UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 40-F
[Check one]
| ¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| x | ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2020
Commission File Number 001-38336
BESPOKE CAPITAL ACQUISITION CORP.
(Exact name of Registrant as specified in its charter)
British Columbia, Canada
(Province or other jurisdiction of incorporation or organization)
6770
(Primary Standard Industrial Classification Code Number (if applicable))
N/A
(I.R.S. Employer Identification Number (if applicable))
3rd Floor
115 Park Street
London, W1K 7AP
United Kingdom
Telephone: + 44 (0) 20 7016 8050
(Address and telephone number of Registrant’s principal executive offices)
CT Corporation System
1015 15th Street N.W.
Washington, D.C. 20005
Telephone: (202) 572-3133
(Name, address (including zip code) and
telephone number (including area code)
of agent for service in the United States)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Class A Restricted Voting Shares, no par value | BSPE | The Nasdaq Stock Market LLC |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Not Applicable
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Not Applicable
(Title of Class)
For annual reports, indicate by check mark the information filed with this Form:
| x Annual information form | x Audited annual financial statements |
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
36,000,000 Class A Restricted Voting Shares outstanding as of December 31, 2020
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
x Yes ¨ No
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.
x Emerging growth company
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ¨
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ¨
Principal documents
The following documents have been filed as part of this Annual Report:
| 1. | Annual Information Form for the fiscal year ended December 31, 2020 (the “2020 AIF”) (filed as Exhibit 99.1 hereto); |
| 2. | Management’s Discussion and Analysis for the fiscal year ended December 31, 2020 (the “2020 MD&A”) (filed as Exhibit 99.2 hereto); and |
| 3. | Audited Annual Financial Statements, including the Reports of Independent Registered Public Accounting Firm, for the fiscal year ended December 31, 2020 (the “2020 Audited Annual Financial Statements”) (filed as Exhibit 99.3 hereto). |
CONTROLS AND PROCEDURES
| A. | Certifications |
The required disclosure is included in Exhibits 99.5, 99.6 and 99.7 to this Annual Report, and is incorporated herein by reference.
| B. | Evaluation of Disclosure Controls and Procedures |
The required disclosure is included in “Controls and Procedures” in the 2020 MD&A, filed as Exhibit 99.2 to this Annual Report, and is incorporated herein by reference.
| C. | Management’s Annual Report on Internal Control over Financial Reporting |
This Annual Report on Form 40-F does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.
| D. | Changes in Internal Control over Financial Reporting |
Except as disclosed in the 2020 MD&A, during the period covered by this report, there was no change in BCAC’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting. See “Controls and Procedures” in the 2020 MD&A, filed as Exhibit 99.2 to this Annual Report and incorporated herein by reference.
IDENTIFICATION OF THE AUDIT COMMITTEE
The Board has a separately-designated standing audit committee established in accordance with section 3(a)(58)(A) of the Exchange Act. The members of the Audit Committee are Ian Starkey, Geoffrey Parkin, and Timothy Proctor.
AUDIT COMMITTEE FINANCIAL EXPERT
The BCAC Board of Directors (the “Board”) has determined that it has at least one “audit committee financial expert” (as such term is defined in paragraph 8(b) of General Instruction B to Form 40-F) serving on its Audit Committee. Mr. Ian Starkey has been determined to be such audit committee financial expert and was “independent” as such term is defined under the Canadian Securities Administrators’ National Instrument 52-110 (Audit Committees) and the standards of the U.S. Securities and Exchange Commission (the “SEC”) and the Nasdaq Stock Market LLC (“Nasdaq”) relating to the independence of audit committee members.
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The Board’s designation of Mr. Ian Starkey as an audit committee financial expert does not impose on him any duties, obligations or liability that are greater than the duties, obligations and liability imposed on her as a member of the Audit Committee and Board in the absence of such designation or identification. In addition, the designation of Mr. Ian Starkey as an audit committee financial expert does not affect the duties, obligations or liability of any other member of the Audit Committee or Board.
COMPLIANCE WITH NASDAQ CORPORATE GOVERNANCE REQUIREMENTS
The Company complies with the corporate governance requirements of both the Toronto Stock Exchange (the “TSX”) and Nasdaq. As a foreign private issuer, the Company is not required to comply with all of the corporate governance requirements of Nasdaq; however, the Company adopts best practices consistent with domestic Nasdaq listed companies when appropriate to its circumstances.
The Company has reviewed the Nasdaq corporate governance requirements and confirms that except as described below, the Company is in compliance with the Nasdaq corporate governance standards in all significant respects:
Executive Sessions: Under Rule 5605(b)(2) of the Nasdaq Marketplace Rules, a listed company must have regularly scheduled meetings at which only independent directors are present ("executive sessions"). The rule contemplates that executive sessions will occur at least twice a year, and perhaps more frequently, in conjunction with regularly scheduled board meetings. Under applicable Canadian rules, customs and practice, the Company's independent directors are not required to hold executive sessions. However, the Company is subject to certain disclosure requirements including those prescribed in Form 58-101F1 - Corporate Governance Disclosure. In particular, the Company must disclose whether the independent directors hold executive sessions and, if such executive sessions are held, how many of these meetings have been held since the beginning of the Company's most recently completed financial year. If the Company does not hold executive sessions, the Company must describe what the Board of Directors does to facilitate open and candid discussion among its independent directors. The Company’s Board of Directors has established procedures to enable it to function independently of management and to facilitate open and candid discussions among the independent directors, as appropriate.
Independent Director Oversight of Director Nominations: Rule 5605(e)(1) of the Nasdaq Marketplace Rules prescribes that, subject to a limited exception, director nominees must either be selected, or recommended for the Board of Directors' selection, either by: (a) independent directors (as defined in Rule 5605(a)(2)) constituting a majority of the Board of Directors' independent directors in a vote in which only independent directors participate, or (b) a nominations committee comprised solely of independent directors. Rule 5605(e)(2) requires a listed company to adopt a formal written charter or board resolution, as applicable, addressing the nominations process and such related matters as may be required under United States federal securities laws. Our current Articles include provisions governing the election of directors, but do not contain provisions regarding identifying and nominating candidates to join our board of directors as required by Nasdaq Rule 5605(e)(1), nor have we established other formal written procedures governing the selection of directors. Our practices with regard to these requirements are permitted by Canadian law. The Company expects to form a nomination committee and adopt a compensation committee charter upon the closing of its qualifying acquisition.
Composition and Charter of Compensation Committee: Under Rule 5605(d)(1) of the Nasdaq Marketplace Rules, a listed company must adopt a formal written compensation committee charter that specifies the scope of its responsibilities and the means by which it carries out those responsibilities, including structure, processes and membership requirements. Rule 5605(d)(2)(A) requires that, subject to a limited exception, the compensation committee must be composed of at least two members, each of whom must be an independent director as defined in Rule 5605(a)(2). The Company is a special purpose acquisition company that does not pay regular compensation to its officers and has no employees other than its Chief Executive Officer and Chief Financial Officer. The Company is not required to have a compensation committee under applicable Canadian law or the rules of the TSX and, accordingly, does not have a compensation committee or a corresponding compensation committee charter. The Company expects to form a compensation committee and adopt a compensation committee charter upon the closing of its qualifying acquisition.
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Majority Independent Directors: Rule 5605(b)(1) of the Nasdaq Marketplace Rules requires that a majority of the members of the board of directors of a listed company must be "independent directors" as defined in Rule 5605(a)(2). The Company complies with applicable Canadian law and the rules of the TSX with respect to independence requirements, which do not require that a majority of the members of the board of directors be independent.
Code of Conduct: According to Rule Rule 5610 of the Nasdaq Marketplace Rules, a listed company must adopt and disclose a set of corporate governance guidelines with respect to specified topics and such guidelines are required to be posted on the listed company’s website. The board of directors has not adopted a code of business conduct and ethics. The board of directors and management periodically review the Corporation’s practices to ensure it they are current and reflect best practices in the area of ethical business conduct. The board of directors expects to adopt a code of business conduct and ethics following the closing of its qualifying acquisition. This practice is consistent with the laws, customs and practices in Canada for Special Purpose Acquisition Corporations.
Shareholder Meeting Quorum Requirement: Under Rule 5620(c) of the Nasdaq Marketplace Rules, a listed company that is not a limited partnership must provide in its by-laws for a quorum of not less than 33 1/3% of the outstanding shares of the company's common voting stock in respect of all meetings of the holders of its common stock. The Company's Articles provide that a quorum for a meeting of shareholders of the Company is present if two persons who are, or who represent by proxy, one or more shareholders who, in the aggregate, hold at least twenty-five percent of the issued shares entitled to vote at the meeting. This quorum requirement is consistent with market practice in Canada.
Proxy Delivery Requirement: Under Rule 5620(b) of the Nasdaq Marketplace Rules, a listed company that is not a limited partnership must solicit proxies and provide proxy statements for all meetings of shareholders, and also provide copies of such proxy solicitation materials to Nasdaq. The Company is a "foreign private issuer" as defined in Rule 3b-4 under the Exchange Act, and the equity securities of the Company are accordingly exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Exchange Act. The Company will solicit proxies in accordance with applicable rules and regulations in Canada.
Distribution of Annual Reports: NASDAQ Marketplace Rule 5250(d) requires a NASDAQ-listed company to make available to shareholders an annual report containing audited financial statements of the company and its subsidiaries (which, for example, may be on 40-F under the Exchange Act) within a reasonable period of time following the filing of the annual report with the SEC. The Company may comply with this requirement either:
| · | by mailing the report to shareholders (as opposed to electronic or notice-and-access delivery); | |
| · | by satisfying the requirements for furnishing an annual report contained in Rule 14a-16 under the Exchange Act; or | |
| · | by posting the annual report to shareholders on or through the company's website, along with a prominent undertaking in the English language to provide shareholders, upon request, a hard copy of the annual report free of charge. A company that chooses to satisfy this requirement pursuant in this manner must, simultaneous with this posting, issue a press release stating that its annual report has been filed with the Commission. The press release must also state that: (a) the annual report is available on the company's website and include the website address, and (b) shareholders may receive a hard copy free of charge upon request. |
As indicated above, the Company is exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Exchange Act (as well as Rule 14a-16 promulgated under the Exchange Act), and will solicit proxies in accordance with applicable rules and regulations in Canada.
Section 437 of the TSX Company Manual requires that: (a) every TSX-listed company must forward annually to each shareholder who has requested them its annual financial statements and its related management's discussion and analysis in accordance with Canadian National Instrument 51-102 - Continuous Disclosure Obligations ("NI 51-102"); and (b) if a listed company produces an annual report, it must be filed publicly through SEDAR, available at www.sedar.com.
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Pursuant to NI 51-102, the Company is required to send annually a request form to the registered holders and beneficial owners of its securities, other than debt instruments, that registered holders and beneficial owners may use to request a copy of the Company's annual financial statements and related management's discussion and analysis, the interim financial statements and related management's discussion and analysis, or both. If a registered holder or beneficial owner of securities, other than debt instruments, of the Company requests the Company's annual or interim financial statements, the Company must send a copy of the requested financial statements to the person or company that made the request, without charge, by the later of: (a) 10 days after the filing deadline for the financial statements, or (b) 10 calendar days after the Company receives the request. If the Company sends financial statements it must also send, at the same time, the annual or interim management's discussion and analysis relating to the financial statements.
Shareholder Approval Requirements: Section 5635 of the Nasdaq Marketplace Rules requires shareholder approval for issuances of common shares, or any securities convertible or exercisable into common shares:
| (a) | in connection with the acquisition of the stock or assets of another company |
| (i) | where, due to the present or potential issuance of common shares (including shares issued pursuant to an earn-out or similar type of provision, or securities convertible into or exercisable for common shares) other than a public offering for cash: |
(A) the common shares constitute or will upon issuance constitute at least 20% of the voting power outstanding before the issuance of the common shares (or, if applicable before the issuance of the securities convertible into or exercisable for common shares); or
(B) the common shares constitute or will upon issuance constitute at least 20% of the number of common shares outstanding before the issuance; or
| (ii) | if any director, officer or Substantial Shareholder (as defined by Rule 5635(e)(3) of the Nasdaq Marketplace Rules) of the listed company has a 5% or greater interest (or such persons collectively have a 10% or greater interest), directly or indirectly, in the target company or assets to be acquired, or in the consideration to be paid in the transaction or series of related transactions, and the present or potential issuance of common shares, or securities convertible into or exercisable for common shares, could result in an increase of 5% or more in the outstanding common shares or voting power of the listed company; |
| (b) | where the common shares sold (or the number of common shares into which the securities sold are convertible or exercisable), either alone or together with sales by officers, directors or Substantial Shareholders of the listed company, constitute at least |
| (i) | 20% of the outstanding common shares before the issuance, or |
| (ii) | 20% of the voting power of the outstanding common shares before the issuance, |
in either case except for (A) public offerings of common shares for cash, and (B) transactions involving the sale, issuance or potential issuance of common shares at a price, or securities convertible or exercisable into common shares with a conversion or exercise price, that is greater than or equal to the lesser of (1) the last closing price immediately preceding the signing of a binding agreement, and (2) the average closing price of the common shares on Nasdaq for the five trading days immediately preceding the signing of the binding agreement; and
| (c) | where the issuance would result in a change of control of the listed company. |
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Prior to completion of its qualifying acquisition, the Company may only issue additional securities pursuant to a rights offering. Following completion of its qualifying acquisition, the Company intends to follow TSX rules for shareholder approval of new issuances of its common shares, and consistent with the laws, customs and practices in Canada.
Equity Compensation Plans: Section 5635(c) of the Nasdaq Marketplace Rules also requires shareholder approval of all stock option or purchase plans or other arrangements that provide for equity securities as compensation to officers, directors, employees or consultants, and any material amendments to such plans or arrangements, except for certain plans and arrangements, including:
| (a) | stock purchase plans available on equal terms to all security holders of the listed company (such as a typical dividend reinvestment plan); |
| (b) | tax qualified, non-discriminatory employee benefit plans (e.g., plans that meet the requirements of section 401(a) or 423 of the Internal Revenue Code) or parallel nonqualified plans, provided that such plans are approved by the listed company's independent compensation committee or a majority of the company's independent directors; |
| (c) | those plans or arrangements allowing employees, directors or service providers to buy such securities on the open market or from the listed company for current fair market value; |
| (d) | grants of options or other equity-based compensation as a material inducement to the grantee's entering into employment with the listed company, provided that such grants are approved by the listed company's independent compensation committee or a majority of the company's independent directors; and |
| (e) | conversions, replacements or adjustments of outstanding options or other equity compensation awards to reflect a merger or acquisition. |
Prior to completion of its qualifying acquisition, the Company may not issue any securities pursuant to a securities based compensation plan. Following completion, the Company intends to follow TSX rules for securities based compensation plans, and consistent with the laws, customs and practices in Canada.
CODE OF CONDUCT AND ETHICS
The required disclosure is included under the heading “Ethical Business Conduct” of BCAC’s 2020 AIF, filed as Exhibit 99.1 to this Annual Report, and incorporated herein by reference.
NOTICES PURSUANT TO REGULATION BTR
Not applicable.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The required disclosure is included under the heading Disclosure of Corporate Governance Practices—External Audit Service Fees” of BCAC’s 2020 AIF, filed as Exhibit 99.1 to this Annual Report, and incorporated herein by reference.
AUDIT COMMITTEE’S PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee pre-approves all non-audit services to be provided to us by our independent auditors. The Audit Committee’s policy regarding the pre-approval of non-audit services to be provided to us by our independent auditors is that all such services shall be pre-approved by the Audit Committee or that such pre-approval shall be delegated as permitted by applicable Canadian securities laws. All non-audit services performed by our auditors for the fiscal year ended December 31, 2020 have been pre-approved by our Audit Committee.
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OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2020, the Company did not have any off-balance sheet financing arrangements and has not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
DISCLOSURE OF CONTRACTUAL OBLIGATIONS
BCAC does not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than as described below.
The underwriters of BCAC’s initial public offering are entitled to a deferred fee of $13,500,000. The deferred fee will be paid in cash upon the closing of BCAC’s qualifying acquisition from the amounts held in the escrow account, subject to the terms of the underwriting agreement.
BCAC has entered into an administrative services agreement with the Sponsor for an initial term of 18 months, subject to possible extension, for office space, utilities, and administrative support, which may include payment for services of related parties, for, but not limited to, various administrative, managerial, or operational services, or to help effect the qualifying acquisition. BCAC has agreed to pay up to $10,000 per month, plus applicable taxes for such services. For the year ended December 31, 2020 and for the period from July 8, 2019 (inception) to December 31, 2019, BCAC paid $120,000 and $45,161, respectively, in respect of these services. In April 2020, BCAC also agreed to pay the Sponsor for overhead costs incurred on behalf of BCAC until completion of BCAC’s qualifying acquisition. BCAC paid the Sponsor $278,952 for the year ended December 31, 2020 related to these costs.
BCAC has further agreed to reimburse an affiliate of the Sponsor for any out-of-pocket expenses incurred by directors, officers and consultants of BCAC which were paid by the affiliate relating to certain activities on BCAC’s behalf, including identifying and negotiating a qualifying acquisition. BCAC incurred $117,676 and $160,668 related to out-of-pocket expenses paid during for the year ended December 31, 2020 and for the period from July 8, 2019 (inception) to December 31, 2019, respectively, of which $0 and $35,737 are reported as due to related party at December 31, 2020 and December 31, 2019, respectively.
WEBSITE INFORMATION
Notwithstanding any reference to BCAC’s website or other websites on the World Wide Web in this Annual Report or in the documents attached as exhibits hereto, the information contained in BCAC’s website or any other website on the World Wide Web referred to in this Annual Report or in the documents attached as exhibits hereto, or referred to in BCAC’s website, is not a part of this Annual Report and, therefore, is not filed with the SEC.
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the SEC staff, and to furnish promptly, when requested to do so by the SEC staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.
The Registrant has previously filed an Appointment of Agent for Service of Process and Undertaking on Form F-X with respect to the class of securities in relation to which the obligation to file the Form 40-F arises. Any change to the name or address of the Registrant’s agent for service of process shall be communicated promptly to the SEC by amendment to the Form F-X referencing the file number of the Registrant.
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized.
| BESPOKE CAPITAL ACQUISITION CORP. | ||
| By: | /s/ Mark Harms | |
| Name: | Mark Harms | |
| Title: | Chief Executive Officer | |
Date: March 15, 2021
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EXHIBIT INDEX
* To be filed by amendment.
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Exhibit 99.1
BESPOKE CAPITAL ACQUISITION CORP.
ANNUAL INFORMATION FORM
FISCAL YEAR ENDED DECEMBER 31, 2020
March 12, 2021
| Table of Contents | |
| Page | |
| INTRODUCTION | 1 |
| General | 1 |
| Forward-looking Statements | 1 |
| GLOSSARY OF TERMS | 2 |
| CORPORATE STRUCTURE | 6 |
| Name, Address and Incorporation | 6 |
| GENERAL DEVELOPMENT OF THE BUSINESS | 6 |
| Initial Public Offering | 6 |
| DESCRIPTION OF THE BUSINESS | 7 |
| Overview | 7 |
| Qualifying Acquisition | 7 |
| CAPITAL STRUCTURE OF THE CORPORATION | 8 |
| General | 8 |
| Class A Restricted Voting Units | 8 |
| Class A Restricted Voting Shares and Class B Shares | 8 |
| Common Shares | 11 |
| Proportionate Voting Shares | 11 |
| Warrants | 16 |
| Make Whole Covenants | 18 |
| DIVIDEND POLICY | 19 |
| MARKET FOR SECURITIES | 19 |
| Trading Price and Volume | 19 |
| Prior Sales | 21 |
| ESCROWED SECURITIES AND SECURITIES SUBJECT TO CONTRACTUAL RESTRICTIONS ON TRANSFER | 21 |
| VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS | 21 |
| DIRECTORS AND OFFICERS | 22 |
| Name, Address, Occupation and Securities Holding | 22 |
| Directors and Officers | 22 |
| Indemnification and Insurance | 24 |
| Cease Trade Orders, Bankruptcies, Penalties or Sanctions | 25 |
| INDEBTEDNESS OF DIRECTORS AND OFFICERS | 25 |
| INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS | 25 |
| DISCLOSURE OF CORPORATE GOVERNANCE PRACTICES | 25 |
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| Table of Contents (continued) | |
| Page | |
| Board of Directors | 25 |
| Nomination, Orientation and Continuing Education, Assessments and Board Renewal | 26 |
| Ethical Business Conduct | 26 |
| Gender Diversity | 26 |
| Conflicts of Interest | 27 |
| Audit Committee | 28 |
| External Audit Service Fees | 28 |
| EXECUTIVE COMPENSATION AND OTHER PAYMENTS | 28 |
| Compensation Discussion and Analysis | 28 |
| Trading Policy | 29 |
| RISK FACTORS | 29 |
| AUDITORS, TRANSFER AGENT, WARRANT AGENT AND ESCROW AGENT | 43 |
| PROMOTER | 44 |
| LEGAL PROCEEDINGS AND REGULATORY ACTIONS | 44 |
| Legal Proceedings | 44 |
| Regulatory Actions | 44 |
| MATERIAL CONTRACTS | 44 |
| ADDITIONAL INFORMATION | 44 |
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INTRODUCTION
General
In this Annual Information Form (“AIF”), unless the context otherwise requires, the “Corporation”, “us”, “our” or “we” refers to Bespoke Capital Acquisition Corp. Please refer to the “Glossary” in this AIF for the definitions of other defined terms. Except where otherwise indicated, all references to dollar amounts and “$” are to United States dollars.
Unless otherwise indicated, the information contained herein is given as at December 31, 2020.
Forward-looking Statements
Certain statements contained in this AIF constitute “forward-looking information” for the purpose of applicable Canadian securities legislation (“forward-looking statements”). These statements reflect our management’s expectations with respect to future events, the Corporation’s financial performance and business prospects. All statements other than statements of historical fact are forward-looking statements. The use of 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 a forward-looking statement. These statements involve known and unknown risks, uncertainties, and other factors that may cause actual results or events to differ materially from those anticipated or implied in such forward-looking statements. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the Corporation’s control that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking information. Such risks and uncertainties include, but are not limited to, the factors discussed under “Risk Factors” herein and in the Corporation’s long form non-offering prospectus dated March 12, 2021 (the “Non-Offering Prospectus”).
The forward-looking statements within this document are based on information currently available and what the Corporation currently believes are reasonable assumptions, including the material assumptions set out in the management’s discussion and analysis of the results of operations and the financial condition of the Corporation (“MD&A”) for the period ended December 31, 2021, as updated in subsequently filed MD&A of the Corporation (such documents are available under the Corporation’s SEDAR profile at www.sedar.com).
The assumptions, risks and uncertainties described above are not exhaustive and other events and risk factors could cause actual results to differ materially from the results and events discussed in the forward-looking statements. The forward-looking statements within this document reflect current expectations of the Corporation as at the date of this document and speak only as at the date of this document. Except as may be required by applicable law, the Corporation does not undertake any obligation to publicly update or revise any forward-looking statements.
Documents Incorporated by Reference
Certain sections of the Non-Offering Prospectus, which is available electronically at www.sedar.com, are explicitly incorporated by reference in this AIF. No part of the Non-Offering Prospectus is incorporated by reference except as explicitly referenced herein.
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GLOSSARY OF TERMS
Except as otherwise defined or indicated herein, capitalized terms used herein have the following meanings:
“Advance Notice Provisions” has the meaning given to it under the heading “Capital Structure of the Corporation – Proportionate Voting Shares – Advance Notice Provisions”;
“AIF” has the meaning given to it under the heading “Introduction – General”;
“Amendment” has the meaning given to it under the heading “Risk Factors”;
“Audit Committee” has the meaning given to it under the heading “Disclosure of Corporate Governance Practices – Audit Committee”;
“BCBCA” means the Business Corporations Act (British Columbia), as it may be amended from time to time;
“Bespoke” means Bespoke Capital Partners, LLC, a limited liability company organized under the laws of the State of Delaware;
“CDS” means CDS Clearing and Depository Services Inc.;
“Charter of the Audit Committee” has the meaning given to it under the heading “Disclosure of Corporate Governance Practices – Audit Committee”;
“Class A Restricted Voting Shares” means the Class A restricted voting shares of the Corporation, which may be considered “restricted securities” within the meaning of such term under applicable Canadian securities laws, and each a “Class A Restricted Voting Share”;
“Class A Restricted Voting Units” means the Class A restricted voting units of the Corporation distributed to the public at an offering price of $10.00 per Class A Restricted Voting Unit under the IPO Prospectus, each comprised of one Class A Restricted Voting Share and one-half of a Warrant, and each a “Class A Restricted Voting Unit”;
“Class B Shares” means the Class B shares of the Corporation, also referred to as the Founder’s Shares, and each a “Class B Share”;
“Code” has the meaning given to it under the heading “Risk Factors”;
“Code of Business Conduct and Ethics” has the meaning given to it under the heading “Disclosure of Corporate Governance Practices – Ethical Business Conduct”;
“Common Shares” means the common shares in the capital of the Corporation expected to be issued and outstanding at the time of the closing of the qualifying acquisition;
“Compliance Provisions” has the meaning given to it under the heading “Capital Structure of the Corporation – Proportionate Voting Shares – Compliance Provisions”;
“Corporation” means Bespoke Capital Acquisition Corp., a corporation incorporated under the laws of the Province of British Columbia pursuant to the BCBCA;
“Escrow Agent” means TSX Trust Company, in its capacity as escrow agent, under the Escrow Agreement, and its successors and permitted assigns;
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“Escrow Agreement” means the escrow agreement dated August 15, 2019, among the Corporation, the Escrow Agent, and the Underwriters;
“Exchange Agreement and Undertaking” means the transfer restrictions agreement and undertaking dated August 15, 2019, entered into by our Sponsor in favour of the TSX;
“Extraordinary Dividend” means any dividend, together with all other dividends payable in the same calendar year, that has an aggregate absolute dollar value which is greater than $0.25 per share, with the adjustment to the applicable price (as the context may require) being a reduction equal to the amount of the excess;
“forward-looking statements” has the meaning given to it under the heading “Introduction – Forward-looking Statements”;
“Founder’s Relinquished Shares” means the 1,062,500 Founder’s Shares relinquished by our Sponsor in connection with the partial exercise by the Underwriters of the Over-Allotment Option;
“Founder’s Shares” means the 10,062,500 Class B Shares issued to our Sponsor prior to the closing of the IPO of which 1,062,500 were relinquished in connection with the partial exercise by the Underwriters of the Over-Allotment Option;
“Founder’s Warrants” means the 12,000,000 share purchase warrants issued to our Sponsor at an offering price of $1.00 per Founder’s Warrant at the closing of the IPO, with each whole Founder’s Warrant entitling the holder thereof, commencing 65 days following the closing of our qualifying acquisition, to purchase one Class A Restricted Voting Share (and following the closing of a qualifying acquisition, one Common Share) at a price of $11.50 per share, subject to adjustment, and each, a “Founder’s Warrant”;
“FPI Condition” has the meaning given to it under the heading “Capital Structure of the Corporation – Proportionate Voting Shares – Conversion Conditions”;
“Incorporation Share” has the meaning given to it under the heading “Market for Securities – Prior Sales”;
“IPO” means the Corporation’s initial public offering of 36,000,000 Class A Restricted Voting Units offered to the public under the IPO Prospectus, including the partial exercise of the Over-Allotment Option;
“IPO Closing Date” means August 15, 2019, the closing date of the IPO;
“IPO Prospectus” means the Corporation’s final long form prospectus dated August 8, 2019;
“Make Whole Agreement and Undertaking” means the make whole agreement and undertaking dated August 15, 2019, entered into by our Sponsor in favour of the Corporation;
“Non-Offering Prospectus” means the non-offering prospectus of the Corporation dated March 12, 2021;
“Notice Date” has the meaning given to it under the heading “Capital Structure of the Corporation – Proportionate Voting Shares – Advance Notice Provisions”;
“Odd Lot” has the meaning given to it under the heading “Capital Structure of the Corporation – Proportionate Voting Shares – Take-Over Bid Protection”;
“Over-Allotment Option” means the option granted by the Corporation to the Underwriters to purchase up to an additional 5,250,000 Class A Restricted Voting Units, at a price of $10.00 per Class A Restricted Voting Unit, exercisable for a period of 30 days from the IPO Closing Date, to cover over-allotments, if any, and for market stabilization purposes;
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“Over-Allotment Closing” means the closing of the Over-Allotment Option on September 13, 2019;
“Owning or Controlling” has the meaning given to it under the heading “Capital Structure of the Corporation – Proportionate Voting Shares – Compliance Provisions”;
“Permitted Timeline” means the allowable time period within which the Corporation must consummate its qualifying acquisition, being 18 months from the IPO Closing Date (or 21 months from the IPO Closing Date if the Corporation has executed a definitive agreement for a qualifying acquisition within 18 months from the IPO Closing Date but has not completed the qualifying acquisition within such 18-month period), as it may be extended or shortened as described in the IPO Prospectus;
“person” means any individual, partnership, association, body corporate, trust, trustee, executor, administrator, legal representative, government, regulatory authority or other entity;
“Proportionate Voting Shares” means the proportionate voting shares in the capital of the Corporation expected to be issued and outstanding at the time of the closing of the qualifying acquisition;
“PVS Offer” has the meaning given to it under the heading “Capital Structure of the Corporation – Proportionate Voting Shares – Take-Over Bid Protection”;
“qualifying acquisition” means the acquisition, directly or indirectly, of one or more businesses or assets, by way of a merger, amalgamation, arrangement, share exchange, asset acquisition, share purchase, reorganization, or any other similar business combination involving the Corporation, which is intended to be consummated by the Corporation within the Permitted Timeline and in accordance with applicable law and as more fully described in this annual information form;
“SEDAR” means the System for Electronic Document Analysis and Retrieval, accessible at www.sedar.com;
“Shareholders’ Meeting” means the meeting of shareholders of the Corporation to be held, if required under applicable law, to vote on our qualifying acquisition;
“SPAC” has the meaning given to it under the heading “Description of the Business – Overview”;
“Sponsor” means Bespoke Sponsor Capital LP;
“State” means any state in the United States;
“Tax Act” means the Income Tax Act (Canada) including the regulations promulgated thereunder, as amended;
“Transaction” has the meaning given to it under the heading “General Development of the Business – Qualifying Acquisition”;
“Transaction Agreement” means the definitive purchase agreement entered into between the Corporation and VWE dated February 3, 2021;
“TSX” means the Toronto Stock Exchange;
“Underwriters” means Canaccord Genuity Corp. and Citigroup Global Markets Canada Inc.;
“Underwriting Agreement” means the underwriting agreement dated August 8, 2019, among the Corporation, our Sponsor and the Underwriters;
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“United States” or “U.S.” means the United States of America, its territories and possessions, any State of the United States and the District of Columbia;
“Unsuitable Person” has the meaning given to it under the heading “Capital Structure of the Corporation – Proportionate Voting Shares – Compliance Provisions”;
“U.S. Person” means a “U.S. person” as such term is defined in Regulation S under the U.S. Securities Act;
“U.S. Securities Act”; means the United States Securities Act of 1933, as amended;
“VWE” means Vintage Wine Estates, Inc.;
“Warrant Agent” means TSX Trust Company;
“Warrant Agreement” means the warrant agency agreement between the Corporation and the Warrant Agent, dated August 15, 2019, as it may be amended from time to time;
“Warrants” means the share purchase warrants of the Corporation issued under the Warrant Agreement as a portion of the Class A Restricted Voting Units and the Founder’s Warrants and each a “Warrant”; and
“Winding-Up” means the liquidation and cessation of the business of the Corporation, upon which the Corporation shall be permitted to use up to a maximum of $50,000 of any interest and other amounts earned from the proceeds in the escrow account to pay actual and expected costs and expenses in connection with applications to cease to be a reporting issuer and winding-up and dissolution expenses, as determined by the Corporation.
