Quarterly Report • Sep 13, 2022
Quarterly Report
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European Healthcare Acquisition & Growth Company B.V.
Interim Board Report
Unaudited Interim Condensed Financial Statements
This half-year report of European Healthcare Acquisition & Growth Company B.V. (the "Company") for the first six months of its financial year 2022 consists of the interim report of the board of directors of the Company (the "Board" and such report the "Interim Board Report"), including the responsibility statement, other mandatory statements by the Board, the unaudited interim condensed financial statements of the Company (the "Interim Financial Statements") and the accompanying notes (the "Half-Year Report").
European Healthcare Acquisition & Growth Company B.V. was incorporated on 9 July 2021 in Amsterdam, the Netherlands, as a Dutch operators-led special purpose acquisition company incorporated under the laws of the Netherlands as a private company with limited liability ( besloten vennootschap met beperkte aansprakelijkheid) with its business address in Munich, Germany.
The Company's Class A Ordinary Shares (as defined below) were admitted to listing and trading on Euronext Amsterdam (the "Admission"), the regulated market operated by Euronext Amsterdam N.V. ("Euronext Amsterdam") on 18 November 2021 pursuant to a private placement (the "Private Placement") in which it raised € 200 million in gross proceeds (the "Proceeds") in accordance with the terms and conditions set out in the Company's prospectus which was issued on 16 November 2021 (the "Prospectus"). Payment for the Class A Ordinary Shares and the Public Warrants (as defined below) ("Settlement") took place on 22 November 2021 (the "Settlement Date").
The Company has been established for the purpose of entering into a business combination with an operating business in the form of a merger, share exchange, asset acquis ition, share purchase, reorganisation or similar business combination with, or acquisition of, one or more target companies or businesses with the purpose of creating a single business (a "Business Combination"). The Company intends to focus on companies or businesses with principal operations in Europe in the healthcare sector, with a special focus on the subsectors Biotechnology and Specialty Pharma, Pharma Services, Medical Technology and Medical Devices, Diagnostic and Lab Services, Bioinformatics as well as Life Science Tools (the "Specific Healthcare Sectors"). The Company intends to acquire the shares in one or more target companies and subsequently provide management services to the target(s) for remuneration.
Since the Private Placement, we have been focusing on finding the right target company for the Company. Whilst the Board has had early-stage as well as more advanced discussions with a number of potential target companies, at the date of this Half-Year Report, the Company has not yet selected a specific target company that could be proposed to the Business Combination EGM (as defined below). We will continue our search for a Business Combination to be completed within the 24-month period from 18 November 2021, the first day of trading, and ending on 18 November 2023 (the "Business Combination Deadline") as announced in the Prospectus.
If the Company intends to complete a Business Combination, it will convene a general meeting and propose the Business Combination for consideration and approval by the Class A Ordinary Shareholders (as defined below) and the holders of Founder Shares (as defined below) (the "Business Combination EGM"). The resolution to effect a Business Combination will require the
prior approval by a majority of at least (i) a simple majority of the votes cast or (ii) in the event that the Business Combination is structured as a merger, a two-thirds majority of the votes cast if less than half of the issued share capital is present or represented at the Business Combination EGM.
The founders of the Company are BAUR I&C GmbH, RNRI GmbH, CCC Investment GmbH, SO I GmbH, PS Capital Management GmbH and Winners & Co. GmbH (the "Sponsors", also referred to as the "Founders") which are affiliates of the Company's directors, Dr Cornelius Baur, Dr Thomas Rudolph, Dr Axel Herberg, Dr Stefan Oschmann, Mr Peer M. Schatz and Mr Stefan Winners, respectively.
The Sponsors hold 6,666,666 convertible class B shares in the share capital of the Company, at a nominal value of € 0.01 per share (the "Founder Shares"). The Founder Shares represent 25% of the Company's voting rights (not taking into account any Treasury Shares (as defined below)).
