NOTES
TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note
1—Description of Organization, Business Operations and Basis of Presentation
Blue
Water Acquisition Corp. (the “Company”) is a blank check company incorporated in Delaware on May 22, 2020. The
Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization
or similar business combination with one or more businesses (the “Business Combination”). The Company is an emerging
growth company and, as such, the Company is subject to all of the risks associated with emerging growth companies.
As
of March 31, 2021, the Company had not commenced any operations. All activity for the period from May 22, 2020 (inception)
through March 31, 2021 relates to the Company’s formation and the initial public offering (the “Initial Public Offering”)
described below. The Company will not generate any operating revenues until after the completion of its initial Business Combination,
at the earliest. The Company will generate non-operating income in the form of interest income on cash and cash
equivalents from the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal
year end.
The
Company’s sponsor is Blue Water Sponsor LLC, a Delaware limited liability company (the “Sponsor”). The
registration statement for the Company’s Initial Public Offering was declared effective on December 15, 2020. On December
17, 2020, the Company consummated its Initial Public Offering of 5,750,000 units (the “Units” and,
with respect to the Class A common stock included in the Units being offered, the “Public Shares”), including 750,000 additional
Units to cover over-allotments (the “Over-Allotment Units”), at $10.00 per Unit, generating gross proceeds of $57.5 million,
and incurring offering costs of approximately $3.7 million, of which approximately $2.0 million was for deferred underwriting
commissions (Note 5).
Simultaneously
with the closing of the Initial Public Offering, the Company consummated the private placement (“Private Placement”)
of 3,445,000 warrants (each, a “Private Placement Warrant” and collectively, the “Private Placement
Warrants”) at a price of $1.00 per Private Placement Warrant to the Sponsor, generating proceeds of approximately $3.4 million
(Note 4).
Upon
the closing of the Initial Public Offering and the Private Placement, approximately $58.7 million ($10.20 per Unit) of the
net proceeds of the Initial Public Offering and certain of the proceeds of the Private Placement was held in a trust
account (“Trust Account”) located in the United States with Continental Stock Transfer & Trust Company acting
as trustee, and will be invested only in U.S. “government securities” within the meaning of Section 2(a)(16) of the
Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated
under the Investment Company Act 1940, as amended (the “Investment Company Act”), which invest only in direct U.S.
government treasury obligations, as determined by the Company, until the earlier of: (i) the completion of a Business Combination
and (ii) the distribution of the Trust Account as described below.
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public
Offering and the sale of Private Placement Warrants, although substantially all of the net proceeds are intended to be applied
generally toward consummating a Business Combination. There is no assurance that the Company will be able to complete a Business
Combination successfully. The Company must complete one or more initial Business Combinations having an aggregate fair market
value of at least 80% of the net assets held in the Trust Account (excluding the deferred underwriting commissions and taxes payable
and interest previously released for working capital purposes on the income earned on the Trust Account) at the time of the agreement
to enter into the initial Business Combination. However, the Company will only complete a Business Combination if the post-transaction company
owns or acquires 50% or more of the voting securities of the target or otherwise acquires a controlling interest in the target
sufficient for it not to be required to register as an investment company under the Investment Company Act.
The
Company will provide the holders (the “Public Stockholders”) of the Public Shares with the opportunity to redeem all or a
portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting
called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek
stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The Public
Stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then held in the Trust Account (initially
anticipated to be $10.20 per Public Share). The per-share amount to be distributed to Public Stockholders who redeem their
Public Shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriters (as discussed in
Note 5). These Public Shares are recorded at a redemption value and classified as temporary equity upon the completion of the Initial
Public Offering in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification
(“ASC”) Topic 480 “Distinguishing Liabilities from Equity” (“ASC 480”). The Company will proceed
with a Business Combination if a majority of the shares voted are voted in favor of the Business Combination. The Company will not redeem
the Public Shares in an amount that would cause its net tangible assets to be less than $5,000,001. If a stockholder vote is not required
by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to
its Certificate of Incorporation (the “Certificate of Incorporation”), conduct the redemptions pursuant to the tender offer
rules of the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC prior to completing
a Business Combination. If, however, stockholder approval of the transaction is required by law, or the Company decides to obtain stockholder
approval for business or legal reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to
the proxy rules and not pursuant to the tender offer rules. Additionally, each public stockholder may elect to redeem their Public Shares
irrespective of whether they vote for or against the proposed transaction. If the Company seeks stockholder approval in connection with
a Business Combination, the initial stockholders (as defined below) agreed to vote their Founder Shares (as defined below in Note 4)
and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination. In addition, the initial
stockholders agreed to waive their redemption rights with respect to their Founder Shares and Public Shares in connection with the completion
of a Business Combination.
