part of the allocation of the purchase price under ASC 805, Perimeters historical accumulated deficit and accumulated other comprehensive loss was also eliminated. |
The preliminary purchase price was allocated among the identified assets to be acquired, based on a preliminary analysis. All valuation procedures related to existing assets as no new assets were identified as a result of procedures performed. Goodwill was recognized as a result of the acquisition, which represents the excess fair value of consideration over the fair value of the underlying net assets, largely arising from the extensive industry expertise that has been established by Perimeter. This was considered appropriate based on the determination that the Business Combination would be accounted for as a business acquisition under ASC 805. A deferred tax liability was recorded as part of the purchase price allocation, based on an analysis of the tax impacts of the Business Combination by
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location and by asset. The estimates of fair value are based upon preliminary valuation assumptions believed to be reasonable but which are inherently uncertain and unpredictable; and, as a result, actual results may differ from estimates.
Assets Identified | Fair Value | |||
Property, Plant, and Equipment |
$ | 57,074 | ||
Inventory |
90,103 | |||
Other intangible assets |
100,061 | |||
Customer lists |
789,000 | |||
Existing technology and patents |
257,000 | |||
Goodwill |
1,079,195 | |||
Working capital |
32,287 | |||
Other assets |
980 | |||
LaderaTech Contingent Earnout(1) |
(22,208 | ) | ||
Debt |
(690,356 | ) | ||
Deferred tax liabilities |
(303,216 | ) | ||
|
|
|||
Total Fair Value |
$ | 1,389,920 |
Value Conveyed | ||||
Cash to SK Holdings |
$ | 1,289,920 | ||
Preferred Equity Contributions |
100,000 | |||
|
|
|||
Total preliminary purchase price consideration |
$ | 1,389,920 |
(1) | Refer to Footnote 3 to the Unaudited Interim Condensed Consolidated Financial Statements for further information related to the LaderaTech Contingent Earnout. |
(B) | Reflects the reclassification of cash and marketable securities held in short-term investments that become available in conjunction with the business combination. This amount relates to EverArcs IPO proceeds, which are not subject to redemption. |
(C) | Reflects the issuance of 40.8 million shares of Class A Common Stock in the Post-Combination Company to EverArc shareholders. The impact to Class A Common Stock in the Post-Combination Company was calculated as the number of shares multiplied by 0.0001, resulting in an adjustment of $4 thousand to common stock. The remaining balance in EverArc Class A Common Stock was recorded to additional paid-in capital in the Post-Combination Company in order to consistently present this balance on a go forward basis. |
(D) | Represents recognition of the balance sheet impact of the fair value associated with the portion of the fixed award within the EverArc Founder Advisory Agreement that is fully vested as of the Business Combination. This agreement is referenced at Note 7 to the EverArc financial statements for the six months ended April 30, 2021. This portion of the award fully vests upon a change in control. The related nonrecurring expense was recorded via adjustment (KK). |
(E) | Represents recognition of the balance sheet impact of the fair value associated with the variable award and a portion of the fixed award within the EverArc Founder Advisory Agreement that are partially vested as of the Business Combination. This agreement is referenced at Note 7 to the EverArc financial statements for the six months ended April 30, 2021. These awards have been assessed for classification, and, following the Business Combination, it was determined that half of the awards should be classified as a liability and the other half as equity. This is due to fact that half of these awards are subject to cash settlement at the option of the holder. A deferred tax asset was recorded for the expected tax benefit of the amount vested as of the Business Combination. The related recurring expense expected to be incurred on an ongoing basis for these awards was recorded via adjustments (CC) and (DD), respectively. The related nonrecurring expense incurred from grant date to Closing for these awards was recorded via adjustments (LL) and (MM), respectively. |
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(F) | Represents transaction costs of $70.0 million, of which no amount was accrued for on the balance sheet as of June 30, 2021. |
(G) | Represents the pro forma adjustment to record the net proceeds of $11.0 million from the issuance of 1.1 million shares of Class A Common Stock to Perimeter management as subscribers in the PIPE. The impact to Class A Common Stock in the Post-Combination Company was calculated as the number of shares multiplied by 0.0001, resulting in an adjustment of $1 thousand to common stock, and the remaining balance was recorded to additional paid-in capital. |
(H) | Represents the pro forma adjustment to record the net proceeds of $1,150.0 million from the private placement and issuance of 115.0 million shares of Class A common stock to the PIPE Investors. The impact to Class A Common Stock in the Post-Combination Company was calculated as the number of shares multiplied by 0.0001, resulting in an adjustment of $11 thousand to common stock, and the remaining balance was recorded to additional paid-in capital. |
(I) | Represents the pro forma adjustment to record the pay down of existing debt of $690.4 million, net of deferred financing costs of $12.0 million. As a result of the pay down of debt, we accelerated the recognition of expense related to these deferred financing costs. |
(J) | Represents the pro forma adjustment to record the issuance of new debt in the amount of $615.0 million. The proceeds of debt were reduced by deferred financing costs of $20.0 million. The net decrease to total debt of $75.4 million is expected to reduced the ongoing interest expense of the Post-Combination Company. The total amount of new debt is known through an executed debt commitment letter. Interest expense adjustments will be applied once the relevant interest rate on this debt is available. |
3. Adjustments and Assumptions to the Unaudited Pro Forma Condensed Combined Statement of Operations for the Six Months ended June 30, 2021
The adjustments included in the unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2021 are as follows:
(AA) Reflects the pro forma impacts related to the purchase price allocation discussed at adjustment (A). This includes the following impacts:
1) | The incremental amortization expense related to intangibles. These intangibles include Customer lists, Existing technology and patents, and Other intangibles, which were previously presented within Perimeters historical financial statements but were adjusted to fair value based on the purchase price allocation. The amortization expense for intangibles was calculated on a straightline basis using the estimated remaining useful lives of the assets, which was determined to be ten years for all intangibles. |
2) | Represents the pro forma adjustment to taxes as a result of the purchase price allocation adjustments to the income statement for the six months ended June 30, 2021, which was calculated using the relevant blended statutory income tax rate of 26.44%. |
(BB) | Reflects the elimination of interest earned on marketable securities held in the trust account. |
(CC) | Reflects the pro forma adjustment to record ongoing stock compensation expense related to the partially vested portion of the fixed award within the EverArc Founder Advisory Agreement, referenced at Note 7 to the EverArc financial statements for the six months ended April 30, 2021. This agreement provides, in part, for compensation to be recognized over a period beginning at the grant date and extending six years following Closing (the service period), as further described at Note 7 to the EverArc financial statements for the six months ended April 30, 2021. The ASC 718 fair value of this award was determined as of September 30, 2021, assuming a share price of $10 per share, which resulted in a total valuation of $122.7 million. This adjustment represents the ongoing compensation expense related to this award in the amount of $7.9 million for the six months ended June 30, 2021. |
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Refer to adjustment (E) for the liability and equity impact related to the vested portions of this award and the award referenced at adjustment (DD). |
(DD) | Reflects the pro forma adjustment to record ongoing stock compensation expense related to the partially vested variable award within the EverArc Founder Advisory Agreement, referenced at Note 7 to the EverArc financial statements for the six months ended April 30, 2021. This agreement provides, in part, for compensation to be recognized over a period beginning at the grant date and extending ten years following Closing (the service period), as further described at Note 7 to the EverArc financial statements for the six months ended April 30, 2021.. The ASC 718 fair value of this award was determined as of September 30, 2021, utilizing a Monte Carlo simulation, which resulted in a total valuation of $416.2 million. This adjustment represents the ongoing compensation expense related to this award in the amount of $17.7 million for the six months ended June 30, 2021. Refer to adjustment (E) for the liability and equity impact related to the vested portions of this award and the award referenced at adjustment (CC). |
(EE) | Represents the pro forma adjustment to taxes as a result of adjustments to the income statement for the six months ended June 30, 2021, which was calculated using the relevant blended statutory income tax rate of 26.44%. The calculation of the pro forma adjustment to taxes was limited to tax impacted adjustments. No tax impact was recorded with regard to interest earned on marketable securities held in the trust account, representing income with no associated tax expense recorded. |
(FF) | Reflects the recognition of the amortization of deferred financing costs recorded on new debt for the six months ended June 30, 2020. The deferred financing costs were amortized over the term of the loan, 8 years. |
(GG) | Represents net loss per share computed by dividing net loss by the weighted average number of common shares outstanding for the six months ended June 30, 2021. The weighted average shares outstanding was calculated assuming the transaction occurred as of the earliest period presented. |
4. Adjustments and Assumptions to the Unaudited Pro Forma Condensed Combined Statement of Operations for the Year ended December 31, 2020
The adjustments included in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020 are as follows:
(HH) | Reflects the pro forma impacts related to the purchase price allocation discussed at adjustment (A). This includes the following impacts: |
1) The incremental amortization expense related to intangibles. These intangibles include Customer lists, Existing technology and patents, and Other intangibles, which were previously presented within Perimeters historical financial statements but were adjusted to fair value based on the purchase price allocation. The amortization expense for intangibles was calculated on a straight-line basis using the estimated remaining useful lives of the assets, which was determined to be ten years for all intangibles.
2) The increase in cost of sales related to the step-up in basis associated with inventory. Based on Perimeters inventory turnover of approximately twice per year, it was estimated that this would be fully recognized within the first six months of Closing. Thus, this adjustment was treated as a nonrecurring expense for purposes of the pro formas.
3) Represents the pro forma adjustment to taxes as a result of the purchase price allocation adjustments to the income statement for the year ended December 31, 2020, which was calculated using the relevant blended statutory income tax rate of 26.44%.
(II) | Reflects the elimination of interest earned on marketable securities held in the trust account. |
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(JJ) | Reflects the pro forma adjustment to record stock compensation expense for legacy shares granted to Perimeter management that vest upon a change in control. This expense is in the predecessor period of Perimeter, and therefore is not reflected in the equity of the Post-Combination Company within the pro forma balance sheet. |
(KK) | Reflects the pro forma adjustment to record nonrecurring performance based stock compensation expense as of Closing related to the fully vested portion of the fixed award within the EverArc Founder Advisory Agreement, referenced at Note 6 to the EverArc financial statements for the year ended October 31, 2020. The ASC 718 fair value of this award was determined as of September 30, 2021, assuming a share price of $10 per share, which resulted in a total valuation of $20.4 million. This award fully vests upon a change in control. Refer to adjustment (D) for the equity impact related to this award. |
(LL)Reflects | the pro forma adjustment to record nonrecurring performance based stock compensation expense as of Closing related to the partially vested portion of the fixed award within the EverArc Founder Advisory Agreement, referenced at Note 6 to the EverArc financial statements for the year ended October 31, 2020. This agreement provides, in part, for compensation to be recognized over a period beginning at the grant date of December 19, 2019 and extending six years following Closing (the service period), as further described at Note 6 to the EverArc financial statements for the year ended October 31, 2020. The ASC 718 fair value of this award was determined as of September 30, 2021, assuming a share price of $10 per share, which resulted in a total valuation of $122.7 million. This adjustment represents the compensation expense related to this award in the amount of $28.1 million, which relates to the period from the grant date to the date at which the performance metrics of the award become probable. Refer to adjustment (CC) for the pro forma adjustment to recognize the ongoing expense related to this award. Refer to adjustment (E) for the liability and equity impact related to the vested portions of this award and the award referenced at adjustment (MM). |
(MM) | Reflects the pro forma adjustment to record nonrecurring performance based stock compensation expense as of Closing related to the partially vested variable award within the EverArc Founder Advisory Agreement, referenced at Note 6 to the EverArc financial statements for the year ended October 31, 2020. This agreement provides, in part, for compensation to be recognized over a period beginning at the grant date of December 19, 2019 and extending ten years following Closing (the service period), as further described at Note 6 to the EverArc financial statements for the year ended October 31, 2020. The ASC 718 fair value of this award was determined as of September 30, 2021, utilizing a Monte Carlo simulation, which resulted in a total valuation of $416.2 million. This adjustment represents the compensation expense related to this award in the amount of $63.0 million, which relates to the period from the grant date to the date at which the performance metrics of the award become probable. Refer to adjustment (DD) for the pro forma adjustment to recognize the ongoing expense related to this award. Refer to adjustment (E) for the liability and equity impact related to the vested portions of this award and the award referenced at adjustment (LL). |
(NN) | Reflects the pro forma adjustment to record ongoing stock compensation expense related to the partially vested portion of the fixed award within the EverArc Founder Advisory Agreement, referenced at Note 6 to the EverArc financial statements for the year ended October 31, 2020. This agreement provides, in part, for compensation to be recognized over a period beginning at the grant date of December 19, 2019 and extending six years following Closing (the service period), as further described at Note 6 to the EverArc financial statements for the year ended October 31, 2020. The ASC 718 fair value of this award was determined as of September 30, 2021, assuming a share price of $10 per share, which resulted in a total valuation of $122.7 million. This adjustment represents the ongoing compensation expense related to this award in the amount of $15.8 million for the year ended December 31, 2020. Refer to adjustment (E) for the liability and equity impact related to the vested portions of this award and the award referenced at adjustment (OO). |
(OO) | Reflects the pro forma adjustment to record ongoing stock compensation expense related to the partially vested variable award within the EverArc Founder Advisory Agreement, referenced at Note 6 |
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to the EverArc financial statements for the year ended October 31, 2020. This agreement provides, in part, for compensation to be recognized over a period beginning at the grant date of December 19, 2019 and extending ten years following Closing (the service period), as further described at Note 6 to the EverArc financial statements for the year ended October 31, 2020. The ASC 718 fair value of this award was determined as of September 30, 2021, utilizing a Monte Carlo simulation, which resulted in a total valuation of $416.2 million. This adjustment represents the ongoing compensation expense related to this award in the amount of $35.3 million for the year ended December 31, 2020. Refer to adjustment (E) for the liability and equity impact related to the vested portions of this award and the award referenced at adjustment (NN). |
(PP) | Represents the pro forma adjustment to taxes as a result of adjustments to the income statement for the year ended December 31, 2020, which was calculated using the relevant blended statutory income tax rate of 26.44%. The calculation of the pro forma adjustment to taxes was limited to tax impacted adjustments. No tax impact was recorded with regard either to interest earned on marketable securities held in the trust account, representing income with no associated tax expense recorded, or to compensation expense that is expected to be nondeductible for tax purposes. |
(QQ) | Reflects the accelerated recognition of nonrecurring expense related to deferred financing costs on refinanced debt in the amount of $12.0 million. For further details related to the pay down of debt, refer to adjustment (I). |
(RR) | Reflects the recognition of nonrecurring expenses related to transaction costs in the amount of $70.0 million, which are comprised of $48.5 million of bank fees, $12.9 million of accounting and finance fees, $2.8 million related to legal fees, and $5.9 million related to other transaction costs. |
(SS) | Reflects the recognition of the amortization of deferred financing costs recorded on new debt for the year ended December 31, 2020. The deferred financing costs were amortized over the term of the loan, 8 years. |
(TT) | Represents net income per share computed by dividing net income by the weighted average number of common shares outstanding for the year ended December 31, 2020. The weighted average shares outstanding was calculated assuming the transaction occurred as of the earliest period presented. |
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The following table sets forth the per share data of the Company on a stand-alone basis and the unaudited pro forma condensed combined per share data for the period ended December 31, 2020 and the six months ended June 30, 2021 after giving effect to the Business Combination.
The information in the following table should be read in conjunction with the selected historical financial information summary included elsewhere in this prospectus, and the historical financial statements of Holdco, EverArc, and Perimeter and related notes that are included elsewhere in this prospectus. The unaudited Holdco, EverArc, and Perimeter pro forma combined per share information is derived from, and should be read in conjunction with, the unaudited pro forma condensed combined financial statements and related notes included elsewhere in this prospectus.
The unaudited pro forma combined net income per share information below does not purport to represent the net income per share which would have occurred had the companies been combined during the periods presented, nor net income per share for any future date or period. The unaudited pro forma combined book value per share information below does not purport to represent what the value of Holdco, EverArc, and Perimeter would have been had the companies been combined during the periods presented.