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CORPORATE STRUCTURE
Name, Address and Incorporation
Bespoke Capital Acquisition Corp. was incorporated under the Business Corporations Act (British Columbia) on July 8, 2019. Our head office is located at 115 Park Street, 3rd Floor, London, W1K 7AP and our registered office is located at 595 Burrard Street, Suite 2600, Three Bentall Centre, Vancouver, BC, V7X 1L3, Canada.
On August 14, 2019, the Corporation’s notice of articles were amended to provide for three new classes of shares in addition to Class B Shares: the Class A Restricted Voting Shares, the Common Shares and the Proportionate Voting Shares. On August 15, 2019, the Corporation completed its IPO and the Corporation’s Class A Restricted Voting Units commenced trading on the TSX under the symbol “BC.V”. Effective September 24, 2019, the Class A Restricted Voting Units, each consisting of one Class A Restricted Voting Share and one-half of a Warrant, separated. Upon separation, the Class A Restricted Voting Shares and Warrants underlying the Class A Restricted Voting Units commenced trading separately on the TSX under the symbols “BC.U” and “BC.WT.U”, respectively.
The Corporation’s articles include, among other provisions, a provision providing for a forum for adjudication of certain disputes, whereby unless the Corporation approves or consents in writing to the selection of an alternative forum, the courts of the Province of British Columbia and appellate courts therefrom shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation; (ii) any action asserting a claim for breach of a fiduciary duty owed by any director or officer of the Corporation to the Corporation; (iii) any action asserting a claim arising pursuant to any provision of the BCBCA or the articles of the Corporation (as they may be amended from time to time); or (iv) any action asserting a claim otherwise related to the relationships among the Corporation, its affiliates and their respective shareholders, directors and/or officers, but does not include claims related to the business carried on by the Corporation or such affiliates. Any person or entity owning, purchasing or otherwise acquiring any interest, including without limitation any registered or beneficial ownership thereof, in the securities of the Corporation shall be deemed to have notice of and consented to the provisions of the articles.
GENERAL DEVELOPMENT OF THE BUSINESS
Initial Public Offering
On August 15, 2019, the Corporation closed its initial public offering of 35,000,000 Class A Restricted Voting Units at a price of $10.00 per Class A Restricted Voting Unit for gross proceeds of $350,000,000. On September 13, 2019, the Corporation closed the partial exercise by the Underwriters of the Over-Allotment Option to purchase an additional 1,000,000 Class A Restricted Voting Units, at a price of $10.00 per unit for gross proceeds of $10,000,000. Each Class A Restricted Voting Unit consisted of one Class A Restricted Voting Share and one-half of a Warrant. The Class A Restricted Voting Units commenced trading on the TSX on August 15, 2019 and effective September 24, 2019, the Class A Restricted Voting Shares and the Warrants underlying the Class A Restricted Voting Units commenced trading separately on the TSX.
Prior to the IPO Closing Date, our Sponsor purchased 10,062,500 Class B Shares (being the Founder’s Shares), of which 1,062,500 Founder’s Shares (being the Founder's Relinquished Shares) were relinquished in connection with the partial exercise by the Underwriters of the Over-Allotment Option, for an aggregate price of $25,000, or approximately $0.0028 per Founder’s Share after taking into account the Founder’s Relinquished Shares. In addition, concurrent with the closing of the IPO, the Sponsor purchased 12,000,000 share purchase warrants (being the Founder’s Warrants) at an offering price of $1.00 per Founder’s Warrant for an aggregate purchase price of $12,000,000.
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On or following completion of a qualifying acquisition, each Class A Restricted Voting Share (unless previously redeemed) will be automatically converted into one Common Share and each Class B Share will be automatically converted on a 100-for-1 basis into Proportionate Voting Shares.
The IPO was undertaken by the Corporation pursuant to the terms of the Underwriting Agreement. Pursuant to the Underwriting Agreement, the Corporation paid $6,300,000 to the Underwriters, being part of the Underwriters’ commission. The balance of the Underwriters’ commission, being $13,500,000, will be paid to the Underwriters upon the closing of our qualifying acquisition from the funds held in the escrow account provided that a portion may be payable to parties of the Corporation’s choosing, as described in the IPO Prospectus.
Following the IPO, the Corporation placed $10.00 per Class A Restricted Voting Share (an aggregate of $360,000,000) in an escrow account with the Escrow Agent. The terms of the Escrow Agreement provide that, subject to applicable laws, none of the funds held in the escrow account will be released from the escrow account until the earliest of: (i) the closing of our qualifying acquisition within the Permitted Timeline; (ii) a redemption (on the closing of a qualifying acquisition or on an extension of the Permitted Timeline) of, or an automatic redemption of, Class A Restricted Voting Shares; and (iii) a Winding-Up. Proceeds held in the escrow account may also be used to satisfy the requirement of the Corporation to pay taxes on the interest or certain other amounts earned on the escrowed funds (including, if applicable, under Part VI.1 of the Tax Act arising in connection with the redemption of the Class A Restricted Voting Shares), and for payment of certain expenses.
The escrowed funds will also be used to pay the deferred underwriting commission in the amount of $13,500,000, which (subject to availability, failing which any shortfall shall be made up from other sources) will be payable by the Corporation to the Underwriters (or to parties of the Corporation’s choosing, as described in the IPO Prospectus) upon the closing of our qualifying acquisition. The per share amount will be distributed to holders of Class A Restricted Voting Shares who properly redeem their shares, which will not be reduced by the deferred underwriting commission. Our Sponsor, as the holder of the Class B Shares, does not have access to, and cannot benefit from, any proceeds held in the escrow account, and as such, does not have any redemption rights with respect to its Class B Shares. The qualifying acquisition must occur within a Permitted Timeline, being 18 months from the IPO Closing Date (or 21 months from the IPO Closing Date if the Corporation has executed a definitive agreement for a qualifying acquisition within 18 months of the IPO Closing Date but have not completed the qualifying acquisition within such 18-month period). The Permitted Timeline could be extended to up to 36 months with shareholder approval of only the holders of Class A Restricted Voting Shares, by ordinary resolution, with approval of the Corporation’s board of directors. If we are unable to complete a qualifying acquisition within the Permitted Timeline, we will redeem the Class A Restricted Voting Units using the cash held in the escrow account.
DESCRIPTION OF THE BUSINESS
Overview
Bespoke Capital Acquisition Corp. is a special purpose acquisition corporation (“SPAC”) incorporated under the laws of the Province of British Columbia for the purpose of effecting, directly or indirectly, an acquisition of one or more businesses or assets, by way of a merger, amalgamation, arrangement, share exchange, asset acquisition, share purchase, reorganization, or any other similar business combination involving the Corporation, which we refer to throughout this AIF as our “qualifying acquisition”.
Qualifying Acquisition
On February 3, 2021, the Corporation announced that it had entered into a definitive purchase agreement (the “Transaction Agreement”) with Vintage Wine Estates, Inc. (“VWE”) pursuant to which, among other things, the Corporation shall acquire, directly or indirectly, all of the equity of VWE by way of a merger between VWE and a newly formed Delaware subsidiary of the Corporation (the “Transaction”). The Transaction will constitute the Corporation’s qualifying acquisition.
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A description of the qualifying acquisition and details regarding Transaction Agreement are described under the headings “Corporate Structure ”and “The Business of VWE” in the Non-Offering Prospectus, each of which such sections is incorporated by reference in this AIF.
CAPITAL STRUCTURE OF THE CORPORATION
General
The Corporation is authorized to issue an unlimited number of Class A Restricted Voting Shares, Class B Shares, Common Shares, and Proportionate Voting Shares, each without nominal or par value. Prior to the closing of the qualifying acquisition, the Corporation will not issue any Common Shares or Proportionate Voting Shares. Following the closing of the qualifying acquisition, the Corporation will not issue any Class A Restricted Voting Shares or Class B Shares. Our Sponsor holds 9,000,000 Class B Shares (representing the Founder’s Shares after taking into account the Founder’s Relinquished Shares) and 12,000,000 Founder’s Warrants. The Class A Restricted Voting Shares may be considered “restricted securities” within the meaning of such term under applicable Canadian securities laws.
The following description summarizes the material terms of our share capital. Because it is only a summary, it may not contain all the information that is important to you. For a complete description, please refer to our notice of articles, articles and the Warrant Agreement filed on SEDAR at www.sedar.com.
Class A Restricted Voting Units
Each Class A Restricted Voting Unit consisted of one Class A Restricted Voting Share and one-half of a Warrant. Each whole Warrant will entitle the holder to purchase one Class A Restricted Voting Share (and on or immediately following the closing of a qualifying acquisition, each whole Warrant would represent the entitlement to purchase one Common Share). The Warrants will become exercisable commencing 65 days after the completion of our qualifying acquisition. As the outstanding Class A Restricted Voting Shares are to be automatically converted into Common Shares on completion of our qualifying acquisition, each whole Warrant outstanding will be exercisable for one Common Share, and at no time are the Warrants expected to be exercisable for Class A Restricted Voting Shares.
The Class A Restricted Voting Units commenced trading on the TSX on August 15, 2019 and effective September 24, 2019, the Class A Restricted Voting Shares and the Warrants underlying the Class A Restricted Voting Units commenced trading separately on the TSX.
Class A Restricted Voting Shares and Class B Shares
The following shares of the Corporation are outstanding:
| · | 36,000,000 Class A Restricted Voting Shares forming part of the Class A Restricted Voting Units (before the exercise of Warrants); and |
| · | 9,000,000 Class B Shares (being the Founder’s Shares net of the Founder’s Relinquished Shares). |
The Founder’s Shares represent 20% of the issued and outstanding shares of the Corporation (including the Class A Restricted Voting Shares). Our Sponsor agreed pursuant to the Exchange Agreement and Undertaking not to transfer any of its Founder’s Shares or Founder’s Warrants until after the closing of the qualifying acquisition, in each case other than transfers required due to the structuring of the qualifying acquisition or unless otherwise permitted by the TSX. Any Class A Restricted Voting Shares purchased by our Sponsor would not be subject to the restrictions set out in the Exchange Agreement and Undertaking.
On or immediately following the closing of the qualifying acquisition, each Class A Restricted Voting Share would, unless previously redeemed, be automatically converted into one Common Share, as adjusted for stock splits or combinations, stock dividends, Extraordinary Dividends, reorganizations and recapitalizations and the like.
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The holders of the Class A Restricted Voting Shares are entitled to vote on and receive notice of meetings on all matters requiring shareholder approval (including any proposed extension to the Permitted Timeline and approval of the qualifying acquisition if otherwise required under applicable law) other than the election and/or removal of directors and auditors prior to closing of a qualifying acquisition. The Corporation is not required to hold an annual meeting of shareholders prior to the closing of the qualifying acquisition provided that an annual update is disseminated via press release and filed on SEDAR or otherwise made publicly available.
The holder(s) of the Class B Shares are entitled to vote at all meetings of shareholders and on all matters requiring a shareholder vote, with the exception of an extension of the Permitted Timeline, which will only be voted upon by holders of Class A Restricted Voting Shares, as further described in the IPO Prospectus.
Only holders of Class A Restricted Voting Shares are entitled to have their shares redeemed, as further described below, and receive the escrow proceeds (net of applicable taxes and other permitted deductions) in the event a qualifying acquisition does not occur within the Permitted Timeline, in the event of a qualifying acquisition, and in the event of an extension to the Permitted Timeline. Our Sponsor, as the holder of the Class B Shares, does not have access to, and cannot benefit from, any proceeds held in the escrow account, and as such, does not have any redemption rights with respect to their Class B Shares. Our Sponsor will, however, be entitled to such redemption rights using proceeds from the escrow account with respect to any Class A Restricted Voting Shares it may acquire. The holders of Class A Restricted Voting Shares and Class B Shares have no pre-emptive rights or other subscription rights and there are no sinking fund provisions applicable to these shares.
Consummation of the qualifying acquisition will require approval by a majority of our directors unrelated to the qualifying acquisition. In connection with seeking to complete a qualifying acquisition, we will provide holders of our Class A Restricted Voting Shares with the opportunity to redeem all or a portion of their Class A Restricted Voting Shares, provided that they deposit their shares for redemption prior to the deadline specified by the Corporation, following public disclosure of the details of the qualifying acquisition and prior to the closing of the qualifying acquisition, of which prior notice had been provided to the holders of the Class A Restricted Voting Shares by any means permitted by the TSX, not less than 21 days nor more than 60 days in advance of such deadline, in each case, with effect, subject to applicable law, immediately prior to the closing of our qualifying acquisition, for an amount per share, payable in cash, equal to the pro-rata portion (per Class A Restricted Voting Share) of: (A) the escrowed funds available in the escrow account at the time immediately prior to the redemption deposit deadline, including interest and other amounts earned thereon; less (B) an amount equal to the total of (i) any applicable taxes payable by the Corporation on such interest and other amounts earned in the escrow account; and (ii) actual and expected expenses directly related to the redemption, each as reasonably determined by the Corporation, subject to the limitations described in the IPO Prospectus. For greater certainty, such amount will not be reduced by the amount of any tax of the Corporation under Part VI.1 of the Tax Act or the deferred underwriting commission per Class A Restricted Voting Share held in escrow. If approval of the qualifying acquisition is otherwise required under applicable law, holders of Class A Restricted Voting Shares shall have the option to redeem their Class A Restricted Voting Shares irrespective of whether they vote for or against, or do not vote on, the qualifying acquisition at any Shareholders Meeting, as further described in the IPO Prospectus. Holders of Class A Restricted Voting Shares will be given not less than 21 days’ notice of the Shareholders Meeting (if such meeting is required under applicable law). Participants through CDS may have earlier deadlines for accepting deposits of Class A Restricted Voting Shares for redemption. If a CDS participant’s deadline is not met by a holder of Class A Restricted Voting Shares, such holder’s Class A Restricted Voting Shares may not be eligible for redemption.
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In connection with any shareholders meeting to vote on an extension to the Permitted Timeline, we will provide holders of our Class A Restricted Voting Shares with the opportunity to deposit for redemption all or a portion of their Class A Restricted Voting Shares provided that they deposit their shares for redemption prior to the second business day before such meeting in respect of the extension. Upon the requisite approval of the extension of the Permitted Timeline, and subject to applicable law, we will be required to redeem such Class A Restricted Voting Shares so deposited for redemption at an amount per share, payable in cash, equal to the pro-rata portion (per Class A Restricted Voting Share) of: (A) the escrowed funds available in the escrow account at the time of the meeting in respect of the extension, including any interest and other amounts earned thereon, less (B) an amount equal to the total of (i) any applicable taxes payable by the Corporation on such interest and other amounts earned in the escrow account; (ii) any taxes of the Corporation (including under Part VI.1 of the Tax Act) arising in connection with the redemption of the Class A Restricted Voting Shares; and (iii) actual and expected expenses directly related to the redemption, each as reasonably determined by the Corporation. For greater certainty, such amount will not be reduced by the deferred underwriting commission per Class A Restricted Voting Unit held in the escrow account.
Holders of Class A Restricted Voting Shares who redeem or sell their Class A Restricted Voting Shares will continue to have the right to exercise any Warrants they may hold if the qualifying acquisition is consummated.
We are unable to estimate the amount per Class A Restricted Voting Share which we expect in the escrow account as at the end of the Permitted Timeline due to recent market conditions, the low interest rate environment and the expected uncertainty and volatility going forward. Due to rate cuts by central banks introduced as a result of the coronavirus epidemic, yields on instruments that are the obligation of, or guaranteed by, the federal government of the United States, which are instruments that the Corporation intends to invest in, have decreased significantly since the IPO Closing Date which will affect the interest the Corporation is expected to earn on the proceeds held in the escrow account.
The remaining unredeemed Class A Restricted Voting Shares would then be automatically converted on or immediately following the closing of the qualifying acquisition into one Common Share each (as adjusted for stock splits or combinations, stock dividends, Extraordinary Dividends, reorganizations and recapitalizations and the like), and the residual escrow account balance would be available to the Corporation and the Underwriters, as applicable.
Notwithstanding the foregoing redemption rights, each holder of Class A Restricted Voting Shares, together with any affiliate of such holder or any other person with whom such holder or affiliate is acting jointly or in concert, will not be permitted to redeem more than an aggregate of 15% of the number of Class A Restricted Voting Shares issued and outstanding following the closing of the IPO. This limitation will not apply in the event a qualifying acquisition does not occur within the Permitted Timeline, or in the event of an extension to the Permitted Timeline. By its election to redeem, each registered holder (other than CDS) and each beneficial holder of Class A Restricted Voting Shares shall be required to represent or shall be deemed to have represented to the Corporation that, together with any affiliate of such holder and any other person with whom such holder or affiliate is acting jointly or in concert, he, she or it is not redeeming Class A Restricted Voting Shares with respect to more than an aggregate of 15% of the number of Class A Restricted Voting Shares issued and outstanding following the closing of the IPO.
If we are unable to consummate a qualifying acquisition within the Permitted Timeline, we will be required to redeem, as promptly as reasonably possible, on an automatic redemption date specified by the Corporation (such date to be within 10 days following the last day of the Permitted Timeline), each of the outstanding Class A Restricted Voting Shares, for an amount per share, payable in cash, equal to the pro-rata portion (per Class A Restricted Voting Share) of: (A) the escrow funds available in the escrow account including any interest and other amounts earned thereon, less (B) an amount equal to the total of (i) any applicable taxes payable by the Corporation on such interest and other amounts earned in the escrow account; (ii) any taxes of the Corporation (including under Part VI.1 of the Tax Act) arising in connection with the redemption of the Class A Restricted Voting Shares; and (iii) up to a maximum of $50,000 of interest and other amounts earned from the proceeds in the escrow account to pay actual and expected Winding-Up expenses and certain other related costs, each as reasonably determined by the Corporation. Our Sponsor, as the holder of the Class B Shares, does not have any such redemption rights; however, our Sponsor will be entitled to such redemption payments from the escrow account with respect to any Class A Restricted Voting Shares it may acquire if we fail to complete our qualifying acquisition or seek an extension to the Permitted Timeline.
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Upon such redemption, the rights of the holders of Class A Restricted Voting Shares as shareholders will be completely extinguished (including the right to receive further liquidation distributions, if any). Subject to the prior rights of the holders of Class A Restricted Voting Shares, and whether prior to or following the Permitted Timeline, the Class B Shares would be entitled to receive the remaining property and assets of the Corporation available for distribution, after payment of liabilities, upon the Winding-Up of the Corporation, whether voluntary or involuntary, subject to applicable law.
Pursuant to the articles of the Corporation, no further Class B Shares or Class A Restricted Voting Shares may be issued commencing on the day following the closing of the qualifying acquisition.
Common Shares
Pursuant to the articles of the Corporation, no Common Shares may be issued prior to the closing of the qualifying acquisition, except in connection with such closing.
The holders of the Common Shares shall be entitled to receive notice of, and to attend and vote at all meetings of, the shareholders of the Corporation (except where solely the holders of one or more other specified classes of shares (other than the Common Shares) shall be entitled to vote at a meeting, in which case, only such holders shall be entitled to receive notice of, and attend and vote at, such meeting). Each Common Share shall confer the right to one vote.
Following the closing of the qualifying acquisition, as applicable, the holders of the Common Shares (including those into which any remaining Class A Restricted Voting Shares have been converted) will also be entitled to receive any dividends on an equal per share basis if, as and when declared by our board of directors.
Subject to the prior rights of the holders of the Class A Restricted Voting Units (and the underlying Class A Restricted Voting Shares and Warrants) and applicable law, in the event of the Winding-Up or dissolution of the Corporation, whether voluntary or involuntary, and whether prior to or following the Permitted Timeline, the holders of the Common Shares (or the holders of the Class B Shares, as applicable) shall be entitled to receive the remaining property of the Corporation on a pro-rata basis.
A holder of Common Shares may at any time, at the option of the holder and with the consent of the Corporation, convert such Common Shares into Proportionate Voting Shares on the basis of 100 Common Shares for one Proportionate Voting Share.
Proportionate Voting Shares
Generally, the Common Shares and the Proportionate Voting Shares will have the same rights, will be equal in all respects and will be treated by the Corporation as if they were shares of one class only. No Common Shares or Proportionate Voting Shares will be issued prior to the closing of the qualifying acquisition.
Conversion Rights and Transfers
Issued and outstanding Proportionate Voting Shares, including fractions thereof, may at any time, subject to the FPI Condition, as defined below, at the option of the holder, be converted into Common Shares at a ratio of 100 Common Shares per Proportionate Voting Share with fractional Proportionate Voting Shares convertible into Common Shares at the same ratio. Further, the board of directors may determine in the future that it is no longer advisable to maintain the Proportionate Voting Shares as a separate class of shares and may cause all of the issued and outstanding Proportionate Voting Shares to be converted into Common Shares at a ratio of 100 Common Shares per Proportionate Voting Share with fractional Proportionate Voting Shares convertible into Common Shares at the same ratio and the board of directors shall not be entitled to issue any more Proportionate Voting Shares under the articles of the Corporation thereafter.
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The Proportionate Voting Shares are not transferrable without approval of the board of directors, except to Permitted Holders and in compliance with U.S. securities laws.
Conversion Conditions
The right of the Proportionate Voting Shares to convert into Common Shares is subject to certain conditions in order to maintain the Corporation’s status as a “foreign private issuer” under U.S. securities laws. Unless otherwise waived by the board of directors of the Corporation, the right to convert the Proportionate Voting Shares is subject to the condition that the aggregate number of Common Shares and Proportionate Voting Shares (calculated as a single class) held of record, directly or indirectly, by residents of the United States (as determined in accordance with Rules 3b-4 and 12g3-2(a) under the Securities Exchange Act of 1934, as amended) may not exceed forty percent (40%) of the aggregate number of Common Shares and Proportionate Voting Shares issued and outstanding after giving effect to such conversions (calculated as a single class) (the “FPI Condition”).
A holder of Common Shares may at any time, at the option of the holder and with the consent of the Corporation, convert such Common Shares into Proportionate Voting Shares on the basis of 100 Common Shares for one Proportionate Voting Share.
No fractional Common Shares will be issued on any conversion of any Proportionate Voting Shares and any fractional Common Shares will be rounded down to the nearest whole number. For the purposes of the foregoing:
“Affiliate” means, with respect to any specified Person, any other Person which directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with such specified Person.
“Permitted Holders” means (i) the initial holders of Proportionate Voting Shares, as applicable, on closing of the qualifying acquisition; and (ii) any Affiliate or Person controlled, directly or indirectly, by one or more of the Persons referred to in clause (i) above.
“Person” means any individual, partnership, corporation, company, association, trust, joint venture or limited liability company. A Person is “controlled” by another Person or other Persons if: (i) in the case of a company or other body corporate wherever or however incorporated: (A) securities entitled to vote in the election of directors carrying in the aggregate at least a majority of the votes for the election of directors and representing in the aggregate at least a majority of the participating (equity) securities are held, other than by way of security only, directly or indirectly, by or solely for the benefit of the other Person or Persons; and (B) the votes carried in the aggregate by such securities are entitled, if exercised, to elect a majority of the board of directors of such company or other body corporate; or (ii) in the case of a Person that is not a company or other body corporate, at least a majority of the participating (equity) and voting interests of such Person are held, directly or indirectly, by or solely for the benefit of the other Person or Persons; and “controls”, “controlling” and “under common control with” shall be interpreted accordingly.
Voting Rights
All holders of Proportionate Voting Shares and Common Shares will be entitled to receive notice of any meeting of shareholders of the Corporation, and to attend, vote and speak at such meetings, except those meetings at which only holders of a specific class of shares are entitled to vote separately as a class under the BCBCA. A quorum for the transaction of business at a meeting of shareholders is present if shareholders who, together, hold not fewer than 25% of the votes attaching to the outstanding voting shares entitled to vote at the meeting are present in person or represented by proxy.
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On all matters upon which holders of Proportionate Voting Shares and Common Shares are entitled to vote:
| · | each Common Share is entitled to one vote per Common Share; and |
| · | each Proportionate Voting Share is entitled to 100 votes per Proportionate Voting Share, and each fraction of a Proportionate Voting Share is entitled to the number of votes calculated by multiplying the fraction by 100. |
The number of votes represented by fractional Proportionate Voting Shares will be rounded down to the nearest whole number. Unless a different majority is required by law or the articles of the Corporation, resolutions to be approved by holders of Common Shares and Proportionate Voting Shares require approval by a simple majority of the total number of votes of all Common Shares and Proportionate Voting Shares cast at a meeting of shareholders at which a quorum is present based on the voting entitlements of each class of shares described above.
Dividend Rights
Holders of Common Shares and Proportionate Voting Shares are entitled to receive dividends out of the assets available for the payment or distribution of dividends at such times and in such amount and form as the board of directors may from time to time determine on the following basis, and otherwise without preference or distinction among or between the Common Shares and Proportionate Voting Shares: each Proportionate Voting Share will be entitled to 100 times the amount paid or distributed per Common Share (including by way of share dividends, which holders of Proportionate Voting Shares will receive in Proportionate Voting Shares, unless otherwise determined by the board of directors) and each fraction of a Proportionate Voting Share will be entitled to the applicable fraction thereof. See “Conversion Rights and Transfers” above.
Liquidation Rights
In the event of the liquidation, dissolution or winding-up of the Corporation or any other distribution of its assets among its shareholders for the purpose of winding-up its affairs, whether voluntarily or involuntarily, the holders of Common Shares and Proportionate Voting Shares will be entitled to receive all of the Corporation’s assets remaining after payment of all debts and other liabilities on the basis that each Proportionate Voting Share will be entitled to 100 times the amount distributed per Common Share (and each fraction of a Proportionate Voting Share will be entitled to the amount calculated by multiplying the fraction by the amount otherwise payable in respect of a whole Proportionate Voting Share), and otherwise without preference or distinction among or between the shares. See “Conversion Rights and Transfers” above.
Pre-emptive and Redemption Rights
Holders of Common Shares and Proportionate Voting Shares will not have any pre-emptive or redemption rights.
Subdivision or Consolidation
No subdivision or consolidation of any class of Common Shares or Proportionate Voting Shares may be carried out unless, at the same time, the Common Shares and Proportionate Voting Shares, as the case may be, are subdivided or consolidated in the same manner and on the same basis, so as to preserve the relative rights of the holders of each class of shares.
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Certain Amendments
In addition to any other voting right or power to which the holders of Common Shares and Proportionate Voting Shares shall be entitled by law or regulation or other provisions of the articles of the Corporation from time to time in effect, but subject to the provisions of the articles of the Corporation, holders of Common Shares and Proportionate Voting Shares shall each be entitled to vote separately as a class, in addition to any other vote of shareholders that may be required, in respect of any alteration, repeal or amendment of our articles which would adversely affect the rights or special rights of the holders of Common Shares or Proportionate Voting Shares, or which would affect the rights of the holders of the Common Shares and the holders of Proportionate Voting Shares differently, on a per share basis, including an amendment to the terms of the articles that provide that any Proportionate Voting Shares sold or transferred to a Person that is not a Permitted Holder shall be automatically converted into Common Shares.
Pursuant to the articles of the Corporation, holders of Common Shares and Proportionate Voting Shares will be treated equally and identically, on a per share basis, in certain change of control transactions that require approval of our shareholders under the BCBCA, unless different treatment of the shares of each such class is approved by a majority of the votes cast by the holders of the Common Shares and Proportionate Voting Shares, each voting separately as a class.