The
Certificate of Incorporation provided that a Public Stockholder, together with any affiliate of such stockholder or any other
person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect
to more than an aggregate of 15% or more of the Public Shares, without the prior consent of the Company.
The
Sponsor and the Company’s officers and directors (the “initial stockholders”) agreed not to propose an amendment
to the Certificate of Incorporation to modify the substance or timing of the Company’s obligation to redeem 100% of the
Public Shares if the Company does not complete a Business Combination within the Combination Period (as defined below) or with
respect to any other material provisions relating to stockholders’ rights or pre-initial Business Combination
activity, unless the Company provides the Public Stockholders with the opportunity to redeem their Public Shares in conjunction
with any such amendment.
The
Company will have up to 12 months from the closing of the Initial Public Offering, or December 17, 2021, (or up to 18 months
from the consummation of the Initial Public Offering, or June 17, 2022, if the Company extends the period of time to consummate
a Business Combination) (the “Combination Period”) to complete a Business Combination. In order to extend the time
available for the Company to consummate a Business Combination, the Sponsor or its affiliate or designees must deposit into the
Trust Account $575,000 ($0.10 per Public Share), on or prior to the date of the applicable deadline, for each three-month extension.
If
the Company is unable to complete a Business Combination within the Combination Period, the Company will (i) cease all operations
except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter,
redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust
Account including interest earned on the funds held in the Trust Account and not previously released to the Company for working
capital purposes or to pay its taxes (less up to $50,000 of interest to pay dissolution expenses), divided by the number of then
outstanding Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including
the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably
possible following such redemption, subject to the approval of the remaining stockholders and the board of directors, dissolve
and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and
the requirements of other applicable law.
The
initial stockholders agreed to waive their rights to liquidating distributions from the Trust Account with respect to the Founder Shares
if the Company fails to complete a Business Combination within the Combination Period. However, if the initial stockholders acquire Public
Shares in or after the Initial Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect
to such Public Shares if the Company fails to complete a Business Combination within the Combination Period. The underwriters agreed
to waive their rights to the deferred underwriting commission (see Note 5) held in the Trust Account in the event the Company does not
complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the other funds
held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is
possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be
only $10.20. In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to
the extent any claims by a third party (except for the Company’s independent registered public accounting firm) for services rendered
or products sold to the Company, or a prospective target business with which the Company has entered into a letter of intent, confidentiality
or other similar agreement or business combination agreement (a “Target”), reduce the amount of funds in the Trust Account
to below the lesser of (i) $10.20 per Public Share and (ii) the actual amount per Public Share held in the Trust Account as of the
date of the liquidation of the Trust Account, if less than $10.20 per Public Share due to reductions in the value of the trust assets,
less taxes payable, provided that such liability will not apply to any claims by a third party or Target that executed a waiver of any
and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) not will it apply to any claims under
the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the “Securities Act”). The Company will seek to reduce the possibility that the Sponsor
will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective
target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title,
interest or claim of any kind in or to monies held in the Trust Account.
Going
Concern
As
of March 31, 2021, the Company had approximately $408,000 in cash and working capital of approximately $157,000.
The
Company’s liquidity needs prior to the consummation of the Initial Public Offering were satisfied through the payment of
$25,000 from the Sponsor to cover certain offering costs on behalf of the Company in exchange for issuance of the Founders Shares
(as defined in Note 4), and a loan from the Sponsor of approximately $157,000 under the Note (as defined in Note 4). The Company
repaid the Note in full on December 17, 2020. Subsequent to the consummation of the Initial Public Offering, the Company’s
liquidity has been satisfied through the net proceeds from the consummation of the Initial Public Offering and the Private Placement
held outside of the Trust Account.
In
connection with the Company’s assessment of going concern considerations in accordance with FASB ASC Topic 205-40,
“Basis of Presentation – Going Concern,” management has determined that the anticipated cash requirements in the
next twelve months raise substantial doubt about the Company’s ability to continue as a going concern until the earlier of the
consummation of the Business Combination or the date the Company is required to liquidate, June 17, 2022. The financial statements
do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.
COVID-19
Impact
Management
is currently evaluating the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably
possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or
search for a target company, the specific impact is not readily determinable as of the date of these financial statements. The
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis
of Presentation
The accompanying unaudited condensed
financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States
(“U.S. GAAP”) for interim financial information and Article 8 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by U.S. GAAP. In the opinion of management, all adjustments (consisting of normal accruals) considered
for a fair presentation have been included. The accompanying unaudited condensed financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Annual Report on Form 10-K filed by the Company with the SEC on May
6, 2021.