The Company has completed its Private Placement for the issuance of 20,000,000 public units (the "Public Units" and each a "Public Unit") at a price per Public Unit of € 10.00. Each Public Unit consists of: (i) one class A ordinary share in the share capital of the Company with a nominal value of € 0.01 per share (the "Class A Ordinary Shares", and each a "Class A Ordinary Share", also referred to as the "Public Shares" or the "redeemable Ordinary Shares", and a holder of one or more Class A Ordinary Shares, a "Class A Ordinary Shareholder"); and (ii) one-third (1 /3) of a redeemable class A warrant (each whole warrant a "Public Warrant" and together the "Public Warrants", also referred to as the "Market Warrants").
Class A Ordinary Shareholders may redeem all or a portion of their Class A Ordinary Shares upon the completion of the Business Combination, subject to complying with applicable law and satisfaction of certain conditions. The gross repurchase price of a Class A Ordinary Share in connection with a Business Combination is equal to its pro rata share of funds in the Escrow Account (as defined below) determined two trading days prior to the Business Combination EGM, which is anticipated to be € 10.00 per Class A Ordinary Share.
At 30 June 2022, the issued share capital of the Company consisted of 170,000,000 Class A Ordinary Shares, of which the Company holds 150,0000,000 Class A Ordinary Shares (the "Treasury Shares"), representing approximately 96.23% of the aggregate issued share capital, and 6,666,666 Founder Shares, representing approximately 3.77% of the aggregate issued share capital.
The Company maintains a one-tier board consisting of executive and non-executive directors. The executive directors are responsible for the day-to-day management of the Company. The nonexecutive directors supervise and advise the executive directors. The Board as a whole is responsible for the strategy and the management of the Company. Since the Admission, the Board has comprised two executive directors (the "Executive Directors") and four non-executive directors (the "Non-Executive Directors", and together with the Executive Directors, the "Directors").
The Board is comprised of professionals with experience in management, venture capital, healthcare and capital markets. The Company intends to leverage the Directors' extensive operational capabilities, significant investment experience and global networks to both identify a pipeline of opportunities and drive value in the Business Combination.
Dr Cornelius Baur is the Chief Executive Officer of the Company ("CEO") and is also the Company's compliance officer. Dr Thomas Rudolph is the Chief Investment Officer of the Company ("CIO") and the company secretary. Mr Stefan Winners is a Non-Executive Director and the chairman of the Board ("Chairman"). Mr Peer, M. Schatz, Dr Axel Herberg and Dr Stefan Oschmann are the other Non-Executive Directors.
More information about the Company, including the Prospectus, can be found on the Company 's website, www.ehc-company.com, in the 'Investor Relations' section.
During the period from 1 January 2022 up to and including 30 June 2022 (the "Period"), the Company continuously has been focusing on finding a Business Combination with a target company or business that primarily focuses on one of the Specific Healthcare Sectors. The Company has until the Business Combination Deadline to complete this process, unless the time to consummate a Business Combination in order to effect a Business Combination has been extended as announced in the Prospectus. During the Period no important events have happened in relation to the Company with a significant impact on the half-year figures that should be reported pursuant to the applicable legislation.
| Escrow Account balance | € 202.0 million |
|---|---|
| Bank Account balance: | € 2.3 million |
| Shareholders' equity | € 1.0 million |
| Class A Ordinary Share Price (Euronext) | € 9.45 |
| Warrant Price (Euronext) | € 0.25 |
The Sponsors have provided € 11.6 million to the Company through the purchase of the Founder Shares, the Founder Warrants (as defined below) and the Additional Sponsor Subscription (as defined below).
At Settlement, the Sponsors: (i) paid an additional purchase price for the Founder Shares in the aggregate amount of € 1,400,000 that will be used, inter alia, to cover remuneration costs during the first 12 months after the Settlement; (ii) subscribed for 5,128,000 class B warrants at a price of € 1.50 per warrant (the "Founder Warrants") (up to € 7,692,000 in the aggregate) in a separate private placement that occurred on the Settlement Date (the "Sponsors Capital At-Risk") which Sponsors Capital At-Risk will be used to finance the Company's working capital requirements and other running costs and expenses, except for some commissions as further detailed in the Prospectus that will, if and when due and payable, be paid from the Escrow Account (as defined below), until the completion of the Business Combination; and (iii) subscribed to 1,640,000 Founder
Warrants which were issued to the Sponsors at Settlement at a price of € 1.50 per Founder Warrant, for an aggregate purchase price of € 2,460,000 (the "Additional Sponsor Subscription"). The proceeds of the Additional Sponsor Subscription are, and will be, used to cover any Negative Interest (as defined below), up to an amount equal to the proceeds from the Additional Sponsor Subscription to allow, in case of a liquidation of the Company after expiry of the Business Combination Deadline or in case of redemptions of Class A Ordinary Shares in the context of a Business Combination, for a redemption of up to € 10.00 per Class A Ordinary Share.
