Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Avista Public Acquisition Corp. II, prior to its domestication as a corporation incorporated in the state of Delaware and change of name to OmniAb, Inc. References to our “management” or our “management team” refer to our officers and directors, and references to our “Sponsor” refer to Avista Acquisition LP II. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, including with respect to our business combination with OmniAB Business, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We were incorporated on February 5, 2021 as a Cayman Island exempted company and formed for the purpose of effectuating a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses, which we refer to throughout this Quarterly Report as our “initial business combination”. We intended to effectuate our initial business combination using cash from the proceeds of our initial public offering (the “Initial Public Offering”) and the private placement of the Private Placement Warrants (as defined below), the proceeds of the sale of our shares in connection with our initial business combination (pursuant to forward purchase agreements or backstop agreements entered into following the consummation of the Initial Public Offering), shares issued to the owners of the target, and debt issued to bank or other lenders or the owners of the target. Upon closing of the Initial Public Offering and the sale of the Private Placement Warrants, a total of $235,750,000 ($10.25 per Public Share (as defined below)) was placed in a trust account (the “Trust Account”) and invested in only in U.S. government treasury obligations with maturities of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations.
OmniAb Business Combination
On March 23, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Ligand Pharmaceuticals Incorporated, a Delaware corporation (“Ligand”), OmniAb, Inc., a Delaware corporation and wholly-owned subsidiary of Ligand (“Legacy OmniAb”), and Orwell Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), pursuant to which we combined with Legacy OmniAb, Ligand’s antibody discovery business (the “OmniAb Business”), in a Reverse Morris Trust transaction. Also on March 23, 2022, and in connection with the execution of the Merger Agreement, (a) the Company, Ligand, Legacy OmniAb and Merger Sub entered into that certain Employee Matters Agreement, as amended by that certain Amended and Restated Employee Matters Agreement, dated as of August 18, 2022 (the “Employee Matters Agreement”), (b) Legacy OmniAb and our Sponsor entered into that certain Sponsor Insider Letter Agreement (the “Sponsor Insider Agreement”) with the Company and certain insiders of the Company (the “Insiders”) and (c) we amended and restated that certain Forward Purchase Agreement, dated August 9, 2021, by entering into the Amended and Restated Forward Purchase Agreement (the “A&R FPA”), by and among the Company, our Sponsor and Legacy OmniAb.
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Immediately prior to the Merger (as defined below) and pursuant to a Separation and Distribution Agreement, dated as of March 23, 2022, among the Company, Ligand and Legacy OmniAb (the “Separation Agreement”), Ligand transferred the OmniAb Business, including certain related subsidiaries of Ligand, to Legacy OmniAb and, in connection therewith, distributed (the “Distribution”) to Ligand stockholders 100% of the common stock of Legacy OmniAb, par value $0.001 (the “Legacy OmniAb Common Stock”).
Immediately following the Distribution, in accordance with and subject to the terms and conditions of the Merger Agreement, Merger Sub merged with and into Legacy OmniAb (the “Merger”), with Legacy OmniAb continuing as the surviving company in the Merger and as a wholly-owned subsidiary of the Company.
The Merger Agreement, along with the Separation Agreement and the other transaction documents to be entered into in connection therewith, provided for, among other things, the consummation of the following transactions (collectively, the “OmniAb Business Combination”): (i) redomiciling by way of continuation from the Cayman Islands to Delaware and domesticating as a Delaware corporation in accordance with Section 388 of the Delaware General Corporation Law and with Section 206 of the Cayman Islands Companies Act (As Revised) at least one business day prior to the closing of the OmniAb Business Combination (the “Domestication”), (ii) Ligand transferred the OmniAb Business (the “Separation”) to its wholly-owned subsidiary Legacy OmniAb, and contributed $15 million in capital thereto (less certain reimbursable transaction and other expenses), and (iii) following the Separation, Ligand distributed 100% of the shares of Legacy OmniAb Common Stock to Ligand stockholders by way of the Distribution. Following the completion of the foregoing transactions and subject to the satisfaction or waiver of certain other conditions set forth in the Merger Agreement, the parties consummated the Merger. The Distribution and Merger are intended to qualify as “tax-free” transactions.