Emerging
Growth Company
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the
Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from
various reporting requirements that are applicable to other public companies that are not emerging growth companies including,
but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements
of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic
reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation
and stockholder approval of any golden parachute payments not previously approved.
Further,
Section 102(b)(1) of 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 an election to opt out is irrevocable.
The Company 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 Company, 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 Company’s
financial statements with another public company that is neither an emerging growth company nor an emerging growth company that
has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting
standards used.
Proposed Business Combination
On April 27, 2021, the Company entered into an Agreement and Plan of
Merger (the “Merger Agreement”) with Blue Water Merger Sub Corp., a Delaware corporation and newly formed wholly-owned subsidiary
of the Company (“Merger Sub”), and Clarus Therapeutics, Inc., a Delaware corporation (“Clarus”). See Note 9
Note
2—Summary of Significant Accounting Policies
Use
of Estimates
The
preparation of the financial statements in conformity with U.S. GAAP requires the Company’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 balance sheet. Actual results could differ from those estimates.
Cash
and Cash Equivalents
The
Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
The Company had no cash equivalents as of March 31, 2021 in its operating cash account.
Investments
Held in Trust Account
Upon
the closing of the Initial Public Offering and the Private Placement, $58.7 million of the net proceeds of the sale
of the Units in the Initial Public Offering and the Private Placement were placed in the Trust Account and invested in money
market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only
in direct U.S. government treasury obligations. All of the Company’s investments held in the Trust Account are classified
as trading securities. Trading securities are presented on the balance sheet at fair value at the end of each reporting period.
Gains and losses resulting from the change in fair value of these securities is included in net gain on investments, dividends
and interest held in Trust Account in the accompanying statement of operations. The estimated fair values of investments held
in the Trust Account are determined using available market information.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution,
which, at times, may exceed the Federal Depository Insurance Coverage limit of $250,000, and investments held in Trust Account.
As of March 31, 2021, the Company has not experienced losses on these accounts and management believes the Company is not exposed
to significant risks on such accounts.
Fair
Value of Financial Instruments
The fair value of the Company’s
assets and liabilities, which qualify as financial instruments under the FASB ASC Topic 820, “Fair Value Measurements” approximates
the carrying amounts represented in the balance sheet.
Fair Value Measurements
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. GAAP establishes a three-tier fair value hierarchy, which prioritizes the
inputs used in measuring fair value.
The
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level
1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
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Level 1, defined
as observable inputs such as quoted prices for identical instruments in active markets;
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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
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●
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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.
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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.
Derivative
warrant liabilities
The Company does not use
derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial
instruments, including issued stock purchase warrants, to determine if such instruments are liabilities, derivatives or contain features
that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815 Derivatives and Hedging, (“ASC 815”). The classification
of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end
of each reporting period.
The Company accounts for its
9,195,000 common stock warrants issued in connection with its Initial Public Offering (5,750,000) and Private Placement (3,445,000) as
derivative warrant liabilities in accordance with ASC 815. Accordingly, the Company recognizes the warrant instruments as liabilities
at fair value and adjusts the instruments to fair value at each reporting period. The liabilities are subject to re-measurement at each
balance sheet date until exercised, and any change in fair value is recognized in the Company’s statement of operations. The fair
value of warrants issued in connection with the Initial Public Offering were initially measured at fair value using a Monte-Carlo simulation
model and have subsequently been measured based on the listed market price of such warrants. The fair value of the Private Placement warrants
have been estimated using Monte-Carlo simulation model at inception and subsequently at each measurement date.
Offering
Costs Associated with the Initial Public Offering
Offering
costs consist of legal, accounting, underwriting fees and other costs incurred that were directly related to the Initial Public
Offering and were charged to stockholders’ equity or written off to the statement of operations upon the completion of the
Initial Public Offering. The portion of the offering costs related to the issuance of the public and private warrants was written
off to the statement of operations as a financing costs – warrant liabilities.