The Proceeds are held on an escrow account held at Deutsche Bank Aktiengesellschaft (the "Escrow Account"). Additionally, the Additional Sponsor Subscription of € 2,460,000 was paid into the Escrow Account. Due to the fact that the Escrow Account is subject to a negative interest rate of -0.62% (the "Negative Interest") the amount on the Escrow Account decreased by € 0.46 million, leaving a total of € 202.0 million in the Escrow Account as at 30 June 2022.
The Interim Financial Statements for the Period have not been audited or reviewed by the Company's statutory auditor. Accordingly, all information included in this Half-Year Report has not been audited or reviewed by an external auditor.
Please refer to pages 11-22 of the Company's annual report for its financial year ending on 31 December 2021 (the "Annual Report 2021") for the Company's principal risks and uncertainties, which in the Company's view remain essentially unchanged for the first six months of 2022, and to pages 45 and 46 of the Prospectus for a cautionary note regarding forward-looking statements.
Although the risks and uncertainties as reported in the Annual Report 2021 remain applicable, inflation rates, interest rates and the volatility of the financial markets have increased significantly, and financing conditions have tightened. It cannot be ruled out that these developments lead to a further deterioration of financial markets, which might have negative effects on the Euro currency and on financial institutions (including banks in the eurozone). These developments may have an adverse impact on the Company's ability to proceed with a Business Combination, and the potential impact of such further deterioration is high. Regarding the risk that financial institutions would be so significantly affected by the current developments that this might have a negative impact on the Company's assets, we expect a low likelihood and a high financial impact.
Additional risks not known to us, or currently believed not to be material, could later turn out to have a material impact on our business, revenue, assets, liquidity, capital resour ces or net income. The Company's risk management objectives and policies are consistent with those disclosed in the Prospectus.
The Company has a related party transactions policy providing for procedures for directors to notify a potential related party transaction (the "Related Party Transactions Policy"). Potential related party transactions shall be subject to review by and prior approval of the Non-Executive Directors in accordance with Dutch law. The Non-Executive Directors may approve the related party transaction only if they determine that it is in the interests of the Company and its stakeholders.
Related party transactions include transactions between the Group and "related parties" as defined in the Related Party Transactions Policy, including one or more shareholders representing 10% of the issued share capital in the Company, a director and any parties qualifying as such in accordance with IFRS.
During the Period, the Company entered into the following related party transactions:
The Board confirms, in accordance with section 5:25d, paragraph 2, sub c, of the Dutch Financial Markets Supervision Act (Wet op het financieel toezicht; the "Dutch FSA") that, to the best of its knowledge:
On behalf of the Board of European Healthcare Acquisition & Growth Company B.V.
13 September 2022
Stefan Winners, Non-Executive Director and Chairman of the Board Dr Cornelius Baur, Executive Director and Chief Executive Officer Dr Axel Herberg, Non-Executive Director Dr Stefan Oschmann, Non-Executive Director Dr Thomas Rudolph, Executive Director Peer Schatz, Non-Executive Director