On April 28, 2022, the Company filed a registration statement on Form S-4 (File No. 333-264525) (as amended, the “Form S-4”) with the SEC, which includes the proxy statement/prospectus/information statement that was distributed to holders of the Company’s ordinary shares in connection with the Company’s solicitation for proxies for the vote by the Company’s shareholders in connection with the OmniAb Business Combination and other matters as described in the Form S-4. The Form S-4 has been amended five times, as filed with the SEC on June 13, 2022, July 26, 2022, August 22, 2022, September 13, 2022 and September 27, 2022. The Form S-4 was declared effective by the SEC on September 30, 2022, and the definitive proxy statement/prospectus/information statement was mailed to the Company’s shareholders of record as of the record date for voting on the OmniAb Business Combination. The OmniAb Business Combination closed on November 1, 2022. Upon consummation of the OmniAb Business Combination, and after the Domestication, we have one class of common stock, par value $0.0001 per share, which is listed on Nasdaq under the ticker symbol “OABI”. Our then-outstanding warrants are listed on Nasdaq under the ticker symbol “OABIW”.
The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP, whereby the Company is treated as the acquired company and Legacy OmniAb is treated as the acquirer. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Legacy OmniAb issuing stock for the net assets of the Company, accompanied by a recapitalization. The net assets of the Company were stated at historical cost, with no goodwill or other intangible assets recorded. Subsequent presentations of the results of operations presented for the period prior to the Business Combination will be for those of Legacy OmniAb.
Legacy OmniAb has been determined to be the accounting acquirer in the Business Combination based on the following predominate factors:
● Legacy OmniAb’s existing stockholders have the greatest voting interest in the combined entity;
● Legacy OmniAb has the ability to nominate a majority of the initial members of the OmniAb Board;
● Legacy OmniAb’s senior management is the senior management of the combined entity;
● Legacy OmniAb is the larger entity based on historical operating activity and has the larger employee base; and
● The post-combination company has assumed a Legacy OmniAb branded name: “OmniAb, Inc.”
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Agreement and Plan of Merger
At the time the OmniAb Business Combination was effected (the “Closing”), each share of Legacy OmniAb Common Stock outstanding after the Distribution and immediately prior to the effective time of the Merger was converted into a number of shares of common stock in the newly formed company (“OmniAb Common Stock”) on a one-for-one basis into shares in the newly formed company. Holders of Legacy OmniAb options, restricted stock units and performance stock units (determined after the Distribution and the division of Ligand equity awards into Ligand equity awards and OmniAb equity awards pursuant to the Employee Matters Agreement) will have their awards converted into equity awards of the Company and adjusted pursuant to the exchange ratio.
In addition, at the Closing, holders of Legacy OmniAb Common Stock and equity awards also received shares of OmniAb Common Stock subject to certain price-based earnout triggers (“Earnout Shares”), with 50% of such earnout shares vesting upon the combined company’s achievement of a post-transaction volume-weighted average price (“VWAP”) of $12.50 per share of OmniAb Common Stock for any 20 trading days over a consecutive 30 trading-day period, and the remainder vesting upon achievement of a post-transaction VWAP of $15 per share of OmniAb Common Stock for any 20 trading days over a consecutive 30 trading-day period, in each case provided such vesting occurs during the five-year period following the Closing.
In connection with the OmniAb Business Combination, upon the Domestication (i) all issued and outstanding Class A ordinary shares and Class B ordinary shares converted automatically, on a one-for-one basis, into shares of OmniAb Common Stock, (ii) all issued and outstanding warrants converted automatically into warrants to acquire shares of OmniAb Common Stock and (iii) all issued and outstanding Units separated and converted automatically into one share of OmniAb Common Stock and one-third of one warrant to purchase OmniAb Common Stock.