Issuance of Additional Proportionate Voting Shares
The Corporation may issue additional Proportionate Voting Shares upon the approval of the board of directors. Approval is not required in connection with a subdivision or consolidation on a pro rata basis as between the Common Shares and the Proportionate Voting Shares.
Take-Over Bid Protection
If an offer is being made for Proportionate Voting Shares (a “PVS Offer”) where: (i) by reason of applicable securities legislation or stock exchange requirements, the offer must be made to all holders of the class of Proportionate Voting Shares; and (ii) no equivalent offer is made for the Common Shares, the holders of Common Shares have the right, pursuant to the articles of the Corporation, at their option, to convert their Common Shares into Proportionate Voting Shares at a ratio of one Proportionate Voting Share per 100 Common Shares for the purpose of allowing the holders of the Common Shares to tender to such PVS Offer, provided that such conversion into Proportionate Voting Shares will be solely for the purpose of tendering the Proportionate Voting Shares to the PVS Offer in question and that any Proportionate Voting Shares that are tendered to the PVS Offer but that are not, for any reason, taken up and paid for by the offeror will automatically be reconverted into the Common Shares that existed prior to such conversion.
In the event that holders of Common Shares are entitled to convert their Common Shares into Proportionate Voting Shares at a ratio of one Proportionate Voting Share per 100 Common Shares in connection with a PVS Offer pursuant to (ii) above, holders of an aggregate of Common Shares of less than 100 (an “Odd Lot”) will be entitled to convert all but not less than all of such Odd Lot of Common Shares into an applicable fraction of one Proportionate Voting Share, provided that such conversion into a fractional Proportionate Voting Share will be solely for the purpose of tendering the fractional Proportionate Voting Share to the PVS Offer in question and that any fraction of a Proportionate Voting Share that is tendered to the PVS Offer but that is not, for any reason, taken up and paid for by the offeror will automatically be reconverted into the Common Shares that existed prior to such conversion.
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Compliance Provisions
The Corporation’s notice of articles and articles, among other things, facilitate compliance with applicable regulatory and/or licensing regulations. In particular, the articles contain certain provisions (the “Compliance Provisions”), including a combination of certain remedies such as an automatic suspension of voting and/or dividend rights, a discretionary right to force a share transfer to a third party and/or a discretionary redemption right in favour of the Corporation, in each case to seek to ensure that the Corporation and its subsidiaries are able to comply with applicable regulatory and licensing regulations. The purpose of the Compliance Provisions is to provide the Corporation with a means of protecting itself from having a shareholder or a group of shareholders acting jointly or in concert, with an ownership interest of, whether of record or beneficially (or having the power to exercise control or direction over) (“Owning or Controlling”), five percent (5%) or more of the issued and outstanding shares of the Corporation, or such other number as is determined by the board of directors from time to time, and: (i) who a governmental authority granting licenses to, or otherwise governing the operations of, the Corporation or its subsidiaries has determined to be unsuitable to own Common Shares and/or Proportionate Voting Shares, as applicable; (ii) whose ownership of Common Shares and/or Proportionate Voting Shares, as applicable, may reasonably result in the loss, suspension or revocation (or similar action) with respect to any licenses or permits relating to the Corporation or its subsidiaries’ conduct of business (being the conduct of any activities relating to the cultivation, manufacturing and dispensing of cannabis and cannabis-derived products in the United States, which include the owning and operating of cannabis licenses) or in the Corporation being unable to obtain any new licenses or permits in the normal course, all as determined by the board of directors; or (iii) who have not been determined by the applicable regulatory authority to be an acceptable person or otherwise have not received the requisite consent of such regulatory authority to own the Common Shares and/or Proportionate Voting Shares, as applicable, in each case within a reasonable time period acceptable to the board of directors or prior to acquiring any Common Shares and/or Proportionate Voting Shares, as applicable (in each case, an “Unsuitable Person”). The ownership restrictions in the Corporation’s notice of articles and articles are also subject to an exemption for applicable depositaries and clearing houses as well as underwriters (as defined in the Securities Act (Ontario)) in the course of a distribution of securities of the Corporation.
Notwithstanding the foregoing, the Compliance Provisions provide that any shareholder (or group of shareholders acting jointly or in concert) proposing to Own or Control five percent (5%) or more of the issued and outstanding shares of the Corporation (or such other number as is determined by the board of directors from time to time) will be required to provide not less than 30 days’ advance written notice to the Corporation by mail sent to the Corporation’s registered office to the attention of the Corporate Secretary and to obtain all necessary regulatory approvals. Upon any such shareholder(s) Owning or Controlling five percent (5%) or more of the issued and outstanding shares of the Corporation (or such other number as is determined by the board of directors from time to time), and having not received the requisite approval of any applicable regulatory authority to own the Common Shares and/or Proportionate Voting Shares, as applicable, the Compliance Provisions will provide: (i) that such shareholder(s) may, in the discretion of the board of directors, be prohibited from exercising any voting rights and/or receiving any dividends from the Corporation, unless and until all requisite regulatory approvals are obtained; and (ii) the Corporation with a right, but not the obligation, at its option, upon notice to the Unsuitable Person, to: (A) redeem any or all Common Shares and/or Proportionate Voting Shares, as applicable, directly or indirectly held by an Unsuitable Person; and/or (B) forcibly transfer any or all Common Shares and/or Proportionate Voting Shares, as applicable, held directly or indirectly by an Unsuitable Person to a third party. Such rights are required in order for the Corporation to comply with regulations in various jurisdictions where the Corporation or its subsidiaries may conduct business.
Upon receipt by the holder of a notice to redeem or to transfer any or all of its Common Shares and/or Proportionate Voting Shares, the holder will be entitled to receive, as consideration therefor, no less than 95% of the lesser of: (i) the closing price of the Common Shares on the TSX (or the then principal exchange on which the Corporation’s securities are quoted for trading) on the trading day immediately prior to the closing of the redemption or transfer (or the average of the last bid and last asking prices if there was no trading on the specified date); and (ii) the five-day volume weighted average price of the Common Shares on the TSX (or the then principal exchange on which the Corporation’s securities are quoted for trading) for the five trading days immediately prior to the closing of the redemption or transfer (or the average of the last bid and last asking prices if there was no trading on the specified dates).
Further, a holder of the Common Shares and/or Proportionate Voting Shares, as applicable, will be prohibited from acquiring five percent (5%) or more of the issued and outstanding shares of the Corporation, directly or indirectly, in one or more transactions, without providing 30 days’ advance written notice to the Corporation by mail sent to the Corporation’s registered office to the attention of the Corporate Secretary. The foregoing restriction will not apply to the ownership, acquisition or disposition of Common Shares and/or Proportionate Voting Shares, as applicable, as a result of: (i) the transfer of Common Shares and/or Proportionate Voting Shares, as applicable, occurring by operation of law including, inter alia, the transfer of Common Shares and/or Proportionate Voting Shares, as applicable, to a trustee in bankruptcy; (ii) an acquisition or proposed acquisition by one or more underwriters who hold Common Shares and/or Proportionate Voting Shares, as applicable, for the purposes of distribution to the public or for the benefit of a third party provided that such third party is in compliance with the foregoing restriction; or (iii) the conversion, exchange or exercise of securities issued by the Corporation or a subsidiary into or for Common Shares and/or Proportionate Voting Shares, as applicable, in accordance with their respective terms. If the board of directors reasonably believes that any such holder of the Common Shares may have failed to comply with the foregoing restrictions, the Corporation may apply to the Supreme Court of British Columbia, or any other court of competent jurisdiction, for an order directing that such shareholder disclose the number of Common Shares and/or Proportionate Voting Shares, as applicable, directly or indirectly held.
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Notwithstanding the adoption of the Compliance Provisions, the Corporation may not be able to exercise such rights in full or at all, including its redemption rights. Under the BCBCA, a corporation may not make any payment to redeem shares if there are reasonable grounds for believing that the company is unable to pay its liabilities as they become due in the ordinary course of its business or if making the payment of the redemption price or providing the consideration would cause the company to be unable to pay its liabilities as they become due in the ordinary course of its business. Furthermore, the Corporation may become subject to contractual restrictions on its ability to redeem its Common Shares and/or Proportionate Voting Shares, as applicable, by, for example, entering into a secured credit facility subject to such restrictions. In the event that restrictions prohibit the Corporation from exercising its redemption rights in part or in full, the Corporation will not be able to exercise its redemption rights absent a waiver of such restrictions, which the Corporation may not be able to obtain on acceptable terms or at all.
Advance Notice Provisions
The Corporation has included certain advance notice provisions with respect to the election of its directors in its articles (the “Advance Notice Provisions”). The Advance Notice Provisions are intended to: (i) facilitate orderly and efficient annual general meetings or, where the need arises, special meetings; (ii) ensure that all shareholders receive adequate notice of director nominations to the board of directors and sufficient information with respect to all nominees; and (iii) allow shareholders to register an informed vote. Only persons who are nominated by shareholders in accordance with the Advance Notice Provisions will be eligible for election as directors at any annual meeting of shareholders, or at any special meeting of shareholders if one of the purposes for which the special meeting was called was the election of directors.
Under the Advance Notice Provisions, a shareholder wishing to nominate a director would be required to provide the Corporation, in the prescribed form, within the prescribed time periods. These time periods include, (i) in the case of an annual meeting of shareholders (including annual and special meetings), not fewer than 30 days prior to the date of the annual meeting of shareholders; provided, that if the first public announcement of the date (the “Notice Date”) of the annual meeting of shareholders is less than 50 days before the meeting date, not later than the close of business on the 15th day following the Notice Date; and (ii) in the case of a special meeting (which is not also an annual meeting) of shareholders called for any purpose which includes electing directors, not later than the close of business on the 15th day following the Notice Date, provided that, in either instance, if notice-and-access (as defined in National Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer) is used for delivery of proxy related materials in respect of a meeting described above, and the Notice Date in respect of the meeting is not fewer than 50 days prior to the date of the applicable meeting, the notice must be received not later than the close of business on the 40th day before the applicable meeting.
Warrants
There are an aggregate of 30,000,000 Warrants (18,000,000 Warrants forming part of the Class A Restricted Voting Units sold to the public and 12,000,000 Founder’s Warrants sold to our Sponsor) outstanding. Each whole Warrant entitles the registered holder to purchase one Class A Restricted Voting Share (and on or immediately following the closing of a qualifying acquisition, each whole Warrant would represent the entitlement to purchase one Common Share). The Warrants will become exercisable commencing 65 days after the completion of our qualifying acquisition. As the outstanding Class A Restricted Voting Shares will have been automatically converted into Common Shares, each whole Warrant outstanding will be exercisable for one Common Share, and at no time are the Warrants expected to be exercisable for Class A Restricted Voting Shares.
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The Warrants will expire at 5:00 p.m. (Toronto time) on the day that is five years after the completion of our qualifying acquisition or may expire earlier upon our Winding-Up or if the expiry date is accelerated.
Once the Warrants become exercisable, we may accelerate the expiry date of the outstanding Warrants (excluding the Founder’s Warrants but only to the extent still held by our Sponsor at the date of public announcement of such acceleration and not transferred prior to the accelerated expiry date, due to the anticipated knowledge by our Sponsor of material undisclosed information which could limit their dealings in such securities) by providing 30 days’ notice, if and only if, the closing price of the Common Shares equals or exceeds $18.00 per Common Share (as adjusted for stock splits or combinations, stock dividends, Extraordinary Dividends, reorganizations and recapitalizations and the like) for any 20 trading days within a 30-trading day period.
The right to exercise will be forfeited unless the Warrants are exercised prior to the date specified in the notice of acceleration of the expiry date. On and after the acceleration of the expiry date, a record holder of a Warrant will have no further rights.
The exercise price and number of shares issuable on exercise of the Warrants may be adjusted in certain circumstances, including in the event of a stock dividend, Extraordinary Dividend, or our recapitalization, reorganization, merger or consolidation. The Warrants will not, however, be adjusted for issuances of shares at a price below their exercise price.
Warrants may be exercised only for a whole number of shares. No fractional shares will be issued upon exercise of the Warrants. If, upon exercise of the Warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number of shares to be issued to the Warrant holder.
The exercise of the Warrants by any holder in the United States, or that is a U.S. Person, may only be effected in compliance with an exemption from the registration requirements of the U.S. Securities Act and applicable State “blue sky” securities laws.
In no event would the Warrants be entitled to escrow account proceeds. The Warrant holders do not have the rights or privileges of holders of shares and any voting rights until they exercise their Warrants and receive corresponding shares. After the issuance of corresponding shares upon exercise of the Warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by shareholders. On the exercise of any Warrant, the Warrant exercise price will be $11.50, subject to adjustments as described herein and in the IPO Prospectus. At the election of the holder, the Warrants may be exercised through a cashless exercise.
The Warrant Agent shall, on receipt of a written request of the Corporation or holders of not less than 25% of the aggregate number of Warrants then outstanding, convene a meeting of holders of Warrants upon at least 21 calendar days’ written notice to holders of Warrants. Every such meeting shall be held in Toronto, Ontario or at such other place as may be approved or determined by the Warrant Agent. A quorum at meetings of holders of Warrants shall be two persons present in person or represented by proxy holding or representing more than 20% of the aggregate number of Warrants then outstanding.
From time to time, the Corporation and the Warrant Agent, without the consent of the holders of Warrants, may amend or supplement the Warrant Agreement for certain purposes including curing defects or inconsistencies or making any change that does not adversely affect the rights of any holder of Warrants. Any amendment or supplement to the Warrant Agreement that adversely affects the interests of the holders of Warrants may only be made by an “extraordinary resolution”, which is defined in the Warrant Agreement as a resolution either (i) passed at a meeting of the holders of Warrants by the affirmative vote of holders of Warrants representing not less than two-thirds of the aggregate number of the then outstanding Warrants represented at the meeting and voted on such resolution; or (ii) adopted by an instrument in writing signed by the holders of Warrants representing not less than two-thirds of the aggregate number of the then outstanding Warrants.
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The Founder’s Warrants issued to our Sponsor will be identical to the Warrants forming part of the Class A Restricted Voting Units. Our Sponsor agreed, pursuant to the Exchange Agreement and Undertaking, not to transfer any of its Founder’s Shares or Founder’s Warrants until after the closing of the qualifying acquisition. In each case, other than transfers required due to the structuring of the qualifying acquisition or unless otherwise permitted by the TSX.
Make Whole Covenants
Although we will seek to have all vendors, service providers (other than our auditors), prospective qualifying business targets or other entities with which we do business, execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the escrow account for the benefit of holders of our Class A Restricted Voting Shares, there is no guarantee that they will execute such agreements or that, even if they execute such agreements, they would be prevented from bringing claims against the Corporation (including amounts held in the escrow account) including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect to a claim against our assets, including the funds held in the escrow account. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the escrow account for any reason.
In order to protect the amounts held in the escrow account, prior to the closing of the IPO, and pursuant to the Make Whole Agreement and Undertaking, our Sponsor agreed that, (A) in the event of the liquidation of the escrow account upon the occurrence of the automatic redemption by the Corporation of the Class A Restricted Voting Shares resulting from the inability of the Corporation to complete a qualifying acquisition within the Permitted Timeline, or on a Winding-Up, or (B) in the event of an extension to the Permitted Timeline, or the completion of a qualifying acquisition, it will be liable to us if and to the extent any claims by any third party (other than our auditors) for services rendered or products sold to us, or a prospective qualifying acquisition target with which we have entered into, or discussed entering into a transaction agreement, reduce the amount of funds in the escrow account to below the lesser of (i) $10.00 (as adjusted for stock splits or combinations, stock dividends, Extraordinary Dividends, reorganizations and recapitalizations and the like) per Class A Restricted Voting Share; or (ii) such lesser amount per Class A Restricted Voting Share held in the escrow account as of the date of the full or partial liquidation of the escrow account, as applicable, due to reductions in the value of the assets held in escrow (other than due to the failure to obtain waivers from such third parties), in the case of both (i) and (ii), less the amount of interest which may be withdrawn to pay taxes, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the escrow account, and except as to any claims under our indemnity of the Underwriters against certain liabilities.
We believe the likelihood of our Sponsor having to indemnify us is limited because we will endeavor to have all or substantially all vendors and prospective qualifying acquisition targets as well as other entities execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the escrow account. However, we cannot assure investors that our Sponsor would be able to satisfy those obligations, and we have not asked our Sponsor to reserve for such eventuality. Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, our Sponsor will not be responsible to the extent of any liability for such third-party claims. We have not asked our Sponsor to reserve for such eventuality.
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In the event of an extension to the Permitted Timeline, an automatic redemption, or a Winding-Up, whereby the taxes payable pursuant to Part VI.1 of the Tax Act would cause the amounts paid per share from the escrow account to redeeming holders of Class A Restricted Voting Shares to be less than the initial $10.00 invested (as adjusted for stock splits or combinations, stock dividends, Extraordinary Dividends, reorganizations and recapitalizations and the like), our Sponsor will, pursuant to the Make Whole Agreement and Undertaking, be liable to the Corporation for an amount required in order for the Corporation to be able to pay $10.00 (as adjusted for stock splits or combinations, stock dividends, Extraordinary Dividends, reorganizations and recapitalizations and the like) per Class A Restricted Voting Share to redeeming holders of Class A Restricted Voting Shares (but in no event more than the Part VI.1 taxes that would be owing by the Corporation where the amount paid to redeem each applicable Class A Restricted Voting Share would be $10.00 (as adjusted for stock splits or combinations, stock dividends, Extraordinary Dividends, reorganizations and recapitalizations and the like) per Class A Restricted Voting Share). Other than as described herein or in the IPO Prospectus, our Sponsor will not be liable to the Corporation for any other reductions to the escrow account that would cause the Corporation to pay less than $10.00 per Class A Restricted Voting Share to redeeming holders, including any amount on account of non-resident withholding tax applicable to any deemed dividends that arise on any redemptions.
Our Sponsor is permitted to make direct payments or contributions to the escrow account in the manner it determines, for indemnity purposes or otherwise.
In the event that our Sponsor asserts that it is unable to satisfy its indemnification obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against our Sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against our Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors, in exercising their business judgment, may choose not to do so in any particular instance. Accordingly, we cannot assure investors that due to claims of creditors, the actual value of the per share redemption price will not be substantially less than $10.00 per Class A Restricted Voting Share.
DIVIDEND POLICY
We have not paid any cash dividends on our shares to date. Class A Restricted Voting Shares and Class B Shares would be entitled to dividends on an equal per share basis, if, as and when declared by the board of directors of the Corporation. However, we do not intend to declare or pay any cash dividends prior to the completion of our qualifying acquisition. The payment of cash dividends in the future following the completion of our qualifying acquisition will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition and will be at the discretion of our existing board of directors at that time.
MARKET FOR SECURITIES
Trading Price and Volume
The Class A Restricted Voting Shares and the Warrants are listed for trading on the TSX under the symbols “BC.U” and “BC.WT.U”, respectively. The Class A Restricted Voting Units traded on the TSX under the symbol “BC.V” prior to the separation of the Class A Restricted Voting Units on September 24, 2019.
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The following is a monthly summary of trading in the Class A Restricted Voting Shares for the period commenced on January 1, 2020 to December 31, 2020:
| Month | High price | Low price | Total volume by month (number of shares) | ||||||||||
| January 2020 | $ | 9.90 | $ | 9.71 | 544,701 | ||||||||
| February 2020 | $ | 9.87 | $ | 9.80 | 725,650 | ||||||||
| March 2020 | $ | 9.83 | $ | 9.10 | 1,489,600 | ||||||||
| April 2020 | $ | 9.71 | $ | 9.43 | 71,350 | ||||||||
| May 2020 | $ | 9.85 | $ | 9.68 | 466,600 | ||||||||
| June 2020 | $ | 10.00 | $ | 9.71 | 946,140 | ||||||||
| July 2020 | $ | 9.90 | $ | 8.32 | 2,088,801 | ||||||||
| August 2020 | $ | 9.99 | $ | 9.72 | 822,800 | ||||||||
| September 2020 | $ | 9.97 | $ | 9.78 | 64,800 | ||||||||
| October 2020 | $ | 9.99 | $ | 9.79 | 288,566 | ||||||||
| November 2020 | $ | 9.99 | $ | 9.80 | 283,449 | ||||||||
| December 2020 | $ | 10.30 | $ | 9.85 | 2,256,629 | ||||||||
The following is a monthly summary of trading in the Warrants for the period commenced on January 1, 2020 to December 31, 2020:
| Month | High price | Low price | Total volume by month (number of shares) | ||||||||||
| January 2020 | $ | 0.85 | $ | 0.77 | 24,620 | ||||||||
| February 2020 | $ | 0.88 | $ | 0.81 | 111,500 | ||||||||
| March 2020 | $ | 0.86 | $ | 0.30 | 213,393 | ||||||||
| April 2020 | $ | 0.45 | $ | 0.30 | 76,512 | ||||||||
| May 2020 | $ | 0.42 | $ | 0.26 | 206,505 | ||||||||
| June 2020 | $ | 0.53 | $ | 0.34 | 793,700 | ||||||||
| July 2020 | $ | 1.00 | $ | 0.60 | 172,500 | ||||||||
| August 2020 | $ | 0.84 | $ | 0.77 | 49,567 | ||||||||
| September 2020 | $ | 0.79 | $ | 0.50 | 255,500 | ||||||||
| October 2020 | $ | 0.61 | $ | 0.52 | 81,000 | ||||||||
| November 2020 | $ | 0.79 | $ | 0.63 | 6,500 | ||||||||
| December 2020 | $ | 1.64 | $ | 0.70 | 1,221,350 | ||||||||
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Prior Sales
The Corporation has not issued any shares or securities convertible into shares during the 12-month period before the date of this AIF.
ESCROWED SECURITIES AND SECURITIES SUBJECT TO CONTRACTUAL RESTRICTIONS ON TRANSFER
| Designation of Class | Number of securities that are subject to a transfer | Percentage of class as at March 12, 2021 | ||||||
| Class B Shares(1) | 9,000,000 | 100 | % | |||||
| Warrants(1) | 12,000,000 | 40 | % | |||||
| (1) | Pursuant to the Exchange Agreement and Undertaking, the Sponsor has agreed prior to the closing of the qualifying acquisition, not to transfer any of its Founder’s Shares or Founder’s Warrants without the prior consent of the TSX. Notwithstanding the foregoing, the Sponsor may transfer its Founder’s Shares and Founder’s Warrants if required due to the structuring of the qualifying acquisition. |
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
The Corporation is authorized to issue an unlimited number of Class A Restricted Voting Shares, Class B Shares, Common Shares and Proportionate Voting Shares, each without nominal or par value. The Sponsor holds 9,000,000 Class B Shares (representing the Founder’s Shares after taking into account the Founder’s Relinquished Shares). The Class A Restricted Voting Shares may be considered “restricted securities” within the meaning of such term under applicable Canadian securities laws.
The following table discloses the names of the persons or companies who, to the knowledge of the Corporation, as of the date hereof, beneficially owned, or controlled or directed, directly or indirectly, more than 10% of any class or series of the voting securities of the Corporation:
| Name | Number of Class A Restricted Voting Shares | Percentage of Restricted Voting Shares (%) | Number of Shares | Percentage
of (%) | ||||||||||||
| Bespoke Sponsor Capital LP | -- | -- | 9,000,000 | 100 | % | |||||||||||
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DIRECTORS AND OFFICERS
Name, Address, Occupation and Securities Holding
The following are the names and municipalities of residence of our current directors and officers, their positions and offices with the Corporation and corresponding start dates, and their principal occupations during the last five years.
Name
and | Office
held with the | Director
and/or | Present principal occupation
and | |||
Paul Walsh West Sussex, United Kingdom | Executive Chairman | July 8, 2019 | Lead Operating Partner of Bespoke | |||
| Mark
Harms Wellington, Florida, U.S. | Chief Executive Officer and Director | July 8, 2019 | Joint Managing Partner of Bespoke | |||
| Maja
Spalevic Enfied, United Kingdom | Chief Financial Officer | July 8, 2019 | Chief Financial Officer of Bespoke | |||
| Ian
Starkey Warwickshire, United Kingdom | Chair of the Audit Committee and Director | July 8, 2019 | Corporate Director | |||
| Rob
Berner Greenwich, Connecticut, U.S. | Director | July 8, 2019 | Joint Managing Partner of Bespoke | |||
| Geoffrey
Parkin Berkshire, United Kingdom | Director | August 1, 2019 | Partner of LEK Consulting LLP | |||
| Timothy
Proctor Durham, North Carolina, U.S. | Director | August 6, 2019 | Corporate Director |
| (1) | Each of the persons has held these positions for five years other than as described below. |
As of the date hereof, the officers and directors of the Corporation do not hold any Class A Restricted Voting Shares or Class B Shares.
The following are brief biographies of the directors and officers of the Corporation.
Directors and Officers
Paul Walsh
Mr. Walsh is our Chairman and brings with him a wealth of experience as Chief Executive Officer of a large multinational branded consumer products corporation operating in highly regulated markets. Mr. Walsh has been the Executive Chairman of the McLaren group since March 2020. Mr. Walsh previously served as the Lead Operating Partner of Bespoke from 2016 to 2020. Mr. Walsh was the Chief Executive Officer of Diageo, the world’s largest spirits company, from 2000 to 2013. Prior to that, Mr. Walsh was the Chairman and President of The Pillsbury Company from 1996 to 1999. Under Mr. Walsh’s leadership, Diageo was transformed from a multi-national conglomerate into a focused global market leading spirits business via a combination of organic growth and significant acquisitions. Mr. Walsh and his management team created over $80 billion of shareholder value while in leadership at Diageo. Mr. Walsh brings with him substantial corporate leadership experience, knowledge of consumer-centric companies, international operations expertise, and experience with regulated industries. He has also held executive-level finance positions, including as Chief Financial Officer of Grand Metropolitan Foods and Intercontinental Hotels. Throughout his career, Mr. Walsh has built success and growth at his companies through the deployment of effective brand development and marketing strategies, which brings added perspective to our Board. Notable successes include the creation of the Johnnie Walker family of Scotch Whiskey brands. He also currently serves as Executive Chairman of McLaren Group and as Chairman of Compass Group PLC. He is a non-executive director of McDonald’s Corporation and FedEx Corporation.
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Mark W.B. Harms
Mr. Harms is our Chief Executive Officer, a director and a founder and Joint Managing Partner of Bespoke. Prior to Bespoke, Mr. Harms founded GLP in 2004, where he is the Chairman and Chief Executive Officer. GLP has advised on over $60 billion of transactions to date, deploying over $500 million of capital into a number of investments and developed an industry leading operating executive network with 75+ members. Mr. Harms has completed over 130 advisory and principal transactions in North and South America, Europe and Australia. Mr. Harms has extensive experience with regard to leveraged debt, mezzanine and equity financing techniques in Europe and the U.S. with over $100 billion in completed transactions. Prior to founding GLP, Mr. Harms worked at Oppenheimer as a Managing Director and at CIBC World Markets as the founder and head of the Consumer Growth Group. Mr. Harms built within Consumer Growth Group strong industry verticals in branded consumer products and services, gaming, health and fitness, specialty retail and travel and tourism. Mr. Harms currently sits on the board of Bespoke’s portfolio companies, World Fitness Services and Vinventions LLC. Mr. Harms was a non-executive director of 24 Hour Fitness, a Bespoke portfolio company, from 2014 to 2020. Mr. Harms was a Vice Chairman of the World Travel & Tourism Council from 2009 to 2014 and is a member and on the board of the International Association of Gaming Advisors. He was also a non-executive director on a number of other charitable, educational and non for profit boards. Mr. Harms has an MBA from the University of Chicago and a BA from the University of Michigan.
Maja Spalevic
Maja Spalevic is our Chief Financial Officer. Mrs. Spalevic has over 19 years of experience in the financial services and private equity industries including over 14 years with GLP, an affiliate of Bespoke, where she manages finances, oversees the accounting, business support, financial reporting, planning and analysis, treasury, regulatory, human resources, legal, external audit and tax functions for GLP, Bespoke and the affiliated investment entities. Mrs. Spalevic was part of the formation of Bespoke in 2014. Prior to GLP Mrs. Spalevic was a staff accountant at Getty Images. She holds an MSc in Professional Accountancy from University of London and has a BSc (Hons) in Applied Accounting from Oxford Brookes University, is a Fellow of Chartered Certified Accountants (FCCA) and is an Association of Accounting Technicians full member (MAAT).
Ian Starkey
Ian Starkey is one of our directors and the Chair of the Audit Committee. Mr. Starkey brings audit, M&A, management consulting and forensic accounting experience which he gained as a partner at KPMG (UK) where he spent over 35 years. At KPMG, Mr. Starkey was one of the most senior audit partners for over 20 years and was associated with companies such as Diageo plc, F. Hoffmann-La Roche AG and BAE Systems plc. He held various senior management roles, primarily as head of the Consumer Goods markets sector for the UK and Europe. He was a member of the boards of KPMG Europe and KPMG UK LLP, where he chaired at various times the Audit & Risk and Remuneration & Nominations Committees.
Mr. Starkey is currently a non-executive board member of DAC Beachcroft LLP, an international law firm, a member of Meyler Campbell’s Mastered Programme for executive coaching and is also involved in various finance and non-profit ventures. His career history brings to the Corporation extensive experience of operating at board level in regulated businesses across a variety of sectors.
