Notes to Condensed Financial Statements
September 30, 2017
(Unaudited)
Note 1 - Description of Organization and Business Operations
CF Corporation (the “Company”)
is a blank check company incorporated in the Cayman Islands on February 26, 2016. The Company was formed for the purpose of
effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one
or more businesses (“Business Combination”). Although the Company is not limited to a particular industry or geographic
region for purposes of consummating a Business Combination, the Company intends to focus on the financial, technology and services
industries in the United States or globally.
On April 21, 2016,
the Company effected a share capitalization of approximately 4.217 shares for each outstanding Class B ordinary share, resulting
in an aggregate of 15,000,000 Class B ordinary shares outstanding (“founder shares”). All share amounts presented in
the unaudited condensed financial statements herein have been retroactively restated to reflect the share capitalization.
All activity from February
26, 2016 (Date of Inception) through September 30, 2017 relates to the Company’s formation, initial public offering (“initial
public offering”), forward purchase agreements (as defined below), and, since the closing of the initial public offering,
the search for a Business Combination described below. The Company is an early stage and emerging growth company and, as such,
the Company is subject to all of the risks associated with early stage and emerging growth companies.
In April 2016, the Company
entered into forward purchase agreements (the “forward purchase agreements”), pursuant to which the Anchor Investors
(as defined below) agreed to purchase an aggregate of 51,000,000 Class A ordinary shares (“forward purchase shares”),
plus one redeemable warrant (“forward purchase warrant(s)”) for every three forward purchase shares purchased (or an
aggregate of 19,083,333 redeemable warrants) for $10.00 per Class A ordinary share, for an aggregate purchase price of $510
million, in a private placement to occur concurrently with the closing of the Business Combination. In connection with the forward
purchase agreements, the Company agreed to compensate the placement agents an aggregate amount of up to $20.675 million, including
deferred placement agent fees of $20.4 million and reimbursement of legal fees of $275,000, payable upon the consummation of the
Business Combination (Note 6). As the placement agents already performed services related to the forward purchase agreements and
the closing of a Business Combination was deemed probable by the management, the Company accrued a deferred placement agent fee
and reimbursement of legal fees in the accompanying condensed balance sheet.
The registration statement
for the initial public offering was declared effective on May 19, 2016. The Company consummated the initial public offering of
60,000,000 units (“units” and, with respect to the Class A ordinary shares included in the units, the “public
shares”) for $10.00 per unit on May 25, 2016, generating gross proceeds of $600 million and, in connection therewith, incurring
offering costs of approximately $34.5 million, including $33 million of underwriting commissions in connection with the initial
public offering. Each unit consists of one Class A ordinary share, $0.0001 par value per share, and one-half of one redeemable
warrant. Each whole warrant entitles the holder thereof to purchase one Class A ordinary share at a purchase price of $11.50 per
share, subject to adjustment, terms and limitations (“Public Warrant(s)”). The Company paid $12 million of underwriting
commissions upon the closing of the initial public offering and deferred $21 million of underwriting commissions until the consummation
of its initial Business Combination (Note 3).
Simultaneously with
the closing of the initial public offering, the Company consummated the private placement (“Initial Private
Placement”) of 14,000,000 warrants (“Private Placement Warrants”) at a price of $1.00 per Private
Placement Warrant with the Company’s Sponsor, CF Capital Growth, LLC (the “Sponsor”), generating gross
proceeds of $14 million (Note 4).
On June 29, 2016, the
Company consummated the closing of the sale of 9,000,000 additional units pursuant to the exercise in full of the underwriter’s
over-allotment option (“Over-allotment”), generating additional gross proceeds of $90 million. In connection therewith,
the Company paid additional offering costs of $1.8 million in underwriting commissions and deferred $3.15 million of underwriting
commissions until the completion of the Company’s initial Business Combination. Simultaneously with the consummation of the
Over-allotment, the Company consummated a private placement of an additional 1,800,000 Private Placement Warrants to the Sponsor
(together with the Initial Private Placement, the “Private Placement”), generating gross proceeds of $1.8 million.
CF CORPORATION
Notes to Condensed Financial Statements
September 30, 2017
(Unaudited)
Upon the closing of the
initial public offering, the Over-allotment, and the Private Placement, $690 million ($10.00 per unit) from the net proceeds thereof
was placed in a U.S.-based trust account at J.P. Morgan Chase Bank, N.A, maintained by Continental Stock Transfer & Trust
Company, acting as trustee (“Trust Account”), and is invested in a money market fund selected by the Company until
the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the funds held in the Trust Account as
described below.