Class A
Common Stock Subject to Possible Redemption
The
Company accounts for its Class A common stock subject to possible redemption in accordance with the guidance in FASB ASC
Topic 480 “Distinguishing Liabilities from Equity.” Class A common stock subject to mandatory redemption (if
any) is classified as liability instruments and are measured at fair value. Conditionally redeemable Class A common stock
(including Class A common stock that features 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 Company’s control) are classified as temporary
equity. At all other times, Class A common stock is classified as stockholders’ equity. The Company’s Class A
common stock feature certain redemption rights that are considered to be outside of the Company’s control and subject to
the occurrence of uncertain future events. Accordingly, at March 31, 2021 and December 31, 2020, 4,508,659 and 3,464,860 shares
of Class A common stock, respectively, subject to possible redemption is presented at redemption value as temporary equity,
outside of the stockholders’ equity section of the Company’s balance sheet.
Income
Taxes
The
Company follows the asset and liability method of accounting for income taxes under FASB ASC Topic 740, “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. 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. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. As of March 31, 2021, the Company has aggregate deferred tax assets of approximately $1,042,000 and has recognized
a full valuation allowance against the deferred tax assets.
FASB
ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement
of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more
likely than not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of March 31,
2021. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts
were accrued for the payment of interest and penalties as of March 31, 2021. The Company is currently not aware of any issues
under review that could result in significant payments, accruals or material deviation from its position. The Company is subject
to income tax examinations by major taxing authorities since inception.
Net Income (Loss) Per Ordinary Share
Net
income (loss) per share is computed by dividing net income by the weighted average number of shares of common stock outstanding
during the period. The Company has not considered the effect of the warrants sold in the Public Offering and Private Placement
to purchase an aggregate of 9,195,000 shares in the calculation of diluted loss per share, since the exercise of the warrants
are contingent upon the occurrence of future events and the inclusion of such warrants would be ant- dilutive.
The
Company’s statement of operations includes a presentation of income (loss) per share for Redeemable Class A Common Stock
in a manner similar to the two-class method of income (loss) per share. Net income per common share, basic and diluted, for Redeemable
Class A Common Stock is calculated by dividing the proportionate share of income or loss on marketable securities held by the
Trust Account, net of applicable franchise and income taxes, by the weighted average number of Common stock subject to possible
redemption outstanding since original issuance.
Net income per share, basic
and diluted, for Non-Redeemable Class A and Class B Common Stock is calculated by dividing the net loss, adjusted for income or loss on
marketable securities attributable to Redeemable Class A Common Stock, by the weighted average number of non-redeemable common stock outstanding
for the period.
Non-Redeemable
Class A and Class B Common Stock includes Founder Shares and non-redeemable shares of common stock as these shares do not have
any redemption features. Non-Redeemable Class A and Class B Common Stock participates in the income or loss on marketable securities
based on non-redeemable common stock shares’ proportionate interest.
Accordingly, basic and diluted
income per common share is calculated as follows for the three months ended March 31, 2021:
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For The
Three Months Ended
March 31,
2021
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Class A Common stock subject to possible redemption
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Numerator: Earnings allocable to Common stock subject to possible redemption
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Income from investments held in Trust Account
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$
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1,134
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Less: Company’s portion available to be withdrawn to pay taxes
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(1,134
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)
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Net income attributable
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$
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-
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Denominator: Weighted average Class A common stock subject to possible redemption
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Basic and diluted weighted average shares outstanding
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3,476,458
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Basic and diluted net income per share
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$
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-
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Non-Redeemable Common Stock
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|
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Numerator: Net Income minus Net Earnings
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Net income
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$
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10,646,747
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Net income allocable to Class A common stock subject to possible redemption
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|
-
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Non-redeemable net income
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$
|
10,646,747
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|
Denominator: weighted average Non-redeemable common stock
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Basic and diluted weighted average shares outstanding, Non-redeemable common stock
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3,768,542
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Basic and diluted net income per share, Non-redeemable common stock
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$
|
2.83
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Recent
Accounting Standards
In
August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, Debt—Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting
for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting
for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions
that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per
share calculation in certain areas. The Company adopted ASU 2020-06 on January 1, 2021. Adoption of the ASU did not impact the Company’s
financial position, results of operations or cash flows.
The Company’s management
does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, that would have a
material effect on the Company’s condensed financial statements.
Note
3—Initial Public Offering
On December
17, 2020, the Company consummated its Initial Public Offering of 5,750,000 Units, including 750,000 Over-Allotment
Units, at $10.00 per Unit, generating gross proceeds of $57.5 million, and incurring offering costs of approximately
$3.7 million, of which approximately $2.0 million was for deferred underwriting commissions.
Each
Unit consists of one share of Class A common stock, and one redeemable warrant (each, a “Public Warrant”).
Each Public Warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share, subject
to adjustment (see Note 6).