1 See Notes 2.2 and 7.5 of the Interim Financial Statements.
Contents
| Interim condensed statement of profit or loss and other comprehensive income……… | 8 |
|---|---|
| Interim condensed statement of financial position………………………………….…………. | 9 |
| Interim condensed statement of changes in equity………………………….……….….….… | 10 |
| Interim condensed statement of cash flows……………………………………………….…. | 11 |
| Notes to the interim condensed financial statements…………………………….…………… | 12 |
| 2022 | ||
|---|---|---|
| Unaudited | ||
| €000 | ||
| Notes | ||
| Other operating expenses | (1,380) | |
| Operating loss | (1,380) | |
| Fair value adjustments of warrants | 7.3, 7.4 | 480 |
| Effective interest on ordinary shares subject to redemption | 7.1 | (2,985) |
| Interest expenses | (624) | |
| Finance costs, net | (3,129) | |
| Loss for the period | (4,509) | |
| Other comprehensive income | 0 | |
| Total comprehensive loss for the period, net of tax | (4,509) | |
| Earnings per share | ||
| Basic and diluted earnings per share | (0.68) |
as at
| 30 June 2022 | 31 December 2021 | ||
|---|---|---|---|
| Unaudited | Audited | ||
| €000 | €000 | ||
| Notes | |||
| Assets | |||
| Current assets | |||
| Receivables from shareholders | 7.5 | 1,205 | 0 |
| Deferred cost | 370 | 510 | |
| Cash and cash equivalents | 5 | 204,325 | 207,892 |
| 205,900 | 208,402 | ||
| Total assets | 205,900 | 208,402 | |
| Equity and liabilities | |||
| Equity | |||
| Issued capital | 67 | 67 | |
| Share premium | 7.5 | 7,972 | 6,767 |
| Retained earnings | (7,035) | (2,526) | |
| Total equity | 1,004 | 4,308 | |
| Non-current liabilities | |||
| Redeemable ordinary shares | 7.1 | 191,420 | 188,435 |
| Market warrants | 7.3 | 8,033 | 8,500 |
| Founder warrants | 7.4 | 4,894 | 4,907 |
| 204,347 | 201,842 | ||
| Current liabilities | |||
| Trade and other payables | 445 | 2,121 | |
| Interest payable | 104 | 131 | |
| 549 | 2,252 | ||
| Total liabilities | 204,896 | 204,094 | |
| Total equity and liabilities | 205,900 | 208,402 |
Interim condensed statement of changes in equity for the six months ended 30 June 2022
| Issued capital €000 |
Share premium (Note 7.5) €000 |
Retained earnings €000 |
Total equity €000 |
|
|---|---|---|---|---|
| As at 31 December 2021 | 67 | 6,767 | (2,526) | 4,308 |
| Loss for the period | 0 | 0 | (4,509) | (4,509) |
| Other comprehensive income | 0 | 0 | 0 | 0 |
| Total comprehensive loss | 0 | 0 | (4,509) | (4,509) |
| Additional share premium | 0 | 1,205 | 0 | 1,205 |
| At 30 June 2022 (unaudited) |
67 | 7,972 | (7,035) | 1,004 |
| 2022 | ||
|---|---|---|
| Unaudited | ||
| €000 | ||
| Notes | ||
| Operating activities | ||
| Loss for the period | (4,509) | |
| Adjustments to reconcile net loss to cash flows: | ||
| Fair value adjustments of warrants | 7.3, 7.4 | (480) |
| Effective interest on ordinary shares subject to redemption | 7.1 | 2,985 |
| Interest expense | 624 | |
| Working capital adjustments: | ||
| Decrease in deferred costs | 140 | |
| Decrease in trade and other payables | (244) | |
| Net cash flows from operating activities | (1,484) | |
| Financing activities | ||
| Transaction costs related to issuance of ordinary shares | (1,430) | |
| Transaction costs related to issuance of founder shares | (2) | |
| Interest paid | (651) | |
| Net cash flows from financing activities | (2,083) | |
| Net decrease in cash and cash equivalents | (3,567) | |
| Cash and cash equivalents at 1 January | 207,892 | |
| Cash and cash equivalents at 30 June | 204,325 |
EHC was incorporated on 9 July 2021 in Amsterdam, the Netherlands, as a Dutch operators-led special purpose acquisition company incorporated under the laws of the Netherlands as a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) with its business address in Munich, Germany. These unaudited interim condensed financial statements of the Company for the period from 1 January 2022 up to and including 30 June 2022 were authorised for issue in accordance with a resolution of the Board on 13 September 2022.
The Company is registered with the Netherlands Chamber of Commerce under the number 83366180 since 9 July 2021. The registered office of the Company is located at Theresienhoehe 28, 80339 Munich, Germany.