Separation and Distribution Agreement
On March 23, 2022, in connection with the execution of the Merger Agreement, we entered into the Separation Agreement with Legacy OmniAb and Ligand, pursuant to which, among other things, (i) Ligand undertook a series of internal reorganization and restructuring transactions to effect the transfer of its (direct or indirect) ownership of the OmniAb Business to Legacy OmniAb in the Separation and (ii) immediately prior to the Merger and after the Separation, Ligand distributed 100% of the outstanding shares of Legacy OmniAb Common Stock to Ligand’s stockholders in the Distribution.
The Separation Agreement also sets forth other agreements among Ligand and OmniAb related to the Separation, including provisions concerning the termination and settlement of intercompany accounts and the obtaining of necessary governmental approvals and third-party consents. The Separation Agreement also sets forth agreements that will govern certain aspects of the relationship between Ligand and Legacy OmniAb after the Distribution, including provisions with respect to release of claims, indemnification, access to financial and other information and access to and provision of records.
Employee Matters Agreement
On March 23, 2022, in connection with the execution of the Merger Agreement, the Company, Ligand, OmniAb and Merger Sub entered into the Employee Matters Agreement, as amended by that certain Amended and Restated Employee Matter Agreement, dated as of August 18, 2022, which provides for employee-related matters in connection with the transaction, including allocation of benefit plan assets and liabilities between Ligand and Legacy OmniAb, treatment of incentive equity awards in the Distribution and the OmniAb Business Combination and related covenants and commitments of the parties. Each existing Ligand equity award at the time of the Distribution granted prior to March 2, 2022, with certain exceptions, was split into (i) a new Ligand equity award and (ii) a new Legacy OmniAb equity award, with any in-the-money value in the original Ligand equity award split between such awards based on the relative values of Ligand and Legacy OmniAb at the time of the Distribution. Each existing Ligand equity award at the time of the Distribution granted on or after March 2, 2022 was converted into either an adjusted Ligand equity award, if the holder was a Ligand service provider following the Distribution, or a Legacy OmniAb equity award, if the holder was Legacy OmniAb service provider following the Distribution.
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Sponsor Insider Agreement
On March 23, 2022, in connection with the execution of the Merger Agreement, Legacy OmniAb and our Sponsor entered into the Sponsor Insider Agreement with the Company and the Insiders, pursuant to which, among other things, the Insiders agreed to vote any of our securities held by them to approve the OmniAb Business Combination and the other Company shareholder matters required pursuant to the Merger Agreement, and not to seek redemption of any of their Company securities in connection with the consummation of the OmniAb Business Combination. Pursuant to the Sponsor Insider Agreement, our Sponsor also agreed to subject up to 1,916,667 Earnout Founder Shares (as defined in the Sponsor Insider Agreement), to the same price-based vesting conditions as the OmniAb Earnout Shares.
Amended and Restated Forward Purchase Agreement
On March 23, 2022, in connection with the execution of the Merger Agreement, we entered into the A&R FPA with our Sponsor and Legacy OmniAb. Pursuant to the A&R FPA, we agreed that, in connection with the consummation of the OmniAb Business Combination, we would issue and sell to our Sponsor 1,500,000 shares of OmniAb Common Stock (the “Forward Purchase Shares”) and warrants to acquire 1,666,667 shares of OmniAb Common Stock (the “Forward Purchase Warrants”) for an aggregate purchase price of $15.0 million with such purchases to be consummated immediately following the Domestication and prior to the OmniAb Business Combination. In addition, our Sponsor has agreed to purchase up to an additional 10,000,000 shares of OmniAb Common Stock (the “Backstop Shares”) and up to an additional 1,666,667 warrants, (The “Backstop Warrants” and, together with the Forward Purchase Shares, Forward Purchase Warrants and Backstop Shares, the “Forward Purchase and Backstop Securities”) for an aggregate additional purchase price of up to $100.0 million, in order to backstop shareholder redemptions to the extent such redemptions would result in the cash proceeds to be received by OmniAb stockholders from the Trust Account to be less than $100.0 million. Pursuant to the A&R FPA, in connection with the Business Combination, the Sponsor purchased 8,672,934 Backstop Shares and 1,445,489 Backstop Warrants for an aggregate purchase price of $86,729,340.