Note
4—Related Party Transactions
Founder
Shares
On
June 30, 2020, the Sponsor purchased 1,437,500 shares of the Company’s Class B common stock, par value $0.0001 per share,
(the “Founder Shares”) for an aggregate price of $25,000. The initial stockholders agreed to forfeit up to 187,500
Founder Shares to the extent that the over-allotment option was not exercised in full by the underwriters, so that the Founder
Shares would represent 20% of the Company’s issued and outstanding shares after the Initial Public Offering (excluding the
Representative Shares as defined below). The underwriter exercised its over-allotment option in full on December 17, 2020; thus,
the 187,500 Founder Shares were no longer subject to forfeiture.
The
initial stockholders agreed, subject to limited exceptions, not to transfer, assign or sell any of the Founder Shares until the
earlier to occur of: (A) 180 days after the completion of the initial Business Combination or (B) subsequent to the initial Business
Combination, the date on which the Company completes a liquidation, merger, capital stock exchange or other similar transaction
that results in all of the Public Stockholders having the right to exchange their shares of common stock for cash, securities
or other property. Any permitted transferees will be subject to the same restrictions and other agreements of our initial stockholders
with respect to any Founder Shares.
Private
Placement Warrants
Simultaneously
with the closing of the Initial Public Offering, the Company consummated the Private Placement of 3,445,000 Private
Placement Warrants at a price of $1.00 per Private Placement Warrant to the Sponsor, generating proceeds of approximately $3.4 million.
Each
Private Placement Warrant is exercisable for one share of Class A common stock at a price of $11.50 per share. A portion
of the proceeds from the sale of the Private Placement Warrants to the Sponsor was added to the proceeds from the Initial Public
Offering held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the
Private Placement Warrants will expire worthless. The Private Placement Warrants will be non-redeemable for cash
and exercisable on a cashless basis so long as they are held by the Sponsor or their permitted transferees.
The
Sponsor and the Company’s officers and directors agreed, subject to limited exceptions, not to transfer, assign or sell
any of their Private Placement Warrants until the completion of the initial Business Combination.
Related
Party Loans
On
June 30, 2020, as amended on October 20, 2020, an affiliate of the Sponsor agreed to loan the Company an aggregate of
up to $300,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the “Note”).
This loan was non-interest bearing and payable upon the completion of the Initial Public Offering. The Company
borrowed approximately $157,000 under the Note and fully repaid the Note on December 17, 2020.
In
addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the
Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may
be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the
Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would
be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close, the Company
may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust
Account would be used to repay the Working Capital Loans. The Working Capital Loans would either be repaid upon consummation of
a Business Combination or, at the lenders’ discretion, up to $1.5 million of such Working Capital Loans may be convertible
into warrants of the post Business Combination entity at a price of $1.00 per warrant. The warrants would be identical to the
Private Placement Warrants. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined
and no written agreements exist with respect to such loans. To date, the Company had no borrowings under the Working Capital Loans.
As
discussed in Note 1, the Company may extend the period of time to consummate a Business Combination up to two times, each
by an additional three months (for a total of 18 months to complete a Business Combination). In order to extend the time
available for the Company to consummate a Business Combination, the Sponsor or its affiliates or designees must deposit into the
Trust Account $500,000, or $575,000 if the underwriters’ over-allotment option is exercised in full ($0.10 per Public
Share in either case), on or prior to the date of the applicable deadline, for each three-month extension (each, an “Extension
Loan”). Any such payments would be made in the form of a non-interest bearing, unsecured promissory note. Such notes
would either be paid upon consummation of a Business Combination, or, at the relevant insiders’ discretion, converted upon
consummation of a Business Combination into additional Private Warrants at a price of $1.00 per Private Placement Warrant. The
Sponsor and its affiliates or designees are not obligated to fund the Trust Account to extend the time for the Company to complete
a Business Combination.
Administrative
Services Agreement
Commencing
on the date that the Company’s securities were first listed on Nasdaq until the earlier of the Company’s consummation
of a Business Combination or the Company’s liquidation, the Company agreed to pay the Sponsor a total of $10,000 per month
for office space, administrative and support services. The Company incurred approximately $30,000 in expenses in connection with
such services during the three months ended March 31, 2021 as reflected in the accompanying statement of operations. As of March
31, 2021, the Company had $30,000 in due to related party in connection with such services.
Note
5—Commitments & Contingencies
Registration
Rights
The
holders of Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans
and Extension Loans, if any, (and any shares of Class A common stock issuable upon the exercise of the Private Placement
Warrants and warrants that may be issued upon conversion of Working Capital Loans and Extension Loans and upon conversion of the
Founder Shares) were entitled to registration rights pursuant to a registration rights agreement signed upon the consummation
of the Initial Public Offering. These holders were entitled to certain demand and “piggyback” registration rights.