EHC was admitted to listing and trading on the regulated market of Euronext Amsterdam on 18 November 2021 pursuant to a private placement in which it raised €200 million in gross proceeds in accordance with the terms and conditions set out in the Company's Prospectus which has been issued on 16 November 2021.
The Company has 20,000,000 redeemable Ordinary Shares issued and outstanding as at 30 June 2022 which are traded on the regulated market of Euronext Amsterdam under the symbol "EHCS" since 18 November 2021. Likewise, the Company's 6,666,666 Market Warrants are also traded on the regulated market of Euronext Amsterdam under the symbol "EHCW".
The unaudited interim condensed financial statements as at and for the period ended on 30 June 2022 have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union. They do not include all the information for a complete set of IFRS financial statements and should be read in conjunction with the Annual Report 2021 for the period from the date of incorporation on 9 July 2021 to 31 December 2021 and the Prospectus. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in EHC's financial position and performance since the last financial statements.
The Company was incorporated on 9 July 2021. The period from 9 July 2021 to 31 December 2021 is the first year of incorporation. In accordance with the articles of association the reporting year is the calendar year.
Following the Business Combination, the Company intends to provide management services to the target(s) for remuneration. The Company's operations are not affected by significant seasonal or cyclical patterns.
All amounts have been rounded to the nearest thousand, unless otherwise indicated.
These unaudited interim condensed financial statements have been prepared on a going concern basis. The Company has a 24-month period to complete a Business Combination absent an extension thereof. The costs relating to the search for a target company and the completion of a Business Combination are expected to be covered by the proceeds from the issuance of the Founder Shares and Warrants and the Additional Sponsor Subscription. However, the Company cannot assure any investor in the Company that this expectation is accurate. Any investor in the Company should always consider the risk factors set out in the Prospectus.
If the Company does not complete a business combination within the Business Combination Deadline, the Company shall, within no more than three months after such 24-month period, convene a general meeting for the purpose of adopting a resolution to dissolve and liquidate the Company and to delist the redeemable Ordinary Shares and Market Warrants. In the event of a liquidation, the distribution of the Company's assets and the allocation of the liquidation surplus shall be completed, after payment of the Company's creditors and settlement of its liabilities, in accordance with the rights of the Founder Shares and the redeemable Ordinary Shares and in accordance with a pre-determined order of priority. There will be no distribution of proceeds or otherwise with respect to any of the Market Warrants or the Founder Warrants, and all such Market Warrants and Founder Warrants will automatically expire without value upon occurrence of such a liquidation. These conditions indicate the existence of a material uncertainty, which may cast significant doubt about the Company's ability to continue as a going concern.
The (financial) risk for our shareholders is largely mitigated by the fact that the Company holds €202.0 million in the Escrow Account, which can only be released upon meeting strict requirements. The Company has raised proceeds from the sale of the Founder Shares and Founder Warrants amounting to €11.6 million, which is considered to be sufficient to cover working capital and other running costs and expenses.
If the Company does not consummate a Business Combination within the first 12 months, the Sponsors, i.e. the Founders, will pay an additional sum as additional purchase price for the Founder Warrants subscribed that will be used to pay the Company's remuneration costs becoming payable after the first 12 months until the completion of the Business Combination or the Business Combination Deadline. Such additional sum can be paid in one or more instalments of up to another €1,400,000 in the aggregate (maximum amount), based on the Company's expected timing for the Business Combination. Such payments of an additional purchase price will not result in the issuance of any additional Founder Warrants. For these unaudited interim condensed financial statements, an additional purchase price of €1,205,000 has been recorded as receivables from shareholders. The undrawn amount of the described additional sum amounts to €195k as at 30 June 2022.
The accounting policies adopted are consistent with those applied in the Annual Report 2021.
The preparation of the unaudited interim condensed financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.
The estimates and associated assumptions are based on historical experiences and various other factors that are believed to be reasonable under the circumstances. Actual results and outcomes may differ from management's estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment due to the current economic uncertainties , among other things, driven by the invasion of Russia in Ukraine and the development of the coronavirus.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
The significant judgements made by management in applying the Company's accounting policies and the key sources of estimation uncertainty mainly relate to the accounting treatment and valuation for redeemable Ordinary Shares, Founder Shares, Market Warrants and Founder Warrants.