(Unaudited) Perimeter Solutions (Historical) |
EverArc (Historical) |
Combined Pro Forma |
||||||||||
As of and for the Six Months Ended | ||||||||||||
(in thousands, except share and per share amounts) |
June 30, 2021 | April 30, 2021 | June 30, 2021 | |||||||||
Shareholders equity |
$ | 268,641 | $ | 399,455 | $ | 1,440,302 | ||||||
Net loss |
$ | (22,377 | ) | $ | (945 | ) | $ | (72,963 | ) | |||
Common shares outstanding as of June 30, 2021 basic |
53,045,510 | 40,832,500 | 156,900,000 | |||||||||
Weighted average common shares outstanding basic |
53,045,510 | 36,301,525 | 156,900,000 | |||||||||
Shareholders equity per share basic |
$ | 5.06 | $ | 9.78 | $ | 9.18 | ||||||
Net loss per share attributable to common shareholders basic |
$ | (0.42 | ) | $ | (0.03 | ) | $ | (0.47 | ) |
(Unaudited) Perimeter Solutions (Historical) |
EverArc (Historical) |
Combined Pro Forma |
||||||||||
As of and for the Year Ended | ||||||||||||
December 31, 2020 |
October 31, 2020 |
December 31, 2020 |
||||||||||
Net income (loss) |
$ | 24,249 | $ | (975 | ) | $ | (310,553 | ) | ||||
Weighted average common shares outstanding basic |
53,045,510 | 36,301,525 | 156,900,000 | |||||||||
Net income (loss) per share attributable to common shareholders basic |
$ | 0.46 | $ | (0.03 | ) | $ | (1.98 | ) |
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Background of the Business Combination
EverArc was formed in the British Virgin Islands on November 8, 2019 to undertake an acquisition of a target company or business (which may be in the form of a merger, capital stock exchange, asset acquisition, stock purchase, scheme of arrangement, reorganization or similar business combination). The proposed Business Combination with Perimeter is the result of an extensive search for a potential business combination using the investing and operating experience of EverArcs board of directors and the EverArc Founders.
The terms of the Business Combination are the result of negotiations between representatives of EverArc and SK Holdings. The following is a brief description of the background of these negotiations and the resulting Business Combination.
On December 17, 2019, EverArc consummated its IPO and issued 34,030,000 EverArc Ordinary Shares and 34,030,000 matching EverArc Warrants (which included an aggregate of (i) 1,500,000 EverArc Ordinary Shares (with matching warrants) subscribed for by the EverArc Founders and the EverArc Subscription Founder Entities and (ii) 30,000 EverArc Ordinary Shares (with matching warrants)) subscribed for by certain EverArc directors in each case, outside of the IPO, with each whole warrant entitling the holder to purchase one-fourth of an EverArc Ordinary Share at $12.00 per whole EverArc Ordinary Share. The EverArc Ordinary Shares issued in the IPO and the EverArc Ordinary Shares subscribed for by the EverArc Founders, the EverArc Subscription Founder Entities and certain EverArc directors were sold at a price of $10.00 per EverArc Ordinary Share, generating gross proceeds of $340,300,000. Further gross proceeds of $71,400,000 were raised in January 2020 from a placing of EverArc Ordinary Shares at a placing price of $10.50 per EverArc Ordinary Share.
Prior to the consummation of the IPO, neither EverArc, nor anyone on its behalf, had selected any business combination target or initiated any substantive discussions, directly or indirectly, with respect to identifying any business combination target.
After the IPO, EverArcs officers and directors commenced an active search for prospective businesses or assets to acquire in the initial business combination. In the prospectus for the IPO, EverArc identified the following general criteria and guidelines that it believed would be important in evaluating acquisition opportunities, although it indicated that it may decide to enter an initial business combination with a target business that does not meet these criteria and guidelines. EverArc intended to acquire companies or assets that it believed had the following attributes:
| predictable and growing revenue streams; |
| products or services that account for critical but small portions of larger value streams; |
| significant free cash flow generation with high returns on tangible capital; |
| secular growth tailwinds; and |
| businesses in fragmented industries with potential for opportunistic consolidation. |
These criteria were not intended to be exhaustive. Any evaluation relating to the merits of a particular initial business combination was to be based, to the extent relevant, on some or all of the above factors as well as other considerations deemed relevant to EverArcs business objective by the board of directors.
During the search process from the consummation of EverArcs IPO through the signing of the Business Combination Agreement on June 15, 2021, EverArc reviewed self-generated ideas including over 200 potential acquisition targets that potentially met its five attributes.
These potential acquisition targets originated through the EverArc Founders networks and relationships, or through financial advisors and other entities that presented potential acquisition targets. The majority of these
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potential targets conducted a significant proportion of their business activities in North America, and most commonly conducted business in the industrials, specialty chemicals, services, or software sectors. EverArc conducted due diligence to varying degrees on such prospective targets, including review of such businesses management, business model, competitive landscape, and certain financials, in each case, to the extent available. EverArc reviewed opportunities on a rolling basis, including based on discussions and information, including investor presentations received under confidentiality agreements entered into with a limited number of potential counterparties and approximately 20 management meetings. The EverArc Founders convened on a biweekly basis to review these opportunities in detail. After reviewing and considering the foregoing opportunities, EverArc continued to cull its list of prospects based primarily on each business fit relative to EverArcs aforementioned target economic attributes. Following such reviews and discussions, and at various points in time, EverArc discontinued its review of certain targets for one or various reasons, often pertaining to a targets insufficient fit relative to EverArcs target economic attributes. Once discussions began with SK Holdings relating to an acquisition of Perimeter, it was deemed that Perimeter was the most attractive opportunity for EverArc and its shareholders based on its attributes relative to EverArcs target attributes as discussed more fully below.
The terms of the Business Combination are the result of negotiations between representatives of EverArc and SK Holdings. The following is a brief description of the background of these negotiations and the resulting Business Combination.
On May 6, 2020, Telly Zachariades and several of his colleagues from The Valence Group of Piper Sandler & Co. (Valence) delivered a presentation to Mr. Khouri and Mr. Raj, two of the EverArc Founders. Valences presentation detailed several businesses, which, Valence believed, possessed the core economic attributes the EverArc Founders were targeting in an acquisition, and which therefore might be attractive acquisition targets for EverArc. Perimeter Solutions was one of the companies profiled in Valences presentation.
On May 15, 2020, the EverArc Founders held a conference call attended by Mr. Howley, Mr. Thorndike, Ms. Britt Cool, Mr. Khouri, and Mr. Raj. During the conference call, the EverArc Founders discussed Perimeter Solutions as a new and interesting potential acquisition candidate and agreed to conduct further research related to Perimeter.
Over the ensuing months, the EverArc Founders conducted independent desktop due diligence on Perimeter. This independent due diligence indicated that Perimeter potentially possessed many of the core economic attributes that the EverArc Founders were targeting in an acquisition.
During this period, the EverArc Founders periodically updated the EverArc Board on the acquisition search process.
Following the desktop diligence, Mr. Khouri and Mr. Raj, on several occasions over the second half of 2020, conveyed their interest in exploring an acquisition of Perimeter directly to representatives of SK Holdings, Perimeters sole shareholder, as well as to Mr. Zachariades, who, in turn, conveyed this interest to SK Holdings.
In January 2021, after again speaking to Mr. Khouri and Mr. Raj, and confirming their continued interest in exploring an acquisition of Perimeter, Mr. Zachariades again spoke to representatives of SK Holdings, including Mr. Aaron Davenport, Managing Director at SK Capital Partners, an affiliate of SK Holdings. During the conversation, Mr. Davenport indicated to Mr. Zachariades a willingness to enter into an NDA with EverArc, and to engage in preliminary exploratory conversations around Perimeter Solutions. Mr. Davenport also indicated to Mr. Zachariades a target valuation for Perimeter of approximately $2.0 billion. Mr. Zachariades relayed this conversation to Mr. Khouri and Mr. Raj, who reiterated to Mr. Zachariades their interest in moving forward.
On January 20, 2021, EverArc and SK Holdings entered into an NDA.
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On January 27, 2021, an introductory conference call was held between members of EverArc, including Mr. Khouri and Mr. Raj; SK Holdings, including Mr. Davenport; and Valence, including Mr. Zachariades. During the call, Mr. Davenport provided a detailed overview of Perimeters business, and discussed the Companys historical and projected financial performance.
On February 5, 2021, SK Holdings provided EverArc with a presentation outlining Perimeters business in further detail, including its historical and projected financial performance.
During the weeks of February 8 and February 15, 2021, EverArc completed a thorough review of the presentation that was provided by SK Holdings on February 5, 2021, and conducted incremental independent desktop due-diligence on Perimeter.
The EverArc Founders continued to keep the EverArc Board apprised of the discussions with SK Holdings and the results of the diligence process.
On February 22, 2021, EverArc sent a letter addressed to Mr. Davenport, re-affirming its interest in further exploring an acquisition of Perimeter. The letter provided a non-binding valuation range of $1.95 billion to $2.1 billion based on the independent research conducted to date, the presentation received from SK Holdings, and the valuation feedback Mr. Davenport had previously provided to Mr. Zachariades. The letter also proposed that EverArc acquire 65% to 80% of the equity in Perimeter, with SK retaining 20% to 35% ownership in the Company. Mr. Davenport indicated receptivity to EverArcs non-binding proposal and agreed to introduce the EverArc Founders to Perimeters management team, while also indicating a target valuation range of $2.0 billion to $2.1 billion.
On March 4, 2021, a conference call was held between the EverArc Founders, including Mr. Howley, Mr. Thorndike, Mr. Khouri, and Mr. Raj; SK Holdings, including Mr. Davenport; Valence, including Mr. Zachariades; and Perimeter, including Mr. Goldberg, Perimeters CEO, and Mr. Lederman, Perimeters CFO. During the conference call, Mr. Goldberg and Mr. Lederman provided an in-depth overview of Perimeters business, including a detailed discussion of the Companys business strategy, as well as its historical and projected financial performance. Perimeter also provided EverArc with an accompanying slide deck presentation which further detailed the Companys business strategy and its historical and projected financial performance.
On March 10, 2021, EverArc presented Perimeter with a due-diligence request list prepared by its legal counsel, Greenberg Traurig, P.A. (Greenberg). The list included the following sections:
| Financial and accounting |
| Organization and people |
| Manufacturing and supply chain |
| Environmental |
| R&D and IP |
| M&A |
| Other business information |
| Competition |
| Others |
On March 12, 2021, EverArc sent a non-binding letter of intent addressed to Mr. Davenport, outlining preliminary key terms and conditions for the potential transaction. The letter of intent provided for a valuation range of $2.0 billion to $2.1 billion, proposed that EverArc acquire 75% of the equity in Perimeter with SK Holdings retaining 25% ownership, and that EverArc and SK Holdings enter into exclusive negotiations regarding an acquisition of Perimeter.
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On the afternoon of March 18, 2021, EverArc held its scheduled Q1 2021 board meeting. A portion of the meeting was devoted to the discussion of a potential acquisition of Perimeter, including the EverArc Founders intent to enter into exclusivity, and conduct in-depth due diligence on the Company. The EverArc board indicated its support for proceeding with these next steps regarding Perimeter.
On the evening of March 18, 2021, EverArc and Perimeter entered into an exclusivity agreement with SK Holdings related to EverArcs potential acquisition of Perimeter. The exclusivity agreement provided for a valuation range of $2.0 billion to $2.1 billion and proposed that EverArc acquire 70% to 85% of the equity in Perimeter, with SK Holdings retaining 15% to 30% ownership in the Company. The exclusivity agreement was set to terminate on April 14, 2021.
On March 19, 2021, Mr. Khouri sent an email to the EverArc board, informing them that EverArc had entered into an exclusivity agreement with Perimeter, and providing them with further information on the company.
Over the ensuing weeks, EverArc received materials consistent with their due-diligence request list, conducted several conference calls and meetings with Perimeter management, and engaged several third-party experts to assist in the due-diligence process, including to perform financial, accounting and tax, environmental, and litigation and other legal analysis.
Additionally, following execution of the letter of intent, the attorneys for SK Holdings, which in addition to Kirkland & Ellis included Arendt & Medernach SA in Luxembourg (Arendt) and Conyers Dill & Pearman in BVI, and the attorneys for EverArc, which in addition to Greenberg, included Maples and Calder (Luxembourg) SARL in Luxembourg and Maples and Calder in the BVI, had several calls to discuss transaction structure and the documentation required for the transaction. Ultimately, EverArc and SK Holdings mutually agreed that the listed company resulting from the business combination should be an entity incorporated under Luxembourg law, given expectations regarding future growth prospects outside of the U.S., expected tax benefits, and the existence of recent similar market precedents involving the listing of Luxembourg holding vehicles.
On the evening of April 12, 2021, Mr. Howley, Mr. Khouri, and Mr. Raj met with Mr. Goldberg in Cleveland, Ohio, where the parties discussed EverArcs potential acquisition of Perimeter.
On the morning of April 16, 2021, Mr. Howley and Mr. Khouri called Mr. Davenport. The parties discussed a transaction in which EverArc would acquire 80% of the equity in Perimeter for $2.0 billion, consisting of $1.9 billion in cash and $100 million in seller preferred shares.
On the morning of April 19, 2021, Mr. Khouri called Mr. Davenport, and informed him that EverArc agreed in principle to the terms discussed during their call on the morning on April 16.
On April 23, 2021, EverArc engaged Valence as its financial advisor connection with EverArcs contemplated acquisition of Perimeter.
On April 27, 2021, EverArc convened a board meeting, during which the Board had an in-depth discussion of EverArcs potential acquisition of Perimeter.
On May 3, 2021, EverArc initiated conversations with investors regarding a $680 million PIPE to fund the proposed acquisition of 80% of the equity of Perimeter.
On May 6, 2021, Kirkland & Ellis, sent an initial draft of the proposed Business Combination Agreement to Greenberg. Prior to signing the Business Combination Agreement and related documents, several drafts of those documents were negotiated by the parties.
On May 11, 2021, EverArc entered into a Placement Agent Agreement on customary terms with Morgan Stanley & Co. International plc (Morgan Stanley), under which Morgan Stanley was appointed to act as
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placement agent for EverArc in respect of the PIPE. For its services as placement agent, Morgan Stanley was entitled to a commission of an amount equal to 1.875% of the aggregate gross proceeds received by EverArc from the sale of securities in the PIPE. Further, on June 6, 2021, EverArc entered into a Placement Agent Agreement on customary terms with UBS Securities LLC (UBS), under which UBS was appointed to act as placement agent for EverArc in respect of the PIPE, alongside Morgan Stanley. For its services as placement agent, UBS was entitled to a commission of an amount equal to 0.625% of the aggregate gross proceeds received by EverArc from the sale of securities in the PIPE.
EverArc continued to hold conversations with potential PIPE investors during the weeks of May 3, May 10, May 17, May 23, and May 31.
During this time, the parties continued negotiating the Business Combination Agreement. In particular, the parties underwent lengthy discussions relating to the amount of the termination fee, the circumstances under which the termination fee would be paid and the termination date. Given the amount of the termination fee, the parties agreed that the Business Combination Agreement may be terminated by either EverArc or SK Holdings if the closing has not occurred by March 31, 2022. In addition, the parties agreed that either party may terminate on January 1, 2022 (but not after that date) if the closing did not occur by 5:00 pm (Eastern Time) on December 31, 2021 given SK Holdings desire to close the transaction in 2021.
The parties also discussed the termination fee payable by EverArc if the Business Combination Agreement is terminated under certain circumstances, including EverArcs failure to close when all conditions to closing have been satisfied or waived. Following negotiations, the parties agreed to a termination fee of $50 million which is in line with market termination fees in private-equity acquisition transactions.
The parties also discussed the terms of the Holdco Preferred Shares. After negotiations, the parties agreed that the Holdco Preferred Shares would be entitled to a preferential dividend of 6.5% on their nominal value of $10.00 per share, at least 40% of which shall be paid in cash, and the remainder of which shall be paid in kind. The parties also agreed that, in any year during which Holdco paid a dividend on its Ordinary Shares during the period since the payment of the last preferential dividend, 50% of the preferential dividend (rather than 40%) shall be paid in cash. In addition, the parties agreed that if Holdco fails to pay any portion of the cash portion of the preferential dividend in a given year by the date such preferred dividend is required to be paid, then the preferential dividend rate for such year will increase to the interest rate being paid at such time under the Senior Credit Agreement plus 5%. Furthermore, the parties agreed that if Holdco fails to redeem the Holdco Preferred Shares at the defined maturity date, the preferential dividend rate will permanently increase to the interest rate currently being paid under the Senior Credit Agreement plus 10%. The parties agreed the maturity date for the Holdco Preferred Shares, at which time Holdco will be required to fully redeem the Holdco Preferred Shares, would be six months following the maturity date of the Senior Credit Agreement.
In addition, the parties discussed the target level of net working capital that the Company would have as of closing. Following analysis by the parties and their respective accounting advisors, and negotiations between the parties, the parties agreed to a target net working capital figure.
EverArc requested, and received, PIPE indications of interest on June 7, 2021. The PIPE indications totaled approximately $2.0 billion, which significantly exceeded the $680 million EverArc had intended to raise.
On the evening of June 7, 2021, Mr. Howley, Mr. Thorndike, and Mr. Khouri discussed offering to acquire 100% of the equity in Perimeter, rather than the previously contemplated 80%, and agreed to do so.