Certain Other Transaction Documents
Certain additional agreements were entered into in connection with the transactions contemplated by the Merger Agreement, the Separation Agreement and the other agreements described above, including, among others:
● a Tax Matters Agreement by and among Ligand, Legacy OmniAb and the Company, which governs, among other things, Ligand’s, Legacy OmniAb’s and the Company’s respective rights, responsibilities and obligations with respect to taxes, tax attributes and the preparation and filing of tax returns and responsibility for and preservation of the expected tax-free status of the transactions contemplated by the Separation Agreement and the Merger Agreement, and certain other tax matters;
● an Amended and Restated Registration and Stockholder Rights Agreement by and among the Company, our Sponsor and the other parties signatory thereto, pursuant to which the Registration Rights Agreement, dated August 9, 2021, among the Company, our Sponsor and certain other security holders named therein will be amended and restated in order to, among other things, provide certain equityholders of Legacy OmniAb as of immediately prior to the Closing of the OmniAb Business Combination with customary registration rights;
● a Transition Services Agreement by and between Ligand and Legacy OmniAb, pursuant to which Ligand will, on a transitional basis, provide Legacy OmniAb with certain non-scientific and non-technical support services and other assistance after the Closing; and
● a Transition Services Agreement by and between Ligand and Legacy OmniAb, pursuant to which Legacy OmniAb will, on a transitional basis, provide Ligand with certain support services and other assistance after the Closing.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues to date. Our only activities for the period from February 5, 2021 (inception) through September 30, 2022 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and since the closing of the Initial Public Offering, the search for a prospective initial Business Combination, which is described below. The Company generates non-operating income in the form of interest and dividend income or gains on investments on the cash and investments held in the Trust Account from the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end.
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For the three months ended September 30, 2022, we had a net loss of $2,466,430, which resulted from formation and operating costs of $2,344,863 and the change in fair value of Forward Purchase and Backstop Securities of $1,212,110, partially offset by the gain on investments held in the Trust Account of $1,090,543.
For the three months ended September 30, 2021, we had net loss of $170,579, which resulted entirely from formation and operating costs.
For the nine months ended September 30, 2022, we had a net loss attributable to ordinary shareholders of $8,677,586, which resulted from formation and operating costs of $8,744,341, the change in fair value of Forward Purchase and Backstop Securities of $1,147,120, and a deemed dividend relating to the forward purchase and backstop securities of $225,000, partially offset by the gain on investments held in the Trust Account of $1,438,875.
For the period from February 5, 2021 (inception) through September 30, 2021, we had a net loss of $180,550, which resulted entirely from formation and operating costs.
Liquidity and Capital Resources
For the nine months ended September 30, 2022 net cash used in operating activities was $920,124, which was due to our net loss of $8,452,586, gain on investments held in Trust Account of $1,438,875, partially offset by a change in fair value of Forward Purchase and Backstop Securities of $1,147,120, and a change in operating assets and liabilities of $7,824,217.
For the period from February 5, 2021 (inception) through September 30, 2021, net cash used in operating activities was $966,382, which was due to our net loss of $180,550 and a change in operating assets and liabilities of $785,832.
There were no cash flows from investing activities for the nine months ended September 30, 2022.
For the period from February 5, 2021 (inception) through September 30, 2021, net cash used in investing activities was $235,750,000, which was due to the investment of cash into the Trust Account.
For the nine months ended September 30, 2022, net cash provided by financing activities was $750,000 from the proceeds of the convertible promissory note from our Sponsor.
For the period from February 5, 2021 (inception) through September 30, 2021, net cash provided by financing activities was $237,078,585, which was due to proceeds from initial public offering, net of underwriter’s discounts paid of $225,400,000, proceeds from sale of private placement warrants of $12,350,000, and proceeds from sponsor note of $119,275, partially offset by the repayment of sponsor note of $175,000, and payment of offering costs of $615,690.