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Robert L. Berner III
Mr. Berner is one of our directors. Mr. Berner is a founder of, and has been Joint Managing Partner, Chief Investment Officer of, Bespoke and Chairman of Bespoke’s Investment Committee since 2014. He has been active in the private equity industry for over 30 years. Mr. Berner has sat on numerous boards and is currently Chairman of Johnnie-O LLC (men’s lifestyle brand). Mr. Berner also was a principal investor in, and Chairman of Diversified Distribution Systems, LLC (DDS), the largest specialty retail distribution and services business in the United States, which was recently sold very successfully to Bunzl Plc. Mr. Berner was previously a Partner at CVC, a global private equity firm with over $50 billion of assets under management and assisted in the opening and development of the firm’s US efforts, including serving as Chairman of CVC US. Prior to CVC, he served as a Managing Director at Ripplewood Holdings and was a member of the firm’s Investment Committee. Prior thereto, Mr. Berner was a Partner and member of the Investment Committee of Charterhouse International. Mr. Berner began his career in the investment banking division of Morgan Stanley where he was a Principal in the mergers and acquisitions department. Mr. Berner also serves on the board of one of Bespoke’s portfolio companies, Vinventions LLC. In addition, Mr. Berner has acted as a non-executive director on the boards of numerous private equity portfolio companies during his private equity career and has sat on the board of several charitable and not for profit organizations. Mr. Berner has an MBA from Northwestern University and a BBA in Finance from the University of Notre Dame.
Geoffrey Parkin
Mr. Proctor is one of our directors. Geoff is a Partner at LEK Consulting LLP’s London office. He is a consumer markets expert and has broad experience assisting UK and international corporate and private equity clients with mission critical strategic issues, commercial performance improvement plans and due diligence assignments. Mr. Parkin has been with LEK for more than 20 years, and previously worked in commercial line management roles for British Airways and American Express, based in London, Copenhagen and Amsterdam.
Mr. Parkin graduated with a Bachelor of Science degree in Management Sciences from U.M.I.S.T. and studied Corporate Finance at London Business School.
Timothy D. Proctor
Mr. Proctor is one of our directors. Mr. Proctor has 38 years of experience in the practice of law, primarily in the highly regulated industries of pharmaceuticals and drinks. After five years at Union Carbide Corporation, Mr. Proctor spent 13 years at Merck supporting pharmaceutical marketing and research activities worldwide. At Glaxo (now GlaxoSmithKline) Mr. Proctor was US general counsel with responsibility for the full range of legal activities in support of marketing, manufacturing, and research, including intellectual property, as well as corporate compliance. He moved with Glaxo to the head office in London to be global head of human resources, and while in London joined Diageo plc as global general counsel. His thirteen years at Diageo involved managing a worldwide team of lawyers in support of a number of marketing, M&A, regulatory, and compliance challenges, during a period of strong growth for the company. Mr. Proctor’s previous board service included the Northwestern Mutual, Wachovia Bank and Allergan, Inc. Mr. Proctor has MBA and JD degrees from the University of Chicago, earned in a joint program.
Indemnification and Insurance
The Corporation maintains a director and officer insurance program to limit the Corporation’s exposure to claims against, and to protect, its directors and officers. In addition, the Corporation has entered into indemnification agreements with each of its directors and officers. The indemnification agreements generally require that the Corporation indemnify and hold the indemnitees harmless to the greatest extent permitted by law for liabilities arising out of the indemnitees’ service to the Corporation as directors and officers, provided that the indemnitees acted honestly and in good faith and in a manner the indemnitees reasonably believed to be in, or not opposed to, the Corporation’s best interests and, with respect to criminal and administrative actions or proceedings that are enforced by monetary penalty, the indemnitees had no reasonable grounds to believe that his or her conduct was unlawful. The indemnification agreements also provide for the advancement of defence expenses to the indemnitees by the Corporation. Statutory indemnification rights also apply. The escrowed proceeds will not be accessible to cover any of the foregoing indemnities.
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Cease Trade Orders, Bankruptcies, Penalties or Sanctions
To the Corporation's knowledge, none of our directors and officers is, or within 10 years prior to the date hereof has been, a director, chief executive officer or chief financial officer of any company (including the Corporation) that (i) was subject to a cease trade order, an order similar to a cease trade order, or an order that denied the relevant company access to any exemption under securities legislation, that was in effect for a period of more than 30 consecutive days, that was issued while the director or officer was acting in the capacity as director, chief executive officer or chief financial officer; or (ii) was subject to a cease trade order, an order similar to a cease trade order, or an order that denied the relevant company access to any exemption under securities legislation, that was in effect for a period of more than 30 consecutive days, that was issued after the director or officer ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer.
To the Corporation's knowledge, none of our directors and officers (i) is, or within 10 years prior to the date hereof has been, a director or executive officer of any company (including the Corporation) that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or (ii) has, within ten years prior to the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director or executive officer.
To the Corporation’s knowledge, none of our directors and officers has been subject to (i) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or (ii) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable securityholder in deciding whether to invest in the Corporation.
INDEBTEDNESS OF DIRECTORS AND OFFICERS
None of the directors, officers or employees of the Corporation, and none of their associates, is or has, at any time since the beginning of the Corporation’s most recently completed fiscal year, been indebted to the Corporation. Additionally, the Corporation has not provided any guarantee, support agreement, letter of credit or other similar agreement or understanding in respect of any indebtedness of any such person to any person or entity, except for routine indebtedness as defined under applicable securities legislation.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
To the knowledge of the Corporation, except as otherwise disclosed elsewhere in this AIF, no director or executive officer of the Corporation, no person or company that is the direct or indirect beneficial owner of, or who exercises control or direction over, directly or indirectly, more than 10% of the outstanding voting securities of the Corporation, and no associate or affiliate of any of the foregoing persons or companies, has or has had any material interest, direct or indirect, in any transaction since inception of the Corporation (up to the date hereof) that has materially affected or is reasonably expected to materially affect the Corporation.
DISCLOSURE OF CORPORATE GOVERNANCE PRACTICES
Board of Directors
All directors are elected on an annual basis, and unless re-elected, the term of office of the directors will expire at each annual meeting of shareholders. The board of directors is comprised of six directors, three of whom are independent. Pursuant to National Instrument 52-110 – Audit Committees, as amended from time to time, an independent director is one who is free from any direct or indirect relationship which could, in the view of the board of directors, be reasonably expected to interfere with a director’s exercise of independent judgment.
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The board of directors’ role is to supervise the management of the business and affairs of the Corporation, including the Corporation’s strategic planning and direction, identify the principal risks of the Corporation’s business and seek to ensure the implementation of systems to manage risk, succession planning and create a culture of integrity throughout the organization. The board of directors acts directly and through the Audit Committee. The Audit Committee operates under a formal charter or mandate which is reviewed, and if necessary, updated on an annual or more frequent basis if necessary. In fulfilling its role, the board of directors delegates’ day-to-day authority to management of the Corporation, while reserving the ability to review management decisions on any matter.
The board of directors held four meetings during the year ended December 31, 2020. All of the directors of the Corporation were present at such meetings.
The officers, advisors and directors will devote such time and expertise as is required by us. Time actually spent may vary according to our needs.
The board of directors has established procedures to enable it to function independently of management and to facilitate open and candid discussions among the independent directors. The Audit Committee, being the only committee of the board of directors, is comprised of a majority of independent directors and independent directors engage in informal discussions outside of regularly scheduled meetings. The independent directors are open to raise issues as they see fit, and to appoint a lead independent director should they wish to do so. Given the limited activities of the Corporation to date, this has not been considered necessary.
The board of directors expects to adopt position descriptions for the Chair, the Lead Director, the Chair of the Audit Committee and for the Chief Executive Officer following the closing of the qualifying acquisition. We also plan to adopt a majority voting policy consistent with the TSX requirements prior to the first uncontested meeting of shareholders at which directors are to be elected.
Nomination, Orientation and Continuing Education, Assessments and Board Renewal
The board of directors does not anticipate any changes to its composition until the completion of our qualifying acquisition. As such, at this time the board of directors and its committees have not adopted processes by which it assesses the board, its committees and individual directors. In addition, the board of directors has not adopted a process by which it identifies new candidates or measures to orient new directors. The board of directors does not currently have a nominating committee.
Ethical Business Conduct
The board of directors has not adopted a code of business conduct and ethics (the “Code of Business Conduct and Ethics”). The board of directors and management periodically review the Corporation’s practices to ensure it they are current and reflect best practices in the area of ethical business conduct. The board of directors expects to adopt a Code of Business Conduct and Ethics following the closing of the qualifying acquisition.
Gender Diversity
The Corporation recognizes the benefits that diversity brings. Currently, one executive officer of the Corporation is female. The Corporation recognizes the importance and benefit of having directors and senior management comprised of highly talented and experienced individuals having regard to the need to foster and promote diversity among board members and senior management with respect to attributes such as gender, ethnicity and other factors. The board of directors does not anticipate any changes to its composition or the composition of senior management until the completion of our qualifying acquisition. As such, the Corporation is not expected to adopt a written policy relating to the identification and nomination of women directors or executive officers or a formal target regarding the number of women on the board or in executive officer positions.
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Conflicts of Interest
Our officers and directors have agreed to present to us all target business opportunities that have a fair market value of at least 80% of the assets held in the escrow account (excluding deferred underwriting commissions and applicable taxes payable on the income accrued in the escrow account), subject to any pre-existing fiduciary or contractual obligations. In addition, in the course of their other business activities, the directors and/or officers may owe similar or other duties, and may have obligations, to other entities or pursuant to other outside business arrangements, including to seek and present investment and business opportunities to other entities.
The following potential conflicts of interest, among others, to which some of our directors and officers will or may be subject in connection with our operations, exist:
| · | None of our directors or officers are required to commit their full time to our affairs and, accordingly, they may be susceptible to conflicts of interest in allocating their time among various business activities. |
| · | Our officers and directors are, and may in the future become, affiliated with other companies. In order to minimize potential conflicts of interest which may arise from such other corporate affiliations, each of our officers and directors has contractually agreed, pursuant to a written agreement with us, until the earliest of our execution of a definitive agreement for a qualifying acquisition, our liquidation or such time as he or she ceases to be an officer or director, to present to our company for our consideration, prior to presentation to any other entity, any suitable business opportunity which may reasonably be required to be presented to us, subject to any pre-existing fiduciary or contractual obligations he might have. We do not believe, however, that any fiduciary duties or contractual obligations of our executive officers would materially undermine our ability to complete our initial business combination. |
| · | Unless and until we consummate our qualifying acquisition, our Sponsor and officers, or their respective affiliates or our affiliates, will not receive reimbursement for any out of-pocket expenses incurred by them to the extent that such expenses exceed the amount of proceeds not deposited in the escrow account. |
In no event will our Sponsor or any of our officers or directors be paid any fees or other compensation (for greater certainty, excluding reimbursement of expenses), including finder’s fees, consulting fees or other compensation on the closing of our qualifying acquisition for services rendered in order to effectuate a qualifying acquisition, unless expressly approved by a majority of our unconflicted directors, being the other directors who do not have a conflict of interest in respect of the proposed acquisition, and subject to any consent required by the TSX.
We are not prohibited from pursuing a qualifying acquisition with a company that is affiliated with any of our Sponsor, or our directors or officers. In the event we seek to complete our qualifying acquisition with a company that is affiliated with any of our Sponsor or a director or officer, in accordance with applicable laws, any negotiations would be undertaken on behalf of the Corporation by a committee of unconflicted directors. In addition, in connection therewith the committee of unconflicted directors may be required to seek shareholder approval of such qualifying acquisition and, we, or a committee of independent directors, may be required to obtain an opinion from a qualified person concluding that our qualifying acquisition is fair to us or our shareholders from a financial point of view. In addition, if the qualifying acquisition involves a related party, the transaction may be subject to the minority shareholder protections of MI 61-101 – Protection of Minority Security Holders in Special Transactions, which would, in certain circumstances, require approval by minority shareholders and/or an independent valuation. The TSX may also impose additional requirements in such circumstances.
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Conflicts, if any, will be subject to the procedures as provided under the BCBCA and applicable securities laws.
Audit Committee
The Corporation’s audit committee (the “Audit Committee”) is composed of Ian Starkey, Geoffrey Parkin and Timothy Proctor, each of whom is financially literate and independent. The relevant education and experience of each member of the Audit Committee is described as part of their respective biographies above under the “Directors and Officers – Name, Address, Occupation and Securities Holding” sub-heading.
The board of directors of the Corporation has adopted a written charter for the Audit Committee (the “Charter of the Audit Committee”), which sets out the Audit Committee’s responsibility in reviewing and approving the financial statements of the Corporation and public disclosure documents containing financial information and reporting on such review to the board of directors of the Corporation, ensuring that adequate procedures are in place for the reviewing of the Corporation’s public disclosure documents that contain financial information, overseeing the work and reviewing the independence of the external auditors. The text of the Charter of the Audit Committee that has been adopted is attached to this AIF as Appendix A.
External Audit Service Fees
The fees billed to Bespoke Capital Acquisition Corp. by its auditor, RSM US LLP, for the financial year ended December 31, 2020, were as follows:
| Year | Audit fees(1) | Audit-related fees(2) | Tax fees(3) | All other fees(4) | ||||||||||||||
| 2020 | $ | 57,750 | $ | 2,537.51 | -- | -- | ||||||||||||
| 2019(5) | $ | 31,327 | $ | 8,934 | -- | -- | ||||||||||||
Notes:
| (1) | Represents all fees billed by the auditor. |
| (2) | Audit-related fees include fees paid to the company’s auditors for statutory audits, attestation services, quarterly reviews and due diligence services. |
| (3) | Tax fees include fees paid for preparation of the company’s annual tax return. |
| (4) | All other fees include fees incurred in connection with an initial review of the company and its operations and administrative expenses. |
(5) The Corporation’s Auditor for the financial year ended December 31, 2019 was RSM Canada LLP.
EXECUTIVE COMPENSATION AND OTHER PAYMENTS
Compensation Discussion and Analysis
Except as otherwise stated herein or in the IPO Prospectus, there will be no salaries, consulting fees, management contract fees or directors’ fees, finder’s fees, loans, bonuses, deposits or similar payments to our officers or directors, directly or indirectly, for services rendered to us prior to or in connection with the completion of our initial qualifying acquisition, or other payments to insiders prior to or in connection with the completion of our initial qualifying acquisition, other than (i) repayment of unsecured loans, and any interest thereon, which may be made by our Sponsor; (ii) the payment of $10,000 (plus applicable taxes) per month for administrative and related services pursuant to an administrative services agreement entered into with our Sponsor which, if applicable, may include payment for services of related parties or qualified affiliates of related parties, for, but not limited to, various administrative, managerial or operational services or to help effect our qualifying acquisition; (iii) reimbursement of reasonable out-of-pocket expenses incurred by the above-noted persons in connection with certain activities performed on our behalf, such as identifying possible business targets and qualifying acquisitions, performing business due diligence on suitable target businesses and qualifying acquisitions as well as traveling to and from the offices, plants or similar locations of prospective target businesses to examine their operations; and (iv) if approved by a majority of our unconflicted directors, being the other directors who do not have a conflict of interest in respect of the proposed acquisition, and subject to any consent required by the TSX, payment of a customary finder’s fee, consulting fee or other similar compensation to our Sponsor, officers, or directors, or to their affiliates, for services rendered to us prior to or in connection with the completion of our qualifying acquisition, none of which will be made from the proceeds of the IPO held in the escrow account prior to the completion of the qualifying acquisition.
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There is no limit on the amount of out-of-pocket expenses reimbursable by us; provided, however, that to the extent such expenses exceed the available proceeds not deposited in the escrow account, such expenses would not be reimbursed by us unless we consummate a qualifying acquisition.
Our board of directors will review and approve all reimbursements and payments made to our Sponsor, officers or directors, or our affiliates or associates or their respective affiliates or associates, with any interested director abstaining from such review and approval.
Following completion of the qualifying acquisition, it is anticipated that we will pay compensation to our officers. Members of our management team who remain with the Corporation following our qualifying acquisition may be paid consulting, management or other fees from the resulting issuer of the qualifying acquisition with any and all amounts being fully disclosed to shareholders, to the extent then known, in the prospectus prepared by our management in connection with the qualifying acquisition.
Trading Policy
Until the Corporation completes a qualifying acquisition, the Corporation has imposed a continuous blackout period under the terms of its insider trading policy, as the Corporation expects to be continuously evaluating acquisition opportunities during this time. This means that no trading in the Corporation’s securities is permitted by any member of the board of directors, advisors, officers and employees of the Corporation and their respective associates (including immediate family members who reside in the same home as that person) until the completion of the qualifying acquisition.
RISK FACTORS
The risks and uncertainties described in this AIF are those the Corporation currently believes to be material, but they are not the only ones it faces. If any of the following risks, or any other risks and uncertainties that the Corporation has not yet identified or that it currently considers not to be material, actually occur or become material risks, then our business, financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could be materially and adversely affected. Risks relating to the Transaction are described in the Non-Offering Prospectus under the heading "Risk Factors" which section is incorporated by referenced herein.
We are a newly incorporated company with no operating history and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective.
We are a special purpose acquisition corporation with no operating activities. Because we lack an operating history, you have no basis upon which to evaluate our ability to achieve our business objective of completing our qualifying acquisition with one or more target businesses. Despite having entered into the Transaction Agreement, we may be unable to complete our qualifying acquisition within the Permitted Timeline. If we fail to complete our qualifying acquisition, we will never generate any operating revenues.
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The ability of our holders of Class A Restricted Voting Shares to redeem their Class A Restricted Voting Shares for cash may make our financial condition unattractive to potential qualifying acquisition targets, which may make it difficult for us to enter into our qualifying acquisition with a target.
We may enter into a transaction agreement with a prospective target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. If too many holders of Class A Restricted Voting Shares exercise their redemption rights, we may not be able to meet such closing condition, and as a result, would not be able to proceed with the qualifying acquisition. If accepting all properly submitted redemption requests would cause our net cash or net tangible assets to be less than the amount necessary to satisfy a closing condition as described above, we would not be able to proceed with such redemption and the related qualifying acquisition and may instead search for an alternate qualifying acquisition. Prospective targets would be aware of these risks and, thus, may be reluctant to enter into our qualifying acquisition with us.
The requirement that we complete our qualifying acquisition within the Permitted Timeline may give potential target businesses leverage over us in negotiating our qualifying acquisition and may decrease our ability to conduct due diligence on potential acquisition targets as we approach the end of the Permitted Timeline, which could undermine our ability to consummate our qualifying acquisition on terms that would produce value for our shareholders.
Any potential target business with which we enter into negotiations concerning our qualifying acquisition will be aware that we must consummate our qualifying acquisition within 18 months from the IPO Closing Date (or 21 months from the IPO Closing Date if we have executed a definitive agreement for a qualifying acquisition within 18 months from the IPO Closing Date but have not completed the qualifying acquisition within such 18-month period). Consequently, such target businesses may obtain leverage over us in negotiating our qualifying acquisition, knowing that if we do not complete our qualifying acquisition with that particular target business, we may be unable to complete our qualifying acquisition with any target business. This risk will increase as we get closer to the timeframe described above. In addition, we may have limited time to conduct due diligence and may enter into our qualifying acquisition on terms that we would have rejected upon a more comprehensive investigation.
We may not be able to consummate our qualifying acquisition within the Permitted Timeline, in which case we would redeem our Class A Restricted Voting Shares.
We must complete our qualifying acquisition within the Permitted Timeline; however, we may not be able to find a suitable target business and consummate our qualifying acquisition within such time period. If we are unable to consummate our qualifying acquisition within the Permitted Timeline, we will be required to redeem 100% of the outstanding Class A Restricted Voting Shares, as described herein.
Potential targets may be unwilling to effect a qualifying acquisition with us.
While we believe that our status as a public company makes us an attractive business partner, some potential target businesses may view the inherent limitations in our status as a SPAC and may prefer to effect a qualifying acquisition with a more established entity or with a private company, undertake a transaction with an entity offering operating synergies or effect a traditional initial public offering.
We may attempt to contemporaneously consummate qualifying acquisitions with multiple prospective targets, which may hinder our ability to consummate our qualifying acquisition and give rise to increased costs and risks that could negatively impact our operations and profitability.
If we determine to contemporaneously acquire several businesses that are owned by different sellers, we may need each or some of such sellers to agree that our purchase of its business is contingent on the contemporaneous closings of the other qualifying acquisitions, which may make it more difficult for us, and delay our ability, to complete the qualifying acquisition. With multiple qualifying acquisitions, we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent integration of the operations and services or products of the acquired companies in a single operating business. If we are unable to adequately address these risks, it could negatively impact our profitability and results of operations.
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Because of our limited resources and the significant competition for acquisition opportunities of target businesses, it may be difficult for us to complete our qualifying acquisition. If we are unable to complete our qualifying acquisition, our Warrants will expire worthless.
We have encountered and may continue to encounter intense competition from other entities having a business objective similar to ours, including private investors, pension funds and private equity firms, other prospective SPACs and other entities, domestic and international, competing for the types of businesses we seek to acquire. Many of these individuals and entities are well-established and have significant experience identifying and effecting, directly or indirectly, acquisitions of companies operating in or providing services to various industries. Some of these competitors may possess greater technical, human and other resources than we do and our financial resources are relatively limited when contrasted with those of many of these competitors. While we believe there are numerous target businesses we could potentially acquire with the net proceeds of the IPO, our ability to compete with respect to the acquisition of certain target businesses that are sizeable will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. If we are unable to complete our qualifying acquisition, our Warrants will expire worthless.
Our ability to consummate an attractive qualifying acquisition may be impacted by the market for initial public offerings.
It is very likely that our target(s) will want to be a public reporting company. If the market for initial public offerings is limited, we believe that there will be a greater number of attractive target businesses open to being acquired by us as a means to achieve public company status. Alternatively, if the market for initial public offerings is robust, we believe that there will be fewer attractive target businesses amenable to being acquired by us to become a public reporting company. Accordingly, during periods with strong public offering markets, it may be more difficult for us to complete our initial qualifying acquisition.
If our working capital is insufficient to allow us to operate for at least the period preceding the end of the Permitted Timeline, we may be unable to complete our qualifying acquisition.
The funds available to us outside of the escrow account may not be sufficient to allow us to operate for the period prior to the expiry of the Permitted Timeline and to fund the consummation of our qualifying acquisition. If we are unable to borrow funds from our Sponsor or its affiliates, our Class A Restricted Voting Shares would be redeemed. Of the funds available to us, we could use a portion of the funds to pay fees to consultants to assist us with our search for a target business. We could also use a portion of the funds as a down payment with respect to a particular proposed qualifying acquisition, although we do not have any current intention to do so. If we are unable to fund such down payments, our ability to close a contemplated transaction could be impaired.
If third parties bring claims against us, the proceeds held in the escrow account could be reduced and the per share redemption amount received by holders of Class A Restricted Voting Shares may be less than $10.00 per share.
Our placing of funds in the escrow account may not protect those funds from third party claims against us. Given that we will not have access to the escrowed funds except under certain permitted circumstances with respect to payment of taxes and of redemptions, and that the funds we hold which are not placed in escrow are intended to be used in accordance with our estimates in the “Use of Proceeds” section of the IPO Prospectus, we may not have the financial resources to defend a potential claim, nor may we have the ability to sue to enforce a potential claim. Although we seek, where practicable, to have material vendors, service providers, prospective target businesses or other entities with which we do business execute agreements to waive any right, title, interest or claim of any kind in or to any monies held in the escrow account, such parties may not execute such agreements, or even if they execute such agreements they may not be prevented from bringing claims against the escrow account.
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Pursuant to the Make Whole Agreement and Undertaking, our Sponsor has agreed that (A) in the event of the liquidation of the escrow account upon the occurrence of the automatic redemption by the Corporation of the Class A Restricted Voting Shares resulting from the inability of the Corporation to complete a qualifying acquisition within the Permitted Timeline, or on a Winding-Up, or (B) in the event of an extension to the Permitted Timeline or the completion of a qualifying acquisition, it will be liable to us if and to the extent any claims by any third party (other than our auditors) for services rendered or products sold to us, or a prospective qualifying acquisition target with which we have entered into, or discussed entering into a transaction agreement, reduce the amount of funds in the escrow account to below the lesser of (i) $10.00 (as adjusted for stock splits or combinations, stock dividends, Extraordinary Dividends, reorganizations and recapitalizations and the like) per Class A Restricted Voting Share, or (ii) such lesser amount per Class A Restricted Voting Share held in the escrow account as of the date of the full or partial liquidation of the escrow account, as applicable, due to reductions in the value of the assets held in escrow (other than due to the failure to obtain waivers from such third parties), in the case of both (i) and (ii), less the amount of interest which may be withdrawn to pay taxes, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the escrow account, and except as to any claims under our indemnity of the Underwriters against certain liabilities. Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, our Sponsor will not be responsible to the extent of any liability for such third-party claims.
Our directors may decide not to enforce the indemnification obligations of our Sponsor, resulting in a reduction in the amount of funds in the escrow account available for distribution to holders of our Class A Restricted Voting Shares.
In the event that the proceeds in the escrow account are reduced below the lesser of (i) $10.00 (as adjusted for stock splits or combinations, stock dividends, Extraordinary Dividends, reorganizations and recapitalizations and the like) per Class A Restricted Voting Share; or (ii) such lesser amount per share held in the escrow account as of the date of the liquidation of the escrow account due to reductions in the value of the escrow assets, in the case of both (i) and (ii), less the amount of interest which may be withdrawn to pay taxes, except as to claims by a third party who executed a waiver, or by our auditors or the Underwriters, and our Sponsor asserts that it is unable to satisfy its obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against our Sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against our Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors, in exercising their business judgment, may choose not to do so in any particular instance. If our independent directors choose not to enforce these indemnification obligations, the amount of funds in the escrow account available for distribution to holders of our Class A Restricted Voting Shares may be reduced below $10.00 per share.
Our Sponsor will have significant influence in determining the outcome of the Shareholders Meeting (if required under applicable law), at which shareholder approval of the qualifying acquisition would be sought, and accordingly, which transaction would ultimately be completed as our qualifying acquisition.
Our Founder’s Shares, which are held by our Sponsor, represent 20% of our issued and outstanding shares (including all Class A Restricted Voting Shares and Class B Shares). Accordingly, with the inclusion of the Founder’s Shares our Sponsor holds approximately a 20% voting interest to vote on the qualifying acquisition. Further, given the transfer restrictions placed on the shares held by our Sponsor until the completion of our qualifying acquisition and its ownership of the Founder’s Warrants, our Sponsor may be incentivized to support and vote for a transaction even if such transaction is not the most commercially beneficial to the Corporation. Our Sponsor has agreed, if a vote is required, to vote its Founder’s Shares and any Class A Restricted Voting Shares purchased following the IPO in favour of the proposed qualifying acquisition. For the foregoing reasons, our Sponsor may significantly influence the vote on the qualifying acquisition, which they may be inclined to do given the difference in economic interests of our Sponsor as compared to the holders of Class A Restricted Voting Shares.
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Our Sponsor, directors, officers or their affiliates may elect to purchase Class A Restricted Voting Shares, which may influence a vote on a proposed qualifying acquisition.
Class A Restricted Voting Shares acquired by our Sponsor, directors, officers or their affiliates, for investment or other purposes, may be entitled to be voted at the Shareholders Meeting, if required, and could therefore increase the likelihood of obtaining shareholder approval of the qualifying acquisition. This may result in the completion of a qualifying acquisition that may not otherwise have been possible.
Our key personnel may negotiate employment or consulting agreements with a target business in connection with a qualifying acquisition. These agreements may provide for them to receive compensation following our qualifying acquisition and as a result, may cause them to have conflicts of interest in determining whether a particular qualifying acquisition is the most advantageous.
Our key personnel may choose to, or be asked to, remain with the company after the completion of our qualifying acquisition, and if so, they may negotiate employment or consulting agreements in connection with the transaction. Such negotiations may take place simultaneously with the negotiation of the qualifying acquisition and could provide for such individuals to receive compensation in the form of cash payments and/or our securities for services they would render to the company after the completion of our qualifying acquisition. The personal and financial interests of such individuals may influence their motivation in identifying and selecting a target business.
Since our Sponsor will lose their investment in us if our qualifying acquisition is not completed, a conflict of interest may arise in determining whether a qualifying acquisition target is appropriate.
Our Sponsor will not be entitled to redeem its Founder’s Shares in connection with a qualifying acquisition or entitled to access to the escrow account in respect thereof upon our Winding-Up. Simultaneously with the closing of the IPO, our Sponsor purchased 12,000,000 Founder’s Warrants at an offering price of $1.00 per Founder’s Warrant (for an aggregate purchase price of $12,000,000). As a result, the personal and financial interests of our Sponsor may influence the identification and selection of a qualifying acquisition, the voting on the qualifying acquisition, if required, and the operation of the business following our qualifying acquisition. Notwithstanding the foregoing, holders of Class A Restricted Voting Shares can elect to redeem all or a portion of their Class A Restricted Voting Shares in connection with the completion of our qualifying acquisition, irrespective of whether they vote for or against, or do not vote on, the qualifying acquisition.
Because there are other companies with a business plan similar to ours seeking to effectuate a qualifying acquisition, it may be more difficult for us to complete a qualifying acquisition.
Based upon publicly available information, other Canadian SPACs and numerous U.S. SPACs are currently pursuing qualifying acquisitions. The Canadian SPACs may consummate a qualifying acquisition in any industry they choose, and so we may be subject to competition from these and other companies seeking to execute a business plan similar to ours.
Accordingly, we cannot assure investors that we will be able to successfully compete for an attractive qualifying acquisition and, because of this competition, we cannot assure investors that we will be able to complete a qualifying acquisition within the required time period.
Risk of volatile markets including low interest rate environment.