On the morning of June 8, 2021, Mr. Khouri conveyed this proposal to Mr. Davenport. Mr. Davenport acknowledged Mr. Khouris proposal and indicated that he would discuss it internally with the SK Capital Partners investment committee and SK Holdings. On the afternoon of June 8, 2021, Mr. Davenport informed Mr. Khouri that SK Holdings would agree to sell 100% of the equity in Perimeter to EverArc.
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On the morning of June 11, 2021, EverArc held a board meeting during which the EverArc Founders provided the Board with a detailed update on the Perimeter transaction, including a detailed summary of their due diligence. Several of EverArcs advisers, as well as Mr. Goldberg, were present for portions of the meeting, and presented to the EverArc board and answered questions.
On the morning of June 14, 2021, EverArc held a board meeting during which the board further discussed, voted on, and approved, the proposed acquisition of Perimeter Solutions.
On the morning of June 15, 2021, Perimeter held a board meeting during which its board discussed, voted on and approved the transaction with EverArc.
On June 15, 2021, EverArc, Perimeter, SK Holdings, Holdco and Merger Sub entered into the Business Combination Agreement.
On the morning of June 16, 2021, EverArc announced that it entered into a definitive agreement to acquire 100% of Perimeter Solutions in a transaction valued at approximately $2 billion.
The parties have continued and expect to continue regular discussions in connection with, and to facilitate, the closing.
EverArcs Board of Directors Reasons for the Approval of the Business Combination
As described under The Structure of the Business Combination above, EverArcs board of directors, in evaluating the Business Combination, consulted with EverArcs Founders and financial and legal advisors. In reaching its decision to approve the Business Combination Agreement and the transactions contemplated by the Business Combination Agreement, EverArcs board of directors considered a range of factors, including, but not limited to, the factors discussed below. In light of the complexity of such factors, EverArcs board of directors, as a whole, did not consider it practicable to, nor did it attempt to, quantify or otherwise assign relative weights to the specific factors it took into account in reaching its decision. Individual members of EverArcs board of directors may have given different weight to different factors.
The explanation of the reasons for the approval by EverArcs board of directors of the Business Combination, and all other information presented in this section, is forward-looking in nature and, therefore, should be read in light of the factors discussed in the section entitled Cautionary Note Regarding Forward-Looking Statements.
Before reaching its decision, EverArcs board of directors discussed the results of the due diligence conducted by EverArcs Founders and financial and legal advisors, and their advisors, which included:
| review of Perimeters material contracts, intellectual property, financial, tax, legal, real estate, environmental insurance and accounting due diligence; |
| meetings and calls with the management team and advisors of Perimeters regarding operations and forecasts; |
| consultations with Perimeters management and legal and financial advisors; |
| discussions with Perimeters customers, suppliers and industry partners; |
| review of Perimeters audited and unaudited financial statements; |
| financial review and analysis of Perimeter and the Business Combination; |
| financial projections prepared by Perimeters management team; |
| analysis on comparable target companies; and |
| research on comparable transactions. |
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In considering the $2 billion valuation, the EverArc Board primarily relied upon on the EverArc Founders research and due-diligence based perspective that the transaction would provide shareholders with private-equity like returns, defined as equity returns of 15% or greater, over a long-term ownership period, defined as ten years. The EverArc Founders conveyed to the EverArc Board their perspective that the $2 billion purchase price for Perimeter proposed by SK Holdings, in combination with Perimeters projected financial performance based on the EverArc Founders due diligence, and assuming a market trading multiple in-line with the implied Perimeter acquisition multiple of 15x prior-year EBITDA, would result in 15% or greater returns for EverArcs shareholders over a ten-year period. The EverArc Board further considered and discussed the assumptions underlying the EverArc Founders long-term financial projections for Perimeter, including the assumptions for long-term (i) Fire Safety volume growth, (ii) Fire Safety price growth, (iii) Fire Safety new business initiatives, (iv) productivity (cost), and (v) contribution from Oil Additives and M&A, as described below.
In approving the Business Combination, EverArcs board of directors determined not to obtain a fairness opinion. The officers and directors of EverArc have substantial experience in evaluating the operating and financial merits of companies from a wide range of industries and concluded that their experience and background, enabled them to make the necessary analyses and determinations regarding the Business Combination. However, EverArcs Founders and financial and legal advisors prepared an analysis with respect to the market valuation of comparable companies as described in greater detail in the below section entitled Information About PerimeterCompetition.
EverArcs board of directors considered a wide range of factors pertaining to the Business Combination as generally supporting its decision to enter into the Business Combination Agreement and the transactions contemplated thereby, including, but not limited to, the following:
| Strong Market Position. EverArcs board of directors considered Perimeters industry-leading position within its key business lines, including fire retardants and oil additives; |
| Large and Growing Market Opportunity. EverArcs board of directors considered Perimeters long-term market opportunity, within key business lines including fire retardants and oil additives, as well as within emerging businesses including international, fluorine-free foams, and preventative retardant applications; |
| Preferred Supplier to Multiple Key Customers. EverArcs board of directors considered Perimeters long-standing relationships with key customers, including leading wildland firefighting agencies in the United States and internationally, as well as key customers within the Companys Oil Additives segment; |
| Innovation and R&D Track-record. EverArcs board of directors considered Perimeters long-standing track-record of innovation and customer value-enhancement, including the Companys in-house R&D capabilities relating to both its products and the associated equipment; |
| Due Diligence. The results of EverArcs due diligence investigation of Perimeter conducted by EverArcs Founders and their financial, technical and legal advisors; |
| Experienced Management Team. EverArcs board of directors believe that Perimeter has a strong management team experienced in its industry, which is expected to remain with the Post-Combination Company to seek to execute Perimeters strategic and growth goals; |
| Negotiated Transaction. The financial and other terms of the Business Combination Agreement and the fact that such terms and conditions are reasonable and were the product of arms length negotiations between the parties thereto. |
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In the course of its deliberations, EverArcs board of directors also considered a variety of uncertainties, risks and other potentially negative factors relevant to the Business Combination, including, but not limited to, the following:
| Perimeters Fire Safety business is tied to certain variables outside of the Companys control, and which may fluctuate from year-to-year, including the severity of the North American fire season and the availability of airtanker capacity. |
| Competition in certain of the Companys end-markets is intense and, as a result, Perimeter may fail to attract and retain customers, which may negatively impact the Companys operations and growth prospects. |
| Certain of the Companys end-markets may attract additional competitors over time. |
| The Company may not be able to execute on its business plans or attain its profitability targets in certain of its growth initiatives, including international, fluorine-free foams, and preventative retardant applications. |
| The risk that Perimeter may not be able to execute on the business plan contemplated by EverArcs Founders, and realize the financial performance as set forth in the financial projections presented to EverArcs board of directors. |
| Perimeters growth prospects may suffer if it is unable to develop successful product offerings, if it fails to pursue additional product offerings or if it loses any of its key executives or other key employees. In addition, if Perimeter fails to make optimal investment decisions in its product and service offerings, it may not attract and retain key customers and its revenue and results of operations may be adversely affected. |
| Perimeter may be subject to litigation in the operation of its business and Perimeters insurance may not provide adequate levels of coverage against any claims. An adverse outcome in one or more legal proceedings or inadequate insurance coverage could adversely affect Perimeters business. |
| The requirements of being a public company, including compliance with the SECs requirements regarding internal controls over financial reporting, may strain Perimeters resources and divert managements attention, and the increases in legal, accounting and compliance expenses that will result from the Business Combination may be greater than Perimeter anticipates. |
| The potential benefits of the Business Combination may not be fully achieved or may not be achieved within the expected time frame and the significant fees, expenses and time and effort of management associated with completing the Business Combination. |
| The risk that the Business Combination and transactions contemplated thereby might not be consummated or completed in a timely manner or that the closing might not occur despite our best efforts. |
| EverArcs board of directors did not obtain an opinion from any independent investment banking or accounting firm that the consideration EverArc would pay to acquire Perimeter is fair to EverArc or its stockholders from a financial point of view. In addition, EverArcs board of directors considered the limits of the due diligence performed by EverArcs rounders and outside advisors and the inherent risk that even a thorough review may not uncover all potential risks of the business. Accordingly, EverArcs board of directors may be incorrect in its assessment of the Business Combination. |
After extensive review, EverArcs board of directors concluded that the potential benefits that it expects EverArc and its shareholders to realize as a result of the Business Combination outweigh the potential risks associated with the Business Combination. Accordingly, EverArcs board of directors, based on its consideration of the specific factors listed above, approved and declared advisable the Business Combination Agreement, the other ancillary documents and all transactions contemplated thereby.
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Interests of EverArcs Directors and Officers in the Business Combination
The EverArc Founders and certain of EverArcs directors and officers have interests in the Business Combination that are different from, or in addition to, your interests as a shareholder. These interests include, among other things:
| the amounts payable to the EverArc Founder Entity pursuant to the Founder Advisory Agreement entered into by EverArc and the EverArc Founder Entity which is designed to provide incentives to the EverArc Founders to achieve EverArcs objectives which includes: |
| a fixed annual advisory amount equal to 1.5% of the Founder Advisory Agreement Calculation Number (in each case, payable in Holdco Ordinary Shares or partly in cash, at the election of the EverArc Founder Entity provided that at least 50% of such amounts are paid in Holdco Ordinary Shares). Based on the assumptions described in this prospectus, the fixed annual advisory amount is currently expected to be 2,353,992 Holdco Ordinary Shares which, assuming a stock price of $12.50 per Holdco Ordinary Share, would have a value of $29,424,902. Each additional $1 increase in the stock price of Holdco Ordinary Shares above $12.50 will increase the value of the fixed annual advisory amount payable to the EverArc Founder Entity by $2,353,992; and |
| a variable annual advisory amount based on the appreciation of the market price of Holdco Ordinary Shares if such market price exceeds certain trading price minimums (in each case, payable in Holdco Ordinary Shares or partly in cash, at the election of the EverArc Founder Entity provided that at least 50% of such amounts are paid in Holdco Ordinary Shares). Based on assumptions described in this prospectus and assuming a stock price of $12.50 per Holdco Ordinary Share, the variable annual advisory amount payable to the EverArc Founder Entity in year one would have a value of $70,619,765. For each $1 increase in the stock price of Holdco Ordinary Shares above $12.50, or such higher stock price on which a variable annual advisory amount was previously paid to the EverArc Founder Entity, the EverArc Founder Entity will receive a variable annual advisory amount valued at $28,247,906. |
The EverArc Founders have advised Holdco that their intention is to elect, via the EverArc Founder Entity, to receive any advisory amounts in Holdco Ordinary Shares and for any cash element to only be such amount as is required to pay any related taxes;
With respect to the fixed annual advisory fee, the EverArc Founder Entity will earn such advisory fee even if Holdcos public shareholders earn a negative return following the consummation of the Business Combination;
| the potential continuation of certain of EverArcs directors as directors of Holdco; |
| the EverArc Founder Entity and EverArcs directors have agreed that none of the EverArc Founder Shares nor any EverArc Ordinary Shares or EverArc Warrants owned by them will be sold or transferred by them until one year after EverArc has completed a business combination, subject to limited exceptions; |
| approximately $100,000 in unreimbursed expenses due to the EverArc Founder Entity; |
| the continued indemnification of current directors and officers of EverArc and the continuation of directors and officers liability insurance after the Business Combination; |
| to the extent that the EverArc Founders or directors identify business opportunities that may be suitable for EverArc or other companies on whose boards of directors they may sit or to whom they owe a contractual obligation, the EverArc Founders and directors will honor those pre-existing fiduciary and contractual obligations ahead of their obligations to EverArc. Accordingly, they may refrain from presenting certain opportunities to EverArc that come to their attention in the performance of their duties as directors of such other entities or in observance of contractual obligations unless the other companies have declined to accept such opportunities or waive the contractual obligations. EverArc considered the pre-existing duties or contractual obligations of the EverArc Founders or directors and does not believe that they materially impacted its search for an acquisition target, or the negotiation or approval of the Business Combination; and |
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| the beneficial ownership by the EverArc Founders, directly and indirectly through the EverArc Founder Entity, of: |
| 100 EverArc Founder Shares, acquired for an aggregate purchase price of $1,000, which following the Closing will have an aggregate market value of approximately $1,250 based on the closing price of EverArc Ordinary Shares of $12.50 on the LSE on September 30, 2021; and |
| 1,595,239 EverArc Ordinary Shares and 1,500,000 EverArc Warrants, acquired for an aggregate purchase price of $16,000,010, which have an aggregate market value of approximately $20,202,988 based on the closing price of EverArc Ordinary Shares of $12.50 and EverArc Warrants of $0.175 on the LSE on September 30, 2021; if the Business Combination is not consummated and EverArc is liquidated, the EverArc Founders will suffer a loss on their investment, if any, equal to the difference between the price paid for their EverArc Ordinary Shares and EverArc Warrants and the liquidation value of their EverArc Ordinary Shares which loss would, based on EverArcs publicly reported statement of financial position as of April 30, 2021, equal, in the aggregate, $398,573; |
| the beneficial ownership by the EverArc non-founder directors of an aggregate of 30,000 EverArc Ordinary Shares and 30,000 EverArc Warrants granted to them in lieu of their first years annual remuneration at a fair value of $10.00 per EverArc Ordinary Share, which have an aggregate market value of approximately $380,250 based on the closing price of EverArc Ordinary Shares of $12.50 and EverArc Warrants of $0.175 on the LSE on September 30, 2021; if the Business Combination is not consummated and EverArc is liquidated, the EverArc non-founder directors will suffer a loss, if any, equal to the difference between the value of their EverArc Ordinary Shares and EverArc Warrants upon issuance and the liquidation value of their EverArc Ordinary Shares which loss would, based on EverArcs publicly reported statement of financial position as of April 30, 2021, equal, in the aggregate, $6,600. |
The existence of the interests described above may result in a conflict of interest on the part of EverArcs officers and directors and the EverArc Founder Entity in approving the Business Combination. In particular, the existence of the interests described above may incentivize EverArcs directors and the EverArc Founder Entity to complete an initial business combination, even if on terms less favorable to EverArcs shareholders compared to liquidating EverArc, because, among other things, if EverArc is liquidated without completing an initial business combination, the EverArc Founders and directors could suffer a loss on their investment in the EverArc Ordinary Shares they purchased, their EverArc Warrants would be worthless (which, if unrestricted and freely tradable, would be worth an aggregate of approximately $267,750 based on the closing price of EverArc Warrants on September 30, 2021), and the EverArc Founder Entity would not receive any future advisory fees, which at the current price of EverArc could be worth, in the aggregate, as much as $100,044,667 at December 31, 2021.
Regulatory Approvals Required for the Business Combination
Under the HSR Act and related rules, certain transactions, including the Business Combination, may not be completed until notifications have been given and information is furnished to the Antitrust Division of the U.S. Department of Justice (the DOJ) and the U.S. Federal Trade Commission (the FTC) and all statutory waiting period requirements have been satisfied. Completion of the Business Combination is subject to the expiration or earlier termination of the applicable waiting period under the HSR Act. On June 30, 2021, EverArc and Perimeter filed the required notice and furnished the required information under the HSR to the Antitrust Division of the DOJ and the FTC. The 30-day HSR waiting period expired on July 30, 2021 at 11:59 PM.
In addition, non-U.S. regulatory bodies and U.S. state attorneys general could take action under other applicable regulatory laws as they deem necessary or desirable in the public interest, including, without limitation, seeking to enjoin or otherwise prevent the completion of the Business Combination or permitting completion subject to regulatory conditions. Private parties may also seek to take legal action under regulatory laws under some
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circumstances. There can be no assurance that a challenge to the Business Combination on antitrust grounds will not be made or, if such a challenge is made, that it would not be successful. EverArc and Perimeter are not aware of any other regulatory approvals in the U.S., Luxembourg or elsewhere required for the consummation of the Business Combination.
Litigation Relating to the Business Combination
There have been no proceedings brought against EverArc in relation to the Business Combination or the Business Combination Agreement.
Listing of Holdco Ordinary Shares
Approval of the listing on the NYSE or Nasdaq, of the Holdco Ordinary Shares to be issued in the Business Combination, subject to official notice of issuance, is a condition to each partys obligation to complete the Business Combination.
Accounting Treatment of the Business Combination
The Merger between Holdco and EverArc will be accounted for as a common control transaction, where substantially all of the net assets of Holdco will be those previously held by EverArc. The acquisition of Perimeter through the Contribution and Sale will be treated as a business acquisition under Financial Accounting Standards Boards Accounting Standards Codification Topic 805, Business Combinations with Holdco determined to be the legal and accounting acquirer.
Appraisal or Dissenters Rights
The BVI Companies Act provides that any member of a BVI company is entitled to payment of the fair value of his, her or its shares upon dissenting from a merger, unless the company is the surviving company of the merger and the member continues to hold the same or similar shares. The following is a summary of the position under the BVI Companies Act.