The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting
Agreement
The
underwriters were entitled to underwriting discounts of: (i) two percent (2.0%) of the gross proceeds of the Initial Public Offering,
or approximately $1.2 million in the aggregate, paid upon the closing of the Initial Public Offering; (ii) one percent (1.0%)
of the gross proceeds of the Initial Public Offering issued in the form of Class A common stock (the “Representative Shares”),
or 57,500 Class A common stock, at the closing of the Initial Public Offering; (iii) upon the consummation of a Business Combination,
a deferred underwriting discount of three and a half percent (3.5%) of the gross proceeds of the Initial Public Offering, or approximately
$2.0 million in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the Trust
Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
Right
of First Refusal
The
Company granted the underwriters a right of first refusal to act as lead-left book running manager for any and all future
private or public equity, equity-linked, convertible and debt offerings as well as exclusive strategic advisor in connection with
any subsequent merger or acquisition during such period, or any successor to or any subsidiary of the Company for a period of
16 months from the closing of a Business Combination.
Note
6—Derivative Warrant Liabilities
The
Public Warrants will become exercisable on the later of (a) the completion of a Business Combination or (b) 12 months from
the closing of the Initial Public Offering; provided in each case that the Company has an effective registration statement under
the Securities Act covering the shares of Class A common stock issuable upon exercise of the Public Warrants and a current
prospectus relating to them is available (or the Company permits holders to exercise their Public Warrants on a cashless basis
and such cashless exercise is exempt from registration under the Securities Act). The Company has agreed that as soon as practicable,
but in no event later than 15 business days after the closing of the initial Business Combination, the Company will use its best
efforts to file with the SEC and have an effective registration statement covering the shares of Class A common stock issuable
upon exercise of the warrants and to maintain a current prospectus relating to those shares of Class A common stock until
the warrants expire or are redeemed. If a registration statement covering the Class A common stock issuable upon exercise
of the warrants is not effective by the 60th business day after the closing of the initial Business Combination, warrant holders
may, until such time as there is an effective registration statement and during any period when the Company will have failed to
maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9)
of the Securities Act or another exemption. Notwithstanding the above, if the Company’s shares of Class A common stock
are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition
of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require
holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9)
of the Securities Act and, in the event the Company so elect, it will not be required to file or maintain in effect a registration
statement, and in the event the Company does not so elect, it will use our best efforts to register or qualify the shares under
applicable blue sky laws to the extent an exemption is not available.
The
warrants have an exercise price of $11.50 per share, subject to adjustments, and will expire five years after the completion of
a Business Combination or earlier upon redemption or liquidation. In addition, if (x) the Company issues additional shares of
Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of the initial
Business Combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such
issue price or effective issue price to be determined in good faith by the board of directors and, in the case of any such issuance
to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable,
prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent
more than 60% of the total equity proceeds, and interest thereon, available for the funding of the initial Business Combination
on the date of the consummation of the initial Business Combination (net of redemptions), and (z) the volume weighted average
trading price of the Class A common stock during the 20 trading day period starting on the trading day prior to the day on which
the Company consummates its initial Business Combination (such price, the “Market Value”) is below $9.20 per share,
then the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the greater of the Market
Value and the Newly Issued Price, and the $18.00 per share redemption trigger price described below will be adjusted (to the nearest
cent) to be equal to 180% of the greater of the Market Value and the Newly Issued Price.
The
Private Placement Warrants are identical to the Public Warrants, except that the Private Placement Warrants and the shares of
Class A common stock issuable upon exercise of the Private Placement Warrants will not be transferable, assignable or salable
until the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants
will be non-redeemable so long as they are held by the Sponsor or their permitted transferees. If the Private Placement
Warrants are held by someone other than the Sponsor or their permitted transferees, the Private Placement Warrants will be redeemable
by the Company and exercisable by such holders on the same basis as the Public Warrants.
Once
the warrants become exercisable, the Company may redeem the outstanding warrants for cash (except as described herein with respect
to the Private Placement Warrants):
|
●
|
at
a price of $0.01 per warrant;
|
|
●
|
upon
a minimum of 30 days’ prior written notice of redemption; and
|
|
●
|
if
and only if, the last sale price of Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends,
reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third
trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.
|
If
the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise
the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement.