On August 12, 2021, we consummated the Initial Public Offering of 23,000,000 units, including 3,000,000 Units that were issued pursuant to the underwriter’s exercise of its over-allotment option in full, at $10.00 per unit, generating gross proceeds of $230,000,000. Each unit consisted of one Class A ordinary share (the “Public Shares”), $0.0001 par value, and one-third of one redeemable warrant (the “Public Warrants”). Each Public Warrant entitles the holder to purchase one Class A ordinary share at an exercise price of $11.50 per whole share.
Simultaneously with the closing of the Initial Public Offering, our Sponsor purchased an aggregate of 8,233,333 warrants (the “Private Placement Warrants” and, together with the Public Warrants, the “Warrants”), including 900,000 Private Placement Warrants that were issued pursuant to the underwriter’s exercise of its over-allotment option in full, at a price of $1.50 per unit ($12,350,000 in the aggregate). Each Private Placement Warrant is exercisable to purchase one Class A ordinary share at a price of $11.50 per share. The proceeds from the sale of the Private Placement Warrants were added to the net proceeds from the Initial Public Offering held in the Trust Account. If we do not complete our initial business combination within 18 months from the closing of the Initial Public Offering, the proceeds from the sale of the Private Placement Warrants will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Private Placement Warrants will expire worthless.
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We intended to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less taxes payable and deferred underwriting commissions), to complete our initial business combination. We may have withdrawn interest income (if any) to pay income taxes, if any. Our annual income tax obligations would have depended on the amount of interest and other income earned on the amounts held in the Trust Account. We expected the interest income earned on the amount in the Trust Account (if any) would have been sufficient to pay our franchise and income taxes. After the consummation of the Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of Legacy OmniAb, make other acquisitions and pursue growth strategies.
As of September 30, 2022, the Company had $19,847 in cash held outside of the Trust Account and a working capital deficit of $9,843,540. The Company incurred significant costs in pursuit of its acquisition plans. In connection with the Company’s assessment of going concern considerations in accordance with FASB’s ASC Subtopic 205-40, Presentation of Financial Statements - Going Concern, management has determined those conditions raised substantial doubt about the Company’s ability to continue as a going concern within the earlier of the Combination Period, which will end on February 12, 2023, or one year after the date that the condensed consolidated financial statements are issued. Moreover, the Company needed to obtain additional financing to complete the Business Combination and to redeem 21,713,864 public shares upon completion of the Business Combination, in which case the Company issued additional securities in connection with the Business Combination. Of the total proceeds from the Initial Public Offering and sale of the Private Placement Warrants, an amount of approximately $2 million was deposited in an operating account for the Company’s working capital needs. In addition, the Company entered into a convertible promissory note pursuant to the Working Capital Loans terms as outlined in Note 5 with the Sponsor (the “Sponsor Working Capital Loan”) to which the Company could borrow up to an aggregate of $750,000. As of September 30, 2022, the Company has borrowed $750,000 under the Sponsor Working Capital Loan. The amounts held in the operating account were not expected to provide the Company with sufficient funds to meet its operational and liquidity obligations over the remainder of the Combination Period. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2022 or December 31, 2021.
Contractual Obligations
Promissory Note - Related Party
On February 12, 2021, the Company issued an unsecured promissory note to our Sponsor (the “Promissory Note”), pursuant to which the Company could borrow up to an aggregate of $300,000 to cover expenses related to the Initial Public Offering. The Promissory Note was non-interest bearing and was payable on the earlier of (i) December 31, 2021 or (ii) the consummation of the Initial Public Offering. The Company’s Sponsor paid certain offering costs totaling $55,725, which was included in the outstanding balance of the Promissory Note as of March 22, 2021, and the Company borrowed $119,275 on June 23, 2021. On August 12, 2021, the Company repaid the outstanding balance under the Promissory Note of $175,000. The Promissory Note is no longer available to the Company.