A dissenter is in most circumstances required to give to the company written objection to the merger, which must include a statement that the dissenter proposes to demand payment for his, her or its shares if the merger takes place. This written objection must be given before the meeting of members at which the merger is submitted to a vote, or at the meeting but before the vote. However, no objection is required from a member to whom the company did not give notice of the meeting of members or where the proposed merger is authorized by written consent of the members without a meeting.
Within 20 days immediately following the written consent, or the meeting at which the merger was approved, the company shall give written notice of the consent or resolution to each member who gave written objection or from whom written objection was not required, except those members who voted for, or consented in writing to, the proposed merger.
A member to whom the Company was required to give notice who elects to dissent shall, within 20 days immediately following the date on which the copy of the plan of merger or an outline of the merger is given to him, give to the Company a written notice of his decision to elect to dissent, stating:
(a) | his name and address; |
(b) | the number and classes of shares in respect of which he dissents (which must be all shares that he holds in the company); and |
(c) | a demand for payment of the fair value of his shares. |
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Upon the giving of a notice of election to dissent, the dissenter ceases to have any of the rights of a member except the right to be paid the fair value of his shares, and the right to institute proceedings to obtain relief on the ground that the action is illegal.
The Company shall make a written offer to each dissenter to purchase his shares at a specified price that the Company determines to be their fair value. Such offer must be given within seven days immediately following the date of the expiration of the period within which members may give their notices of election to dissent, or within seven days immediately following the date on which the merger is put into effect, whichever is later.
If the Company and the dissenter fail, within 30 days immediately following the date on which the offer is made, to agree on the price to be paid for the shares owned by the dissenter, then within 20 days:
(a) | the Company and the dissenter shall each designate an appraiser; |
(b) | the two designated appraisers together shall designate an appraiser; |
(c) | the three appraisers shall fix the fair value of the shares owned by the dissenter as of the close of business on the day prior to the date of the meeting or the date on which the resolution was passed, excluding any appreciation or depreciation directly or indirectly induced by the action or its proposal, and that value is binding on the company and the dissenter for all purposes; and |
(d) | the Company shall pay to the dissenter the amount in money upon the surrender by him of the certificates representing his shares, and such shares shall be cancelled. |
EverArc caused the notice to be given on July 7, 2021. No member elected to exercise his, her or its right to dissent.
Unaudited Perimeter Prospective Financial Information
Perimeter does not as a matter of course make public projections as to future revenues, performance, financial condition or other results. EverArc, based on its due diligence and discussions with Perimeters management, prepared and provided to its board of directors assumptions regarding Perimeters prospective financial growth and performance. The inclusion of the below information should not be regarded as an indication that EverArc, Perimeter or any other recipient of this information considered or now considers it to be necessarily predictive of actual future results.
The unaudited prospective financial information is subjective in many respects. As a result, there can be no assurance that the prospective results will be realized or that actual results will not be significantly higher or lower than estimated. Since the unaudited prospective financial information covers multiple years, that information by its nature becomes less predictive with each successive year.
While presented in this prospectus with numeric specificity, the information set forth in the summary below was based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of Perimeters management, including, among other things, the matters described in the sections entitled Cautionary Note Regarding Forward-Looking Statements and Risk Factors. EverArc and Perimeter believe the assumptions regarding the prospective financial performance were reasonable at the time the assumptions were determined, in light of available information. However, important factors that may affect actual results and cause the results reflected in the prospective financial information not to be achieved include, among other things, risks and uncertainties relating to Perimeters business, industry performance, the regulatory environment and general business and economic conditions. The prospective financial information also reflects assumptions as to certain business decisions that are subject to change. The unaudited prospective financial information was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of Perimeters management, was prepared on a reasonable basis, reflects the best currently available
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estimates and judgments, and presents, to the best of managements knowledge and belief, the expected course of action and the expected future financial performance of Perimeter. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this prospectus are cautioned not to place undue reliance on the prospective financial information.
Neither Perimeters independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information. The audit reports included in this prospectus relate to historical financial information. They do not extend to the prospective financial information and should not be read to do so.
EXCEPT AS REQUIRED BY APPLICABLE SECURITIES LAWS, PERIMETER DOES NOT INTEND TO MAKE PUBLICLY AVAILABLE ANY UPDATE OR OTHER REVISION TO THE PROSPECTIVE FINANCIAL INFORMATION. THE PROSPECTIVE FINANCIAL INFORMATION DOES NOT TAKE INTO ACCOUNT ANY CIRCUMSTANCES OR EVENTS OCCURRING AFTER THE DATE THAT INFORMATION WAS PREPARED. READERS OF THIS PROSPECTUS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE UNAUDITED PROSPECTIVE FINANCIAL INFORMATION SET FORTH BELOW. NONE OF PERIMETER, EVERARC OR ANY OF THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, ADVISORS OR OTHER REPRESENTATIVES HAS MADE OR MAKES ANY REPRESENTATION TO ANY EVERARC SHAREHOLDER OR ANY OTHER PERSON REGARDING ULTIMATE PERFORMANCE COMPARED TO THE INFORMATION CONTAINED IN THE PROSPECTIVE FINANCIAL INFORMATION OR THAT FINANCIAL AND OPERATING RESULTS WILL BE ACHIEVED.
Certain of the measures included in the prospective financial information may be considered non-GAAP financial measures. Specifically, EBITDA is a non-GAAP measure that is calculated as net income less interest, taxes, depreciation and amortization and EBITDA Margin is calculated as EBITDA as a percent of net revenues. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by Perimeter may not be comparable to similarly titled amounts used by other companies. Financial measures provided to a financial advisor in connection with a business combination transaction are excluded from the definition of non-GAAP financial measures and therefore are not subject to SEC rules regarding disclosures of non-GAAP financial measures, which would otherwise require a reconciliation of a non-IFRS financial measure to a GAAP financial measure. Accordingly, we have not provided a reconciliation of such financial measures.
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The following tables set forth the prospective financial information regarding Perimeter that was provided to the EverArc board of directors in connection with their consideration of the Business Combination which prospective financial information was prepared by EverArc:
The long-term financial outlook for Perimeter described above was prepared by EverArc and based on several key factors, including:
| independent research and due diligence regarding Perimeter specifically; |
| independent research and due diligence regarding the fire safety and oil additives industries more generally; |
| a thorough review of the various presentations and due diligence materials provided by Perimeter; |
| several conversations with Perimeter management; and |
| input received from EverArcs various third-party advisors. |
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THE BUSINESS COMBINATION AGREEMENT
This section of the prospectus describes the material provisions of the Business Combination Agreement but does not purport to describe all of the terms of the Business Combination Agreement. This summary is qualified in its entirety by reference to the Business Combination Agreement, a copy of which is attached as Annex A hereto. Certain figures included in this section have been rounded for ease of presentation and, as a result, percentages may not sum to 100%.
The Business Combination
On June 15, 2021, EverArc, Perimeter, SK Holdings, Holdco and Merger Sub entered into the Business Combination Agreement, which contains customary representations and warranties, covenants, closing conditions, termination fee provisions and other terms relating to the merger and the other transactions contemplated thereby, as summarized below. Capitalized terms used in this section but not otherwise defined herein have the meanings given to them in the Business Combination Agreement.
The Structure of the Business Combination
At the Merger Effective Time, by virtue of the Merger and the Holdco Requisite Approvals, subject to a report from a Luxembourg independent statutory auditor, and without any further action on the part of EverArc, Merger Sub, Holdco or Perimeter or the holders of any of the following securities:
a) | on the Business Day prior to the Closing Date, the Merger will occur; |
b) | all EverArc Ordinary Shares outstanding immediately prior to the Merger will be exchanged for the right to receive Holdco Ordinary Shares pursuant to a share capital increase of Holdco, as set forth in the Business Combination Agreement; |
c) | on the Closing Date, SK Holdings, which holds 100% of the outstanding ordinary shares of Perimeter, will complete the Contribution and Sale; |
d) | in connection with the Contribution and Sale, the Holdco Ordinary Share held by EverArc will be cancelled via a share capital reduction without any consideration for EverArc; and |
e) | all of the outstanding EverArc Warrants, in each case, entitling the holder thereof to purchase one-fourth of an EverArc Ordinary Share at an exercise price of $12.00 per whole EverArc Ordinary Share, will be converted into the right to purchase one-fourth of a Holdco Ordinary Share on substantially the same terms as the EverArc Warrants. |
On the business day immediately prior to the Closing Date, EverArc, Holdco and Merger Sub will execute and file the Plan and Articles of Merger with the Registrar, in accordance with, the relevant provisions of the BVI Companies Act, together with all other filings or recordings required under the BVI Companies Act in connection with the Merger (including the filing by the Merger Subs registered agent of a letter confirming it has no objections to the Merger). The Plan and Articles of Merger will specify that the Merger will become effective at such time as the Plan and Articles of Merger are duly registered by the Registrar, or at such later time as the Parties agree in writing (subject to the requirements of the BVI Companies Act). The parties will hold the closing on the date of the Merger Effective Time, following the satisfaction or waiver (to the extent such waiver is permitted by applicable law) of the conditions set forth in the Business Combination Agreement (other than those conditions that by their nature are to be satisfied at Closing, but subject to the satisfaction or waiver of those conditions at such time). In addition, EverArc will file an election with the IRS to be classified as a disregarded entity for U.S. federal income Tax purposes (the Tax Classification Election), which will be effective on the Closing Date.
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Effective Time and Closing of the Business Combination
The following diagram shows the current ownership structure of EverArc (excluding the impact of the shares underlying the EverArc Warrants).
(1) | For more information about the ownership interests of our EverArc Founders and the EverArc Founder Entity, prior to the Business Combination, please see the section entitled Security Ownership of Certain Beneficial Owners and Management. |
The following diagram shows the current ownership structure of Perimeter.
(1) | The diagram above only shows select subsidiaries of Perimeter. |
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The following diagram shows the pro forma ownership percentages (excluding the impact of the shares underlying the Holdco Warrants) and structure of Holdco immediately following the consummation of the Business Combination.
Consideration to be Received in the Business Combination
At the Merger Effective Time, each EverArc Ordinary Share issued and outstanding immediately prior to the Merger Effective Time will automatically be converted into and exchanged for the right to receive one (1) validly issued, fully paid and nonassessable Holdco Ordinary Share, which will be valued at $10.00 per share.
At the Merger Effective Time, SK Holdings will receive (i) cash in an amount equal to $1.9 billion minus (a) the aggregate amount (if any) by which Estimated Company Transaction Expenses (as defined in the Business Combination Agreement) exceeds $500,000, plus (b) the Estimated Cash (as defined in the Business Combination Agreement), minus (c) the Estimated Indebtedness (as defined in the Business Combination Agreement), plus (d) the aggregate amount (if any) by which the Estimated Closing Net Working Capital (as defined in the Business Combination Agreement) is greater than Target Net Working Capital (as defined in the Business Combination Agreement), minus (e) the aggregate amount (if any) by which Estimated Closing Net Working Capital is less than Target Net Working Capital, minus (f) $7,600,000 and (ii) 10,000,000 redeemable Holdco Preferred Shares.
As long as the Holdco Preferred Shares are in issue and outstanding, no shares ranking pari passu or senior to the Holdco Preferred Shares shall be issued by Holdco, other than additional Holdco Preferred Shares or other equity securities interest issued with the consent of a majority of holders of the Holdco Preferred Shares.
Each Holdco Preferred Share is entitled to a Preferential Dividend amounting to 6.5% (the Regular Dividend Rate) of its nominal value (i.e. $10.00 per share). The Preferential Dividend shall be paid each year within
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3 business days following the holding of Holdcos annual general meeting (each, a Preferential Dividend Payment Date). On each Preferential Dividend Payment Date, 40% of the Preferential Dividend for such year (or 50% of the Preferential Dividend for such year if Holdco paid a dividend on the Holdco Ordinary Shares during period since the payment of the last Preferential Dividend Payment Date) shall be paid in cash and the remainder of the Preferential Dividend shall be paid in kind, unless Holdco elects to pay any additional portion of the Preferential Dividend in cash; provided, that, (x) Holdco shall not be required to pay any portion of such annual Preferential Dividends in cash on a Preferential Dividend Payment Date to the extent that Holdco or its subsidiaries are prohibited from paying such portion of the annual Preferential Dividend in cash under either (i) that certain senior credit facility agreement to which Holdco and/or certain of its subsidiaries is a party (the Senior Credit Agreement) or (ii) that certain bridge term loan credit facility to which Holdco and/or certain of its subsidiaries is a party or any senior secured notes issued by Holdco and/or any of its subsidiaries (as applicable, the Bridge Loan/Secured Notes), and (y) in the event that Holdco or its subsidiaries are so prohibited from paying all or a portion of such Preferential Dividends in cash as described in the foregoing clause (x), Holdco shall pay the maximum amount not prohibited by the Senior Credit Agreement or the Bridge Loan/Secured Notes in cash. If Holdco fails to pay any portion of the cash portion of the Preferential Dividend for any reason in a given year by the Preferential Dividend Payment Date (including due to clause (x) of the immediately preceding sentence), then (i) the Preferential Dividend rate for such year (i.e. the year in which Holdco fails to pay any portion of the cash portion of the Preferential Dividend Payment), but not necessarily the subsequent year, will increase to the interest rate being paid (whether default or not) at such time under the Senior Credit Agreement plus 5% (the Increased Dividend Rate) and (ii) the Preferential Dividend Rate for the following year will be reset at the Regular Dividend Rate and will be subject to increase to the Increased Dividend Rate for such year (but not necessarily the subsequent year) if Holdco fails to pay any portion of the cash portion of the Preferential Dividend Payment by the Preferential Dividend Payment Date for such year.
If Holdco fails to redeem the Holdco Preferred Shares at the defined maturity date, the Preferential Dividend rate will permanently increase to the interest rate currently being paid (whether default or not) under the Senior Credit Agreement plus 10%.
As long as Holdco Preferred Shares are issued and outstanding, Holdco and its subsidiaries shall not (a) enter into a credit agreement (except to the extent related to the issuance of senior secured notes as contemplated by the Bridge Loan/Secured Notes) or (b) amend the Senior Credit Agreement, in each case, in a manner that would adversely affect the redemption rights of the Holdco Preferred Shares by extending the maturity date under such credit facility beyond the defined maturity date or increase the restrictions on Holdcos ability to pay the cash portion of Preferential Dividends without the consent of holders owning a majority of the Holdco Preferred Shares. If, in any year, Holdco fails to make any portion of the cash portion of any Preferential Dividend by the Preferential Dividend Payment Date, then, during the following year, Holdco may not, without the consent of the holders of a majority of the outstanding Holdco Preferred Shares, pay a cash dividend on the Holdco Ordinary Shares until such time as Holdco has paid the cash portion of the Preferential Dividend Payment for such following year (which cash portion of the Preferential Dividend Payment may be paid by Holdco in advance of the Preferential Dividend Payment Date for, and at any time during, such following year); for the avoidance of doubt, the restrictions set forth in this sentence shall not apply to any non-pro rata purchase, repurchase or redemption of any equity securities of Holdco or any of its subsidiaries. As long as Holdco Preferred Shares are issued and outstanding, during the occurrence and continuance of a default by Holdco to pay any Preferential Dividend (for the avoidance of doubt, the payment of any cash portion of the Preferential Dividend in kind in accordance with the terms of Holdcos articles of association shall not constitute a default by Holdco), the approval of holders owning a majority of the outstanding Holdco Preferred Shares shall be required (i) for the declaration of dividends to the benefit of all other categories of Holdco shares issued and outstanding and (ii) for the purchase, repurchase or redemption of any equity securities of Holdco or any of its subsidiaries (other than pursuant to equity incentive agreements with employees).
Holdco Preferred Shares are not entitled to vote, save for the matters provided for by Luxembourg law, including any amendment, alteration or change to the rights attached to the Holdco Preferred Shares in a manner adverse to
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the Holdco Preferred Shares for which the consent of holders owning a majority of the Holdco Preferred Shares will be required.
Holdco Preferred Shares, being non-voting shares, shall not be included for the calculation of the quorum and majority at each general meeting of Holdco, save for the matters provided for by Luxembourg law and in the relevant provisions of the articles of association of Holdco.
In case of liquidation of Holdco, after payment of all the debts of and charges against Holdco and of the expenses of liquidation, the holders of Holdco Preferred Shares, if any, shall be entitled to a preferential right to repayment of the nominal value of the Holdco Preferred Shares plus any accrued but unpaid Preferential Dividends before repayment of the nominal value of the Holdco Ordinary Shares.
The rights attached to the Holdco Preferred Shares under Holdcos articles of association shall not be amended in a manner adverse to the Holdco Preferred Shares without the consent of holders owning a majority of the Holdco Preferred Shares.
Ownership of the Combined Company Upon Completion of the Business Combination
Following the Business Combination, each of EverArc and Perimeter will be direct, wholly owned subsidiaries of Holdco.