The financial risk management objectives and policies are consistent with those disclosed in the Annual Report 2021 and the Prospectus.
The Company has transferred all of the gross proceeds from the Private Placement of the units (€200 million) and the Additional Sponsor Subscription (€2,460,000) into the Escrow Account with Deutsche Bank Aktiengesellschaft. In case of a Business Combination, the amounts held in the Escrow Account will be paid out in a specific order of priority as disclosed in the Prospectus. As at 30 June 2022, the total escrow amount was €202.0 million.
If the Company does not consummate a Business Combination by the relevant deadline as set out in the Prospectus, the amounts standing to the credit of the Escrow Account will be distributed to the Company, and, after deduction of the unused portion, if any, of the proceeds from the Additional Sponsor Subscription, at the first priority distributed to the holders of the Public Shares.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy, as explained above.
The Company has issued redeemable Ordinary Shares, Founder Shares, Market Warrants and Founder Warrants. As of 30 June 2022 the following accounting policies are applied for those instruments:
The Board assessed the classification of redeemable Ordinary Shares in accordance with IAS 32 and concluded that the redeemable Ordinary Shares do not meet the criteria for equity treatment and must be recorded as liabilities. The redeemable Ordinary Shares have certain redemption features that are considered to be outside of the Company's control and subject to occurrence of uncertain future events. Accordingly, the Company classifies the redeemable Ordinary Shares as financial liabilities at amortised cost in accordance with IFRS 9. The transaction costs directly attributable to the issuance of the redeemable Ordinary Shares were deducted from the initial fair value and are therefore part of the effective interest rate. Effective interest on redeemable Ordinary Shares subject to redemption are recognised in the statement of profit or loss and other comprehensive income and amount to €2,985k for the six months ended 30 June 2022.
The total value of the package of Founder Shares, Founder Warrants and Additional Sponsor Subscription issued at Settlement are intertwined and entered into in contemplation of each other, therefore these instruments were assessed together. The price paid for each instrument cannot be assessed in isolation. However, the total package does reflect a market transaction which should reflect fair value. As such, for the Founder Shares issued at Settlement the total consideration paid for the package of Founder Shares, Founder Warrants and Additional Sponsor Subscription is considered as one transaction.
The rights and interests of the Founder Shareholders differ from those of the Ordinary Shareholders. The Founder Shares carry risks that the redeemable Ordinary Shares do not, namely the Founder Shares contribute the capital at risk and are subordinated to the redeemable Ordinary Shares in the event of Liquidation. This means that the Founder Shareholders carry a greater risk of losing their investment and therefore have a higher incentive to successfully complete the Business Combination.
For the classification assessment in accordance with IAS 32, each tranche is considered a separate unit. As such the fixed-for-fixed requirements are met. If the share price hurdle in tranches 2 onwards are never met, or the time runs out for tranche 4, then these Founder Shares will not convert. However,
they are still entitled to voting rights and dividend rights. Each tranche is a separate unit in accordance with IFRS 9, as the redeemable Ordinary Shares obtained through each tranche can be transferred separately. Furthermore, the different tranches are not linked economically as each tranche will be exercised separately.
Any conversion of Founder Shares into redeemable Ordinary Shares does not require the holder to make any payment. Therefore, there is no contractual obligation for the Company to repay the holders of the Founder Shares. While the Company may pay dividends to Founder Shareholders, the dividend rights of the Founders are the same as those of the Ordinary Shareholders and the granting of dividends is at the discretion of the Company. Thus, the Company is not contractually obligated to pay dividends.
The Founder Shares are, therefore, classified as equity instruments per IAS 32. Consequently, no expense or income has been recognised for the six months ended 30 June 2022.
The Board assessed the classification of Market Warrants in accordance with IAS 32 under which the Market Warrants do not meet the criteria for equity treatment and must be recorded as financial liabilities. Accordingly, the Company classifies the Market Warrants as liabilities at their fair value through profit and loss.