On March 14, 2022, the Company entered into a convertible promissory note pursuant to the Working Capital Loans terms with our Sponsor (the “Sponsor Working Capital Loan”) to which the Company could borrow up to an aggregate of $750,000. The Sponsor Working Capital Loan is non-interest bearing and payable upon the earlier of (i) completion of the initial Business Combination or (ii) the date that the winding up of the Company is effective. The unpaid principal balance on the Sponsor Working Capital Loan may be convertible into warrants at the option of our Sponsor at a price of $1.50 per warrant. The warrants would be identical to the Private Placement Warrants. As of September 30, 2022, the outstanding balance on the convertible promissory note is $750,000.
Administrative Support Agreement
The Company entered into an agreement, commencing on August 9, 2021, to pay an affiliate of our Sponsor a total of $10,000 per month for administrative, financial and support services. Upon the completion of the OmniAb Business Combination, the Company ceased paying these monthly fees. For the three months and nine months ended September 30, 2022 the Company incurred expenses of $30,000 and $90,000, respectively, under the agreement. For the three months ended September 30, 2021 and for the period from February 5, 2021 (inception) through September 30, 2021 the Company incurred expenses of $20,000 under the agreement.
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Underwriting Agreement
The underwriters purchased Units at a purchase price of $9.80 per unit (i.e., at a cash underwriting discount of $0.20 per Unit, or $4,600,000 in the aggregate) upon the closing of the Initial Public Offering and the exercise of the over-allotment in full on August 12, 2021. In addition, the Company agreed to pay the underwriters a deferred underwriting fee of up to $0.35 per unit, or $8,050,000 in the aggregate, which would be payable to the underwriters upon the consummation of an initial Business Combination, except that the Company’s management team would be permitted, in its sole discretion, to allocate up to 50% of the deferred underwriting fee, or $4,025,000 in the aggregate, to third parties that assist in identifying and consummating an initial Business Combination. On August 17, 2022, Credit Suisse waived its right to 50%, or $4,025,000 in the aggregate, of the deferred underwriting fee, and the Company has determined not to pay the 50% to any other advisors.
Forward Purchase Agreement
In connection with the consummation of the Initial Public Offering, the Company entered into a forward purchase agreement with our Sponsor which provides for the purchase of an aggregate of 10,000,000 Class A ordinary shares plus an aggregate of 3,333,333 redeemable warrants to purchase Class A ordinary shares at $11.50 per share, for an aggregate purchase price of $100,000,000, in the private placement. The obligations under the forward purchase agreement do not depend on whether any Class A ordinary shares are redeemed by the Company’s public shareholders.
The forward purchase securities were issued in connection with the closing of the initial Business Combination. The proceeds from the sale of forward purchase securities were used as part of the consideration to the sellers in the Company’s initial Business Combination, expenses in connection with the initial Business Combination or for working capital in the post-transaction company.
On March 23, 2022, in connection with the execution of the Merger Agreement, the Company entered into the A&R FPA with our Sponsor and Legacy OmniAb. Pursuant to the A&R FPA, the Company has agreed that, in connection with the consummation of the OmniAb Business Combination, they will issue and sell to our Sponsor 1,500,000 shares of OmniAb Common Stock and warrants to acquire 1,666,667 shares of OmniAb Common Stock for an aggregate purchase price of $15.0 million with such purchases consummated immediately following the re-domestication to Delaware and prior to the OmniAb Business Combination. In addition, our Sponsor has agreed to purchase up to an additional 10,000,000 shares of OmniAb Common Stock and up to an additional 1,666,667 warrants, for an aggregate additional purchase price of up to $100.0 million, in order to backstop shareholder redemptions to the extent such redemptions would result in the cash proceeds to be received by OmniAb stockholders from the Trust Account to be less than $100.0 million.