Representation and Warranties
The Business Combination Agreement contains customary representations, warranties and covenants of (a) Perimeter and SK Holdings and (b) Holdco, EverArc and Merger Sub relating to, among other things, their ability to enter into the Business Combination Agreement and their outstanding capitalization.
In connection with the Business Combination, the EverArc obtained a representation and warranty policy with customary terms, exclusions and fees.
Conduct of Business Pending Consummation of the Business Combination; Covenants
Conduct of Business by Perimeter Pending the Merger
From the date of the Business Combination Agreement and until the earlier of the termination of the Business Combination Agreement and the Merger Effective Time, except as (i) expressly contemplated by the Business Combination Agreement or any ancillary agreement, (ii) set forth on the Perimeter disclosure schedule, and (iii) as required by applicable law, unless EverArc otherwise consents in writing, (y) Perimeter will, and will cause their subsidiaries to, conduct their business in all material respects in the ordinary course of business and in a manner consistent with past practice; provided that any actions reasonably taken in response to an emergency or urgent conditions arising from COVID-19 will not be deemed to be outside the ordinary course of business, so long as such actions or omissions are reasonably designed to protect the health or welfare of Perimeters employees or comply with clause (z) herein and (z) Perimeter will use its reasonable best efforts to preserve substantially intact the business organization of Perimeter and its subsidiaries and will use commercially reasonable efforts to keep available the services of current officers, key employees and consultants of Perimeter and its subsidiaries and to preserve relationships with customers, suppliers and other persons with which Perimeter has significant business relations.
Except as (i) expressly contemplated by any other provision of the Business Combination Agreement and any ancillary agreement, (ii) as set forth in the Perimeter disclosure schedule and (iii) as required by applicable law, Perimeter will not, and will cause each subsidiary not to, between the date of the Business Combination
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Agreement and the earlier of the termination of the Business Combination Agreement and the Merger Effective Time, directly or indirectly, do any of the following without the prior written consent of EverArc:
a) | amend or otherwise change its memorandum of association, articles of association, certificate of incorporation, by-laws or equivalent organizational documents; |
b) | issue, sell, pledge, dispose of, grant or encumber, solicit, propose, negotiate with respect to, or authorize the issuance, sale, pledge, disposition, grant or encumbrance of, (x) any shares of any class of capital stock of Perimeter or any subsidiary, except for the issuance of Perimeter Ordinary Shares upon exercise or settlement of Perimeter options, if any, (y) any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest (including any phantom interest) or (z) except in the ordinary course of business, any assets of Perimeter or any subsidiary; |
c) | declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock; |
d) | reclassify, combine, split, subdivide or redeem, or purchase or otherwise acquire, directly or indirectly, any of its capital stock, other than redemptions of equity securities from former employees upon the terms set forth in the underlying agreements governing such equity securities; |
e) | merge or consolidate with any other person or restructure, reorganize, dissolve or completely or partially liquidate or otherwise enter into any agreements or arrangements imposing material changes or restrictions on its assets, operations or businesses; |
f) | acquire (including, without limitation, by merger, consolidation, or acquisition of stock or assets or any other business combination) any corporate partnership, other business organization, or any division thereof, in each case, for an aggregate purchase price that exceeds $1,000,000; |
g) | incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise become responsible for, the obligations of any person, or make any loans or advances, or intentionally grant any security interest in any of its assets, in each case, except in the ordinary course of business and consistent with past practice; |
h) | transfer, sell, lease, license, mortgage, pledge, surrender, encumber, divest, cancel abandon or allow to lapse or expire or otherwise dispose of any of its material assets, properties, licenses, operations, rights, production lines, businesses or interests therein, except for sales or other dispositions in the ordinary course of business consistent with past practice; |
i) | (v) increase the compensation or benefit payable to any current or former director, officer, employee or consultant of Perimeter or any subsidiary, other than (1) health and welfare plan renewals in the ordinary course of business consistent with past practices or (2) increases in base salary or wage of employees in the ordinary course of business whose annual base salary or wage is not in excess of $300,000; (w) pay or promise to pay any bonus to any such current or former director, officer, employee or consultant of Perimeter or any subsidiary; (x) take any action to accelerate or commit to accelerate the funding, payment, or vesting of any compensation or benefits to any current or former director, officer, employee or consultant; (y) hire or otherwise enter into any employment or consulting agreement or arrangement with any person or terminate (other than for cause) any current or former director, officer, employee or consultant provider whose annual base salary or wage would exceed $300,000; or (z) enter into any new, or materially amend any existing employment or severance or termination agreement with any current or former director, officer, employee or consultant; |
j) | adopt, enter into, amend and/or terminate any plan, program, agreement, arrangement or policy for the current or future benefit of any current or former director, officer, employee, consultant or individual independent contractor (including any existing employment or severance or termination agreement with any current or former director, officer, employee or consultant), except as may be |
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required by applicable law or health and welfare plan renewals in the ordinary course of business and consistent with past practice; |
k) | materially amend other than reasonable and usual amendments in the ordinary course of business, with respect to accounting policies or procedures, other than as required by the accounting principles or U.S. GAAP (as the case may be); |
l) | make change or revoke any material Tax election, change any annual Tax accounting period, adopt or change any method of Tax accounting, amend any Tax Returns or file claims for Tax refunds, enter into any closing agreement, waive or extend any statute of limitations period in respect of an amount of Taxes, settle any Tax claim, audit or assessment, or surrender any right to claim a Tax refund, offset or other reduction in Tax liability; |
m) | materially amend, or modify or consent to the termination (excluding any expiration in accordance with its terms) of any material contract or amend, waive, modify or consent to the termination (excluding any expiration in accordance with its terms) of Perimeters or any subsidiarys material rights thereunder, in each case in a manner that is adverse to Perimeter or any subsidiary, taken as a whole, except in the ordinary course of business; |
n) | intentionally permit any material item of Perimeter-owned intellectual property to lapse or to be abandoned, invalidated, dedicated to the public, or disclaimed, or otherwise become unenforceable or fail to perform or make any applicable filings, recordings or other similar actions or filings, or fail to pay all required fees and taxes required to maintain and protect its interest in each and every material item of Perimeter-owned intellectual property; |
o) | create or incur any lien material to Perimeter or any subsidiary, Holdco or Merger Sub other than permitted liens incurred in the ordinary course of business consistent with past practice; |
p) | make any loans, advances, guarantees or capital contributions to or investments in any person (other than Perimeter or any subsidiary) that exceed $250,000 in the aggregate at any time outstanding; |
q) | fail to make or authorize any budgeted capital expenditures or make or authorize any unbudgeted capital expenditures in excess of $750,000 in the aggregate; |
r) | fail to pay or satisfy when due any material account payable or other material liability, other than in the ordinary course of business consistent with past practice or any such liability that is being contested in good faith by Perimeter or any subsidiary; |
s) | fail to keep current and in full force and effect, or comply in all material respects with the requirements of any permits issued to Perimeter or any subsidiary by any governmental authority; |
t) | take any steps for liquidation, winding-up, freeze of proceedings, arrangements with creditors or similar action or proceeding by or in respect of Perimeter or any subsidiary; |
u) | take any action or fail to take any action, which action or failure to act would reasonably be expected to prevent or impede the Contribution and Sale and the Merger from qualifying for certain tax treatment; |
v) | take any actions or omit to take any actions that would, individually or in the aggregate, reasonably be expected to result in any of the Closing conditions set forth in the Business Combination Agreement not being satisfied; |
w) | engage in any dealings or transactions (i) with any restricted person in violation of applicable laws; (ii) involving any sanctionable activity; or (iii) otherwise in violation of sanctions laws, export control laws, or import control laws; |
x) | amend, or permit the amendment of, any agreement related to the Contribution and Sale; or |
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y) | enter into any formal or informal agreement or otherwise make a binding commitment to do any of the foregoing. |
Conduct of Business by EverArc Pending the Merger
From the date of the Business Combination Agreement and until the earlier of the termination of the Business Combination Agreement and the Merger Effective Time, except as (i) expressly contemplated by the Business Combination Agreement or any ancillary agreement, (ii) set forth on the EverArc disclosure schedule, and (iii) as required by applicable law, unless Perimeter otherwise consents in writing, EverArc will conduct its business in the ordinary course and in a manner consistent with past practice and will not, directly or indirectly, take any action that would reasonably be likely to impede or materially delay the consummation of the transactions proposed under the Business Combination Agreement.
Conditions to Closing the Business Combination
General Conditions
Under the Business Combination Agreement, the obligations of the parties to consummate the Business Combination are conditioned on the satisfaction or waiver (where permissible) of the following conditions at or prior to the Effective Time of the Contribution and Sale and at or prior to the Closing:
a) | the Holdco Requisite Approval will have been obtained and delivered to EverArc; |
b) | a Luxembourg statutory independent auditor (réviseur dentreprises agréé) of Holdco will have issued appropriate reports regarding the contributions relating to the Holdco Ordinary Shares and to the EverArc Ordinary Shares that will be exchanged for Holdco Ordinary Shares as set forth in the Business Combination Agreement Holdco Ordinary Shares; |
c) | no governmental authority will have enacted, issued, promulgated, enforced or entered any law, rule, regulation, judgment, decree, executive order or award which is then in effect and has the effect of making the Business Combination illegal or otherwise prohibiting consummation of the Business Combination; and |
d) | all waiting periods applicable to the consummation of the Business Combination under the HSR Act (or any extension thereof) will have expired or been terminated and all required filings will have been made and all required approvals obtained (or waiting periods expired or terminated) under applicable antitrust law. |
EverArc Conditions to Closing
The obligations of EverArc to consummate the Business Combination are subject to the satisfaction or waiver by EverArc (at its sole option) of the following additional conditions:
a) | certain representations and warranties of Perimeter and SK Holdings will each be true and correct in all respects except where the failure of such representations and warranties to be true and correct does not result in a Company Material Adverse Effect (as defined in the Business Combination Agreement); |
b) | Perimeter and SK Holdings will have performed or complied in all material respects with all agreements and covenants required by the Business Combination Agreement; |
c) | Perimeter and SK Holdings will have delivered to EverArc a certificate, signed by an officer of the appropriate entity, certifying as to the satisfaction of the conditions specified in the Business Combination Agreement; |
d) | no Company Material Adverse Effect (as defined in the Business Combination Agreement) will have occurred; |
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e) | the Registration Statement will have been declared effective under the Securities Act. No stop order suspending the effectiveness of the Registration Statement will be in effect, and no proceedings for purposes of suspending the effectiveness of the Registration Statement will have been initiated by the SEC and not withdrawn; and |
f) | the Holdco Ordinary Shares will have been approved for listing on the NYSE or Nasdaq, subject to official notice of issuance. |
Perimeter Conditions to Closing
The obligations of Perimeter to consummate the transactions are subject to the satisfaction or waiver by Perimeter (at its sole option) of the following additional conditions at or prior to the Merger
Effective Time and at or prior to the Closing:
a) | certain representations and warranties of EverArc will each be true and correct in all respects except where the failure of such representations and warranties to be true and correct does not result in an EverArc Material Adverse Effect (as defined in the Business Combination Agreement); |
b) | certain representations and warranties of Holdco and Merger Sub will each be true and correct in all respects and all other representations and warranties of Perimeter and SK Holdings will be true and correct except where the failure of such representations and warranties to be true and correct does not result in a Material Adverse Effect (as defined in the Business Combination Agreement); |
c) | each of EverArc, Holdco and Merger Sub will have performed or complied in all material respects with all agreements and covenants required by the Business Combination Agreement; |
d) | each of EverArc, Holdco and Merger Sub will have delivered to Perimeter a certificate, signed by an appropriate officer of each, certifying as to the satisfaction of the conditions specified in the Business Combination Agreement; and |
e) | no EverArc Material Adverse Effect (as defined in the Business Combination Agreement) will have occurred. |
Termination of the Business Combination Agreement
The Business Combination Agreement may be terminated and the transactions may be abandoned at any time prior to the Merger Effective Time, notwithstanding any requisite approval and adoption of the Business Combination Agreement and the transactions by the shareholders of Perimeter or EverArc, as follows:
a) | by mutual written consent of EverArc and SK Holdings; |
b) | by either EverArc or SK Holdings if the Merger Effective Time will not have occurred prior to 5:00 p.m. (New York time) on March 31, 2022, provided that the terminating party is not, either directly or indirectly through its affiliates, in breach or violation of any representation, warranty, covenant, agreement or obligation under the Business Combination Agreement and such breach or violation is the principal cause of the failure of a condition set forth in the Business Combination Agreement on or prior to 5:00 p.m. (New York time) on March 31, 2022; |
c) | by either EverArc or SK Holdings if any governmental authority will have enacted, issued, promulgated, enforced or entered any injunction, order, decree or ruling (whether temporary, preliminary or permanent) which has become final and non-appealable and has the effect of making consummation of the transactions illegal or otherwise preventing or prohibiting consummation of the Business Combination; |
d) | by EverArc upon any breach of any representation, warranty, covenant or agreement set forth in the Business Combination Agreement on the part of SK Holdings or Perimeter that remains uncured for |
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more than 30 days after written notice of such breach is provided by EverArc to Perimeter, such that the conditions set forth in Section 9.02(a) and Section 9.02(b) of the Business Combination Agreement would not be satisfied; |
e) | by SK Holdings upon any breach of any representation, warranty, covenant or agreement set forth in the Business Combination Agreement on the part of EverArc that remains uncured for more than 30 days after written notice of such breach is provided by Perimeter to EverArc such that the conditions set forth in Section 9.03(a) and Section 9.03(b) of the Business Combination Agreement would not be satisfied; |
f) | by EverArc on or after September 8, 2021 if Perimeter will have failed to deliver the PCAOB Financials (as defined in the Business Combination Agreement) by 11:59 EST on September 7, 2021; |
g) | by either EverArc or SK Holdings on January 1, 2022 if the Merger Effective Time will not have occurred prior to 5:00 p.m. (New York time) December 31, 2022, provided that the terminating party is not, either directly or indirectly through its affiliates, in breach or violation of any representation, warranty, covenant, agreement or obligation under the Business Combination Agreement and such breach or violation is the principal cause of the failure of a condition set forth in the Business Combination Agreement on or prior to December 31, 2021; |
h) | by SK Holdings if (A)(i) certain conditions precedent to the merger have been satisfied and continue to be satisfied or waived and (ii) SK Holdings confirms to EverArc that all conditions required have been satisfied or waived and that SK Holdings and Perimeter are willing and able to consummate the transactions and (iii) EverArc will not have consummated the closing within three business days of the occurrence of clauses (i) and (ii) above or (B)(i) EverArc will be in material breach of its covenants under the Business Combination Agreement and such material breach results in EverArc being incapable of consummating the transactions thereunder and (ii) SK Holdings notifies EverArc, in writing, of such material breach and EverArc does not cure such breach; and |
i) | by EverArc, on or after December 31, 2021, if, as of December 31, 2021, (i) certain conditions precedent to the Merger have been satisfied (and continue to be satisfied) or waived and (ii) EverArc will be unable to consummate the Closing solely due to the unavailability of sufficient funds available to EverArc. |
Amendment, Waiver and Extension of the Business Combination Agreement
The Business Combination Agreement may be amended in writing by all parties thereto at any time prior to the Merger Effective Time.
At any time prior to the Merger Effective Time, (a) EverArc may (i) extend the time for the performance of any obligation or other act of SK Holdings or Perimeter, (ii) waive any inaccuracy in the representations and warranties of SK Holdings or Perimeter contained in the Business Combination Agreement or in any document delivered by SK Holdings or Perimeter pursuant to the Business Combination Agreement and (iii) waive compliance with any agreement of SK Holdings or Perimeter or any condition to its own obligations contained in the Business Combination Agreement and (b) Perimeter may (i) extend the time for the performance of any obligation or other act of EverArc, Holdco or Merger Sub, (ii) waive any inaccuracy in the representations and warranties of EverArc, Holdco or Merger Sub contained in the Business Combination Agreement or in any document delivered by EverArc, Holdco or Merger Sub pursuant to the Business Combination Agreement and (iii) waive compliance with any agreement of EverArc, Holdco or Merger Sub or any condition to its own obligations contained in the Business Combination Agreement. Any such extension or waiver will be valid if set forth in an instrument in writing signed by the party or parties to be bound thereby.