From 18 November 2021, the redeemable Ordinary Shares and Market Warrants have been separately listed and traded on Euronext Amsterdam. However, due to a lack of liquidity in the Market Warrants during the period leading up to 31 December 2021 and afterwards, there was no recent quoted price at which trading in the Market Warrants took place and as such the pricing of these Market Warrants did not provide a reliable indication of the fair value of the Market Warrants at the year end and as at 30 June 2022. Therefore, a binomial option pricing model valuation was used, applying a volatility of 40% and adjusting for a 50% probability of a successful Business Combination, to determine the fair value of the Warrants at €1.275 as at December 2021 and €1.205 as at 30 June 2022. Consequently, for the six months ended 30 June 2022 a fair value adjustment for Market Warrants of €467k has been recorded as income.
As the lowest level significant input in this valuation is unobservable, this is a Level 3 valuation.
The Sponsors subscribed for 5,128,000 Founder Warrants at a price of €1.50 per warrant in a separate private placement (the Sponsors Capital At-Risk). The Sponsors Capital At-Risk will be used to finance the Company's working capital requirements (including due diligence costs in connection with the Business Combination) and other running costs and Private Placement and Admission expenses, except for the fixed deferred listing commission and the discretionary deferred listing commissions (together, the Deferred Listing Commissions), that will, if and when due and payable, be paid from the Escrow Account, until the completion of the Business Combination.
Management evaluated the terms of the Founder Warrants in the context of this potential scope exclusion from IAS 32. The total value of the package of Founder Shares, Founder Warrants and Additional Sponsor Subscription issued at Settlement are intertwined and are assessed together. The fair value of the Founder Warrants at issue was less than the issue price of €1.50 per Founder Warrant. However, the overpayment of the Founder Warrants is reallocated to the Founder Shares. As such we conclude that the fair value of the Founder Warrants at issue was equal to their allocated price.
The subscription rights are derivatives which, from the issuer's perspective, represent written call options on its own shares. As such, they are contracts within the scope of IAS 32.13 that give rise to a financial asset for the holders and a financial liability or equity instrument for the issuer. As financial instruments, they fall within the scope of IAS 32.
Upon a cashless exercise of the subscription right, EHC is obliged to deliver a number of shares that is calculated on the basis of the quotient of (i) the fair market value of the shares minus the exercise price (ii) divided by the fair market value of the shares. Hence, the number of shares to be delivered is not fixed, but variable.
Founder Warrants are, therefore, classified as financial liability.
Since the Founder Warrants are not publicly traded and there are no comparable quoted financial instruments, alternative valuation techniques were used to determine their fair value at the year end. Using an option pricing model whilst after applying a 50% discount for the lock -up period, a volatility of 40% and a 50% probability of a successful Business Combination, as at 31 December 2021 the fair value of the Founder Warrants was estimated to be €0.725. Based on the same assumptions the fair value of the Founder Warrants was estimated to be €0.723 as at 30 June 2022, resulting in a fair value adjustment of warrants of €10k which has been recorded as income.
As the lowest level significant input in this valuation is unobservable, this is a Level 3 valuation.
In addition, the Sponsors subscribed for 1,640,000 Founder Warrants at a price of €1.50 per Founder Warrant, for an aggregate purchase price of €2,460k (the Additional Sponsor Subscription). The proceeds of the Additional Sponsor Subscription will be used to cover any negative interest on the funds held in the Escrow Account, up to an amount equal to the proceeds from the Additional Sponsor Subscription to allow, in case of a liquidation of the Company after expiry of the Business Combination Deadline or in case of redemptions of redeemable Ordinary Shares in the context of a Business Combination, for a redemption at €10.00 per Ordinary Share. For any excess portion of the Additional Sponsor Subscription remaining after completion of the Business Combination and the redemption of redeemable Ordinary Shares, the Sponsors may elect to either (i) request repayment of the remaining cash portion of the Additional Sponsor Subscription by redeeming the corresponding number of Founder Warrants subscribed for under the Additional Sponsor Subscription, or (ii) to keep the Founder Warrants subscribed for under the Additional Sponsor Subscription in which case the Company may keep the remaining cash portion of the Additional Sponsor Subscription for discretionary use. Founder Warrants will have substantially the same terms as the Market Warrants, except that they will not be redeemable, may be exercised on a cashless basis, and are subject to certain lock-up arrangements.