At September 30, 2017,
the Company has approximately $479,000 in cash held outside of the Trust Account. The Company’s management has broad discretion
with respect to the specific application of the net proceeds of its initial public offering, the Over-allotment, and the Private
Placement, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination.
The Company’s initial Business Combination must be with one or more target businesses that together have an aggregate fair
market value of at least 80% of the assets held in the Trust Account (excluding the deferred underwriting commissions and taxes
payable on 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 outstanding
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 1940, as amended, or the Investment Company Act.
The Company will provide
the holders of its public shares (“public shareholders”) 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 shareholder meeting called to approve the
Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek shareholder approval
of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public shareholders
will be entitled to redeem their public shares for a pro rata portion of the amount then in the Trust Account (initially estimated
to be $10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to
the Company to pay its tax obligations). As of September 30, 2017, the Company had approximately $694 million in its Trust Account.
If a shareholder vote is not required by the law and the Company does not decide to hold a shareholder vote for business or other
reasons, the Company will, pursuant to its Amended and Restated Memorandum and Articles of Association (the “charter”),
conduct 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, shareholder approval of the proposed
Business Combination is required by law, or the Company decides to obtain shareholder approval for business reasons, the Company
will offer to redeem the public shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to
the tender offer rules. Additionally, each public shareholder may elect to redeem their public shares irrespective of whether they
vote for or against the proposed Business Combination. The per-share amount to be distributed to public shareholders 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 6). The Company will proceed with a Business Combination only if the Company has net tangible assets of at least $5,000,001
upon such consummation of a Business Combination.
Notwithstanding the foregoing,
the Company’s charter provides that a public shareholder, together with any affiliate of such shareholder or any other person
with whom such shareholder 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 20% or more of the public shares without the prior consent of the Company.
If the Company is unable
to complete a Business Combination by May 25, 2018 (the “Combination Period”), the Company will (i) cease all operations
except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than ten business days thereafter, redeem
100% of the outstanding public shares which redemption will completely extinguish public shareholders’ rights as shareholders
(including the right to receive further liquidation distributions, if any), subject to applicable law and (iii) as promptly as
reasonably possible following such redemption, subject to the approval of the remaining shareholders and the Company’s board
of directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of the Company, subject in each case
to its obligations to provide for claims of creditors and the requirements of applicable law.
In connection with the
redemption of 100% of the Company’s outstanding public shares if the Company fails to complete a Business Combination prior
to the expiration of the Combination Period, each public shareholder will receive a full pro rata portion of the amount then in
the Trust Account, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the
Company to pay the Company’s taxes payable (less taxes payable and up to $100,000 of interest to pay dissolution expenses).
CF CORPORATION
Notes to Condensed Financial Statements
September 30, 2017
(Unaudited)
The Company’s Sponsor,
officers and directors (the “initial shareholders”) and Anchor Investors have agreed to waive their liquidation rights
with respect to the founder shares if the Company fails to complete a Business Combination within the Combination Period and the
initial shareholders have also agreed to such waiver with respect to any public shares they may hold. However, if the initial shareholders
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 have agreed to waive their rights to their deferred underwriting commission 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 funds held in the Trust Account that will be available to fund the redemption of the Company’s 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 $10.00 per share. 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 third parties, such as a vendor for services
rendered or products sold to the Company, or a prospective target business with which the Company has entered into an acquisition
agreement, reduce the amount of funds in the Trust Account below $10.00 per share. 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 (other than the Company’s independent auditors), 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. The Sponsor will not be required to indemnify the Trust Account with respect to any claims by a third
party who executed such waiver of any right, title, interest or claim of any kind in or to any monies held in the Trust Account
or 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”). In addition, in the event
that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent
of any liability for such third-party claims.
On May 24, 2017, the Company
entered into the Agreement and Plan of Merger (the “Merger Agreement”) with FGL US Holdings Inc., a Delaware corporation
and wholly owned indirect subsidiary of the Company (“Parent”), FGL Merger Sub Inc., a Delaware corporation and wholly
owned direct subsidiary of Parent (“Merger Sub”), and Fidelity & Guaranty Life, a Delaware corporation (“FGL”),
pursuant to which, subject to the satisfaction or waiver of certain conditions set forth therein, Merger Sub will merge with and
into FGL, with FGL surviving the merger as a wholly owned indirect subsidiary of the Company (collectively with the other transactions
contemplated by the Merger Agreement, the “FGL Business Combination”) (Note 8).
On August 8, 2017, the
Company held an extraordinary general meeting in lieu of annual general meeting of shareholders, at which the Company’s shareholders
approved the FGL Business Combination. No shareholders elected to have their shares redeemed
in connection with the FGL Business Combination.