As a result of the A&R FPA, the Company evaluated the modification of the equity contract, which resulted in a reclassification between equity and a liability, in which the difference between the fair value at issuance of the original forward purchase agreement and the fair value at issuance of the A&R FPA (the modification date) was treated as a deemed dividend. An amount of $225,000 was recorded to accumulated deficit as a deemed dividend upon modification of the forward purchase agreement on March 23, 2022.
Audit Committee Compensation
On August 24, 2022, the board of directors elected Charles Harwood to serve as a director of the Company and appointed Mr. Harwood to serve as a member of the audit committee. The board of directors has determined that Mr. Harwood satisfies all applicable independence requirements to serve on the board of directors and the audit committee, including without limitation the applicable independence requirements of the Nasdaq Capital Market and the Exchange Act, as amended. In connection with Mr. Harwood’s appointment to the audit committee, Lâle White has stepped down from the audit committee, which currently consists of Wendel Barr, Charles Harwood and William Klitgaard. The changes to the audit committee’s composition relate to the Company’s communications with the staff of Nasdaq on August 22, 2022, regarding whether the Company was in compliance with Nasdaq Listing Rule 5605(c)(2) following the phase-in period provided under Nasdaq Listing Rule 5615(b)(1) because the Audit Committee was not comprised of at least three independent directors. The Company is in compliance with the applicable rules following the board of directors and audit committee changes described herein.
Upon consummation of the OmniAb Business Combination, the Company paid Mr. Harwood a $10,000 fee for his services as a director and member of the audit committee. This fee has been accrued as of September 30, 2022 as part of accrued expenses on the balance sheet. In connection with Mr. Harwood’s appointment, he and the Company entered into an indemnification agreement and a letter agreement, the terms of which were described in, and the forms of which were filed as exhibits to, the Company’s registration statement relating to the Company’s Initial Public Offering.
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Critical Accounting Policies
The preparation of condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, Derivatives and Hedging . For derivative financial instruments that are accounted for as assets or liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. The Forward Purchase and Backstop Securities contained within the A&R FPA are classified as derivatives in the condensed consolidated balance sheet with changes in the fair value recognized in the condensed consolidated statements of operations.
Class A Ordinary Shares Previously Subject to Possible Redemption
All of the 23,000,000 shares of Class A ordinary shares sold as part of the Units in the Initial Public Offering contained a redemption feature which allowed for the redemption of such Public Shares in connection with the Company’s liquidation, if there was a shareholder vote or tender offer in connection with the Business Combination and in connection with certain amendments to the Company’s amended and restated certificate of incorporation. In accordance with SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of the Company require ordinary shares subject to redemption to be classified outside of permanent equity. Therefore, all Class A ordinary shares have been classified outside of permanent equity.
The Company recognized changes in redemption value immediately as they occurred and adjusted the carrying value of redeemable ordinary shares to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable ordinary shares were affected by charges against additional paid-in capital and accumulated deficit.
Warrants
We evaluated the Warrants in accordance with ASC 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Equity,” and concluded that there were no indexation or tender offer provisions in the Warrant Agreement that precluded the Warrants from being accounted for as components of equity, and the Warrants meet the criteria in ASC 815-40-25 to be classified in shareholders’ equity. Fair value of the Public and Private Placement Warrants was determined by an independent valuation expert as of August 12, 2021 using a Monte Carlo Model. Proceeds from the IPO and subsequent partial exercise of the over-allotment option allocated to the Public Warrants was an aggregate $9,813,334 ($9,232,604, net of offering costs) and is recorded in additional paid-in capital. Proceeds from the issuance of the Private Placement Warrants were $12,350,000 ($12,298,375, net of offering costs) and is recorded in additional paid-in capital.
Net Loss Per Ordinary Share
Net loss per ordinary share is computed by dividing net loss by the weighted average number of ordinary shares outstanding during the period. The Company has not considered the effect of the warrants sold in the Initial Public Offering and private placement to purchase an aggregate of 15,900,000 shares in the calculation of diluted income per share, since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2022 and December 31, 2021, we were not subject to any market or interest rate risk.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.