The total value of the package of Founder Shares, Founder Warrants and Additional Sponsor Subscription issued at Settlement are intertwined and are assessed together. The fair value of the Additional Sponsor Subscription at issue was less than the issue price of €1.50 per Founder Warrant. However, the overpayment of the Founder Warrant was reallocated to the Founder Shares.
The Additional Sponsor Subscription are derivatives which, from the issuer's perspective, represent written call options on its own shares. As such, they are contracts within the scope of IAS 32.13 that give rise to a financial asset for the holders and a financial liability or equity instrument for the issuer. As financial instruments, they fall within the scope of IAS 32. The Additional Sponsor Subscription is classified as financial liability and shown under Founder Warrants in the statement of financial position.
Based on the same methodology outlined for the Founder Warrants a valuation of €0.723 as at 30 June 2022 was estimated, resulting in a fair value adjustment of warrants of €3k which has been recorded as income.
The following table presents the changes in level 3 items for the period ended 30 June 2022:
| Market Warrants €000 |
Founder Warrants €000 |
Total €000 |
|
|---|---|---|---|
| Opening balance 31 December 2021 | 8,500 | 4,907 | 13,407 |
| Issuance of instruments | 0 | 0 | 0 |
| (Gains)/losses recognised in statement of profit or loss | (467) | (13) | (480) |
| Closing balance 30 June 2022 | 8,033 | 4,894 | 12,927 |
All gains in the table above are unrealised and relate to the Market Warrants and Founder Warrants held at 30 June 2022. Gains/losses are recorded in the line item "Fair value adjustments of warrants" in the statement of profit or loss and other comprehensive income.
If the Company does not consummate a Business Combination within the first 12 months, the Sponsors, i.e. the Founders, will pay an additional sum as additional purchase price for the Founder Warrants subscribed that will be used to pay the Company's remuneration costs becoming payable after the first 12 months until the completion of the Business Combination or the Business Combination Deadline. Such additional sum can be paid in one or more instalments of up to another €1,400,000 in the aggregate, based on the Company's expected timing for the Business Combination. Such payments of an additional purchase price will not result in the issuance of any additional Founder Warrants.
For these unaudited interim condensed financial statements an additional purchase price of €1,205k has been recorded as receivables from shareholders against share premium.
As disclosed in the Prospectus, Deutsche Bank, J.P. Morgan, Berenberg and ABN AMRO Bank N.V. are potentially entitled to the Deferred Listing Commissions. The Deferred Listing Commissions are only payable upon completion of the Business Combination and will be paid from the Escrow Account. As of 30 June 2022, the Deferred Listing Commissions are considered contingent liabilities under IAS 37, amounting to maximum of €6 million.
As noted in Note 7.5 above, if the Company does not consummate a Business Combination within the first 12 months, the Sponsors, i.e. the Founders, will pay an additional sum as additional purchase price for the Founder Warrants subscribed that will be used to pay the Company's remuneration costs becoming payable after the first 12 months until the completion of the Business Combination or the Business Combination Deadline. Such additional sum can be paid in one or more instalments of up to another €1,400,000 in the aggregate, based on the Company's expected timing for the Business Combination. Such payments of an additional purchase price will not result
in the issuance of any additional Founder Warrants. As of 30 June 2022, the outstanding part of this additional sum is considered a contingent asset, amounting to a maximum of €0.2 million.
Parties are considered to be related if one party has the ability to control or jointly control the other party or exercise significant influence over the other party in making financial or operational decisions. Related parties also include key management personnel, i.e. the board members, responsible for planning, directing and controlling the activities of the Company.
Transactions with related parties are assumed when a relationship exists between the Company and a natural person or entity that is affiliated with the Company. This includes, amongst others, the relationship between the Company and its subsidiaries, shareholders, directors and key management personnel. Transactions are transfers of resources, services or obligations, regardless of whether anything has been charged.
Transactions with related parties for the six months ended 30 June 2022 were:
From 27 July 2022 onwards the negative ECB deposit rate of -0.5% was increased to 0.0%. This will reduce the monthly negative interest expense by €83k from August 2022 onwards. Also, the ECB raised the ECB deposit rate by an additional 0.75% in its September 2022 meeting.
We have not identified any further events.
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