Governing Law; Consent to Jurisdiction
The Business Combination Agreement is governed by, and construed in accordance with, the laws of the State of Delaware applicable to contracts executed in and to be performed in that state, except to the extent mandatorily
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governed by the laws of the Grand Duchy of Luxembourg, including the provisions relating to the Contribution and Sales and the Exchange Agreements. All legal actions and proceedings arising out of or relating to the Business Combination Agreement will be heard and determined exclusively in any Delaware Chancery Court; provided, that if jurisdiction is not then available in the Delaware Chancery Court, then any such legal action may be brought in any federal court located in the State of Delaware or any other Delaware state court. The parties to the Business Combination Agreement (a) irrevocably submitted to the exclusive jurisdiction of the aforesaid courts for themselves and with respect to their respective properties for the purpose of any action arising out of or relating to the Business Combination Agreement brought by any party hereto, and (b) agreed not to commence any action relating thereto except in the courts described above in Delaware, other than actions in any court of competent jurisdiction to enforce any judgment, decree or award rendered by any such court in Delaware as described in the Business Combination Agreement. Each of the parties thereto further waived (y) any defense in any action for specific performance that a remedy at law would be adequate and (z) any requirement under any law to post security or a bond as a prerequisite to obtaining equitable relief.
Expenses
In the event that this Business Combination Agreement is validly terminated, all transaction expenses incurred in connection with the Business Combination Agreement, related documents and the Business Combination will be paid by the party incurring such transaction expenses; provided, that EverArc will pay all fees and expenses incurred by Perimeter or its affiliates in connection with (a) the Financing Cooperation Expenses (as defined in the Business Combination Agreement), (b) all costs, fees and expenses incurred in connection with any filing under the HSR Act or other applicable antitrust laws and (c) costs, fees and expenses incurred by Perimeter and its affiliates in connection with the preparation and delivery of the PCAOB Financials (as defined in the Business Combination Agreement). Subject to certain conditions detailed in the Business Combination Agreement, if the Business Combination is consummated, Holdco, subject to certain limitations, will bear the reasonable and documented transaction expenses of all of the parties.
Termination Fee
In the event that this Business Combination Agreement is validly terminated (i) by SK Holdings pursuant to Section 10.01(e) or Section 10.01(h) of the Business Combination Agreement, (ii) by EverArc at a time that SK Holdings could have terminated the Business Combination Agreement pursuant to Section 10.01(e) or Section 10.01(h) of the Business Combination Agreement or (iii) by EverArc pursuant to Section 10.01(i) of the Business Combination Agreement, EverArc will, as promptly as reasonably practicable following such termination, pay to SK Holdings or its designee an amount equal to (x) $50,000,000 less (y) the amount of the PCAOB Financials Expenses (as defined in the Business Combination Agreement) and the Financing Cooperation Expenses (as defined in the Business Combination Agreement) actually reimbursed by EverArc to Perimeter pursuant to Section 8.12 and Section 8.16(c) of the Business Combination Agreement, respectively, at the time of such termination.
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CERTAIN AGREEMENTS RELATED TO THE BUSINESS COMBINATION
All capitalized terms used but not defined below shall have the meaning assigned to such term in the agreement to which such section is discussing.
Debt Agreements
Revolving Credit Facility
In connection with the consummation of the Business Combination, Invictus II expects to enter into the Revolving Credit Facility, which is expected to, subject to the satisfaction of customary closing conditions, provide for a senior secured revolving credit facility in an aggregate principal amount of up to $100.0 million. The Revolving Credit Facility is expected to mature on the fifth anniversary of the date upon which all closing conditions are satisfied. We anticipate that the Revolving Credit Facility will include a $20.0 million swingline sub-facility and a $25.0 million letter of credit sub-facility. We anticipate that the Revolving Credit Facility will allow Invictus II to increase commitments under the Revolving Credit Facility in an aggregate amount not to exceed the greater of (i) $130.0 million and (ii) 100.0% of consolidated EBITDA for the most recent four-quarter period (minus the aggregate outstanding principal amount of certain ratio debt permitted to be incurred thereunder). All borrowings under the Revolving Credit Facility are expected to be subject to the satisfaction of customary conditions, including the absence of a default and the accuracy of representations and warranties, subject to certain exceptions.
Borrowings under the Revolving Credit Facility are expected to bear interest at a rate equal to (i) an applicable margin, plus (ii) at Invictus IIs option, either (x) LIBOR determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs (but which will not be less than a 0.00% LIBOR floor) or (y) a base rate determined by reference to the highest of (a) the prime commercial lending rate published by the Wall Street Journal, (b) the federal funds rate plus 0.50%, (c) the one-month LIBOR rate plus 1.00% and (d) a minimum floor of 1.0%. The applicable margin is expected to be 3.25% in the case of LIBOR based loans and 2.25% in the case of base rate based loans, with two stepdowns of 0.25% each based upon the achievement of certain leverage ratios. In addition, on a quarterly basis, we expect Invictus II to be required to pay each lender under the Revolving Credit Facility a commitment fee of 0.50% in respect of the unused portion of the commitments under the Revolving Credit Facility, which fee will be subject to two stepdowns of 0.125% based upon the achievement of certain leverage ratios. We also expect Invictus II to be required to pay customary agency fees as well as letter of credit participation fees computed at a rate per annum equal to the applicable margin for LIBOR borrowings on the dollar equivalent of the face amount of each undrawn letter of credit, plus such letter of credit issuers customary administration and issuance fees and charges and a fronting fee in an amount equal to 0.125% per annum of the face amount of each letter of credit.
Invictus II is expected to be the borrower under the Revolving Credit Facility. The Revolving Credit Facility is expected to be fully and unconditionally guaranteed by Perimeter and each of Invictus IIs existing and future wholly-owned material restricted subsidiaries (subject to certain exceptions), and is expected to be secured by a valid and perfected first priority lien (subject to certain permitted liens) on substantially all of Invictus IIs and each of the guarantors existing and future property and assets (subject to certain exceptions).
Solely to the extent that on the last day of the applicable fiscal quarter, the utilization of the Revolving Credit Facility exceeds 40% (excluding certain undrawn or cash collateralized letters of credit), the Revolving Credit Facility is expected to require compliance on a quarterly basis with a maximum secured net leverage ratio of 7.50:1.00. In addition, for purposes of determining compliance with such financial maintenance covenant for any fiscal quarter, we expect Invictus II to be able to exercise an equity cure by Invictus II issuing certain permitted securities for cash or otherwise receiving cash contributions to the capital of Invictus II that will, upon the receipt by Invictus II of such cash, be included in the calculation of consolidated EBITDA solely for the purpose of such financial maintenance covenant. We expect that Invictus II will not be able to exercise the equity cure right in
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more than two fiscal quarters during any period of four consecutive fiscal quarters or more than five fiscal quarters during the term of the Revolving Credit Facility. Under the Revolving Credit Facility, we expect that Invictus II may also be required to meet specified leverage ratios in order to take certain actions, such as incurring certain debt or making certain acquisitions. In addition, the Revolving Credit Facility is expected to include a customary holding company covenant that restricts the activities of Invictus II and other negative covenants, subject to certain exceptions, restricting or limiting Invictus IIs ability and the ability of its restricted subsidiaries to, among other things: (i) make non-ordinary course dispositions of assets; (ii) participate in certain mergers and acquisitions; (iii) pay dividends or make distributions and stock repurchases and optional redemptions (and optional prepayments) of certain subordinated, junior lien or unsecured debt; (iv) incur, assume or guarantee indebtedness; (v) make certain loans and investments; (vi) grant, assume or incur liens; (vii) transact with affiliates; (viii) change its business and the business of its restricted subsidiaries; or (ix) enter into negative pledges or restrictions on its ability or the ability of restricted subsidiaries to pay dividends, make distributions, repay or guarantee indebtedness, or make intercompany investments or transfers.
Senior Notes
Also in connection with the Business Combination, on October 5, 2021, the Escrow Issuer, launched a private offering of $600,000,000 principal amount of % senior secured notes due 2029 (the Senior Notes) pursuant to that certain Indenture dated as of October , 2021 between Invictus II and U.S. Bank National Association, as Trustee and Collateral Agent (the Trustee). Upon the consummation of the Business Combination, Invictus II will assume the Escrow Issuers obligations under the Senior Notes.
The Senior Notes will bear interest at an annual rate of %. Interest on the Senior Notes will be payable in cash semi-annually in arrears on and of each year, commencing on , 2022. The Senior Notes may be issued with original issue discount for U.S. federal income tax purposes.
The Senior Notes will be general, secured, senior obligations of Invictus II; will rank equally in right of payment with all existing and future senior indebtedness of Invictus II (including, without limitation, the Revolving Credit Facility); and together with the Revolving Credit Facility, will be effectively senior to all existing and future indebtedness of Invictus II that is not secured by the collateral. The Senior Notes will be effectively subordinated to all existing and future indebtedness of Invictus II that is secured by assets other than the collateral, to the extent of the collateral securing such indebtedness, will be structurally subordinated to all existing and future indebtedness, claims of holders of any preferred stock that may be issued by, and other liabilities of, subsidiaries of Invictus II that do not guarantee the Senior Notes. The Senior Notes will be senior in right of payment to any future subordinated indebtedness of Invictus II and will be initially guaranteed on a senior secured basis by the guarantors and will also be guaranteed in the future by each subsidiary, if any, that guarantees indebtedness under the Revolving Credit Facility.
The Senior Notes will be fully and unconditionally guaranteed on a senior secured basis, jointly and severally, by all of Invictus IIs existing or future restricted subsidiaries (other than certain excluded subsidiaries) that guarantee the Revolving Credit Facility.
Subscription Agreements
In connection with the execution of the Business Combination Agreement, EverArc, SK Holdings and Holdco entered into the Subscription Agreements with (i) the Institutional Subscribers, pursuant to which the Institutional Subscribers agreed to purchase an aggregate of 114,240,000 EverArc Ordinary Shares at $10.00 per share ($1,142,400,000 in the aggregate) which will be converted into Holdco Ordinary Shares in connection with the closing of the Business Combination, (ii) the SK Subscribers, pursuant to which the SK Subscribers agreed to purchase an aggregate of 429,000 EverArc Ordinary Shares at $10.00 per share ($4,290,000 in the aggregate) which will be converted into Holdco Ordinary Shares in connection with the closing of the Business Combination and (iii) the Individual Subscribers pursuant to which the Individual Subscribers agreed to purchase
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an aggregate of 331,000 EverArc Ordinary Shares at $10.00 per share ($3,310,000 in the aggregate) which will be converted into Holdco Ordinary Shares in connection with the closing of the Business Combination. In addition, the Management Subscribers entered into Subscription Agreements with Holdco pursuant to which the Management Subscribers agreed to purchase an aggregate of 1,100,212 Holdco Ordinary Shares at $10.00 per share ($11,002,117 in the aggregate).
The issuance of the PIPE Shares pursuant to the Subscription Agreements is contingent upon, among other customary closing conditions, the substantially concurrent consummation of the Business Combination.
Pursuant to the Subscription Agreements, Holdco agreed that (i) within 30 calendar days after the Closing Date, it will file with the SEC (at Holdcos sole cost and expense) a registration statement registering the resale of the PIPE Shares, and (ii) it will use its commercially reasonable efforts to have the registration statement declared effective as soon as practicable after the filing thereof, but no later than the earlier of (x) the 60th calendar day (or 90th calendar day if the SEC notifies Holdco that it will review the registration statement) following the closing of the sale of the PIPE Shares and (y) the 5th business day after the date Holdco is notified (orally or in writing, whichever is earlier) by the SEC that such registration statement will not be reviewed or will not be subject to further review.
Non-Compete Agreements
In connection with the execution of the Subscription Agreements entered into with the Management Subscribers, EverArc, Holdco and each Management Subscriber entered into certain Non-Compete Agreements which placed restrictive employment covenants on such Management Subscriber for a period of three years following the Closing Date (as defined therein). These covenants include a covenant (i) not to compete anywhere SK Holdings (directly or through any subsidiary of SK Holdings) conducts its business as of the Closing Date (as defined therein), (ii) not to solicit or transact with any customers or suppliers of the SK Holdings (or any subsidiary of SK Holdings) fire safety and oil additives business, (iii) not to cause any customers or suppliers of the SK Holdings (or any subsidiary of SK Holdings) fire safety and oil additives business to cease doing business with or terminate their respective relationships with SK Holdings, (iv) not to solicit for employment or hire any employees of SK Holdings or its subsidiaries for at least six months following the termination of their employment with SK Holdings and (v) not to disclose any Confidential Information of SK Holdings.
Warrants
Pursuant to the Holdco Warrant Instrument, Holdco will assume, and agree to pay, perform, satisfy and discharge in full, all of EverArcs liabilities and obligations under the EverArc Warrant Instrument arising from and after the Merger Effective Time.
Each Holdco Warrant is exercisable in multiples of four to purchase one Holdco Ordinary Share and only whole warrants are exercisable. The exercise price of the Holdco Warrants is $12.00 per whole Holdco Ordinary Share, subject to adjustment as described in the EverArc Warrant Instrument. A Holdco Warrant may be exercised at any time prior to 5:00 p.m., New York time on the earlier to occur of: (x) the date that is three (3) years after the date on which the Business Combination is completed or (y) such earlier date as determined by the EverArc Warrant Instrument provided that if such day is not a trading day, the trading day immediately following such day.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
This section describes the material U.S. federal income tax considerations generally applicable to you if you are a U.S. Holder (as defined below) of EverArc Securities as a consequence of (i) the Business Combination and (ii) the ownership and disposition of Holdco Ordinary Shares or Holdco Warrants (collectively, Holdco securities) acquired pursuant to the Business Combination. This discussion assumes that any distribution made (or deemed made) on our Holdco Ordinary Shares and any consideration received (or deemed received) by a holder in consideration for the sale or other disposition of our Holdco Ordinary Shares or Holdco Warrants will be in U.S. dollars. This discussion applies only to U.S. Holders that hold EverArc Securities and Holdco securities held as capital assets for U.S. federal income tax purposes (generally property held for investment) and is general in nature and therefore does not discuss all aspects of U.S. federal income taxation that may be relevant to particular investors in light of their particular circumstances or status, including alternative minimum tax and Medicare contribution tax consequences, or to holders subject to special rules, such as:
| our sponsor, officers, directors and their respective affiliates; |
| brokers, dealers and other investors that do not own their EverArc Securities or Holdco securities as capital assets; |
| traders in securities that elect to use a mark-to-market method of tax accounting for their securities holdings; |
| tax-exempt organizations (including private foundations), governments or agencies or instrumentalities thereof, qualified retirement plans, individual retirement accounts or other tax deferred accounts, trusts and estates; |
| banks or other financial institutions, financial services entities, underwriters, insurance companies, real estate investment trusts or regulated investment companies; |
| persons that own (directly, indirectly, or by attribution) 5% or more (by vote or value) of the EverArc Ordinary Shares or Holdco Ordinary Shares; |
| partnerships or other pass-through entities for U.S. federal income tax purposes or beneficial owners of partnerships or other pass-through entities; |
| persons holding EverArc Securities or Holdco securities as part of a straddle, hedging or conversion transaction, constructive sale, or other arrangement involving more than one position; |
| persons required to accelerate the recognition of any item of gross income with respect to EverArc Securities or Holdco securities as a result of such income being recognized on an applicable financial statement; |
| persons who purchase Holdco Ordinary Shares as part of the PIPE; |
| persons whose functional currency is not the U.S. dollar; |
| U.S. expatriates; |
| persons that received EverArc Securities or Holdco securities as compensation for services; or |
| persons that are not U.S. Holders, all of whom may be subject to tax rules that differ materially from those summarized below. |
For purposes of this discussion, a U.S. Holder is a beneficial owner of EverArc Securities or Holdco securities that is, for U.S. federal income tax purposes:
| an individual who is a citizen or resident of the United States; |
| a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; |
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| an estate whose income is subject to U.S. federal income tax regardless of its source; or |
| a trust if (1) a U.S. court can exercise primary supervision over the trusts administration and one or more U.S. persons are authorized to control all substantial decisions of the trust; or (2) the trust has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. |
This discussion is based on the Code, its legislative history, existing and proposed Treasury regulations promulgated under the Code (the Treasury Regulations), published rulings by the IRS and court decisions, all as of the date hereof. These laws are subject to change, possibly on a retroactive basis. This discussion is necessarily general and does not address all aspects of U.S. federal income taxation, including the effect of the U.S. federal estate and gift tax, or any state, local or non-U.S. tax laws to a holder of EverArc Securities or Holdco securities. We have not and do not intend to seek any rulings from the IRS regarding the Business Combination. There is no assurance that the IRS will not take positions concerning the tax consequences of the Business Combination that are different from those discussed below, or that any such different positions would not be sustained by a court.
ALL HOLDERS OF EVERARC SECURITIES ARE URGED TO CONSULT WITH THEIR TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE BUSINESS COMBINATION AND CONSIDERATIONS RELATING TO THE OWNERSHIP AND DISPOSITION OF HOLDCO SECURITIES, INCLUDING THE APPLICATION AND EFFECTS OF U.S. FEDERAL, STATE, AND LOCAL AND NON-U.S. TAX LAWS IN LIGHT OF THEIR PARTICULAR SITUATION.