Unexpected and unpredictable events including a widespread health crisis or global pandemic, and events such as war and occupation, terrorism, political unrest and geopolitical risks may lead to adverse effects on world economies and markets generally, including Canadian, U.S. and other economies and securities markets. For example, the spread of coronavirus (COVID-19) has caused volatility in the global financial markets, resulted in significant disruptions to global business activity and effected a slowdown in the global economy. The impact of coronavirus disease may last for an extended period of time and it has led central banks, including the Federal Reserve, to cut the interest rate resulting in lower interest payable on the Permitted Investments than initially expected by the Corporation.
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Our search for a qualifying acquisition, and any target business(es) with which we ultimately consummate a qualifying acquisition, may be materially adversely affected by the coronavirus (COVID-19) outbreak.
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which spread throughout the world, including Canada and the United States. On March 11, 2020 the World Health Organization characterized the outbreak as a "pandemic". The outbreak, has resulted in governments worldwide, including in Canada and the United States, enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of lockdowns, travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global financial markets have experienced significant volatility. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions and the availability of effective vaccines. As a result, the business of any potential target business(es) with which we consummate a qualifying acquisition could be materially and adversely affected. Furthermore, we may be unable to complete a qualifying acquisition if continued concerns relating to COVID-19 restrict travel, limit the ability to have meetings with potential investors or the target company's personnel, vendors and services providers are unavailable to negotiate and consummate a transaction in a timely manner. The extent to which COVID-19 impacts our search for a qualifying acquisition 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 any mutations thereof and the actions to contain COVID-19 or treat its impact, among others. If the disruptions posed by COVID-19 or other matters of global concern continue for an extensive period of time, our ability to consummate a qualifying acquisition, or the operations of a target business with which we ultimately consummate a qualifying acquisition, may be materially adversely affected.
Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and results of operations.
We are subject to laws and regulations enacted by national, regional and local governments. In particular, we are required to comply with certain Canadian securities law, income tax law and the TSX and other legal and regulatory requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application also may change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business, investments and results of operations.
Our directors and officers and our Sponsor live or are organized outside of Canada; therefore investors may not be able to enforce applicable securities laws or their other legal rights against such parties.
Our directors and officers and our Sponsor reside or is organized outside of Canada. As a result, it may be difficult, or in some cases not possible, for investors to enforce their legal rights or to enforce judgments of Canadian courts predicated upon civil liabilities under securities laws and/or criminal penalties against any person that resides or is otherwise organized outside of Canada even if the party has appointed an agent for service of process.
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In the event the Corporation acquires a United States entity or assets of a United States entity, it may have adverse tax consequences on holders of Class A Restricted Voting Shares and on the Corporation.
In the event the Corporation acquires a United States entity or assets of a United States entity, under certain circumstances, the Corporation will be treated under section 7874 of the Internal Revenue Code of 1986, as amended (the “Code”) as a United States corporation for United States federal income tax purposes. While the Corporation does not have any current plans to engage in an acquisition which will be subject to section 7874 of the Code, there can be no assurances provided by the Corporation that it will not engage in such an “inversion” transaction at the time of the qualifying acquisition.
If the Corporation engages in such an “inversion” transaction and the Corporation is treated as a United States corporation, the Corporation generally would be subject to United States federal income tax and the United States and Canadian federal income tax consequences to United States, Canadian and other non-United States holders of Class A Restricted Voting Shares (which, on or immediately following the closing of a qualifying acquisition, would, unless previously redeemed, be automatically converted into Common Shares) may materially differ. Any such United States federal corporate tax liability could have a material adverse effect on the results of the Corporation’s operations. If the Corporation engages in such an “inversion” transaction, any dividends paid by the Corporation to non-United States holders may be subject to United States federal income tax withholding at a 30% rate or such lower rate as provided in an applicable treaty. Because the Common Shares would be treated as shares of a United States domestic corporation, the United States gift, estate and generation-skipping transfer tax rules generally would apply to a non-United States holder of Common Shares.
In the event that we consummate our qualifying acquisition, we may be affected by numerous risks inherent in the business operations with which we combine some of which may be outside of our control.
To the extent we consummate our qualifying acquisition, we may be affected by numerous risks inherent in the business operations with which we combine. For example, if we combine with a financially unstable business or an entity lacking an established record of sales or earnings, we may be affected by the risks inherent in the business and operations of a financially unstable or a development stage entity. Although our officers and directors will endeavor to evaluate the risks inherent in a particular target business, we may not properly ascertain or assess all of the significant risk factors or it may be that we will not have adequate time to complete due diligence. Furthermore, some of these risks may be outside of our control and leave us with no ability to control or reduce the chances that those risks will adversely impact a target business. An investment in the Corporation’s securities may not ultimately prove to be more favourable to investors than a direct investment in an acquisition target, if such opportunity were available.
We may seek acquisition opportunities outside of our management’s area of expertise and our management may not be able to adequately ascertain or assess all significant risks associated with the target company.
We may be presented with a qualifying acquisition target in a sector unfamiliar to our management team, but determine that such candidate offers an attractive acquisition opportunity for the Corporation. In the event we elect to pursue an investment outside of our management’s expertise, our management’s experience may not be directly applicable to the target business or their evaluation of its operations.
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Although we identified general criteria and guidelines that we believe are important in evaluating prospective target businesses, we may enter into our qualifying acquisition with a target that does not meet such criteria and guidelines, and as a result, the target business with which we enter into our qualifying acquisition may not have attributes entirely consistent with our general criteria and guidelines.
Although we have identified specific investment criteria and guidelines for evaluating prospective target businesses, it is possible that a target business with which we enter into our qualifying acquisition will not have all of these positive attributes. If we consummate our qualifying acquisition with a target that does not meet some or all of these guidelines, such acquisition may not be as successful as an acquisition with a business that does meet all of our general criteria and guidelines. In addition, if we announce our qualifying acquisition with a target that does not meet our general criteria and guidelines, a greater number of holders of Class A Restricted Voting Shares may exercise their redemption rights, which may make it difficult for us to meet any closing condition with a target business that requires us to have a minimum net worth or a certain amount of cash. In addition, it may be more difficult for us to attain shareholder approval, which is a prerequisite to the closing of our qualifying acquisition if the target business does not meet our general criteria and guidelines.
We are not required to obtain an opinion from a qualified person, and consequently, an independent source may not confirm that the price we are paying for the business is fair to us or our shareholders from a financial point of view.
Unless we consummate our qualifying acquisition with a related party (within the meaning of applicable securities law), we may not be required to obtain an opinion from a qualified person that the price we are paying is fair to us or our shareholders from a financial point of view. Accordingly, our shareholders will be relying on the judgment of our management and board of directors.
Resources could be wasted in researching acquisitions that are not consummated, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business.
The investigation of each specific target business and the negotiation, drafting, and execution of relevant agreements, disclosure documents, and other instruments requires substantial management time and attention and substantial costs for accountants, legal counsel and other experts. If we decide not to complete a specific qualifying acquisition, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, if we reach an agreement relating to a specific target business, we may fail to consummate our qualifying acquisition for any number of reasons, including those beyond our control. Any such event will result in a loss to us of the related costs incurred which could materially adversely affect subsequent attempts to locate and acquire or merge with another business.
After our qualifying acquisition, it is possible that a majority of our directors and officers will live outside of Canada and all or the majority of our assets will be located outside of Canada; therefore investors may not be able to enforce applicable securities laws or their other legal rights.
It is possible that after our qualifying acquisition, a number of our directors and officers will reside outside of Canada and all or the majority of our assets will be located outside of Canada. As a result, it may be difficult, or in some cases not possible, for investors in Canada to enforce their legal rights, to effect service of process upon all of our directors or officers or to enforce judgments of Canadian courts predicated upon civil liabilities and criminal penalties on our directors and officers under Canadian laws.
We are highly dependent upon our directors and officers and their loss could adversely affect our ability to operate and effect our qualifying acquisition.
Our operations are dependent upon a relatively small group of individuals and, in particular, our directors and officers. We believe that our success depends on the continued service of our directors and officers, at least until we have consummated our qualifying acquisition and possibly thereafter. In addition, our directors and officers are not required to commit any specified amount of time to our affairs and, accordingly, may have conflicts of interest in allocating management time among various business activities, including identifying potential qualifying acquisition and monitoring the related due diligence. We do not have an employment agreement with, or key-personnel insurance on the life of, any of our directors and officers. The unexpected loss of the services of one or more of our directors and officers could have a detrimental effect on us, our operations and our ability to effect our qualifying acquisition.
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Our ability to successfully effect our qualifying acquisition and to be successful thereafter will be largely dependent upon the efforts of our key personnel, some of whom may join us following our qualifying acquisition. The loss of key personnel could negatively impact the operations and profitability of our post-qualifying acquisition business.
Our ability to successfully effect our qualifying acquisition is dependent upon the efforts of our key personnel. The role of our key personnel in the target business, however, cannot presently be ascertained. Although some of our key personnel will remain with the target business in senior management or advisory positions following our qualifying acquisition, it is likely that some or all of the management of the target business will remain in place. While we intend to closely scrutinize any individuals we engage after our qualifying acquisition, our assessment of these individuals may not prove to be correct. As well, these individuals may be unfamiliar with the requirements of operating a company regulated as a reporting issuer under applicable Canadian securities laws, which could cause us to have to expend time and resources helping them become familiar with such requirements.
We may have a limited ability to assess the management of a prospective target business and, as a result, may effect our qualifying acquisition with a target business whose management may not have the skills, qualifications or abilities to manage a public company.
When evaluating the desirability of effecting our qualifying acquisition with a prospective target business, our ability to assess the target business’ management may be limited due to a lack of time, resources or information. Our assessment of the capabilities of the target business’ management, therefore, may prove to be incorrect and such management may lack the skills, qualifications or abilities we expected. Should the target’s management not possess the skills, qualifications or abilities necessary to manage a public company, the operations and profitability of the post-qualifying acquisition business may be negatively impacted.
The officers and directors of an acquisition target may resign upon or following the closing of our qualifying acquisition. The loss of an acquisition target’s key personnel could negatively impact the operations and profitability of our post-qualifying acquisition business.
The role of an acquisition target’s key personnel upon or following the closing of our qualifying acquisition cannot be ascertained at this time. Although we contemplate that certain members of an acquisition target’s management team will remain associated with the acquisition target following our qualifying acquisition, it is possible that some members of the management team of an acquisition target will not wish to remain in place, which could negatively affect the business.
Our Sponsor, directors and officers may now be, and all of them may in the future become, affiliated with entities engaged in business activities similar to those intended to be conducted by us and, accordingly, may have conflicts of interest in allocating their time and determining to which entity a particular business opportunity should be presented.
Until we consummate our qualifying acquisition, we intend to engage in the business of identifying and combining with one or more businesses. Our Sponsor, directors and officers may now be, or may in the future become, affiliated with entities that are engaged in a similar business, including one or more SPACs that may seek to acquire businesses similar to the businesses that the Corporation is seeking to acquire as part of its qualifying acquisition.
Our Sponsor, directors and officers also may become aware of business opportunities which may be appropriate for presentation to us and the other entities to which they owe duties. In the course of their other business activities, our Sponsor, directors and/or officers may owe similar or other duties, and may have obligations, to other entities or pursuant to other outside business arrangements, including to seek and present investment and business opportunities to other entities. Additionally, our directors and officers are not required to present investment and business opportunities to the Corporation in priority to other entities with which they are affiliated or to which they owe duties.
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Our directors, officers, security holders and their respective affiliates and associates may have interests that conflict with our interests.
We have not adopted a policy that expressly prohibits our directors, officers, security holders, affiliates or associates from having a direct or indirect financial interest in any investment to be acquired or disposed of by us or in any transaction to which we are a party or have an interest. We are not prohibited from entering into our qualifying acquisition with a target business that is affiliated with our Sponsor, or our directors or officers. In the event that we did wish to enter into our qualifying acquisition with a target business affiliated with our Sponsor, however, we would be required to obtain a fairness opinion from a qualified person, concluding that our qualifying acquisition is fair to us or our shareholders from a financial point of view.
We may attempt to consummate our qualifying acquisition with a private company about which little information is available, which may result in a qualifying acquisition with a company that is not as profitable as we suspected, if at all.
In pursuing our acquisition strategy, we may seek to effectuate our qualifying acquisition with a privately held company. By definition, very little public information exists about private companies, and we could be required to make our decision on whether to pursue a potential qualifying acquisition on the basis of limited information, which may result in our qualifying acquisition with a company that is not as profitable as we suspected, if at all.
The Corporation may lose “foreign private issuer status” in the future, which could result in significant additional costs and expenses.
Following our qualifying acquisition, we expect to employ Proportionate Voting Shares to meet the definition of “foreign private issuer,” as such term is defined in Rule 405 of Regulation C under the U.S. Securities Act. As a result, the Corporation will be a “foreign private issuer,” and will not be subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. The Corporation may in the future lose its foreign private issuer status if a majority of its Common Shares and Proportionate Voting Shares are held in the U.S. and it fails to meet the additional requirements necessary to avoid loss of foreign private issuer status, such as if: (1) a majority of its directors or executive officers are U.S. citizens or residents; (2) a majority of its assets are located in the U.S.; or (3) its business is administered principally in the U.S.
If the Corporation loses its foreign private issuer status and decides, or is required, to register as a U.S. domestic issuer, the regulatory and compliance costs will be significantly more than the costs incurred as a Canadian foreign private issuer. In such event, the Corporation would not be eligible to use foreign issuer forms and would be required to file periodic and current reports and registration statements on U.S. domestic issuer forms with the SEC, which are generally more detailed and extensive than the forms available to a foreign private issuer.
The Corporation may be subject to risks related to the protection and enforcement of intellectual property rights subsequent to its qualifying acquisition, and may become subject to allegations that the Corporation is in violation of intellectual property rights of third parties.
The ownership and protection of intellectual property rights may be a significant aspect of the Corporation’s future success. We may rely on trade secrets, technical know-how and proprietary information that are not protected by patents to maintain our competitive position. We will try to protect such intellectual property by entering into confidentiality agreements with parties that have access to it, such as our partners, collaborators, employees and consultants. Any of these parties may breach these agreements and we may not have adequate remedies for any specific breach. In addition, trade secrets and technical know-how, which are not protected by patents, may otherwise become known to or be independently developed by competitors, in which event we could be materially adversely affected.
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Unauthorized parties may attempt to replicate or otherwise obtain and use products, trade secrets, technical know-how and proprietary information of other parties. Policing the unauthorized use of intellectual property rights could be difficult, expensive, time-consuming and unpredictable, as may be enforcing these rights against unauthorized use by others. Identifying unauthorized use of intellectual property rights is difficult as the owner may be unable to effectively monitor and evaluate the products being distributed by its competitors, including parties such as unlicensed dispensaries, and the processes used to produce such products. In addition, in any infringement proceeding, some or all trademarks, patents or other intellectual property rights or other proprietary know-how, or arrangements or agreements seeking to protect the same for the benefit of an issuer, may be found invalid, unenforceable, anti-competitive or not infringed. An adverse result in any litigation or defense proceedings could put one or more trademarks, patents or other intellectual property rights at risk of being invalidated or interpreted narrowly. Any or all of these events could materially and adversely affect the business, financial condition and results of operations of the Corporation.
In addition, other parties may claim that the Corporation’s products infringe on their proprietary and perhaps patent protected rights. Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources, legal fees, result in injunctions, temporary restraining orders and/or require the payment of damages. As well, the Corporation may need to obtain licenses from third parties who allege that the Corporation has infringed on their lawful rights. However, such licenses may not be available on terms acceptable to the Corporation or at all. In addition, the Corporation may not be able to obtain or utilize on terms that are favorable to it, or at all, licenses or other rights with respect to intellectual property that it does not own.
The Corporation may be subject to risks related to information technology systems, including cyber-attacks.
An issuer’s operations may depend, in part, on how well it and its suppliers protect networks, equipment, information technology (“IT”) systems and software against damage from a number of threats, including, but not limited to, cable cuts, damage to physical plants, natural disasters, intentional damage and destruction, fire, power loss, hacking, computer viruses, vandalism and theft. Following its qualifying acquisition, the Corporation’s operations may also depend on the timely maintenance, upgrade and replacement of networks, equipment, IT systems and software, as well as pre-emptive expenses to mitigate the risks of failures. Any of these and other events could result in information system failures, delays and/or increase in capital expenses. The failure of information systems or a component of information systems could, depending on the nature of any such failure, adversely impact the Corporation’s reputation and results of operations. The Corporation’s risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As a result, cyber security and the continued development and enhancement of controls, processes and practices designed to protect systems, computers, software, data and networks from attack, damage or unauthorized access may become a priority to ensure the ongoing success and security of the business. As cyber threats continue to evolve, an issuer may be required to expend additional resources to continue to modify or enhance protective measures or to investigate and remediate any security vulnerabilities.
Management of growth may prove to be difficult.
The Corporation’s business may be subject to growth-related risks including capacity constraints and pressure on its internal systems and controls. The ability of an issuer to manage growth effectively requires it to continue to implement and improve its operational and financial systems and to expand, train and manage its employee base. The inability of the Corporation to deal with this growth may have a material adverse effect on the Corporation.
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We may not be able to maintain control of a target business after our qualifying acquisition.
We may structure our qualifying acquisition to acquire less than 100% of the equity interests or assets of a target business. Even though we may own a majority interest in the target, our shareholders prior to the qualifying acquisition may collectively own a minority interest in the post-qualifying acquisition company, depending on valuations ascribed to the target and us in the qualifying acquisition. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all of the outstanding capital of a target. In this case, even if we were to acquire a 100% interest in the target, as a result of the issuance of a substantial number of new shares, our shareholders immediately prior to such transaction could own less than a majority of our outstanding shares subsequent to such transaction. In addition, other minority shareholders may subsequently combine their holdings resulting in a single person or group obtaining a larger share of the target company’s shareholdings than we initially acquired. Accordingly, this may make it more likely that we will not be able to maintain control of the target business. In the event that we structure our qualifying acquisition to acquire less than 100% of the equity interest or assets of the target business, specific securities regulatory requirements may apply to the qualifying acquisition, including pursuant to National Policy 41-201 – Income Trusts and Other Indirect Offerings.
We may be unable to obtain additional financing to complete our qualifying acquisition or to fund the operations and/or growth of a target business, which could compel us to restructure or abandon a particular qualifying acquisition.
Although we believe that the net proceeds of the IPO, and the net proceeds of any loans we may incur from our Sponsor, as further described in the IPO Prospectus, will be sufficient to allow us to consummate our qualifying acquisition. However, if the net proceeds of the IPO prove to be insufficient, either because of the size of our qualifying acquisition, the depletion of the available net proceeds in search of a target business, the obligation to redeem for cash a significant number of Class A Restricted Voting Shares from holders of Class A Restricted Voting Shares who elect redemption in connection with our qualifying acquisition, or the terms of negotiated transactions to purchase shares in connection with our qualifying acquisition, we may be required to seek additional financing or to abandon the proposed qualifying acquisition. Additional financing may not be available on acceptable terms, if at all. To the extent that additional financing proves to be unavailable when needed to consummate our qualifying acquisition, we would be compelled to either restructure the transaction or abandon that particular qualifying acquisition and seek an alternative target business candidate. In addition, even if we do not need additional financing to consummate our qualifying acquisition, we may require such financing to fund the operations and/or growth of the target business. The failure to secure additional financing could have a material adverse effect on the continued development or growth of the target business. None of our Sponsor, officers, directors or shareholders are required to provide any financing to us in connection with or after our qualifying acquisition.
We may only be able to complete one qualifying acquisition with the proceeds of the IPO, which will cause us to be solely dependent on a single target business which may have a limited number of products or services.
If we complete a qualifying acquisition with only a single entity, our lack of diversification may subject us to numerous economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact upon the industry in which we operate. Further, we will not be able to immediately diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities which may have the resources to complete several acquisitions or business combinations in different industries or different areas of a single industry. Accordingly, in such case, the prospects for our success may be solely dependent upon the performance of a single business, or dependent upon the development or market acceptance of a single or limited number of products, processes or services.
There may be tax consequences to our qualifying acquisition that may adversely affect us.
While we expect to undertake any merger or acquisition so as to minimize taxes both to the acquired business and/or assets and us, such qualifying acquisition might not meet the statutory requirements of a tax-deferred rollover for the Corporation or for shareholders. A qualifying acquisition that does not qualify for a tax-deferred rollover could result in the imposition of substantial taxes, and may have other adverse tax consequences to us, the acquired business or assets and/or our shareholders.
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Holders of Class A Restricted Voting Shares may not be afforded an opportunity to vote on our proposed qualifying acquisition, which means we may complete our qualifying acquisition even though a majority of our holders of Class A Restricted Voting Shares do not support such a transaction.
We do not intend to hold a shareholder vote to approve our qualifying acquisition, unless required by applicable law. Accordingly, we may consummate a qualifying acquisition even if holders of a majority of the Class A Restricted Voting Shares do not approve of the qualifying acquisition we consummate.
The opportunity of holders of Class A Restricted Voting Shares to affect the investment decision regarding a potential qualifying acquisition may be limited to their exercise of the right to redeem their Class A Restricted Voting Shares for cash.
Since our board of directors intends to complete a qualifying acquisition without seeking approval from holders of the Class A Restricted Voting Shares, holders of Class A Restricted Voting Shares will not have the right or opportunity to vote on the qualifying acquisition. Accordingly, you are relying on the judgment of our management and board of directors and your only opportunity to affect the investment decision regarding a potential qualifying acquisition may be limited to exercising the redemption rights attaching to the Class A Restricted Voting Shares.
The ability of our shareholders to exercise redemption rights with respect to a large number of our Class A Restricted Voting Shares may not allow us to complete the most desirable qualifying acquisition or optimize our capital structure.
At the time we enter into an agreement for our qualifying acquisition, we will not know how many holders of our Class A Restricted Voting Shares may exercise their redemption rights, and therefore will need to structure the transaction based on our expectation as to the number of Class A Restricted Voting Shares that will be submitted for redemption. This consideration may limit our ability to complete the most desirable qualifying acquisition available to us or optimize our capital structure.
Risks Associated with Acquiring and Operating a Business Outside of Canada
If we effect our qualifying acquisition with a company located outside of North America, we could be subject to a variety of additional risks that may negatively impact our operations.
We may pursue acquisition opportunities in any industry or geographic region. If we effect our qualifying acquisition with a company located or operated outside of Canada, we could be subject to any special considerations or risks associated with companies operating in the target business’ home jurisdiction, including any of the following:
| · | rules and regulations regarding currency redemption; |
| · | complex corporate withholding taxes on individuals; |
| · | laws governing the manner in which future transactions may be effected; |
| · | exchange listing and/or delisting requirements; |
| · | tariffs and trade barriers; |
| · | regulations related to customs and import/export matters; |
| · | longer payment cycles; |
| · | tax issues, such as tax law changes and variations in tax laws as compared to Canada; |
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| · | currency fluctuations and exchange controls; |
| · | rates of inflation; |
| · | challenges in collecting accounts receivable; |
| · | cultural and language differences; |
| · | employment regulations; |
| · | crime, strikes, riots, civil disturbances, terrorist attacks and wars; and |
| · | deterioration of political relations with Canada or other governments or sanctions imposed by Canada or other governments. |
We may also be subject to currency exchange risks in connection with any qualifying acquisition. We may not be able to adequately address these additional risks. If we were unable to do so, our operations of the continued business could be compromised.
Because of the costs and difficulties inherent in managing cross-border business operations, our results of operations may be negatively impacted.
Managing a business, operations, personnel or assets in another country is challenging and costly. Any management that we may have (whether based abroad or in Canada) may be inexperienced in cross-border business practices and unaware of significant differences in accounting rules, legal regimes and labour practices. Even with a seasoned and experienced management team, the costs and difficulties inherent in managing cross-border business operations, personnel and assets can be significant (and much higher than in a purely domestic business) and may negatively impact the Corporation.
If social unrest, acts of terrorism, regime changes, changes in laws and regulations, political upheaval, or policy changes or enactments occur in a country in which we may operate after we effect our qualifying acquisition, it may result in a negative impact on our business.
Political events in another country may significantly affect our business, assets or operations. Social unrest, acts of terrorism, regime changes, changes in laws and regulations, political upheaval, and policy changes or enactments could negatively impact our business in a particular country.
Many countries have difficult and unpredictable legal systems and underdeveloped laws and regulations that are unclear and subject to corruption and inexperience, which may adversely impact our results of operations and financial condition.
Our ability to seek and enforce legal protections, including with respect to intellectual property and other property rights, or to defend ourselves with regard to legal actions taken against us in a given country, may be difficult or impossible, which could adversely impact us.
Rules and regulations in many countries are often ambiguous or open to differing interpretations by responsible individuals and agencies at the municipal, state, provincial, regional and federal levels. The attitudes and actions of such individuals and agencies are often difficult to predict and can be inconsistent. Delay with respect to the enforcement of particular rules and regulations, including those relating to customs, tax, environment and labour, could cause serious disruptions to operations abroad and negatively impact us.
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After our qualifying acquisition, substantially all of our assets may be located in a foreign country and substantially all of our revenue may be derived from our operations in such country. Accordingly, our results of operations and prospects will be subject, to a significant extent, to the economic, political and legal policies, developments and conditions and the tax laws in the country in which we operate.
The economic, political and social conditions, as well as government policies and tax laws, of the country in which our operations are located could affect our business. If in the future such country’s economy experiences a downturn or grows at a slower rate than expected, there may be less demand for spending in certain industries. A decrease in demand for spending in certain industries could materially and adversely affect our ability to find an attractive target business with which to consummate our qualifying acquisition and if we effect our qualifying acquisition, the ability of that target business to become profitable.
In the event we acquire a non-Canadian target, or a Canadian target with material non-Canadian operations, some or all of our net income (including gain realized on a sale of the acquired target) may be subject to taxation (including income and withholding taxation) in the target business’ home jurisdiction. The resulting rate of taxation on such income may be materially higher than would have been applicable if such income had been earned by the Corporation in Canada from Canadian operations or assets.
Currency policies may cause a business’ ability to succeed in the international markets to be diminished.
In the event we acquire a non-Canadian target, or a Canadian target with material non-Canadian operations, some or all of our revenues and income would likely be received in a foreign currency, and the dollar equivalent of our net assets and distributions, if any, could be adversely affected by reductions in the value of the local currency. The value of the currencies in our target regions fluctuate and are affected by, among other things, changes in political and economic conditions. Any change in the relative value of such currency against our reporting currency may affect the attractiveness of any target business or, following the closing of our qualifying acquisition, our financial condition and results of operations. Additionally, if a currency appreciates in value against the Canadian dollar prior to the closing of our qualifying acquisition, the cost of a target business as measured in dollars will increase, which may make it less likely that we are able to consummate such transaction.
Risks associated with the contractual right of action.
The contractual right of action expected to be provided at the time of a qualifying acquisition could expose the Corporation to one or more actions for rescission or damages, and costs, following a qualifying acquisition if the applicable prospectus contains or is alleged to have contained a misrepresentation. In addition, as the Corporation will indemnify the other parties granting such rights, it could suffer additional expenses. The Corporation may seek to mitigate its exposure through insurance. These contractual rights could potentially have a material adverse effect on the Corporation.
AUDITORS, TRANSFER AGENT, WARRANT AGENT AND ESCROW AGENT
Our auditors are RSM US LLP, having an address of 4 Times Square, 151 West 42nd Street, 19th Floor, New York, NY, 10036. RSM US LLP an independent registered public accounting firm.
TSX Trust Company, at its principal offices in Toronto, Ontario is the transfer agent and registrar for our Class A Restricted Voting Units and Class A Restricted Voting Shares and is the Warrant Agent for our Warrants under the Warrant Agreement.
TSX Trust Company, at its principal offices in Toronto, Ontario, is the Escrow Agent.
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PROMOTER
Our Sponsor is considered a promoter of the Corporation within the meaning of applicable securities legislation.
As of the date of this AIF, our Sponsor holds, of record and beneficially, 9,000,000 Class B Shares representing 20% of our issued and outstanding shares (including the Class A Restricted Voting Shares and assuming no exercise of our Warrants). In addition, our Sponsor holds 12,000,000 Founder’s Warrants, which constitutes 40% of our issued and outstanding share purchase warrants. Our Sponsor does not own any of our Class A Restricted Voting Shares.
We entered into an administrative services agreement on the closing of the IPO pursuant to which we have agreed to pay our Sponsor a total of $10,000 (plus applicable taxes) per month, for an initial term of 18 months, subject to possible extension, for administrative support and related services. Additionally, in April 2020, the Corporation agreed to pay our Sponsor for certain overhead costs incurred on behalf of the Corporation. The Corporation paid the Sponsor $278,952 for the year ended December 31, 2020 related to these costs. Upon completion of our qualifying acquisition, we will cease making payments pursuant to these arrangements.
LEGAL PROCEEDINGS AND REGULATORY ACTIONS
Legal Proceedings
To the knowledge of the Corporation, there are no material legal proceedings to which the Corporation is a party or to which its property is subject, nor were there any such proceedings during fiscal year 2020, and, to the Corporation’s knowledge, no such proceedings are contemplated.
Regulatory Actions
We are not aware of any penalties or sanctions imposed by a court or securities regulatory authority or other regulatory body against us, nor have we entered into any settlement agreements before a court or with a securities regulatory authority.
MATERIAL CONTRACTS
The following are the only material contracts of the Corporation (other than certain agreements entered into in the ordinary course of business):
| (a) | the Transaction Agreement; |
| (b) | the Exchange Agreement and Undertaking; |
| (c) | the Make Whole Agreement and Undertaking; |
| (d) | the Escrow Agreement; and |
| (e) | the Warrant Agreement. |
Copies of these agreements are available for inspection at our offices, during ordinary business hours and are available on SEDAR at www.sedar.com.