In
no event will the Company be required to net cash settle any warrant. If the Company is unable to complete a Business Combination
within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive
any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held
outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless
Note
7—Stockholders’ Equity
Class A
Common Stock — The Company is authorized to issue 50,000,000 shares of Class A common stock with
a par value of $0.0001 per share. As of March 31, 2021 and December 31, 2020, there were 5,807,500 shares of Class A
common stock issued or outstanding, including 4,508,659 and 3,464,860 shares of Class A common stock subject to possible
redemption, respectively.
Class B
Common Stock — The Company is authorized to issue 2,000,000 shares of Class B common stock with a
par value of $0.0001 per share. On June 30, 2020, the Company issued 1,437,500 shares of Class B common stock to
the Sponsor. Of these, up to 187,500 shares of Class B common stock were subject to forfeiture to the Company by the
initial stockholders for no consideration to the extent that the underwriters’ over-allotment option was not exercised
in full or in part, so that the initial stockholders would collectively own 20% of the Company’s issued and outstanding
common stock after the Initial Public Offering (excluding the Representative Shares). The underwriter exercised its over-allotment
option in full on December 17, 2020; thus, the 187,500 Founder Shares were no longer subject to forfeiture.
Common
stockholders of record are entitled to one vote for each share held on all matters to be voted on by stockholders. Holders of
record of the Class A common stock and holders of record of the Class B common stock will vote together as a single class on all
matters submitted to a vote of the stockholders, with each share of common stock entitling the holder to one vote except as required
by law.
The
Class B common stock will automatically convert into Class A common stock at the closing of the initial Business Combination
on a one-for-one basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the
like, and subject to further adjustment as provided herein. In the case that additional shares of Class A common stock or equity-linked securities
are issued or deemed issued in connection with the initial Business Combination, the number of shares of Class A common stock
issuable upon conversion of all Founder Shares will equal, in the aggregate, on an as-converted basis, 20% of the sum of
the total number of all shares of common stock outstanding upon the completion of the Initial Public Offering, plus the total
number of shares of Class A common stock issued, or deemed issued or issuable upon conversion or exercise of any equity-linked securities
or rights issued or deemed issued, by the Company in connection with or in relation to the consummation of the initial Business
Combination, excluding the Representative Shares and any shares of Class A common stock or equity-linked securities exercisable
for or convertible into shares of Class A common stock issued, or to be issued, to any seller in the initial Business Combination
and any private placement-equivalent warrants issued to the Sponsor, officers or directors upon conversion of Working Capital
Loans; provided that such conversion of Founder Shares will never occur on a less than one for one basis.
Preferred
Stock — The Company is authorized to issue 1,000,000 shares of preferred stock, par value $0.0001 per
share, with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s
board of directors. As of March 31, 2021 and December 31, 2020, there were no shares of preferred stock issued or outstanding.
Note
8—Fair Value Measurements
The
following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring
basis as of March 31, 2021 and December 31, 2020 and indicates the fair value hierarchy of the valuation techniques that the Company
utilized to determine such fair value:
March
31, 2021
Description
|
|
Quoted Prices in Active Markets
(Level 1)
|
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
Significant Other Unobservable Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in Trust Account
|
|
$
|
58,651,494
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant Liabilities – public warrants
|
|
$
|
3,277,500
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Warrant Liabilities – private warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,270,255
|
|
December
31, 2020
Description
|
|
Quoted Prices in Active Markets
(Level 1)
|
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
Significant Other Unobservable Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in Trust Account
|
|
$
|
58,650,048
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant Liabilities – public warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,005,000
|
|
Warrant Liabilities – private warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,693,635
|
|
Transfers
to/from Levels 1, 2, and 3 are recognized at the end of the reporting period. The estimated fair value of the Public Warrants transferred
from a Level 3 measurement to a Level 1 fair value measurement in February 2021, upon trading of the Public Warrants in an active market.
There were no other transfers between levels for the three months ended March 31, 2021.
Level 1 assets include investments in U.S. Treasury securities and
money market funds that invest solely in U.S. Treasury securities. The Company uses inputs such as actual trade data, benchmark yields,
quoted market prices from dealers or brokers, and other similar sources to determine the fair value of its investments.
The initial fair value of
the Public Warrants issued in connection with the Public Offering and the fair value of the Private Placement Warrants have been estimated
using a Monte-Carlo simulation. The fair value of the Public Warrants has subsequently been determined using listed prices in an active
market for such warrants. The changes in fair value are recognized in the statement of operations. For the three months ended March 31,
2021, the Company recognized a charge to the statement of operations resulting from a decrease in the fair value of liabilities of $11.2
million presented as change in fair value of derivative warrant liabilities on the accompanying statement of operations.