Tax Consequences of the Business Combination
The Merger
In the opinion of Greenberg, counsel to EverArc, the Merger, together with certain related transactions, will qualify as a reorganization within the meaning of Section 368(a)(1)(F) of the Code (an F Reorganization), subject to the assumptions, qualifications and limitations described herein and in the opinion included as Exhibit 8.1 hereto. Assuming the Merger, together with certain related transactions qualifies as an F Reorganization, the tax consequences of the Merger to U.S. Holders of EverArc Securities might depend on whether EverArc is treated as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes (as discussed in detail below). If EverArc is not treated as a PFIC, a U.S. Holder that exchanges its EverArc Securities in the Merger for Holdco securities should not recognize any gain or loss on such exchange. The aggregate adjusted tax basis of the Holdco Ordinary Shares received in the Merger by a U.S. Holder should be equal to the adjusted tax basis of the EverArc Ordinary Shares surrendered in exchange therefor, and the aggregate adjusted tax basis of the Holdco Warrants received in the Merger by a U.S. Holder should be equal to the adjusted tax basis of the EverArc Warrants surrendered in exchange therefor. The holding period of the Holdco securities should include the period during which the EverArc Securities surrendered in the Merger in exchange therefor were held by the U.S. Holder.
If EverArc is treated as a PFIC, the U.S. federal income tax consequences of the Merger to U.S. Holders of EverArc Securities should generally be similar to those described above. Under proposed Treasury Regulations, if the Merger, together with certain related transactions otherwise qualifies as an F Reorganization, the treatment of EverArc as a PFIC would not adversely impact the tax consequences of the Merger to U.S. Holders of EverArc Securities. The proposed Treasury Regulations, if finalized in their current form, would be effective as of April 1, 1992. Although not entirely clear, in the absence of any final Treasury Regulations, it appears that generally applicable tax rules should apply, which would lead to consequences similar to those described above, even if EverArc is a PFIC.
The opinion described above is based on customary assumptions and representations from EverArc and Holdco. If any of the assumptions or representations is incorrect, incomplete or inaccurate, the validity of the opinion described above may be affected and the tax consequences of the Merger could differ from those described
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above. Further, an opinion of counsel represents counsels best legal judgment but is not binding on the IRS or any court, so there can be no certainty that the IRS will not challenge the conclusion reflected above or that a court would not sustain such a challenge.
U.S. Holders of EverArc Securities are urged to consult their own tax advisors regarding the tax consequences of the Merger to them.
Tax Consequences of Ownership and Disposition of Holdco Ordinary Shares and Holdco Warrants
Distributions on Holdco Ordinary Shares
Subject to the discussion below under Passive Foreign Investment Company Rules, the gross amount of any distribution on Holdco Ordinary Shares that is made out of Holdcos current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) generally will be taxable to a U.S. Holder as ordinary dividend income on the date such distribution is actually or constructively received. Any such dividends generally will not be eligible for the dividends received deduction allowed to corporations in respect of dividends received from other U.S. corporations. To the extent that the amount of the distribution exceeds Holdcos current and accumulated earnings and profits (as determined under U.S. federal income tax principles), such excess amount will be treated first as a non-taxable return of capital to the extent of the U.S. Holders tax basis in its Holdco Ordinary Shares, and thereafter as capital gain recognized on a sale or exchange. However, it is not expected that Holdco will maintain calculations of its earnings and profits in accordance with U.S. federal income tax principles. U.S. Holders should therefore assume that any distribution by Holdco with respect to Holdco Ordinary Shares will be reported as dividend income. U.S. Holders should consult their own tax advisors with respect to the appropriate U.S. federal income tax treatment of any distribution received from Holdco.
Subject to the discussion below under Passive Foreign Investment Company Rules, dividends received by non-corporate U.S. Holders from a qualified foreign corporation may be eligible for reduced rates of taxation, provided that certain holding period requirements and other conditions are satisfied. For these purposes, a non-U.S. corporation will be treated as a qualified foreign corporation if it is eligible for the benefits of a comprehensive income tax treaty with the United States that meets certain requirements. There can be no assurances that Holdco will be eligible for benefits of an applicable comprehensive income tax treaty with the United States. A non-U.S. corporation is also treated as a qualified foreign corporation with respect to dividends it pays on shares that are readily tradable on an established securities market in the United States. U.S. Treasury guidance indicates that shares listed on the Trading Market (which Holdco Ordinary Shares are expected to be) will be considered readily tradable on an established securities market in the United States. There can be no assurance that Holdco Ordinary Shares will be considered readily tradable on an established securities market in future years. Non-corporate U.S. Holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as investment income pursuant to Section 163(d)(4) of the Code (dealing with the deduction for investment interest expense) will not be eligible for the reduced rates of taxation regardless of Holdcos status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to the positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. Holdco will not constitute a qualified foreign corporation for purposes of these rules if it is a passive foreign investment company for the taxable year in which it pays a dividend or for the preceding taxable year. See Passive Foreign Investment Company Rules.
Subject to certain conditions and limitations, withholding taxes, if any, on dividends paid by Holdco may be treated as foreign taxes eligible for credit against a U.S. Holders U.S. federal income tax liability under the U.S. foreign tax credit rules. For purposes of calculating the U.S. foreign tax credit, dividends paid on Holdco Ordinary Shares will generally be treated as income from sources outside the United States and will generally constitute passive category income. The rules governing the U.S. foreign tax credit are complex and U.S. Holders should consult their tax advisors regarding the availability of the U.S. foreign tax credit under particular circumstances.
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Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Holdco Ordinary Shares and Holdco Warrants
Subject to the discussion below under Passive Foreign Investment Company Rules, upon any sale, exchange or other taxable disposition of Holdco Ordinary Shares or Holdco Warrants, a U.S. Holder generally will recognize gain or loss in an amount equal to the difference between (i) the amount realized on the disposition and (ii) the U.S. Holders adjusted tax basis in such shares or warrants. Any such gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if the U.S. Holders holding period for such shares or warrants exceeds one year. Long-term capital gain realized by a non-corporate U.S. Holder generally will be taxable at a reduced rate. The deductibility of capital losses is subject to limitations. This gain or loss generally will be treated as U.S. source gain or loss.
The U.S. Treasury Department recently published a legislative proposal that, if adopted in its current form, would increase the rates of tax imposed on U.S. Holders with net income exceeding certain thresholds and would also result in long-term capital gain no longer being subject to U.S. federal income tax at a reduced rate in the case of U.S. Holders with net income exceeding certain thresholds.
Exercise or Lapse of a Holdco Warrant
A U.S. Holder generally will not recognize taxable gain or loss on the acquisition of a Holdco Ordinary Share upon exercise of a Holdco Warrant for cash. The U.S. Holders tax basis in the Holdco Ordinary Share received upon exercise of the Holdco Warrant generally will be an amount equal to the sum of the U.S. Holders tax basis in the Holdco Warrant and the exercise price. The U.S. Holders holding period for Holdco Ordinary Shares received upon exercise of the of a Holdco Warrant will begin on the date following the date of exercise (or possibly the date of exercise) of the Holdco Warrant and will not include the period during which the U.S. Holder held the Holdco Warrant. If a Holdco Warrant is allowed to lapse unexercised, a U.S. Holder generally will recognize a capital loss equal to such U.S. Holders tax basis in the warrant.
Possible Constructive Distributions
The terms of each Holdco Warrant provide for an adjustment to the number of Holdco Ordinary Shares for which the Holdco Warrant may be exercised or to the exercise price of the Holdco Warrant in certain events. An adjustment that has the effect of preventing dilution generally is not taxable. A U.S. Holder of a Holdco Warrant would, however, be treated as receiving a constructive distribution from Holdco if, for example, the adjustment increases the holders proportionate interest in Holdcos assets or earnings and profits (e.g., through an increase in the number of Holdco Ordinary Shares that would be obtained upon exercise of such warrant) as a result of a distribution of cash to the holders of the Holdco Ordinary Shares, which is taxable to the U.S. Holders of such shares as described under Distributions on Holdco Ordinary Shares above. Such constructive distribution would be subject to tax as described under that section in the same manner as if the U.S. Holder of such warrant received a cash distribution from Holdco equal to the fair market value of such increased interest.
Passive Foreign Investment Company Rules
Generally. The treatment of U.S. Holders of Holdco Ordinary Shares and Holdco Warrants could be materially different from that described above if Holdco is treated as PFIC for U.S. federal income tax purposes. A foreign (i.e., non-U.S.) corporation will be classified as a PFIC for U.S. federal income tax purposes if either (i) 75% or more of its gross income for a taxable year constitutes passive income for purposes of the PFIC rules, or (ii) 50% or more of its assets in any taxable year (generally based on the quarterly average of the value of its assets during such year) is attributable to assets, including cash, that produce passive income or are held for the production of passive income. Passive income generally includes dividends, interest, certain royalties and rents, annuities, net gains from the sale or exchange of property producing such income and net foreign currency gains. The determination of whether a foreign corporation is a PFIC is based upon the composition of such foreign
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corporations income and assets (including, among others, its proportionate share of the income and assets of any other corporation in which it owns, directly or indirectly, 25% (by value) of the stock), and the nature of such foreign corporations activities.
We may directly or indirectly hold interests in lower-tier PFICS. Under attribution rules, assuming we are a PFIC, U.S. Holders will be deemed to own their proportionate shares of any lower-tier PFICs and will be subject to U.S. federal income tax according to the rules described in the following paragraphs on (i) certain distributions by a lower-tier PFIC and (ii) a disposition of shares of a lower-tier PFIC, in each case as if the U.S. Holder held such shares directly, even if the U.S. Holder has not received the proceeds of those distributions or dispositions.
A separate determination must be made after the close of each taxable year as to whether a foreign corporation was a PFIC for that year. Once a foreign corporation qualifies as a PFIC it is, with respect to a shareholder or warrant holder during the time it qualifies as a PFIC, and subject to certain exceptions, always treated as a PFIC with respect to such shareholder or warrant holder, regardless of whether it satisfied either of the qualification tests in subsequent years.
Because EverArc is a blank-check company with no current active business, based upon the composition of EverArcs income and assets, unless EverArc qualifies for the start-up exception (discussed below), EverArc believes it was a PFIC for its taxable year that ended on October 31, 2020. Holdcos PFIC status following the Business Combination is uncertain and may depend upon the application of the start-up exception, discussed below.
Start-up Exception. Pursuant to the start-up exception, a corporation will not be a PFIC for the first taxable year the corporation has gross income (the start-up year), if (1) no predecessor of the corporation was a PFIC; (2) the corporation establishes to the satisfaction of the IRS that it will not be a PFIC for either of the first two taxable years following the start-up year; and (3) the corporation is not in fact a PFIC for either of those years (the start-up exception).
Assuming the Merger, together with certain related transactions qualifies as an F Reorganization, Holdco should be treated as the same corporation as EverArc for purposes of the PFIC provisions, including the start-up exception. EverArcs taxable year that ended on October 31, 2020, should be the start-up year and EverArc should not be treated as a PFIC for such taxable year if EverArc qualifies for the start-up exception, which requires that Holdco (which should be treated as the same corporation as EverArc for this purpose) does not meet the PFIC asset test or income test in either of the following two taxable years. EverArcs and Holdcos actual PFIC status for any taxable year will not be determinable until after the end of such year, and in the case of the application of the start-up exception to EverArc for its taxable year that ended on October 31, 2020, until after the end of Holdcos second succeeding taxable year. Further, if the Merger does not close on or prior to October 31, 2021, EverArc will not qualify for the start-up exception. Accordingly, there can be no assurance with respect to EverArcs status as a PFIC for its taxable year that ended on October 31, 2020, and there can be no assurance with respect to Holdcos status as a PFIC for the current or any future taxable year.
If EverArc does not qualify for the start-up exception and is determined to be a PFIC with respect to a U.S. Holder, such U.S. Holder did not make either a qualified electing fund (QEF) election or a mark-to-market election (described below) with respect to its EverArc Ordinary Shares, and such U.S. Holder was not subject to tax on the receipt of Holdco Ordinary Shares in exchange for EverArc Ordinary Shares, then, although not free from doubt, Holdco should also be treated as a PFIC as to such U.S. Holder with respect to such Holdco Ordinary Shares even if Holdco did not meet a test for PFIC status in its own right. In addition, if this rule were to apply, such U.S. Holder would be treated for purposes of the PFIC rules as if it held such Holdco Ordinary Shares (treated as shares of a PFIC as to such holder) for a period that includes its holding period for the EverArc Ordinary Shares exchanged therefor.
Consequences if Holdco is a PFIC. If Holdco is treated as a PFIC with respect to the Holdco Ordinary Shares or Holdco Warrants held by a U.S. Holder, there are three separate taxation regimes that could apply to such U.S.
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Holder under the PFIC rules, which are the (i) excess distribution regime (which is the default regime), (ii) QEF regime, and (iii) mark-to-market regime. A U.S. Holder who holds (actually or constructively) stock in a foreign corporation during any year in which such corporation qualifies as a PFIC is subject to U.S. federal income taxation under one of these three regimes. The effect of the PFIC rules on a U.S. Holder will depend upon which of these regimes applies to such U.S. Holder. However, dividends paid by a PFIC are generally not eligible for the lower rates of taxation applicable to qualified dividend income under any of the foregoing regimes.
Excess Distribution Regime. If you do not make a QEF election or a mark-to-market election, as described below, you will be subject to the default excess distribution regime under the PFIC rules with respect to (i) any gain realized on a sale or other disposition (including a pledge) of your Holdco Ordinary Shares or Holdco Warrants, and (ii) any excess distribution you receive on your Holdco Ordinary Shares (generally, any distributions in excess of 125% of the average of the annual distributions on Holdco Ordinary Shares during the preceding three years or your holding period, whichever is shorter). Generally, under this excess distribution regime:
| the gain or excess distribution will be allocated ratably over the period during which you held your Holdco Ordinary Shares or Holdco Warrants (as applicable) |
| the amount allocated to the current taxable year, will be treated as ordinary income; and |
| the amount allocated to prior taxable years will be subject to the highest tax rate in effect for that taxable year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
The tax liability for amounts allocated to years prior to the year of disposition or excess distribution will be payable generally without regard to offsets from deductions, losses and expenses. In addition, gains (but not losses) realized on the sale of your Holdco Ordinary Shares or Holdco Warrants cannot be treated as capital gains, even if you hold the shares or warrants as capital assets.
QEF Regime. A QEF election is effective for the taxable year for which the election is made and all subsequent taxable years and may not be revoked without the consent of the IRS. If a U.S. Holder makes a timely QEF election with respect to its direct or indirect interest in a PFIC, the U.S. Holder will be required to include in income each year a portion of the ordinary earnings and net capital gains of the PFIC as QEF income inclusions, even if amount is not distributed to the U.S. Holder. Thus, the U.S. Holder may be required to report taxable income as a result of QEF income inclusions without corresponding receipts of cash. U.S. Holders subject to U.S. federal income tax should not expect that they will receive cash distributions from Holdco sufficient to cover their respective U.S. tax liability with respect to such QEF income inclusions. In addition, U.S. Holders of Holdco Warrants will not be able to make a QEF election with respect to their warrants.
The timely QEF election also allows the electing U.S. Holder to: (i) generally treat any gain recognized on the disposition of its shares of the PFIC as capital gain; (ii) treat its share of the PFICs net capital gain, if any, as long-term capital gain instead of ordinary income; and (iii) either avoid interest charges resulting from PFIC status altogether, or make an annual election, subject to certain limitations, to defer payment of current taxes on its share of PFICs annual realized net capital gain and ordinary earnings subject, however, to an interest charge on the deferred tax computed by using the statutory rate of interest applicable to an extension of time for payment of tax. In addition, net losses (if any) of a PFIC will not pass through to our shareholders and may not be carried back or forward in computing such PFICs ordinary earnings and net capital gain in other taxable years. Consequently, a U.S. Holder may over time be taxed on amounts that as an economic matter exceed our net profits.
A U.S. Holders tax basis in Holdco Ordinary Shares will be increased to reflect QEF income inclusions and will be decreased to reflect distributions of amounts previously included in income as QEF income inclusions. No portion of the QEF income inclusions attributable to ordinary income will be treated as qualified dividend
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income. Amounts included as QEF income inclusions with respect to direct and indirect investments generally will not be taxed again when distributed. You should consult your tax advisors as to the manner in which QEF income inclusions affect your allocable share of Holdcos income and your basis in your Holdco Ordinary Shares.