ADDITIONAL INFORMATION
Additional information relating to the Corporation may be found on SEDAR at www.sedar.com. Additional financial information is provided in our audited financial statements and Management’s Discussion & Analysis for the period ended December 31, 2020.
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APPENDIX A
Charter of the Audit Committee
of Bespoke Capital Acquisition Corp.
Section 1 PURPOSE
The audit committee (the “Audit Committee”) is a committee of the board of directors (the “Board”) of Bespoke Capital Acquisition Corp. (the “Corporation”). The primary function of the Audit Committee is to assist the directors of the Corporation in fulfilling their applicable roles by:
| (a) | recommending to the Board the appointment and compensation of the Corporation’s external auditor; |
| (b) | overseeing the work of the external auditor, including the resolution of disagreements between the external auditor and management; |
| (c) | pre-approving all non-audit services (or delegating such pre-approval if and to the extent permitted by law) to be provided to the Corporation by the Corporation’s external auditor; |
| (d) | satisfying themselves that adequate procedures are in place for the review of the Corporation’s public disclosure of financial information, other than those described in (g) below, extracted or derived from its financial statements, including periodically assessing the adequacy of such procedures; |
| (e) | establishing procedures for the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal controls or auditing matters, and for the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters; |
| (f) | reviewing and approving any proposed hiring of current or former partner or employee of the current and former auditor of the Corporation; and |
| (g) | reviewing and approving the annual and interim financial statements, related Management Discussion and Analysis (“MD&A”) and other financial information provided by the Corporation to any governmental body or the public. |
The Audit Committee should primarily fulfill these roles by carrying out the activities enumerated in this Charter. However, it is not the duty of the Audit Committee to prepare financial statements, to plan or conduct internal or external audits, to determine that the financial statements are complete and accurate and are in accordance with International Financial Reporting Standards, to conduct investigations, or to assure compliance with laws and regulations or the Corporation’s internal policies, procedures and controls, as these are the responsibility of management, and in certain cases, the external auditor.
Section 2 LIMITATIONS ON AUDIT COMMITTEE’S DUTIES
In contributing to the Audit Committee’s discharge of its duties under this Charter, each member of the Audit Committee shall be obliged only to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Nothing in this Charter is intended to be, or may be construed as, imposing on any members of the Audit Committee a standard of care or diligence that is in any way more onerous or extensive than the standard to which the directors are subject.
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Members of the Audit Committee are entitled to rely, absent actual knowledge to the contrary, on (i) the integrity of the persons and organizations from whom they receive information; (ii) the accuracy and completeness of the information provided; (iii) representations made by management as to the non-audit services provided to the Corporation by the external auditor; (iv) financial statements of the Corporation represented to them by a member of management or in a written report of the external auditors to present fairly the financial position of the Corporation in accordance with generally accepted accounting principles; and (v) any report of a lawyer, accountant, engineer, appraiser or other person whose profession lends credibility to a statement made by any such person.
Section 3 COMPOSITION AND MEETINGS
The Audit Committee should be comprised of not less than three directors as determined by the Board, all of whom shall be independent within the meaning of National Instrument 52-110 – Audit Committees (“52-110”) of the Canadian Securities Administrators (or exempt therefrom), and free of any relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment as a member of the Audit Committee. All members of the Audit Committee should have (or should gain within a reasonable period of time after appointment) a working familiarity with basic finance and accounting practices. At least one member of the Audit Committee should have accounting or related financial management expertise and be considered a financial expert. Each member should be “financially literate” within the meaning of 52-110. The Audit Committee members may enhance their familiarity with finance and accounting by participating in educational programs conducted by the Corporation or an outside consultant.
The members of the Audit Committee shall be elected by the Board on an annual basis or until their successors shall be duly appointed. Unless a Chair of the Audit Committee (the “Chair”) is elected by the full Board, the members of the Audit Committee may designate a Chair by majority vote of the full Audit Committee membership.
In addition, the Audit Committee members should meet all of the requirements for members of audit committees as defined from time to time under applicable legislation and the rules of any stock exchange on which the Corporation’s securities are listed or traded.
The Audit Committee should meet at least four times annually, or more frequently as circumstances require. The Audit Committee should meet within 45 days following the end of the first three financial quarters to review and discuss the unaudited financial results for the preceding quarter and the related MD&A, and should meet within 90 days following the end of the fiscal year end to review and discuss the audited financial results for the preceding quarter and year and the related MD&A.
The Audit Committee may ask members of management or others to attend meetings and provide pertinent information as necessary. For purposes of performing their duties, members of the Audit Committee shall have full access to all corporate information and any other information deemed appropriate by them, and shall be permitted to discuss such information and any other matters relating to the financial position of the Corporation with senior employees, officers and the external auditor of the Corporation, and others as they consider appropriate.
For greater certainty, management is indirectly accountable to the Audit Committee and is responsible for the timeliness and integrity of the financial reporting and information presented to the Board.
In order to foster open communication, the Audit Committee or its Chair should meet at least annually with management and the external auditor in separate sessions to discuss any matters that the Audit Committee or each of these groups believes should be discussed privately. In addition, the Audit Committee or its Chair should meet with management quarterly in connection with the Corporation’s interim financial statements.
A quorum for the transaction of business at any meeting of the Audit Committee shall be a majority of the number of members of the Audit Committee or such greater number as the Audit Committee shall by resolution determine.
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Meetings of the Audit Committee shall be held from time to time and at such place as any member of the Audit Committee shall determine upon 48 hours’ notice to each of its members. The notice period may be waived by all members of the Audit Committee. Each of the Chair of the Board, the external auditor, the Chief Executive Officer, the Chief Financial Officer or the Secretary shall be entitled to request that any member of the Audit Committee call a meeting.
This Charter is subject in all respects to the Corporation’s notice of articles and articles from time to time.
Section 4 ROLE
As part of its function in assisting the Board in fulfilling its oversight role (and without limiting the generality of the Audit Committee’s role), the Audit Committee should:
| (1) | Determine any desired agenda items; |
| (2) | Review and recommend to the Board changes to this Charter, as considered appropriate from time to time; |
| (3) | Review the public disclosure regarding the Audit Committee required by 52-110; |
| (4) | Review and seek to ensure that disclosure controls and procedures and internal control over financial reporting frameworks are operational and functional; |
| (5) | Summarize in the Corporation’s annual information form the Audit Committee’s composition and activities, as required; and |
| (6) | Submit the minutes of all meetings of the Audit Committee to the Board upon request. |
Documents / Reports Review
| (7) | Review and recommend to the Board for approval the Corporation’s annual and interim financial statements, including any certification, report, opinion, undertaking or review rendered by the external auditor and the related MD&A, as well as such other financial information of the Corporation provided to the public or any governmental body as the Audit Committee or the Board require. |
| (8) | Review other financial information provided to any governmental body or the public as they see fit. |
| (9) | Review, recommend and approve any of the Corporation’s press releases that contain financial information. |
| (10) | Seek to satisfy itself and ensure that adequate procedures are in place for the review of the Corporation’s public disclosure of financial information extracted or derived from the Corporation’s financial statements and related MD&A and periodically assess the adequacy of those procedures. |
External Auditor
| (11) | Recommend to the Board the selection of the external auditor, considering independence and effectiveness, and review the fees and other compensation to be paid to the external auditor. |
| (12) | Review and seek to ensure that all financial information provided to the public or any governmental body, as required, provides for the fair presentation of the Corporation’s financial condition, financial performance and cash flow. |
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| (13) | Instruct the external auditor that its ultimate client is not management and that it is required to report directly to the Audit Committee, and not management. |
| (14) | Monitor the relationship between management and the external auditor including reviewing any management letters or other reports of the external auditor and discussing any material differences of opinion between management and the external auditor. |
| (15) | Review and discuss, on an annual basis, with the external auditor all significant relationships it has with the Corporation to determine the external auditor’s independence. |
| (16) | Pre-approve all non-audit services (or delegate such pre-approval as the Audit Committee may determine and as permitted by applicable Canadian securities laws) to be provided by the external auditor. |
| (17) | Review the performance of the external auditor and any proposed discharge of the external auditor when circumstances warrant. |
| (18) | Periodically consult with the external auditor out of the presence of management about significant risks or exposures, internal controls and other steps that management has taken to control such risks, and the fullness and accuracy of the financial statements, including the adequacy of internal controls to expose any payments, transactions or procedures that might be deemed illegal or otherwise improper. |
| (19) | Communicate directly with the external auditor and arrange for the external auditor to be available to the Audit Committee and the full Board as needed. |
| (20) | Review and approve any proposed hiring by the Corporation of current or former partners or employees of the current (and any former) external auditor of the Corporation. |
Audit Process
| (21) | Review the scope, plan and results of the external auditor’s audit and reviews, including the auditor’s engagement letter, the post-audit management letter, if any, and the form of the audit report. The Audit Committee may authorize the external auditor to perform supplemental reviews, audits or other work as deemed desirable. |
| (22) | Following completion of the annual audit and quarterly reviews, review separately with each of management and the external auditor any significant changes to planned procedures, any difficulties encountered during the course of the audit and, if applicable, reviews, including any restrictions on the scope of work or access to required information and the cooperation that the external auditor received during the course of the audit and, if applicable, reviews. |
| (23) | Review any significant disagreements among management and the external auditor in connection with the preparation of the financial statements. |
| (24) | Where there are significant unsettled issues between management and the external auditor that do not affect the audited financial statements, the Audit Committee shall seek to ensure that there is an agreed course of action leading to the resolution of such matters. |
Financial Reporting Processes
| (25) | Review the integrity of the financial reporting processes, both internal and external, in consultation with the external auditor as they see fit. |
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| (26) | Consider the external auditor’s judgments about the quality, transparency and appropriateness, not just the acceptability, of the Corporation’s accounting principles and financial disclosure practices, as applied in its financial reporting, including the degree of aggressiveness or conservatism of its accounting principles and underlying estimates, and whether those principles are common practices or are minority practices. |
| (27) | Review all material balance sheet issues, material contingent obligations (including those associated with material acquisitions or dispositions) and material related party transactions. |
| (28) | Review with management and the external auditor the Corporation’s accounting policies and any changes that are proposed to be made thereto, including all critical accounting policies and practices used, any alternative treatments of financial information that have been discussed with management, the ramification of their use and the external auditor’s preferred treatment and any other material communications with management with respect thereto. |
| (29) | Review the disclosure and impact of contingencies and the reasonableness of the provisions, reserves and estimates that may have a material impact on financial reporting. |
| (30) | If considered appropriate, establish separate systems of reporting to the Audit Committee by each of management and the external auditor. |
| (31) | Periodically consider the need for an internal audit function, if not present. |
Risk Management
| (32) | Review program of risk assessment and steps taken to address significant risks or exposures of all types, including insurance coverage and tax compliance. |
General
| (33) | With prior Board approval, the Audit Committee may at its discretion retain independent counsel, accountants and other professionals to assist it in the conduct of its activities and to set and pay (as an expense of the Corporation) the compensation for any such advisors. |
| (34) | Respond to requests by the Board with respect to the functions and activities that the Board requests the Audit Committee to perform. |
| (35) | Periodically review this Charter and, if the Audit Committee deems appropriate, recommend to the Board changes to this Charter. |
| (36) | Review the public disclosure regarding the Audit Committee required from time to time by applicable Canadian securities laws, including: |
| (i) | the Charter of the Audit Committee; |
| (ii) | the composition of the Audit Committee; |
| (iii) | the relevant education and experience of each member of the Audit Committee; |
| (iv) | the external auditor services and fees; and |
| (v) | such other matters as the Corporation is required to disclose concerning the Audit Committee. |
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| (37) | Review in advance, and approve, the hiring and appointment of the Corporation’s senior financial executives by the Corporation, if any. |
| (38) | Perform any other activities as the Audit Committee deems necessary or appropriate including ensuring all regulatory documents are compiled to meet audit committee reporting obligations under 52-110. |
Section 5 AUDIT COMMITTEE COMPLAINT PROCEDURES
Submitting a Complaint
| (1) | Anyone may submit a complaint regarding conduct by the Corporation or its employees or agents (including its independent auditors) reasonably believed to involve questionable accounting, internal accounting controls or auditing matters. The Chair should oversee treatment of such complaints. |
Procedures
| (2) | The Chair will be responsible for the receipt and administration of employee complaints. |
| (3) | In order to preserve anonymity when submitting a complaint regarding questionable accounting or auditing matters, the employee may submit a complaint confidentially. |
Investigation
| (4) | The Chair should review and investigate the complaint. Corrective action will be taken when and as warranted in the Chair’s discretion. |
Confidentiality
| (5) | The identity of the complainant and the details of the investigation should be kept confidential throughout the investigatory process. |
Records and Report
| (6) | The Chair should maintain a log of complaints, tracking their receipt, investigation, findings and resolution, and should prepare a summary report for the Audit Committee. |
The Audit Committee is a committee of the Board and is not and shall not be deemed to be an agent of the Corporation’s securityholders for any purpose whatsoever. The Board may, from time to time, permit departures from the terms hereof, either prospectively or retrospectively, and no provision contained herein is intended to give rise to civil liability to securityholders of the Corporation or other liability whatsoever.
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Exhibit 99.2
BESPOKE CAPITAL ACQUISITION CORP.
(A SPECIAL PURPOSE ACQUISITION CORPORATION)
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2020 AND FOR THE PERIOD FROM
JULY 8, 2019 (DATE OF INCORPORATION)
TO DECEMBER 31, 2019
(EXPRESSED IN UNITED STATES DOLLARS)
MANAGEMENT’S DISCUSSION AND ANALYSIS
Management’s Discussion and Analysis
General
The following discussion of performance, financial condition and future prospects should be read in conjunction with the financial statements (‘‘Financial Statements’’) of Bespoke Capital Acquisition Corp. (the ‘‘Corporation’’) for the year ended December 31, 2020 and July 8, 2019 (Inception) to December 31, 2019 and the accompanying notes thereto. This Management’s Discussion and Analysis (‘‘MD&A”) has been prepared with an effective date of March 12, 2021. The Financial Statements of the Corporation have been prepared by management and are in accordance with International Financial Reporting Standards (‘‘IFRS’’). The Corporation’s financial information is expressed in United States dollars unless otherwise specified. In addition to reviewing this report, readers are encouraged to read the Corporation’s public information filings on SEDAR at www.sedar.com.
Cautionary Statement Regarding Forward-Looking Information
This document may contain ‘‘forward-looking statements’’ (as defined under applicable securities laws). These statements relate to future events or future performance including comments with respect to the Corporation’s objectives and priorities for fiscal year 2020 and beyond, and strategies or further actions with respect to the Corporation, a Qualifying Acquisition (as defined below), the Corporation’s business operations, financial performance and condition. Such forward-looking statements reflect management’s current beliefs and are based on information currently available to management. In some cases, forward-looking statements can be identified by terminology such as ‘‘may’’, ‘‘will’’, ‘‘should’’, ‘‘expect’’, ‘‘plan’’, ‘‘anticipate’’, ‘‘believe’’, ‘‘estimate’’, ‘‘predict’’, ‘‘potential’’, ‘‘continue’’, ‘‘target’’, ‘‘intend’’, ‘‘could’’ or the negative of these terms or other comparable terminology. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and a number of factors could cause actual events or results to differ materially from the results discussed in the forward-looking statements. In evaluating these statements, readers should specifically consider various factors that may cause actual results to differ materially from any forward-looking statement. These factors include, but are not limited to, market and general economic conditions and the risks and uncertainties discussed in the section entitled ‘‘Risk Factors’’ in the Corporation’s annual information form dated March 12, 2021 (the “AIF”). The forward-looking information contained in this MD&A is presented for the purpose of assisting shareholders in understanding business and strategic priorities and objectives as at the periods indicated and may not be appropriate for other purposes. Forward-looking statements contained in this MD&A are not guarantees of future performance and, while forward-looking statements are based on certain assumptions that the Corporation considers reasonable, actual events and results could differ materially from those expressed or implied by forward-looking statements made by the Corporation. Prospective investors are cautioned to consider these and other factors carefully when making decisions with respect to the Corporation and not place undue reliance on forward-looking statements. Circumstances affecting the Corporation may change rapidly. Except as may be expressly required by applicable law, the Corporation does not undertake any obligation to update publicly or revise any such forward-looking statements, whether as a result of new information, future events or otherwise.
Nature of Activities
The Corporation is a special purpose acquisition corporation incorporated on July 8, 2019 under the laws of the Province of British Columbia for the purpose of effecting an acquisition of one or more businesses or assets, by way of a merger, amalgamation, arrangement, share exchange, asset acquisition, share purchase, reorganization, or any other similar business combination involving the Corporation (a ‘‘Qualifying Acquisition’’). The registered office of the Corporation is located at 595 Burrard Street, Suite 2600, Three Bentall Centre, Vancouver, BC, V7X 1L3, Canada. The Corporation’s head office is located at Third Floor, 115 Park Street, London, United Kingdom, W1K 7AP.
Initial Public Offering
On August 15, 2019, the Corporation completed its initial public offering (the “Offering”) of 35,000,000 Class A restricted voting units (the “Class A Restricted Voting Units”) at $10.00 per Class A Restricted Voting Unit. On September 13, 2019, the underwriters partially exercised their over-allotment option (the "Over-Allotment Option") to purchase an additional 1,000,000 Class A Restricted Voting Units, at a price of $10.00 per unit. As a result of the exercise of the Over-Allotment Option, an aggregate of 36,000,000 Class A Restricted Voting Units have been issued.
Each Class A Restricted Voting Unit was comprised of a Class A restricted voting share (a “Class A Restricted Voting Share”) and one-half of a share purchase warrant (each whole warrant, a “Warrant”). Each whole Warrant entitles the holder to purchase one Class A Restricted Voting Share for a purchase price of $11.50, commencing sixty-five (65) days after the completion of the Qualifying Acquisition and will expire on the day that is five years after the closing date of the Qualifying Acquisition or earlier as further described in the Corporation’s final long form prospectus dated August 8, 2019 (the “Prospectus”).
The Class A Restricted Voting Units commenced trading on August 15, 2019 on the Toronto Stock Exchange (the “Exchange”) under the symbol “BC.V”. and separated into Class A Restricted Voting Shares and the Warrants on September 24th, 2019, under the symbols “BC.U” and “BC.WT.U”, respectively. The Class B shares (the “Class B Shares”) will not be listed prior to the Qualifying Acquisition. Prior to any Qualifying Acquisition, the Class A Restricted Voting Shares may only be redeemed upon certain events. Class A Restricted Voting Shares will be redeemable for a pro-rata portion of the amount then held in the escrow account, net of taxes payable and other prescribed amounts.
The proceeds of $360,000,000 relating to the Class A Restricted Voting Units are held by TSX Trust Company, as “Escrow Agent”, in an escrow account (the “Escrow Account”) at a Canadian chartered bank or subsidiary thereof, in accordance with the escrow agreement. Subject to applicable law, none of the escrow funds in the Escrow Account will be released from the Escrow Account until the earliest of: (i) the closing by the Corporation of a Qualifying Acquisition within the “Permitted Timeline”; (ii) a redemption (on the closing of a Qualifying Acquisition or on an extension of the Permitted Timeline, each as provided in the Prospectus) by holders of, or an automatic redemption of, Class A Restricted Voting Shares; (iii) a Winding-Up. Proceeds held in the escrow account may also be used to satisfy the requirement of the Corporation to pay taxes on the interest or certain other amounts earned on the escrowed funds and for payment of certain expenses.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
The escrowed funds are being held to enable the Corporation to (i) satisfy redemptions made by holders of Class A Restricted Voting Shares (including in the event of a Qualifying Acquisition or an extension to the Permitted Timeline, or in the event a Qualifying Acquisition does not occur within the Permitted Timeline), (ii) fund the Qualifying Acquisition with the net proceeds following payment of any such redemptions and deferred underwriting commission, and/or (iii) pay taxes on amounts earned on the escrowed funds and certain permitted expenses. Such escrowed funds and all amounts earned thereon, subject to such obligations and applicable law, will be assets of the Corporation. These escrowed funds will also be used to pay (i) the underwriters the portion of the deferred underwriting commission provided in the initial public offering underwriting agreement in an amount equal to $11,700,000 and (ii) the discretionary deferred portion of the underwriting commission to such person(s) as is designated by the Corporation, all in accordance with the terms of the underwriting agreement. The discretionary deferred portion will be payable only at the Corporation’s sole discretion, in whole or in part, and only upon completion of its Qualifying Acquisition, in accordance with the terms of the underwriting agreement.
Consummation of the Qualifying Acquisition will require approval by a majority of the Corporation's directors unrelated to the Qualifying Acquisition.
In connection with the closing of a Qualifying Acquisition within the Permitted Timeline, holders of Class A Restricted Voting Shares will be provided with the opportunity to redeem all or a portion of their Class A Restricted Voting Shares for an amount per share, payable in cash, equal to the pro-rata portion (per Class A Restricted Voting Share) of: (A) the escrowed funds available in the escrow account at the time immediately prior to the redemption deposit deadline, including interest and other amounts earned thereon; less (B) an amount equal to the total of (i) any applicable taxes payable by the Corporation on such interest and other amounts earned in the escrow account, and (ii) actual and expected expenses directly related to the redemption, each as reasonably determined by the Corporation, subject to certain limitations as further described in the Prospectus. Each holder of Class A Restricted Voting Shares, together with any affiliate of such holder or other person with whom such holder or affiliate is acting jointly or in concert, will not be permitted to redeem more than an aggregate of 15% of the number of Class A Restricted Voting Shares issued and outstanding.
If the Corporation is unable to consummate a Qualifying Acquisition within the Permitted Timeline of 18 months from the closing of the Offering (or 21 months from the closing of the Offering if the Corporation has executed a definitive agreement for a Qualifying Acquisition within 18 months from the closing of the Offering but has not completed the Qualifying Acquisition within such 18-month period), the Corporation will be required to redeem each of the outstanding Class A Restricted Voting Shares, for an amount per share, payable in cash, equal to the pro-rata portion (per Class A Restricted Voting Share) of: (A) the escrowed funds available in the escrow account, including any interest and other amounts earned thereon, less (B) an amount equal to the total of (i) any applicable taxes payable by the Corporation on such interest and other amounts earned in the escrow account, (ii) any taxes of the Corporation arising in connection with the redemption of the Class A Restricted Voting Shares, and (iii) up to a maximum of $50,000 of interest and other amounts earned from the proceeds in the escrow account to pay actual and expected Winding-Up expenses and certain other related costs, each as reasonably determined by the Corporation. The underwriters will have no right to the deferred underwriting commission held in the escrow account in such circumstances.
Such Permitted Timeline, however, could be extended to up to 36 months with shareholder approval of only the holders of Class A Restricted Voting Shares, by ordinary resolution, with approval by the Corporation’s board of directors. If such approvals are obtained, holders of Class A Restricted Voting Shares, irrespective of whether such holders voted for or against, or did not vote on, the extension of the Permitted Timeline, would be permitted to deposit all or a portion of their shares for redemption prior to the second business day before the shareholders’ meeting in respect of the extension.
Subsequent Events
On February 4, 2021, the Company and Vintage Wine Estates, Inc. (“VWE”) announced that they have entered into definitive transaction agreement (the “Transaction Agreement”) pursuant to which, among other things, the Corporation will acquire, all of the equity of VWE (the “Transaction”) by way of a merger between VWE and a wholly owned subsidiary of the Corporation (“Merger Sub”). The Transaction is intended to constitute the Company’s qualifying acquisition pursuant to the TSX Company Manual.
As part of the Transaction, among other things, (i) the Corporation will change its jurisdiction of incorporation from the Province of British Columbia to the State of Nevada (the “Continuance”); (ii) Merger Sub will merge with and into VWE with VWE surviving the merger as a wholly owned subsidiary of the Corporation (the “Merger”); and (iii) the Corporation will change its name to “Vintage Wine Estates, Inc.” (referred to herein as “New VWE Holdco”). All outstanding Class A restricted voting shares (the “Class A Restricted Voting Shares”) and the outstanding Class B shares (the “Founder’s Shares”) held by the Bespoke Sponsor Capital LP (our “sponsor”) will be converted on a one-to-one basis into shares of common stock of New VWE Holdco (“New VWE Holdco Common Stock”) and the outstanding share purchase warrants will continue and remain outstanding on a one-for-one basis as share purchase warrants of New VWE Holdco (“New VWE Holdco Warrants”).
Following completion of the Transaction, New VWE Holdco will own 100% of VWE and, assuming no redemptions of Class A Restricted Voting Shares and no exercise of dissent rights in connection with the Continuance, former holders’ of VWE’s equity securities will collectively own an approximately 39% equity and voting interest in New VWE Holdco.
The Continuance, the Merger and related matters will be considered at a shareholders’ meeting, expected to be held in the second quarter of 2021. The Corporation will also provide holders of Class A Restricted Voting Shares the opportunity to redeem all or a portion of their Class A Restricted Voting Shares in accordance with BCAC’s organizational documents. The VWE board of directors has determined that the Transaction Agreement and the Transaction are in the best interests of VWE and the BCAC board of directors has determined that the Transaction Agreement and the Transaction are in the best interests of BCAC. The BCAC board of directors has recommended that BCAC shareholders vote in favor of the Continuance, the Merger and related matters.
Concurrently with entering into the Transaction Agreement, our sponsor entered into a support agreement, pursuant to which it agreed, among other things, to vote in favor of the Continuance, the Merger and related matters and certain VWE shareholders entered into a support agreement pursuant to which they agreed, among other things, to vote in favor of the Transaction. Concurrent with the consummation of the Transaction, the VWE shareholders and our sponsor will enter into an investor rights agreement (the “Investor Rights Agreement”), which will provide for, among other things, voting agreements, registration rights and certain other restrictions.
2
MANAGEMENT’S DISCUSSION AND ANALYSIS
Completion of the Transaction remains subject to the satisfaction or waiver of certain customary conditions, including, among other things: (a) the receipt of Corporation shareholder approval, approving the Continuance, the Merger and related matters; (b) the effectiveness of a registration statement on Form S-4 and the issuance by the Ontario Securities Commission of a final receipt for the Corporation’s non-offering prospectus; (c) the approval of the Toronto Stock Exchange (the “TSX”); (d) the approval for listing of the New VWE Holdco Common Stock and the New VWE Holdco Warrants on Nasdaq; (e) the expiration or termination of any waiting period (and any extension thereof) and receipt of all required consents applicable to the Transaction under applicable antitrust laws, including the Hart-Scott-Rodino Antitrust Improvements Act of 1976; and (f) the occurrence of the Continuance.
Further details on the proposed transactions are set out in the Material Change Report and the Transaction Agreement and BCAC’s which were filed on SEDAR on February 12, 2021 and February 12, 2021, respectively, and Preliminary Prospectus dated March 12, 2021.
3
MANAGEMENT’S DISCUSSION AND ANALYSIS
Selected Financial Information
Below is selected information from the statement of net loss and comprehensive loss for the three and nine months ended December 31, 2020.
| Statement of Operations |
| Three months ended December 31, 2020 | For the three months ended December, 31 2019 | Year ended December 31, 2020 | From July 8, 2019 (Date of Incorporation) to December 31, 2019 | |||||||||||||
| Expenses | ||||||||||||||||
| General and administrative | $ | 1,139,934 | 569,997 | 2,597,010 | 1,036,785 | |||||||||||
| (Loss) from operations | (1,139,934 | ) | (569,997 | ) | (2,597,010 | ) | (1,036,785 | ) | ||||||||
| Other income | ||||||||||||||||
| Investment income | $ | 49,631 | 1,632,001 | 2,281,976 | 2,255,356 | |||||||||||
| (Loss) income before income tax (benefit) expense | (1,090,303 | ) | 1,062,004 | (315,034 | ) | 1,218,571 | ||||||||||
| Income taxes | ||||||||||||||||
| Income tax (benefit) expense | (194,007 | ) | 193,963 | (193,963 | ) | 193,963 | ||||||||||
| Net (loss), income | $ | (896,296 | ) | 868,041 | (121,071 | ) | 1,024,608 | |||||||||
| Basic and diluted net income per Class A share | $ | 0.00 | 0.03 | 0.05 | 0.42 | |||||||||||
| Weighted average number of Class A shares outstanding (basic and diluted) | 36,000,000 | 36,000,000 | 36,000,000 | 28,107,345 | ||||||||||||
| Basic and diluted net income per Class B share | $ | (0.10 | ) | (0.04 | ) | (0.20 | ) | (1.50 | ) | |||||||
| Weighted average number of Class B Shares outstanding (basic and diluted) | 9,000,000 | 9,000,000 | 9,000,000 | 7,241,879 | ||||||||||||
Results of Operations
For the three months ended December 31, 2020, the Corporation earned interest income of $49,631, reported a net loss of $(896,296), basic and diluted net loss of $(0.10) per Class B Share and net income of $0.00 per Class A Share.
For the three months ended December 31, 2019 the Corporation earned interest income of $1,632,001 reported a net income of $868,041, basic and diluted net loss of $(0.04) per Class B Share and net income of $0.03 per Class A Share.
For the year ended December 31, 2020, the Corporation earned interest income of $2,281,976. reported a loss of $(121,071), basic and diluted net loss of $(0.20) per Class B Share and net income of $0.05 per Class A Share.
From July 8, 2019 (Inception) to December 31, 2019, the Corporation earned interest income of $2,255,356, reported an income of $1,024,608, a basic and diluted net loss of $(1.50) per Class B Share and net income of $0.42 per Class A Share.