The
change in the level 3 fair value of the derivative warrant liabilities for the three months ended March 31, 2021 is summarized
as follows:
Warrant liabilities at December 31, 2020
|
|
$
|
16,698,635
|
|
Change in fair value of warrant liabilities
|
|
|
(11,150,880
|
)
|
Transfer of public warrants to level 1
|
|
|
(3,277,500
|
)
|
Warrant liabilities at December 31, 2020
|
|
$
|
2,270,255
|
|
The estimated fair value
of the Public Warrants, prior to being traded in an active market, and of the Private Placement Warrants is determined using Level 3 inputs.
Inherent in a Monte Carlo simulation are assumptions related to expected stock-price volatility, expected life, risk-free interest rate
and dividend yield. The Company estimates the volatility of its common stock based on historical volatility of select peer companies that
matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve
on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed
to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates
remaining at zero.
The
following table provides quantitative information regarding Level 3 fair value measurements inputs as their measurement dates:
|
|
As of
March 31,
2021
|
|
|
As of
December 31,
2020
|
|
Strike price
|
|
$
|
11.50
|
|
|
$
|
11.50
|
|
Contractual term (years)
|
|
|
5.3
|
|
|
|
5.8
|
|
Volatility
|
|
|
6.00
|
%
|
|
|
10.00
|
%
|
Risk-free interest rate
|
|
|
1.00
|
%
|
|
|
0.48
|
%
|
Dividend yield (per share)
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Note
9—Subsequent Events
On
April 27, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Blue Water
Merger Sub Corp., a Delaware corporation (the “Merger Sub”) and wholly-owned subsidiary of the Company, and Clarus
Therapeutics, Inc. a Delaware corporation (“Clarus”).
Pursuant to the Merger Agreement,
subject to the terms and conditions set forth therein, upon the consummation of the transactions contemplated by the Merger Agreement
(the “Closing”), Merger Sub will merge with and into Clarus (the “Merger” and, together with the other transactions
contemplated by the Merger Agreement, the “Transactions”), with Clarus continuing as the surviving corporation in the Merger
and a wholly-owned subsidiary of the Company. In the Merger, based on existing Clarus share preference and convertible debtholder rights, (i)
certain shares of Clarus preferred stock issued and outstanding immediately prior to the effective time of the Merger (the “Effective
Time”) will be canceled and converted into the right to receive a portion of the Merger Consideration (as defined below), (ii) all
other shares of Clarus capital stock, and all outstanding options to purchase any capital stock that have not been exercised prior to
the Effective Time, will be canceled, retired and terminated without any consideration or any liability to Clarus with respect thereto,
and (iii) certain convertible and non-convertible promissory notes of the Company outstanding as of the Closing will be canceled
and converted into, or exchanged for, the right to receive a portion of the Merger Consideration.
The aggregate merger consideration
to be paid pursuant to the Merger Agreement to Clarus securityholders as of immediately prior to the Effective Time (“Clarus Securityholders”)
will be a number of shares of Company Class A common stock equal to (the “Merger Consideration”): (A) (i) $198,194,295,
plus (or minus) the estimated indebtedness of Clarus as of the Closing, net of its cash and cash equivalents (“Closing Net Indebtedness”),
divided by (ii) $10.20; plus (B) 1,500,000 shares of Company Class A Common Stock issuable to the holders of certain non-convertible promissory
notes of Clarus in exchange for $10 million of the aggregate principal amount of such notes and other amendments to the terms of the remaining
indebtedness pursuant to the Transaction Support Agreement (as described below); plus (C) (i) the outstanding balance (principal and interest)
at Closing of certain convertible and non-convertible promissory notes of Clarus issued between signing of the Merger Agreement and Closing
divided by $10.00, other than any such non-convertible promissory notes that the Company elects in its discretion to pay off at Closing.
The Merger Consideration to be paid to Clarus Securityholders will be paid solely by the delivery of new shares of Company Class A Common
Stock. The Closing Net Indebtedness (and the resulting Merger Consideration) is based solely on estimates determined shortly prior to
the Closing and is not subject to any post-Closing true-up or adjustment. The Merger Consideration will be allocated among Clarus Securityholders
as determined by Clarus shortly prior to the Closing based on existing share preference and convertible debtholder rights.
Management has evaluated
subsequent events to determine if events or transactions occurring through the date the financial statements were issed, require potential
adjustment to or disclosure in the financial statements and has concluded that all such events that would require recognition or disclosure
have been recognized or disclosed, including the Merger Agreement referenced above.