In order to comply with the requirements of a QEF election, a U.S. Holder must receive certain information from Holdco. If Holdco determines that it is a PFIC for any taxable year, Holdco will endeavor to provide the information that a U.S. Holder making a QEF election is required to obtain to make and maintain a QEF election, but there is no assurance that Holdco will timely provide such information. There is also no assurance that Holdco will have timely knowledge of its status as a PFIC in the future or of the required information to be provided. In addition, if Holdco holds an interest in a lower-tier PFIC, U.S. Holders will generally be subject to the PFIC rules described above with respect to any such lower-tier PFICs. There can be no assurance that a portfolio company or subsidiary in which Holdco holds an interest will not qualify as a PFIC, or that a PFIC in which Holdco holds an interest will provide the information necessary for a QEF election to be made by a U.S. Holder (in particular if Holdco does not control that PFIC).
Mark-to-Market Regime. Alternatively, a U.S. Holder may make an election to mark marketable shares in a PFIC to market on an annual basis. PFIC shares generally are marketable if they are (i) regularly traded on a national securities exchange that is registered with the Securities Exchange Commission or on the national market system established under Section 11A of the Securities and Exchange Act of 1934, or (ii) regularly traded on any exchange or market that the Treasury Department determines to have rules sufficient to ensure that the market price accurately represents the fair market value of the stock. It is expected that Holdco Ordinary Shares, which are expected to be listed on the Trading Market, will qualify as marketable shares for the PFIC rules purposes, but there can be no assurance that Holdco Ordinary Shares will be regularly traded for purposes of these rules.
Pursuant to such an election, a U.S. Holder would include in each year as ordinary income the excess, if any, of the fair market value of such stock over its adjusted basis at the end of the taxable year. A U.S. Holder may treat as ordinary loss any excess of the adjusted basis of the stock over its fair market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the election in prior years. A U.S. Holders adjusted tax basis in the PFIC shares will be increased to reflect any amounts included in income, and decreased to reflect any amounts deducted, as a result of a mark-to-market election. Any gain recognized on a disposition of Holdco Ordinary Shares will be treated as ordinary income and any loss will be treated as ordinary loss (but only to the extent of the net amount of income previously included as a result of a mark-to-market election).
A mark-to-market election only applies for the taxable year in which the election was made, and for each subsequent taxable year, unless the PFIC shares ceased to be marketable or the IRS consents to the revocation of the election. U.S. Holders should also be aware that the Code and the Treasury Regulations do not allow a mark-to-market election with respect to stock of lower-tier PFICs that is non-marketable. There is also no provision in the Code, Treasury Regulations or other published authority that specifically provides that a mark-to-market election with respect to the stock of a publicly-traded holding company (such as Holdco) effectively exempts stock of any lower-tier PFICs from the negative tax consequences arising from the general PFIC rules. We advise you to consult your own tax advisor to determine whether the mark-to-market tax election is available to you and the consequences resulting from such election. In addition, U.S. Holders of Holdco Warrants will not be able to make a mark-to-market election with respect to their Holdco Warrants.
PFIC Reporting Requirements. If Holdco is a PFIC, a U.S. Holder of Holdco Ordinary Shares will be required to file an annual report on IRS Form 8621 containing such information with respect to its interest in a PFIC as the IRS may require. Failure to file IRS Form 8621 for each applicable taxable year may result in substantial penalties and result in the U.S. Holders taxable years being open to audit by the IRS until such Forms are properly filed.
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The rules dealing with PFICs and with the QEF and mark-to-market elections are very complex and are affected by various factors in addition to those described above. Accordingly, U.S. Holders of Holdco Ordinary Shares and Holdco Warrants are urged to consult their own tax advisors concerning the application of the PFIC rules to Holdco securities under their particular circumstances.
Additional Reporting Requirements
Certain U.S. Holders holding specified foreign financial assets with an aggregate value in excess of the applicable dollar thresholds are required to report information to the IRS relating to Holdco Ordinary Shares or Holdco Warrants, subject to certain exceptions (including an exception for Holdco Ordinary Shares or Holdco Warrants held in accounts maintained by U.S. financial institutions), by attaching a complete IRS Form 8938 (Statement of Specified Foreign Financial Assets) with their tax return for each year in which they hold Holdco Ordinary Shares or Holdco Warrants. Substantial penalties apply to any failure to file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not willful neglect. Also, in the event a U.S. Holder does not file IRS Form 8938 or fails to report a specified foreign financial asset that is required to be reported, the statute of limitations on the assessment and collection of U.S. federal income taxes of such U.S. Holder for the related taxable year may not close before the date which is three years after the date on which the required information is filed. U.S. Holders should consult their tax advisors regarding the effect, if any, of these rules on the ownership and disposition of Holdco Ordinary Shares or Holdco Warrants.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries are subject to information reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding.
The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the holders U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the IRS.
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MATERIAL LUXEMBOURG INCOME TAX CONSIDERATIONS
The following information is of a general nature only and is based on the laws in force in Luxembourg as of the date of this Prospectus and is subject to any change in law that may take effect after such date. It does not purport to be a comprehensive description of all tax considerations that might be relevant to an investment decision. It is not intended to be, nor should it be construed to be, legal or tax advice. It is a description of the essential material Luxembourg tax consequences with respect to the listing and may not include tax considerations that arise from rules of general application or that are generally assumed to be known to investors. Prospective purchasers should consult their professional advisors with respect to particular circumstances, the effects of state, local or foreign laws to which they may be subject, and as to their tax position.
Please be aware that the residence concept used under the respective headings applies for Luxembourg income tax assessment purposes only. Any reference in this section to a tax, duty, levy impost or other charge or withholding of a similar nature refers to Luxembourg tax law and/or concepts only. In addition, please note that a reference to Luxembourg income tax generally encompasses corporate income tax (impôt sur le revenu des collectivités), municipal business tax (impôt commercial communal), a solidarity surcharge (contribution au fonds pour lemploi) as well as personal income tax (impôt sur le revenu). Corporate shareholders or warrant holders may further be subject to net worth tax (impôt sur la fortune) as well as other duties, levies or taxes. Corporate income tax, municipal business tax, the solidarity surcharge and net worth tax invariably apply to most corporate taxpayers resident in Luxembourg for tax purposes. Individual taxpayers are generally subject to personal income tax and the solidarity surcharge. Under certain circumstances, where an individual taxpayer acts in the course of the management of a professional or business undertaking, municipal business tax may apply as well.
Taxation of Holdco
Income Taxes
From a Luxembourg tax perspective, Luxembourg companies are considered being resident in Luxembourg provided that they have either their registered office or their central administration located in Luxembourg.
Holdco is a fully taxable Luxembourg company. The net taxable profit of Holdco is subject to corporate income tax (CIT) and municipal business tax (MBT) at ordinary rates in Luxembourg.
The maximum aggregate CIT and MBT rate amounts to 24.94% (including a solidarity surcharge for the unemployment fund) for companies located in the municipality of Luxembourg-city. Liability to such corporation taxes extends to Holdcos worldwide income (including capital gains), subject to the provisions of any relevant double taxation treaty. The taxable income of Holdco is computed by application of all rules of the Luxembourg income tax law of December 4, 1967, as amended (loi concernant limpôt sur le revenu), as commented and currently applied by the Luxembourg tax authorities (LIR). The taxable profit as determined for CIT purposes is applicable, with minor adjustments, for MBT purposes. Under the LIR, all income of Holdco will be taxable in the fiscal period to which it economically relates and all deductible expenses of Holdco will be deductible in the fiscal period to which they economically relate. Under certain conditions, dividends received by Holdco from qualifying participations and capital gains realized by Holdco on the sale of such participations, may be exempt from Luxembourg corporation taxes under the Luxembourg participation exemption regime. A tax credit is generally granted for withholding taxes levied at source within the limit of the tax payable in Luxembourg on such income, whereby any excess withholding tax is not refundable (but may be deductible under certain conditions).
Under the participation exemption regime (subject to the relevant anti-abuse rules), dividends derived from shares may be exempt from income tax if
(i) | the distributing company is a qualified subsidiary (Qualified Subsidiary); and |
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(ii) | at the time the dividend is put at the companys disposal, the latter holds or commits itself to hold for an uninterrupted period of at least 12 months shares representing either (a) a direct participation of at least 10% in the share capital of the Qualified Subsidiary or (b) a direct participation in the Qualified Subsidiary of an acquisition price of at least 1.2 million (Qualified Shareholding). |
A Qualified Subsidiary means notably (a) a company covered by Article 2 of the Council Directive 2011/96/EU dated November 30, 2011 (the Parent-Subsidiary Directive) or (b) a non-resident capital company (société de capitaux) liable to a tax corresponding to Luxembourg CIT.
Liquidation proceeds are assimilated to a received dividend and may be exempt under the same conditions.
If the conditions of the participation exemption regime are not met, dividends derived by Holdco from the Qualified Subsidiary may be exempt for 50% of their gross amount.
Capital gains realized by Holdco on shares are subject to CIT and MBT at ordinary rates, unless the conditions of the participation exemption regime, as described below, are satisfied.
Under the participation exemption regime (subject to the relevant anti-abuse rules), capital gains realized on shares may be exempt from income tax at the level of Holdco (subject to the recapture rules) if at the time the capital gain is realized, Holdco holds or commits itself to hold for an uninterrupted period of at least 12 months shares representing a direct participation in the share capital of the Qualified Subsidiary (i) of at least 10% or of (ii) an acquisition price of at least 6 million. Taxable gains are determined as being the difference between the price for which shares have been disposed of and the lower of their cost or book value.
For the purposes of the participation exemption regime, shares held through a tax transparent entity are considered as being a direct participation proportionally to the percentage held in the net assets of the transparent entity.
Net Worth Tax
Holdco is as a rule subject to Luxembourg net worth tax (NWT) on its net assets as determined for net worth tax purposes. NWT is levied at the rate of 0.5% on net assets not exceeding 500 million and at the rate of 0.05% on the portion of the net assets exceeding 500 million. Net worth is referred to as the unitary value (valeur unitaire), as determined at 1 January of each year. The unitary value is in principle calculated as the difference between (i) assets estimated at their fair market value (valeur estimée de réalisation), and (ii) liabilities.
Under the participation exemption regime, a Qualified Shareholding held by Holdco in a Qualified Subsidiary is exempt for net worth tax purposes.
As from January 1, 2016, a minimum net worth tax (MNWT) is levied on companies having their statutory seat or central administration in Luxembourg. For entities for which the sum of fixed financial assets, transferable securities and cash at bank exceeds 90% of their total gross assets and 350,000, the MNWT is set at 4,815. For all other companies having their statutory seat or central administration in Luxembourg which do not fall within the scope of the 4,815 MNWT, the MNWT ranges from 535 to 32,100, depending on their total balance sheet.
Other Taxes
The incorporation of Holdco through a contribution in cash to its share capital as well as further share capital increase or other amendment to the articles of incorporation of Holdco are subject to a fixed registration duty of 75.
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Withholding Taxes
Dividends paid by Holdco to its shareholders are generally subject to a 15% withholding tax in Luxembourg, unless a reduced treaty rate or the participation exemption applies. Under certain conditions, a corresponding tax credit may be granted to the shareholders. Responsibility for the withholding of the tax is assumed by Holdco.
A withholding tax exemption applies under the participation exemption regime (subject to the relevant anti-abuse rules), if cumulatively (i) the shareholder is an eligible parent (Eligible Parent) and (ii) at the time the income is made available, the Eligible Parent holds or commits itself to hold for an uninterrupted period of at least 12 months a Qualified Shareholding in Holdco.
Holding a participation through a tax transparent entity is deemed to be a direct participation in the proportion of the net assets held in this entity. An Eligible Parent includes notably (a) a company covered by Article 2 of the Parent-Subsidiary Directive or a Luxembourg permanent establishment thereof, (b) a company resident in a State having a double tax treaty with Luxembourg and liable to a tax corresponding to Luxembourg CIT or a permanent establishment thereof, (c) a capital company (société de capitaux) or a cooperative company (société coopérative) resident in a Member State of the EEA other than an EU Member State and liable to a tax corresponding to Luxembourg CIT or a Luxembourg permanent establishment thereof or (d) a Swiss capital company (société de capitaux) which is subject to CIT in Switzerland without benefiting from an exemption.
No withholding tax is levied on capital gains and liquidation proceeds.
Taxation of the Shareholders / Warrant Holders
Tax Residency
A Shareholder or warrant holder will not become resident, nor be deemed to be resident in Luxembourg solely by virtue of holding and/or disposing of shares or warrants or the execution, performance, delivery and/or enforcement of his/her rights thereunder.
Income Tax
For the purposes of this paragraph, a disposal may include a sale, an exchange, a contribution, a redemption and any other kind of alienation of the participation or the warrants.
Luxembourg Residents
a. | Luxembourg Resident Individuals |
Dividends and other payments derived from the shares held by resident individual shareholders, who act in the course of the management of either their private wealth or their professional/business activity, are subject to income tax at the ordinary progressive rates. Under current Luxembourg tax laws, 50% of the gross amount of dividends received by resident individuals from Holdco may however be exempt from income tax.
Capital gains realized on the disposal of the shares or warrants by resident individual shareholders, who act in the course of the management of their private wealth, are not subject to income tax, unless said capital gains qualify either as speculative gains or as gains on a substantial participation. Capital gains are deemed to be speculative if the shares or warrants are disposed of within six months after their acquisition or if their disposal precedes their acquisition. Speculative gains are subject to income tax as miscellaneous income at ordinary rates. A participation is deemed to be substantial where a resident individual shareholder holds or has held, either alone or together with his/her spouse or partner and/or minor children, directly or indirectly at any time within the five years preceding the disposal, more than 10% of the share capital of the company whose shares are being disposed of the substantial participation (Substantial Participation). A shareholder is also deemed to alienate a
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Substantial Participation if he acquired free of charge, within the five years preceding the transfer, a participation that was constituting a Substantial Participation in the hands of the alienator (or the alienators in case of successive transfers free of charge within the same five-year period). Capital gains realized on a Substantial Participation more than six months after the acquisition thereof are taxed according to the half-global rate method (i.e., the average rate applicable to the total income is calculated according to progressive income tax rates and half of the average rate is applied to the capital gains realized on the Substantial Participation).
Capital gains realized on the disposal of the shares or warrants by resident individual holders, who act in the course of their professional/business activity, are subject to income tax at ordinary rates. Taxable gains are determined as being the difference between the price for which the shares or warrants have been disposed of and the lower of their cost or book value.
b. | Luxembourg Resident Companies |
Dividends and other payments derived from the shares held by Luxembourg resident fully taxable companies are subject to income taxes, unless the conditions of the participation exemption regime, as described below, are satisfied. A tax credit is generally granted for withholding taxes levied at source within the limit of the tax payable in Luxembourg on such income, whereby any excess withholding tax is not refundable (but may be deductible under certain conditions). If the conditions of the participation exemption regime are not met, 50% of the dividends distributed by Holdco to a Luxembourg fully taxable resident company are nevertheless exempt from income tax.
Under the participation exemption regime (subject to the relevant anti-abuse rules), dividends derived from the shares may be exempt from CIT and MBT at the level of the shareholder if (i) the shareholder is an Eligible Parent and (ii) at the time the dividend is put at the shareholders disposal, the latter holds or commits itself to hold for an uninterrupted period of at least 12 months a shareholding representing a direct participation of at least 10% in the share capital of Holdco or a direct participation in Holdco of an acquisition price of at least 1.2 million. Liquidation proceeds are assimilated to a received dividend and may be exempt under the same conditions. Capital gains realized by a Luxembourg fully taxable resident company on the disposal of the shares are subject to income tax at ordinary rates, unless the conditions of the participation exemption regime, as described below, are satisfied.
Under the participation exemption regime (subject to the relevant anti-abuse rules), capital gains realized on the shares or warrants may be exempt from CIT and MBT (save for the recapture rules) at the level of the shareholder if cumulatively (i) the shareholder is a Eligible Parent and (ii) at the time the capital gain is realized, the shareholder holds or commits itself to hold for an uninterrupted period of at least 12 months shares representing either (a) a direct participation of at least 10% in the share capital of Holdco or (b) a direct participation in Holdco of an acquisition price of at least 6 million. Taxable gains are determined as being the difference between the price for which the shares have been disposed of and the lower of their cost or book value. Under Luxembourg tax law it is debatable to what extent the warrants are eligible for the participation exemption regime although certain case law supports such argumentation in certain circumstances.
For the purposes of the participation exemption regime, shares held through a tax transparent entity are considered as being a direct participation proportionally to the percentage held in the net assets of the transparent entity.
For warrant holders, the exercise of the warrants should not give rise to any immediate Luxembourg tax consequences.
c. | Luxembourg Resident Companies Benefiting From a Special Tax Regime |
A shareholder or warrant holder who is a Luxembourg resident company benefiting from a special tax regime, such as (i) a specialized investment fund governed by the amended law of February 13, 2007, (ii) a family wealth
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management company governed by the amended law of May 11, 2007 (iii) an undertaking for collective investment governed by the amended law of December 17, 2010 or (iv) a reserved alternat