General and Administrative Expenses
General and administrative expenses include costs incurred relating to assessing, negotiating and conducting due diligence on potential Qualifying Acquisitions, as well as general administrative costs of operating the Corporation. A summary of the general and administrative expenses incurred during the year ended December 31, 2020 and July 8, 2019 (Inception) to December 31, 2019 are as follows:
| 10. General and administrative expenses |
| Three months ended December 31, 2020 | Three months ended December 31, 2019 | Twelve months ended December 31, 2020 | From July 8, 2019 (Date of Incorporation) to December 31, 2019 | |||||||||||||
| Public company filing and listing costs | $ | 77,085 | 20,825 | 258,955 | 191,513 | |||||||||||
| Professional fees (marketing, recruitment, diligence, etc.) | 815,951 | 355,717 | 1,531,802 | 549,865 | ||||||||||||
| Insurance | 108,705 | 55,350 | 281,731 | 88,964 | ||||||||||||
| General office expenses (travel, service agreement, phone etc.) | 138,193 | 138,105 | 524,522 | 206,443 | ||||||||||||
| $ | 1,139,934 | 569,997 | 2,597,010 | 1,036,785 | ||||||||||||
4
MANAGEMENT’S DISCUSSION AND ANALYSIS
Income Taxes
The Corporation is subject to federal, provincial, and territorial taxes of Canada. The Corporation follows the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. The Corporation recognizes the tax benefit from an uncertain tax position only if it is more-likely-than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
Deferred income tax assets, including those arising from unutilized tax losses, require management to assess the likelihood that the Corporation will generate taxable income in future periods in order to utilize recognized deferred tax assets. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing laws in each applicable jurisdiction. Future taxable income is also significantly dependent upon the Corporation completing a Business Combination, the underlying structure of a Business Combination, and the resulting nature of operations. To the extent that future cash flows and/or the probability, structure and timing, and the nature of operations of a future Business Combination differ significantly from estimates made, the ability of the Corporation to realize a deferred income tax asset could be materially impacted.
The Corporation recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits at both December 31, 2020 and December 31, 2019. No amounts were accrued for the payment of interest and penalties for the year ended December 31, 2020 and for the period from July 8, 2019 (inception) to December 31, 2019. The Corporation is currently not aware of any issues under review that could result in significant payments, accruals or material impacts to its position.
The Corporation is subject to income tax examinations by major taxing authorities. These potential examinations may include questioning the timing and amount of deductions and compliance with federal, provincial, and territorial tax laws. The Corporation's management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months. It is possible, however, that at some future date, an additional liability could result from audits by taxing authorities. If the final outcome of these tax related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.
Selected Financial Information
Below is selected information from the statement of net income and comprehensive income for the three months ended December 31, 2020, the three months ended September 30, 2020, June 30, 2020, the three months ended March 31, 2020, the three months ended December 31, 2019 and from July 8, 2019 (Date of Incorporation) to September 30, 2019.
| Statement of Operations |
| Three months ended December 31, 2020 | For the three months ended September, 30 2020 | For the three months ended June, 30 2020 | For the three months ended March, 31 2020 | For the three months ended December, 31 2019 | From July 8, 2019 (Date of Incorporation) to September 30, 2019 | |||||||||||||||||||
| Expenses | ||||||||||||||||||||||||
| General and administrative | $ | 1,139,934 | 664,966 | 235,209 | 556,901 | 569,997 | 466,788 | |||||||||||||||||
| (Loss) from operations | (1,139,934 | ) | (664,966 | ) | (235,209 | ) | (556,901 | ) | (569,997 | ) | (466,788 | ) | ||||||||||||
| Other income | ||||||||||||||||||||||||
| Investment income | $ | 49,631 | 64,709 | 702,596 | 1,465,040 | 1,632,001 | 623,355 | |||||||||||||||||
| (Loss) income before income tax (benefit) expense | (1,090,303 | ) | (600,257 | ) | 467,386 | 908,139 | 1,062,004 | 156,567 | ||||||||||||||||
| Income taxes | ||||||||||||||||||||||||
| Income tax (benefit) expense | (194,007 | ) | (199,992 | ) | 143,999 | 56,037 | 193,963 | - | ||||||||||||||||
| Net (loss) income | $ | (896,296 | ) | (400,265 | ) | 323,387 | 852,102 | 868,041 | 156,567 | |||||||||||||||
| Basic and diluted net income per Class A share | $ | 0.00 | 0.00 | 0.01 | 0.03 | 0.03 | 0.56 | |||||||||||||||||
| Weighted average number of Class A shares outstanding (basic and diluted) | 36,000,000 | 36,000,000 | 36,000,000 | 36,000,000 | 36,000,000 | 19,564,706 | ||||||||||||||||||
| Basic and diluted net (loss) per Class B share | $ | (0.10 | ) | (0.05 | ) | (0.02 | ) | (0.02 | ) | (0.04 | ) | (2.00 | ) | |||||||||||
| Weighted average number of Class B Shares outstanding (basic and diluted) | 9,000,000 | 9,000,000 | 9,000,000 | 9,000,000 | 9,000,000 | 5,338,971 | ||||||||||||||||||
5
MANAGEMENT’S DISCUSSION AND ANALYSIS
Liquidity, Capital Resources and Financial Position
| December 31, 2020 | December 31, 2019 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 2,114,670 | $ | 4,182,004 | ||||
| Prepaid income taxes | 493,996 | - | ||||||
| Prepaid expenses | 151,409 | 141,647 | ||||||
| Total current assets | 2,760,075 | 4,323,651 | ||||||
| Investments held in Trust Account | 364,043,313 | 362,255,356 | ||||||
| Total assets | $ | 366,803,388 | $ | 366,579,007 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) | ||||||||
| Current | ||||||||
| Accounts payable and accrued liabilities | $ | 751,891 | $ | 176,738 | ||||
| Due to related party | - | 35,737 | ||||||
| Income taxes payable | - | 193,963 | ||||||
| Total current liabilities | 751,891 | 406,438 | ||||||
| Deferred underwriters' commission | 13,500,000 | 13,500,000 | ||||||
| Total liabilities | $ | 14,251,891 | $ | 13,906,438 | ||||
| Commitments and Contingencies | ||||||||
| Class A Restricted Voting Shares, 36,000,000 shares subject to redemption | 363,312,252 | 361,646,410 | ||||||
| Stockholders' Equity (Deficiency) | ||||||||
| Class A Restricted Voting Shares, unlimited shares authorized; 0 shares issued and outstanding (excluding 36,000,000 shares subject to possible redemption) at both December 31, 2020 and 2019 | - | - | ||||||
| Class B Shares, unlimited shares authorized; 9,000,000 shares issued and outstanding at both December 31, 2020 and 2019 | 25,000 | 25,000 | ||||||
| Additional paid-in capital | - | - | ||||||
| Accumulated deficit | (10,785,755 | ) | (8,998,841 | ) | ||||
| Total stockholders' deficiency | $ | (10,760,755 | ) | $ | (8,973,841 | ) | ||
| Total liabilities and stockholders' deficiency | $ | 366,803,388 | $ | 366,579,007 | ||||
The funds raised relating to Class A Restricted Voting Units totaling $360,000,000 have been held in cash and cash equivalents in escrow with a Canadian chartered bank. The current cash is invested in U.S treasury bills with 1-month terms of investment. The escrow balance includes the $360,000,000 funds raised relating to Class A Restricted Voting Units and cumulative interest earned on the escrow account totaling $4,537,332 as of December 31, 2020 and cumulative interest earned totaling $2,255,356 as of December 31, 2019. Interest earned on the escrow balance totaled $49,631 for the three months ended December 31, 2020 and $1,632,001 for the three months ended December 31, 2019.In accordance with the terms of the Offering, all amounts raised through the issuance of the Class A Restricted Voting Units were deposited into the escrow account and can only be released upon certain prescribed conditions being met.
6
MANAGEMENT’S DISCUSSION AND ANALYSIS
The Corporation’s intent is for all or substantially all of the funds held in the escrow account to be used to complete a Qualifying Acquisition, or several Qualifying Acquisitions, which would likely close concurrently. As noted in the Prospectus, the fair market value of any Qualifying Acquisition (or the aggregate fair market value of the Corporation’s combined Qualifying Acquisitions, if there are more than one) must, unless exemptive relief is obtained from the Exchange, not be less than 80% of the assets held in the escrow account at the time the agreement is entered into (excluding the deferred underwriting commission and applicable taxes payable on interest and other amounts earned in the escrow account). If, after redemptions, debt or the Corporation’s capital stock is used as consideration to consummate a Qualifying Acquisition, the remaining proceeds held in the escrow account may be used to fund general ongoing expenses. Such funds could be used in a variety of ways, including continuing or expanding the post-Qualifying Acquisition entity’s operations, for strategic acquisitions by such new entity, for payment of dividends and for marketing, research and development of existing or new products, or for other purposes.
As at December 31, 2020, the Corporation had cash, excluding restricted amounts held in the escrow account, totaling $2,114,670 and $4,182,004 as at December 31, 2019, which is available to fund its ongoing working capital requirements. The Corporation anticipates generating negative cash flows from operating activities on a quarterly basis until a Qualifying Acquisition has been completed and, thereafter cashflow will depend on the nature and success of the Qualifying Acquisition. The expenses relating to ongoing operating activities include professional fees, general and administration expenses related to being a public company, and costs associated with identifying and negotiating a Qualifying Acquisition.
Currently, the Corporation does not expect to raise additional funds to meet its operating expenditures until the consummation of a Qualifying Acquisition. Management expects, but it cannot be assured, that the Corporation will have sufficient funds outside of the escrow account to operate the business.
To the extent that we require additional funding for general ongoing expenses or in connection with our Qualifying Acquisition, the Corporation may seek funding by way of unsecured loans from our sponsor and/or its affiliates, which loans must be on reasonable commercial terms. The lender under the loans would not have recourse against the funds held in the escrow account, and thus the loans will not reduce the value thereof. Such loans will collectively be subject to a maximum aggregate principal amount equal to 10% of the escrowed funds. Such loans may be repayable in cash or be convertible into shares and/or Warrants, however no such repayment or conversion shall occur prior to the closing of the Qualifying Acquisition. The Corporation will not obtain any other form of debt financing except: (i) in the ordinary course for short term trade, accounts payable and general ongoing expenses; or (ii) contemporaneous with, or after, the completion of a Qualifying Acquisition.
Otherwise, the Corporation may seek to raise additional funds through a rights offering in respect of shares available to its shareholders, in accordance with the requirements of applicable securities legislation, and subject to placing the required funds raised in the Escrow Account in accordance with applicable Exchange rules and other conditions as described in the Prospectus.
As of the date of filing the Corporation does not have any off-balance sheet financing arrangements and has not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
7
MANAGEMENT’S DISCUSSION AND ANALYSIS
Share Capital
As of the date of this MD&A, the Corporation had 36,000,000 Class A Restricted Voting Shares and 9,000,000 Class B Shares issued and outstanding. In addition, the Corporation had an aggregate of 30,000,000 Warrants issued and outstanding, comprised of 18,000,000 Warrants which formed part of the Class A Restricted Voting Units and 12,000,000 Founders’ Warrants issued to our sponsor.
Related Party Transactions
The Corporation has entered into an administrative services agreement with our Sponsor for an initial term of 18 months, subject to possible extension, for office space, utilities, and administrative support, which may include payment for services of related parties, for, but not limited to, various administrative, managerial, or operational services, or to help effect the Qualifying Acquisition. The Corporation has agreed to pay up to $10,000 per month, plus applicable taxes for such services. For the year ended December 31, 2020 and for the period from July 8, 2019 (Inception) to December 31, 2019, the Corporation paid $120,000 and $45,161, respectively in respect of these services. In April 2020, the Corporation agreed to pay the Sponsor until a Qualifying Acquisition is consummated for overhead costs incurred on behalf of the Corporation. The Corporation paid the Sponsor $278,952 for the year ended December 31, 2020 related to these costs.
The Corporation has further agreed to reimburse an affiliate of the sponsor for any out-of-pocket expenses incurred by directors, officers and consultants of the Corporation which were paid by the affiliate relating to certain activities on the Corporation’s behalf, including identifying and negotiating a Qualifying Acquisition. The Corporation incurred $117,676 and $160,668 related to out-of-pocket expenses paid during for the year ended December 31, 2020 and for the period from July 8, 2019 (Inception) to December 31, 2019, respectively, of which $0 and $35,737 are reported as due to related party at December 31, 2020 and December 31, 2019, respectively.
Amounts due to related party are non-interest bearing.
Proposed Acquisitions
See “Subsequent Events” for a description of the proposed Qualifying Acquisition.
Significant Accounting Policies and Critical Accounting Estimates
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). For further information about the accounting policies used by the Corporation, please refer to the Corporation’s Financial Statements and notes thereto for the year ended December 31, 2020 and the period from July 8, 2019 (Inception) to December 31, 2019. Preparation of financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the dates presented and the reported amounts of revenues and expenses during the periods presented. Significant estimates inherent in the preparation of the accompanying financial statements include the assumptions related to the concentration of credit risk, the fair value of financial instruments, assumptions related to the possible redemption of Class A Restricted Voting Shares, offering costs associated with the IPO and income taxes, including the valuation allowance against deferred tax assets. For further information about the accounting policies used by the Company, please refer to the Company’s financial statements and notes thereto for the year ended December 31, 2020 and the period from July 8, 2019 (inception) to December 31, 2019.
Controls and Procedures
Under their supervision, the Chief Executive Officer and Chief Financial Officer have implemented disclosure controls and procedures and internal controls over financial reporting appropriate for the nature of operations of the Corporation. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Corporation in the reports it files or submits under securities legislation is recorded, processed, summarized and reported on a timely basis and that such information is accumulated and reported to management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow required disclosures to be made in a timely fashion. The Corporation’s management, including its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as required by Rule 13a-15(b) of the Exchange Act) and has concluded that certain of the Corporation’s disclosure controls and procedures are not effective as of December 31, 2020 due to the material weaknesses in the internal control over financial reporting as described below.
Internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Corporation’s design of its internal controls over financial reporting is based on the principles set out in the “Internal Control – Integrated Framework (2013)” issued by The Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on the assessment under the framework in Internal Control—Integrated Framework (2013), BCAC management concluded that BCAC's internal control over financial reporting was not effective as of December 31, 2020 and December 31, 2019 due to the existence of a material weakness in BCAC's internal controls over complex accounting transactions. A material weakness is a deficiency, or combination of control deficiencies, in internal control that adversely affects the company's ability to initiate, authorize, record, process, or report external financial data reliably in accordance with GAAP such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness related to the restatement of the financial statements from IFRS to GAAP. As part of this restatement, BCAC, together with its outside technical advisors, incorrectly applied GAAP to the accounting for a complex accounting transaction within the equity instruments as part of the restatement to GAAP. This incorrect application of GAAP was subsequently discovered by BCAC's auditors and was adjusted prior to the approval by the audit committee and the board of directors and issuance of the final financial statements for the years ended December 31, 2020 and December 31, 2019. As a result, however, in the course of making the assessment of the effectiveness of internal control over financial reporting, BCAC identified a material weakness in its internal control over financial reporting. The material weakness related to the restatement of the financial statements from IFRS to GAAP, having insufficient technical resources to appropriately evaluate for complex accounting transactions within the equity instruments, and was addressed by BCAC and has not resulted in a material misstatement.
8
MANAGEMENT’S DISCUSSION AND ANALYSIS
Management of the Corporation has also concluded that notwithstanding the existence of the material weaknesses, the financial statements of the Corporation, present fairly, in all material respects, the Corporation’s financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
Managing Risk
Except as otherwise disclosed in this MD&A and in the Financial Statements, there have been no significant changes to the nature and scope of the risks faced by the Corporation as described in the AIF, which is available on SEDAR at www.sedar.com. These business risks should be considered by interested parties when evaluating the Corporation’s performance and its outlook.
9
Exhibit 99.3
INDEX TO FINANCIAL STATEMENTS
| BESPOKE CAPITAL ACQUISITION CORP. FINANCIAL STATEMENTS | |
| Report of Independent Registered Public Accounting Firm | F-2 |
| Balance Sheets as of December 31, 2020 and 2019 | F-4 |
| Statements of Operations for the year ended December 31, 2020 and for the period from July 8, 2019 (inception) to December 31, 2019 | F-5 |
| Statements of Changes in Stockholders’ Deficiency for the year ended December 31, 2020 and for the period from July 8, 2019 (inception) to December 31, 2019 | F-6 |
| Statements of Cash Flows for the year ended December 31, 2020 and for the period from July 8, 2019 (inception) to December 31, 2019 | F-7 |
| Notes to Financial Statements | F-8 |
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Bespoke Capital Acquisition Corp.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Bespoke Capital Acquisition Corp. (the Company) as of December 31, 2020 and 2019, the related statements of operations, stockholders’ equity (deficiency) and cash flows for the year ended December 31, 2020 and for the period from July 8, 2019 (date of incorporation) through December 31, 2019, and the related notes to the financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the year ended December 31, 2020 and for the period from July 8, 2019 (date of incorporation) through December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s mandatory liquidation and subsequent dissolution if it does not complete a business combination by May 15, 2021 raises substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ RSM US LLP
We have served as the Company's auditor since 2019.
New York, NY
March 12, 2021
F-2
BESPOKE CAPITAL ACQUISITION CORP.
FINANCIAL STATEMENTS
DECEMBER 31, 2020
AND DECEMBER 31, 2019
(EXPRESSED IN UNITED STATES DOLLARS)
F-3
Bespoke Capital Acquisition Corp.
BALANCE SHEETS
| December 31, 2020 | December 31, 2019 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 2,114,670 | $ | 4,182,004 | ||||
| Prepaid income taxes | 493,996 | — | ||||||
| Prepaid expenses | 151,409 | 141,647 | ||||||
| Total current assets | 2,760,075 | 4,323,651 | ||||||
| Investments held in Trust Account | 364,043,313 | 362,255,356 | ||||||
| Total assets | $ | 366,803,388 | $ | 366,579,007 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY) | ||||||||
| Current | ||||||||
| Accounts payable and accrued liabilities | $ | 751,891 | $ | 176,738 | ||||
| Due to related party | — | 35,737 | ||||||
| Income taxes payable | — | 193,963 | ||||||
| Total current liabilities | 751,891 | 406,438 | ||||||
| Deferred underwriters’ commission | 13,500,000 | 13,500,000 | ||||||
| Total liabilities | $ | 14,251,891 | $ | 13,906,438 | ||||
| Commitments and Contingencies | ||||||||
| Class A Restricted Voting Shares, 36,000,000 shares subject to redemption | 363,312,252 | 361,646,410 | ||||||
| Stockholders’ Equity (Deficiency) | ||||||||
| Class A Restricted Voting Shares, unlimited shares authorized; 0 shares issued and outstanding (excluding 36,000,000 shares subject to possible redemption) at both December 31, 2020 and 2019 | — | — | ||||||
| Class B Shares, unlimited shares authorized; 9,000,000 shares issued and outstanding at both December 31, 2020 and 2019 | 25,000 | 25,000 | ||||||
| Additional paid-in capital | — | — | ||||||
| Accumulated deficit | (10,785,755 | ) | (8,998,841 | ) | ||||
| Total stockholders’ deficiency | $ | (10,760,755 | ) | $ | (8,973,841 | ) | ||
| Total liabilities and stockholders’ deficiency | $ | 366,803,388 | $ | 366,579,007 | ||||
The accompanying notes are an integral part of the financial statements.
F-4
Bespoke Capital Acquisition Corp.
STATEMENTS OF OPERATIONS
| Year ended December 31, 2020 | Period from July 8, 2019 (inception) to December 31, 2019 | |||||||
| Expenses | ||||||||
| General and administrative | $ | 2,597,010 | $ | 1,036,785 | ||||
| (Loss) from operations | (2,597,010 | ) | (1,036,785 | ) | ||||
| Other income | ||||||||
| Investment income | 2,281,976 | 2,255,356 | ||||||
| (Loss) income before income tax (benefit) expense | (315,034 | ) | 1,218,571 | |||||
| Income tax (benefit) expense | (193,962 | ) | 193,963 | |||||
| Net (loss) income | $ | (121,072 | ) | $ | 1,024,608 | |||
| Basic and diluted net income per Class A Restricted Voting Share | $ | 0.05 | $ | 0.42 | ||||
| Weighted average number of Class A Restricted Voting Shares outstanding (basic and diluted) | 36,000,000 | 28,107,345 | ||||||
| Basic and diluted net loss per Class B share | $ | (0.20 | ) | $ | (1.50 | ) | ||
| Weighted average number of Class B shares outstanding (basic and diluted) | 9,000,000 | 7,241,879 | ||||||
The accompanying notes are an integral part of the financial statements.
F-5
Bespoke Capital Acquisition Corp.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)
| Class A | Class B | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid-in Capital | Retained Earnings (Accumulated Deficit) | Total Stockholders’ Equity (Deficiency) | ||||||||||||||||||||||
| Balance at July 8, 2019 (incorporation) | — | $ | — | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
| Issuance of Class B Shares to Sponsor upon organization | — | — | 1 | 10 | — | — | 10 | |||||||||||||||||||||
| Issuance of Class A Restricted Voting Units in initial public offering, net of underwriting costs | 35,000,000 | — | — | — | 329,622,961 | — | 329,622,961 | |||||||||||||||||||||
| Issuance of warrants | — | — | — | — | 12,000,000 | — | 12,000,000 | |||||||||||||||||||||
| Issuance of Class B Shares | — | — | 10,062,499 | 24,990 | — | — | 24,990 | |||||||||||||||||||||
| Issuance of Class A Restricted Voting Units in over-allotment option | 1,000,000 | — | — | — | 10,000,000 | — | 10,000,000 | |||||||||||||||||||||
| Forfeiture of Class B Shares | — | — | (1,062,500 | ) | — | — | — | — | ||||||||||||||||||||
| Initial shares subject to possible redemption and dividend accretion | (36,000,000 | ) | — | — | — | (351,622,961 | ) | (8,377,039 | ) | (360,000,000 | ) | |||||||||||||||||
| Change in value of Class A Restricted Voting Shares subject to possible redemption | — | — | — | — | — | (1,646,410 | ) | (1,646,410 | ) | |||||||||||||||||||
| Net income for the period | — | — | — | — | — | 1,024,608 | 1,024,608 | |||||||||||||||||||||
| Balance at December 31, 2019 | — | $ | — | 9,000,000 | $ | 25,000 | $ | — | $ | (8,998,841 | ) | $ | (8,973,841 | ) | ||||||||||||||
| Change in value of Class A Restricted Voting Shares subject to possible redemption | — | — | — | — | — | (1,665,842 | ) | (1,665,842 | ) | |||||||||||||||||||
| Net loss for the year | — | — | — | — | — | (121,072 | ) | (121,072 | ) | |||||||||||||||||||
| Balance at December 30, 2020 | — | $ | — | 9,000,000 | $ | 25,000 | $ | — | $ | (10,785,755 | ) | $ | (10,760,755 | ) | ||||||||||||||
The accompanying notes are an integral part of the financial statements.
F-6
Bespoke Capital Acquisition Corp.
STATEMENTS OF CASH FLOWS
| Year ended December 31, 2020 | Period from July 8, 2019 (inception) to December 31, 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net (loss) income | $ | (121,072 | ) | $ | 1,024,608 | |||
| Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||
| Investment income earned on Trust Account | (2,281,976 | ) | (2,255,356 | ) | ||||
| Changes in operating assets and liabilities | ||||||||
| Prepaid expenses | (9,762 | ) | (141,647 | ) | ||||
| Prepaid income taxes | (493,996 | ) | — | |||||
| Accounts payable and accrued expenses | 575,154 | 176,738 | ||||||
| Income taxes payable | (193,963 | ) | 193,963 | |||||
| Due to related party, net | (35,737 | ) | 35,737 | |||||
| Net cash used in operating activities | (2,561,352 | ) | (965,957 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Principal deposits in Trust Account | — | (360,000,000 | ) | |||||
| Interest released from Trust Account | 494,019 | — | ||||||
| Net cash provided by (used in) investing activities | 494,019 | (360,000,000 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of Class A Restricted Voting Units, net of offering costs | — | 353,122,961 | ||||||
| Proceeds from issuance of Class B Shares | — | 25,000 | ||||||
| Proceeds from issuance of Founders’ Warrants | — | 12,000,000 | ||||||
| Net cash provided by financing activities | — | 365,147,961 | ||||||
| Net (decrease) increase in cash | (2,067,333 | ) | 4,182,004 | |||||
| Cash, beginning of period | 4,182,004 | — | ||||||
| Cash, end of period | $ | 2,114,671 | $ | 4,182,004 | ||||
| Non-cash investing and financing activities | ||||||||
| Deferred underwriters’ commission | $ | — | $ | 13,500,000 | ||||
| Reclassification of Class A Restricted Voting Shares subject to redemption | $ | — | $ | 360,000,000 | ||||
| Change in value of Cass A Restricted Voting Shares subject to redemption | $ | 1,665,842 | $ | 1,646,410 | ||||
The accompanying notes are an integral part of the financial statements.
F-7
Bespoke Capital Acquisition Corp.
NOTES TO FINANCIAL STATEMENTS
December 31, 2020 and the period from July 8, 2019 (Inception) to December 31, 2019
Note 1—Description of Organization and Business Operations
Bespoke Capital Acquisition Corp. (the “Corporation”) was incorporated on July 8, 2019 under the Business Corporations Act (British Columbia), and is domiciled in Canada. The Corporation is a special purpose acquisition corporation which was formed for the purpose of effecting an acquisition of one or more businesses or assets, by way of a merger, amalgamation, arrangement, share exchange, asset acquisition, share purchase, reorganization, or any other similar business combination (a “Business Combination”). The Corporation intends to identify and execute on a Business Combination to acquire several complementary companies as part of its Business Combination to form a leading vertically integrated international company, within a specified 18 month period, from August 15, 2019 (the “Closing Date”) (or 21 months from the Closing Date if the Corporation has executed a definitive agreement for a Business Combination within 18 months from the Closing Date but has not completed a Business Combination within such 18-month period) (the “Permitted Timeline”) (also see Note 10). The Corporation intends to focus its target business search in the cannabis industry; however, the Corporation is not limited to a particular industry or geographic region for the purposes of completing a Business Combination.
As of December 31, 2020, the Corporation had not commenced operations. All activity for the period from July 8, 2019 (inception) through December 31, 2020 relates to the Corporation’s formation, its initial public offering described below, and the pursuit of a Business Combination. The Corporation will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Corporation generates non-operating income in the form of interest income on cash and restricted investments from the proceeds derived from its initial public offering.
The Corporation’s sponsor is Bespoke Sponsor Capital LP (the “Sponsor”). The Sponsor is indirectly controlled by Bespoke Capital Partners, LLC, a private equity firm founded by certain of the Corporation’s directors.
On August 15, 2019, the Corporation completed its initial public offering (the “Offering”) of 35,000,000 Class A Restricted Voting Units at $10.00 per Class A Restricted Voting Unit (Note 3). Each Class A Restricted Voting Unit is comprised of a Class A Restricted Voting Share (a “Class A Restricted Voting Share”) and one-half of a share purchase warrant (a “Warrant”). Each whole Warrant entitles the holder to purchase one Class A Restricted Voting Share for a purchase price of $11.50, commencing sixty-five (65) days after the completion of a Business Combination and will expire on the day that is five years after the Closing Date of a Business Combination or earlier.
Transaction costs totaled $20,377,039, consisting of $19,800,000 of underwriting fees (of which $13,500,000 was deferred), legal, accounting, and other professional fees totaling $331,492, and reimbursed expenditures incurred by the Sponsor totaling $245,547. Deferred underwriting fees includes $11,700,000 which is due upon the closing of a Business Combination, and $1,800,000 which is due subsequent to the closing of a Business Combination, at the Corporation’s discretion.
Concurrent with the Closing Date, the Corporation issued 12,000,000 Warrants (the “Founder’s Warrants”) to the Sponsor at an offering price of $1.00 per Founder’s Warrants for aggregate proceeds of $12,000,000.
Following the closing of the Offering, an amount of $350,000,000 from the proceeds of the sale of the Class A Restricted Voting Units in the Offering was placed in trust with TSX Trust Corporation, as “Escrow Agent”, in an escrow account (the “Escrow Account” and “Trust Account”) at a Canadian chartered bank, in accordance with the escrow agreement.
F-8
Bespoke Capital Acquisition Corp.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2020 and the period from July 8, 2019 (Inception) to December 31, 2019
Note 1—Description of Organization and Business Operations (Continued)
The proceeds may be invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Corporation meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Corporation.
The Class A Restricted Voting Units commenced trading on August 15, 2019 on the Toronto Stock Exchange (the “Exchange”) under the symbol “BC.V”. and separated into Class A Restricted Voting Shares and the Warrants on September 24th, 2019, under the symbols “BC.U” and “BC.WT.U”, respectively. The Class B Shares (as defined below) will not be registered prior to a Business Combination. Prior to any Business Combination, the Class A Restricted Voting Shares may only be redeemed upon certain events. Class A Restricted Voting Shares are redeemable for a pro-rata portion of the amount then held in the escrow account, net of taxes payable and other prescribed amounts.
On September 13, 2019, the underwriters notified the Corporation of their partial exercise of the over-allotment option (the “Over-Allotment Option”) and purchased an additional 1,000,000 Class A Restricted Voting Units, at a price of $10.00 per unit. As a result of the exercise of the Over-Allotment Option, an aggregate of 36,000,000 Class A Restricted Voting Units were issued. Following the closing of the Over-Allotment Option, an additional $10,000,000 was placed in the Trust Account, resulting in $360,000,000 held in the Trust Account.
The Corporation issued 10,062,500 shares of Class B stock to the Sponsor at a price of $0.0029 per share for aggregate proceeds of $25,000. Upon the partial exercise of the Over-Allotment Option, the Sponsor relinquished 1,062,500 of such shares. At December 31, 2020 and 2019, the Sponsor owns 9,000,000 Class B Shares (also referred to as “Founder’s Shares”) representing a 100% interest in the Class B Shares (approximately 20% of the total Class A Restricted Voting Shares and Class B Shares).
Holders of the Founders Shares and Founders Warrants have no access to the Trust Account prior to or following the Closing Date of a Business Combination in respect of such securities. If the Corporation fails to complete a Business Combination within the Permitted Timeline or seeks an extension to the Permitted Timeline, the Sponsor will be entitled to redeem any Class A Restricted Voting Shares it is holding as a result of any purchases pursuant to or following the Offering.
The escrowed funds will enable the Corporation to: (i) satisfy redemptions made by holders of Class A Restricted Voting Shares (including in the event of a Business Combination or an extension to the Permitted Timeline, or in the event a Business Combination does not occur within the Permitted Timeline); (ii) fund the Business Combination with the net proceeds following payment of any such redemptions and deferred underwriting commission; and/or (iii) pay taxes on amounts earned on the escrowed funds and certain permitted expenses. These escrowed funds may also be used to pay the: (i) the Underwriters the portion of the Deferred Underwriting Commission provided in the Underwriting Agreement in an amount equal to $11,700,000; and (ii) the Discretionary Deferred Portion in an amount equal to $1,800,000, to such person(s) as is designated by the Corporation, all in accordance with the terms of the Underwriting Agreement, upon completion of a Business Combination. The Discretionary Deferred Portion will be payable only at the Corporation’s sole discretion, in whole or in part, and only upon completion of its Business Combination, in accordance with the terms of the Underwriting Agreement.
F-9
Bespoke Capital Acquisition Corp.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2020 and the period from July 8, 2019 (Inception) to December 31, 2019
Note 1—Description of Organization and Business Operations (Continued)
In connection with the Closing Date of a Business Combination within the Permitted Timeline, holders of Class A Restricted Voting Shares will be provided with the opportunity to redeem all or a portion of their Class A Restricted Voting Shares for an amount per share, payable in cash, equal to the pro-rata portion (per Class A Restricted Voting Share) of: (A) the escrowed funds available in the escrow account at the time immediately prior to the redemption deposit deadline, including interest and other amounts earned thereon; less (B) an amount equal to the total of: (i) any applicable taxes payable by the Corporation on such interest and other amounts earned in the escrow account; and (ii) actual and expected expenses directly related to the redemption, each as reasonably determined by the Corporation, subject to certain limitations.
If the Corporation is unable to consummate a Business Combination within the Permitted Timeline the Corporation will be required to redeem each of the outstanding Class A Restricted Voting Shares, for an amount per share, payable in cash, equal to the pro-rata portion (per Class A Restricted Voting Share) of: (A) the escrowed funds available in the escrow account, including any interest and other amounts earned thereon; less (B) an amount equal to the total of: (i) any applicable taxes payable by the Corporation on such interest and other amounts earned in the escrow account; (ii) any taxes of the Corporation arising in connection with the redemption of the Class A Restricted Voting Shares; and (iii) up to a maximum of $50,000 of interest and other amounts earned from the proceeds in the escrow account to pay actual and expected “Winding-Up” expenses and certain other related costs, each as reasonably determined by the Corporation. The Underwriters will have no right to the deferred underwriting commission held in the escrow account in such circumstances.
The Permitted Timeline, however, may be extended to up to 36 months with shareholder approval of only the holders of Class A Restricted Voting Shares, by ordinary resolution, with approval by the Corporation’s board of directors. If such approvals are obtained, holders of Class A Restricted Voting Shares, irrespective of whether such holders voted for or against, or did not vote on, the extension of the Permitted Timeline, would be permitted to deposit all or a portion of their shares for redemption prior to the second business day before the shareholders’ meeting in respect of the extension. Upon the requisite approval of the extension of the Permitted Timeline, and subject to applicable law, the Corporation will be required to redeem such Class A Restricted Voting Shares so deposited at an amount per share, payable in cash, equal to the pro-rata portion (per Class A Restricted Voting Share) of: (A) the escrowed funds available in the escrow account at the time of the meeting in respect of the extension, including any interest and other amounts earned thereon; less (B) an amount equal to the total of: (i) any applicable taxes payable by the Corporation on such interest and other amounts earned in the escrow account; (ii) any taxes of the Corporation arising in connection with the redemption of the Class A Restricted Voting Shares; and (iii) actual and expected expenses directly related to the redemption, each as reasonably determined by the Corporation. Such amount will not be reduced by the deferred underwriting commission per Class A Restricted Voting Share held in the escrow account.
Consummation of a Business Combination will require approval by a majority of the Corporation’s directors, acceptance by the Toronto Stock Exchange and, where required under applicable law, shareholder approval. If the Corporation is unable to consummate a Business Combination within the permitted timeline, the Corporation will be required to redeem each of the outstanding Class A Restricted Voting Shares for an amount per share as outlined above.
F-10
Bespoke Capital Acquisition Corp.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2020 and the period from July 8, 2019 (Inception) to December 31, 2019
Note 2—Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC.
Emerging Growth Corporation
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth 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. The Corporation has elected not to opt out of such extended transition period, which means that when a standard is issued or revised, and it has different application dates for public or private companies, the Corporation, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
This may make comparison of the Corporation’s financial statement with another public Corporation 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.
Liquidity and Capital Resources
As of December 31, 2020, the Corporation held operating cash totaling $2,114,670 which is available to fund its ongoing working capital requirements. The Corporation anticipates generating negative cash flows from operating activities until a Business Combination has been completed. Thereafter, cashflow will depend on the nature and success of a Business Combination. The expenses relating to ongoing operating activities include professional fees, general and administration expenses, and costs associated with identifying and negotiating a Business Combination.
Currently, the Corporation does not expect to raise additional funds to meet its operating expenditures until the consummation of a Business Combination. Management expects, but it cannot be assured, that the Corporation will have sufficient funds outside of the Trust Account to operate the business.
F-11
Bespoke Capital Acquisition Corp.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2020 and the period from July 8, 2019 (Inception) to December 31, 2019
Note 2—Summary of Significant Accounting Policies (Continued)
To the extent that the Corporation requires additional funding for general ongoing expenses or in connection with a Business Combination, the Corporation may seek funding by way of unsecured loans from our Sponsor or its affiliates, which loans must be on reasonable commercial terms. The lender under the loans would not have recourse against the funds held in the Trust Account, and thus the loans will not reduce the value thereof. Such loans will collectively be subject to a maximum aggregate principal amount equal to 10% of the Trust Account. Such loans may be repayable in cash or be convertible into shares and/or Warrants, however no such repayment or conversion shall occur prior to the closing of a Business Combination. The Corporation will not obtain any other form of debt financing except: (i) in the ordinary course for short term trade, accounts payable and general ongoing expenses; or (ii) contemporaneous with, or after, the completion of a Business Combination. Otherwise, the Corporation may seek to raise additional funds through a rights offering in respect of shares available to its shareholders, in accordance with the requirements of applicable securities legislation, and subject to placing the required funds raised in the Trust Account.
Management has determined that if the Corporation is unable to consummate a Business Combination within the Permitted Timeline, the mandatory liquidation and subsequent dissolution of the Corporation would raise substantial doubt about the Corporation’s ability to continue as a going concern. On February 4, 2021, the Corporation announced that it entered into a transaction agreement (“Transaction Agreement”). The execution of the Transaction Agreement resulted in the automatic extension of the Corporation’s Permitted Timeline in which to close a qualifying transaction to May 15, 2021. While there is no guarantee that the Business Combination will be completed, management believes the completion of this Business Combination within the Permitted Timeline addresses this uncertainty. Accordingly, adjustments that would be necessary should the Corporation be required to liquidate after May 15, 2021 have not been made to the carrying amounts of assets or liabilities in these financial statements.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Corporation’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Corporation to concentrations of credit risk consist of a cash account held at financial institutions, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. The Corporation has not experienced losses on these accounts and management believes the Corporation is not exposed to significant risks on such accounts. The Corporation’s marketable securities portfolio consists of U.S. Treasury Bills with an original maturity of 180 days or less.
Marketable Securities
The Corporation’s portfolio of marketable securities is comprised solely of U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of paragraphs (d)(2), (d)(3) and (d)(4) of Rule 2a-7 of the Investment Company Act, as determined by the Corporation, classified as trading securities. Trading securities are presented on the balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these securities is recognized as gains or losses in the accompanying Statements of Operations. The estimated fair values of financial instruments are determined using available market information.
F-12
Bespoke Capital Acquisition Corp.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2020 and the period from July 8, 2019 (Inception) to December 31, 2019
Note 2—Summary of Significant Accounting Policies (Continued)
Fair Value of Financial Instruments
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date.
The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to evaluation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and the lowest priority to unobservable inputs. The Corporation uses the following three levels of inputs to measure fair value measurements:
| • | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
| • | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| • | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
Transfers to/from Levels 1, 2, and 3 are recognized at the end of the reporting period. There were no transfers between levels for the year ended December 31, 2020 and for period from July 8 (inception) to December 31, 2019.
At December 31, 2020 and 2019, the carrying amount of the Corporation’s cash, prepaid expenses, accounts payable and accrued expenses approximate fair value due to their short-term nature. The Corporation’s portfolio of marketable securities is comprised of an investment in U.S. Treasury Bills with an original maturity of 180 days or less. Fair values for trading securities are determined using quoted market prices.
F-13
Bespoke Capital Acquisition Corp.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2020 and the period from July 8, 2019 (Inception) to December 31, 2019
Note 2—Summary of Significant Accounting Policies (Continued)
Class A Restricted Voting Shares Subject to Possible Redemption
Class A Restricted Voting Shares subject to mandatory redemption (if any) are classified as a liability instrument and are measured at fair value. Conditionally redeemable Class A Restricted Voting Shares (including Class A Restricted Voting Shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Corporation’s control) are classified as temporary equity. At all other times, Class A Restricted Voting Shares are classified as shareholders’ equity. The Corporation’s Class A Restricted Voting Shares feature certain redemption rights that are considered to be outside of the Corporation’s control and subject to occurrence of uncertain future events. Accordingly, Class A Restricted Voting Shares subject to possible redemption is presented as temporary equity, outside of the stockholders’ equity section of the Corporation’s balance sheets. Changes in redemption value are recorded in the period in which such change occurs.
The Class A Restricted Voting Shares may be considered restricted securities within the meaning of such term under securities laws. Prior to the completion of a Business Combination, holders of the Class A Restricted Voting Shares would not be entitled to vote at (or receive notice of or meeting materials in connection with) meetings held only to consider the election and/or removal of directors and auditors. The holders of the Class A Restricted Voting Shares would, however, be entitled to vote on and receive notice of meetings on all other matters requiring shareholder approval (including the proposed Qualifying Acquisition, if required under applicable law, and any proposed extension to the Permitted Timeline) other than the election and/or removal of directors and auditors prior to Closing Date of a Business Combination. In lieu of holding an annual meeting prior to the Closing Date of a Business Combination, the Corporation is required to provide an annual update on the status of identifying and securing a Business Combination by way of a press release.
The Corporation is authorized to issue an unlimited number of no-par value Class A Restricted Voting Shares prior to the Closing of a Business Combination.
Offering Costs Associated with Initial Public Offering
Offering costs (also “Transaction Costs”) consist of underwriting, legal, accounting, and other expenses incurred through the balance sheet date that are directly related to the initial public offering. Such costs were charged to additional paid-in-capital upon the completion of the Offering.
Income Taxes
The Corporation is subject to federal, provincial, and territorial taxes of Canada. The Corporation follows the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. The Corporation recognizes the tax benefit from an uncertain tax position only if it is more-likely-than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
F-14
Bespoke Capital Acquisition Corp.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2020 and the period from July 8, 2019 (Inception) to December 31, 2019
Note 2—Summary of Significant Accounting Policies (Continued)
Deferred income tax assets, including those arising from unutilized tax losses, require management to assess the likelihood that the Corporation will generate taxable income in future periods in order to utilize recognized deferred tax assets. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing laws in each applicable jurisdiction. Future taxable income is also significantly dependent upon the Corporation completing a Business Combination, the underlying structure of a Business Combination, and the resulting nature of operations. To the extent that future cash flows and/or the probability, structure and timing, and the nature of operations of a future Business Combination differ significantly from estimates made, the ability of the Corporation to realize a deferred income tax asset could be materially impacted.
The Corporation recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits at both December 31, 2020 and December 31, 2019. No amounts were accrued for the payment of interest and penalties for the year ended December 31, 2020 and for the period from July 8, 2019 (inception) to December 31, 2019. The Corporation is currently not aware of any issues under review that could result in significant payments, accruals or material impacts to its position.
The Corporation is subject to income tax examinations by major taxing authorities. These potential examinations may include questioning the timing and amount of deductions and compliance with federal, provincial, and territorial tax laws. The Corporation’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Net Income (Loss) Per Share
The Corporation’s statement of operations includes a presentation of income per share for shares subject to redemption in a manner similar to the two-class method of income per share.
Net income (loss) per share, basic and diluted for Class A Restricted Voting Shares is calculated by dividing the investment income earned on the Trust Account less applicable income taxes, by the weighted average number of shares of Class A Restricted Voting Shares outstanding for the period presented. Net income (loss) per Class B share is computed by dividing the net earnings or loss attributable to shareholders by the weighted average number of shares outstanding during the period, excluding Class A Restricted Voting Shares subject to redemption. Diluted earnings or loss per share, where applicable, is calculated by adjusting the weighted average number of shares outstanding for dilutive instruments by applying the treasury stock method. At December 31, 2020 and December 31, 2019, the Corporation had outstanding warrants to purchase 30,000,000 shares of common stock. These shares were excluded from the calculation of diluted net income (loss) per share of common stock because their inclusion would have been anti-dilutive. As a result, diluted net income (loss) per common share is the same as basic net income (loss) per common share for the period presented.
The Corporation’s net income is adjusted for the portion of income that is attributable to Class A Restricted Voting Shares subject to redemption, as these shares only participate in the earnings of the Trust Account (less applicable taxes) and not the income or losses of the Corporation.
F-15
Bespoke Capital Acquisition Corp.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2020 and the period from July 8, 2019 (Inception) to December 31, 2019
Note 2—Summary of Significant Accounting Policies (Continued)
Accordingly, basic, and diluted income per share is calculated as follows:
| Year ended December 31, 2020 | Period from July 8, 2019 (inception) to December 31, 2019 | |||||||
| Net (loss) income | $ | (121,072 | ) | $ | 1,024,608 | |||
| Less: Income attributable to Class A Restricted Voting Shares(1) | (1,665,842 | ) | (11,883,910 | ) | ||||
| Adjusted net loss attributable to Class B common stock | $ | (1,786,914 | ) | $ | (10,859,302 | ) | ||
| Basic and diluted net income per Class A Restricted Voting Share | $ | 0.05 | $ | 0.42 | ||||
| Weighted average number of Class A Restricted Voting Shares outstanding (basic and diluted) | 36,000,000 | 28,107,345 | ||||||
| Basic and diluted net loss per Class B share | $ | (0.20 | ) | $ | (1.50 | ) | ||
| Weighted average number of Class B shares outstanding (basic and diluted) | 9,000,000 | 7,241,879 | ||||||
| (1) | Amounts includes interest earned on the Trust Account, less applicable income taxes. For the period from July 8, 2019 (inception) to December 31, 2019, amount also includes accretion of a dividend related to the allocation of the fair value of warrants on Class A Restricted Voting Units of $10,237,500. |
New Accounting Pronouncements
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force), which provides guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. The Corporation adopted this standard effective July 8, 2019.
Recent Accounting Pronouncements
The Corporation’s management does not believe that there are any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Corporation’s financial statements.
Note 3—Initial Public Offering
On August 15, 2019, the Corporation completed its Offering of 35,000,000 Class A Restricted Voting Units at $10.00 per Class A Restricted Voting Unit. On September 13, 2019, the underwriters partially exercised their Over-Allotment Option to purchase an additional 1,000,000 Class A Restricted Voting Units, at a price of $10.00 per unit. As a result of the exercise of the Over-Allotment Option, an aggregate of 36,000,000 Class A Restricted Voting Units were issued.
F-16
Bespoke Capital Acquisition Corp.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2020 and the period from July 8, 2019 (Inception) to December 31, 2019
Note 3—Initial Public Offering (Continued)
Each Class A Restricted Voting Unit is comprised of a Class A Restricted Voting Share and one-half of a share purchase Warrant. Each whole Warrant entitles the holder to purchase one Class A Restricted Voting Share for a purchase price of $11.50, commencing sixty-five (65) days after the completion of the Business Combination and will expire on the day that is five years after the closing date of the Business Combination, or earlier. Upon the completion of a Business Combination, Class A Restricted Voting Shares will be converted into common shares, and Warrants exercised will purchase common shares. Warrants are classified as stockholders’ equity in the Corporation’s balance sheet.
The Corporation may accelerate the expiry date of the outstanding Warrants (excluding the Founders’ Warrants but only to the extent still held by our Sponsor at the date of public announcement of such acceleration and not transferred prior to the accelerated expiry date, due to the anticipated knowledge by our Sponsor of material undisclosed information which could limit their dealings in such securities) by providing 30 days’ notice, if and only if, the Closing Date price of the Common Shares equals or exceeds $18.00 per Common Share (as adjusted for stock splits or combinations, stock dividends, extraordinary dividends, reorganizations and recapitalizations and the like) for any 20 trading days within a 30-trading day period. The exercise price and number of shares issuable on exercise of the Warrants may be adjusted in certain circumstances, including in the event of a stock dividend, extraordinary dividend or our recapitalization, reorganization, merger, or consolidation. The Warrants will not, however, be adjusted for issuances of shares at a price below their respective exercise prices.
Note 4—Private Placement
Concurrent with the Closing Date, the Corporation issued 12,000,000 Warrants (the “Founder’s Warrants”) to the Sponsor at an offering price of $1.00 per Founder’s Warrants for aggregate proceeds of $12,000,000.
Each whole Warrant entitles the holder thereof to purchase one Class A Restricted Voting Share at an exercise price of $11.50, subject to anti-dilution adjustments. Warrants will become exercisable commencing 65 days after the completion of a Business Combination. If the Corporation does not complete a Business Combination, withing the Permitted Timeline, Warrants expire worthless.
At December 31, 2020 and December 31, 2019, the Corporation had 12,000,000 Founders’ Warrants issued and outstanding to the Sponsor. Founders’ Warrants are classified as stockholders’ equity in the Corporation’s balance sheet.
Note 5—Stockholders’ Equity
Class B Shares/Founders Shares
The Corporation is authorized to issue an unlimited number of no-par value Class B shares. Class B Shares, also referred to as Founder’s Shares, issued to the Founders representing a 100% interest in the Class B Shares and approximately 20% of the total Class A Restricted Voting Shares and Class B Shares. The Sponsor has agreed pursuant to an Exchange Agreement and Undertaking not to transfer any of its Founder’s Shares or Founder’s Warrants until after the Closing Date of a Business Combination, in each case other than transfers required due to the structuring of a Business Combination or unless otherwise permitted by the Exchange.
F-17
Bespoke Capital Acquisition Corp.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2020 and the period from July 8, 2019 (Inception) to December 31, 2019
Note 5—Stockholders’ Equity (Continued)
The holders of the Class B Shares are entitled to vote on and receive notice of meetings on all matters requiring shareholder approval, other than the extension to the Permitted Timeline.
The Corporation issued 10,062,500 shares of Class B stock to the Sponsor at a price of $0.00248 per share for aggregate proceeds of $25,000. Upon the partial exercise of the Over-Allotment Option, the Sponsor relinquished 1,062,500 of such shares. At December 31, 2020 and December 31, 2019, the Sponsor owns 9,000,000 Class B Shares.
Proportionate Voting Shares
On or immediately following completion of a Business Combination, each Class A Restricted Voting Share (unless previously redeemed) will be automatically converted into one common share, and each Class B Share will be automatically converted on a 100-for-1 basis into new no-par value proportionate voting shares of the Corporation. No common shares or proportionate voting shares will be issued prior to the closing of a Business Combination. Proportionate voting shares may be converted into common shares, subject to certain limitations and conditions. Proportionate voting shares do not possess redemption rights.
Note 6—Commitments and Contingencies
Registration Rights and Lock-Up Agreement
Pursuant to the Underwriting Agreement, the Corporation will be, subject to certain exceptions, prohibited from issuing additional securities prior to the qualifying acquisition. Also, pursuant to the Underwriting Agreement and the Exchange Agreement and Undertaking, the Corporation and Sponsor will be subject to a lock-up until the closing of the qualifying acquisition. The Corporation will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
In consideration for its services in connection with the Offering, the Corporation agreed to pay the underwriters a commission equal to 5.5% of the gross proceeds of the Class A Restricted Voting Units issued under the Offering. The Corporation paid $6,300,000, representing $0.175 per Class A Restricted Voting Unit to the underwriters upon Closing Date of the Offering.
Remaining underwriters’ commissions of $13,500,000 at December 31, 2020 and 2019 are payable as follows:
| Per Class A Restricted Voting Unit | Amount | |||||||
| Upon the closing of a Business Combination | $ | 0.325 | $ | 11,700,000 | ||||
| Subsequent to the closing of a Business Combination, at the discretion of the Corporation, and subject to certain limitations | 0.050 | 1,800,000 | ||||||
| $ | 0.375 | $ | 13,500,000 | |||||
F-18
Bespoke Capital Acquisition Corp.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2020 and the period from July 8, 2019 (Inception) to December 31, 2019
Note 7—Income Taxes
Components of income tax (benefit) expense are as follows:
| Year ended December 31, 2020 | Period from July 8, 2019 | |||||||
| Current income tax (benefit) expense | ||||||||
| Federal | $ | (107,757 | ) | $ | 107,757 | |||
| Provincial and territorial | (86,205 | ) | 86,205 | |||||
| (193,962 | ) | 193,962 | ||||||
| Deferred | ||||||||
| Federal | — | — | ||||||
| Provincial and territorial | — | — | ||||||
| — | — | |||||||
| Income tax (benefit) expense | $ | (193,962 | ) | $ | 193,962 | |||
Reconciliation of the differences between the (benefit) provision for income taxes and income tax (benefit) expense at the Canadian federal income tax rate is as follows:
| Year ended December 31, 2020 | Period from July 8, 2019 (inception) to December 31, 2019 | |||||||||||||||
| Amount | Percent of Pre-tax Income | Amount | Percent of Pre-tax Income | |||||||||||||
| Current tax at federal rate | $ | (47,255 | ) | 15 | % | $ | 182,786 | 15 | % | |||||||
| Current tax at provincial and territorial rates | (37,804 | ) | 12 | % | 146,229 | 12 | % | |||||||||
| Change in valuation allowance | 264,933 | (84 | )% | — | 0 | % | ||||||||||
| Stock issuance costs | (380,586 | ) | 121 | % | (138,427 | ) | (11 | )% | ||||||||
| Non-deductible expenses | 6,750 | (2 | )% | 3,375 | 0 | % | ||||||||||
| $ | (193,962 | ) | 62 | % | $ | 193,962 | 16 | % | ||||||||
Deferred income tax assets are as follows:
| Year ended December 31, 2020 | Period from July 8, 2019 (inception) to December 31, 2019 | |||||||
| Deferred share issuance costs | $ | 1,337,787 | $ | 1,718,374 | ||||
| Net operating losses | 264,933 | — | ||||||
| Valuation allowance | (1,602,721 | ) | (1,718,374 | ) | ||||
| Net deferred tax asset | $ | — | $ | — | ||||
F-19
Bespoke Capital Acquisition Corp.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2020 and the period from July 8, 2019 (Inception) to December 31, 2019
Note 7—Income Taxes (Continued)
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management considers the scheduled reversal of taxable temporary differences, projected future taxable income (including the character of the projected future taxable income) and tax planning strategies in making their assessment. Based on this assessment, due to the uncertainty related the Corporation’s ability to execute a Business Combination, management concluded that a valuation allowance should be recorded against its deferred tax assets.
At December 31, 2020, the Corporation has unused net operating loss carryforwards of approximately $981,000 to offset future taxable income. The use of such carryforwards may be limited.
Note 8—Related Party Transactions
Administrative Agreement
The Corporation has entered into an administrative services agreement with our Sponsor for an initial term of 18 months, subject to possible extension, for office space, utilities, and administrative support, which may include payment for services of related parties, for, but not limited to, various administrative, managerial, or operational services, or to help effect a Business Combination. The Corporation has agreed to pay up to $10,000 per month, plus applicable taxes for such services. For the year ended December 31, 2020 and for the period from July 8, 2019 (inception) to December 31, 2019, the Corporation paid $120,000 and $45,161, respectively in respect of these services.
In April 2020, the Corporation agreed to pay the Sponsor until a business combination is consummated, for overhead costs incurred on behalf of the Corporation. The Corporation paid the Sponsor $278,952 for the year ended December 31, 2020 related to these costs.
Out-of-Pocket Expenses
The Corporation has further agreed to reimburse an affiliate of the sponsor for any out-of-pocket expenses incurred by directors, officers and consultants of the Corporation which were paid by the affiliate relating to certain activities on the Corporation’s behalf, including identifying and negotiating a Business Combination. For the year ended December 31, 2020 and for the period from July 8, 2019 (inception) to December 31, 2019, the Corporation incurred $117,676 and $160,668, respectively related to such expenses. There were no amounts due to related party for such expenses at December 31, 2020. At December 31, 2019, $35,737 was reported as due to related party for such expenses.
Amounts due to related party are non-interest bearing.
Note 9—Fair Value
Following is a description of the valuation methodologies used for assets measured at fair value at both December 31, 2020 and December 31, 2019.
The Corporation’s Trust Account is invested in U.S. Treasury Bills maturing in January 2021 yielding interest of approximately 0.055%. The Corporation classifies its U.S. Treasury Bills as Level 1 measurements within the fair value hierarchy at both December 31, 2020 and December 31, 2019.
F-20
Bespoke Capital Acquisition Corp.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2020 and the period from July 8, 2019 (Inception) to December 31, 2019
Note 10—Subsequent Events
Transaction Agreement
On February 4, 2021, the Corporation announced that it entered into a Transaction Agreement with, among others, and Vintage Wines Estates, Inc. (“VWE”) to effect a merger (the resulting entity, “New VWE”). Pursuant to the Transaction Agreement and subject to the terms and conditions contained therein, a wholly owned subsidiary of the Corporation will merge with and into VWE with VWE surviving the merger as a wholly owned subsidiary of the Corporation (the “merger”); the Corporation will change its jurisdiction of incorporation from the Province of British Columbia to the State of Nevada (the “domestication”); and the Corporation will change its name to Vintage Wine Estates, Inc. (collectively, the “transactions”). The transactions are intended to constitute the Corporation’s qualifying acquisition.
The execution of the Transaction Agreement resulted in the automatic extension of the Corporation’s Permitted Timeline in which to close a qualifying transaction to May 15, 2021.
On February 8, 2021 Class A Restricted Voting Shares were approved and began trading in the United States (U.S.) on the National Association of Securities Dealers Automated Quotations (“NASDAQ”) under the symbol “BSPE”. The Corporation’s Warrants will trade over-the-counter in the U.S. Class A Restricted Voting Shares and Warrants remain listed on the Toronto Stock Exchange.
Pursuant to a consulting agreement entered into between BCAC and Peter Caldini on March 10, 2021, following completion of BCAC’s qualifying acquisition, Mr. Caldini will be entitled to receive a $500,000 consulting fee, payable in cash, and 100,000 profit interest units in a limited partnership that has an indirect economic interest in the Sponsor.
F-21
Exhibit 99.4
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement on Form 40-F of Bespoke Capital Acquisition Corp. of our report dated March 15, 2021 relating to the financial statements of Bespoke Capital Acquisition Corp., appearing in the Annual Report on Form 40-F of Bespoke Capital Acquisition Corp. for the year ended December 31, 2020.
/s/ RSM US LLP
New York, NY
March 15, 2021
Exhibit 99.5
CERTIFICATION
REQUIRED BY RULE 13a-14(a) OR RULE 15d-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark W.B. Harms, certify that:
| 1. | I have reviewed this Annual Report on Form 40-F of Bespoke Capital Acquisition Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 15, 2021
| By: | /s/ Mark W.B. Harms | |
| Mark W.B. Harms | ||
| Chief Executive Officer | ||
Exhibit 99.6
CERTIFICATION
REQUIRED BY RULE 13a-14(a) OR RULE 15d-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Maja Spalevic, certify that:
| 1. | I have reviewed this Annual Report on Form 40-F of Bespoke Capital Acquisition Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 15, 2021
| By: | /s/ Maja Spalevic | |
| Maja Spalevic | ||
| Chief Financial Officer |
Exhibit 99.7
CERTIFICATIONS
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Bespoke Capital Acquisition Corp. (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Annual Report on Form 40-F for the year ended December 31, 2020 (the “Form 40-F”), of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 40-F fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 15, 2021
| By: | /s/ Mark W.B. Harms | |
| Mark W.B. Harms | ||
| Chief Executive Officer |
Date: March 15, 2021
| By: | /s/ Maja Spalevic | |
| Maja Spalevic | ||
| Chief Financial Officer |