Going Concern
The accompanying unaudited
condensed financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among
other things, the realization of assets and satisfaction of liabilities in the normal course of business. As of September 30, 2017,
the Company had approximately $479,000 in its operating bank account and working capital deficit of approximately $20.9 million.
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 will repay the Working Capital Loans out of the proceeds of the Trust
Account released to the Company. Otherwise, the Working Capital Loans will be repaid only out of funds held outside the Trust Account.
In the event that the Company does not complete a Business Combination, 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 may be used to repay the Working
Capital Loans. 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. The Working Capital Loans will either be repaid upon consummation of a Business Combination,
without interest, or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into
warrants of the post Business Combination entity at a price of $1.00 per warrant. Any such warrants would have identical
terms as the Private Placement Warrants. In July 2017, the Sponsor loaned an aggregate of $750,000 of Working Capital Loans to
the Company.
CF CORPORATION
Notes to Condensed Financial Statements
September 30, 2017
(Unaudited)
Based on the foregoing,
the Company may have insufficient funds available to operate its business through the earlier of consummation of a Business Combination
or May 25, 2018. Following the initial Business Combination, if cash on hand is insufficient, the Company may need to obtain additional
financing in order to meet its obligations. The Company cannot be certain that additional funding will be available on acceptable
terms, or at all. The Company’s plans to raise capital or to consummate the initial Business Combination may not be successful.
These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
The accompanying unaudited
condensed financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a
going concern.
Note 2 - Significant Accounting Policies
Basis of Presentation
The accompanying unaudited
condensed financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S.
GAAP”) for interim financial information and pursuant to rules and regulations of the SEC. 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. Operating results for the three and nine months ended September
30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.
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.
Investments and Cash Equivalents Held
in the Trust Account
The amounts held in the
Trust Account represent substantially all of the proceeds of the initial public offering and Private Placement and are classified
as restricted assets since such amounts can only be used by the Company in connection with the consummation of a Business Combination.
As of September 30, 2017, there was approximately $3.8 million of interest income held in the Trust Account available to be released
to the Company to pay its income tax obligations, if any.
Concentration of Credit Risk
Financial instruments
that potentially subject the Company to concentration of credit risk consist of cash accounts in a financial institution, which
at times may exceed the Federal depository insurance coverage of $250,000. At September 30, 2017, the Company had not experienced
losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Ordinary Shares Subject to Possible Redemption
The Company accounts for
its ordinary shares subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”)
Topic 480 “
Distinguishing Liabilities from Equity
.” Ordinary shares subject to mandatory redemption (if any)
are classified as a liability instrument and are measured at fair value. Conditionally redeemable ordinary shares (including ordinary
shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence
of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, ordinary
shares are classified as shareholders’ equity. The Company’s ordinary shares feature certain redemption rights that
are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly,
ordinary shares subject to possible redemption are presented as temporary equity, outside of the shareholders’ equity section
of the Company’s balance sheet.
CF CORPORATION
Notes to Condensed Financial Statements
September 30, 2017
(Unaudited)
Although the Company did
not specify a maximum redemption threshold, its charter provides that in no event will it redeem its public shares in an amount
that would cause its net tangible assets (shareholders' equity) to be less than $5,000,001. The Company recognizes changes in redemption
value immediately as they occur and will adjust the carrying value of the security to equal the redemption value at the end of
each reporting period. Increases or decreases in the carrying amount of redeemable ordinary shares shall be affected by charges
against additional paid-in capital. Accordingly, at September 30, 2017 and December 31, 2016, 62,337,495 and 64,066,643 Class A
ordinary shares were classified outside of permanent equity at their redemption value, respectively.
Offering Costs
Offering costs consisting
principally of legal, accounting, underwriting commissions and other costs incurred through the balance sheet date that are directly
related to the initial public offering totaled approximately $39.5 million, inclusive of $24.15 million in deferred underwriting
commissions in connection with the initial public offering. Offering costs were charged to shareholders’ equity upon the
completion of the initial public offering.
In addition, an aggregate
of approximately $20.4 million in deferred placement agent fees incurred through the balance sheet date that are directly related
to the forward purchase agreements were also charged to shareholders’ equity upon the issuance of Class B ordinary shares
to the Anchor Investors.
Net Income (Loss) per Share
Net income (loss) per
share is computed by dividing net loss by the weighted-average number of ordinary shares outstanding during the period. An aggregate
of 62,337,495 and 64,042,626 shares of Class A ordinary shares subject to possible redemption at September 30, 2017 and 2016, respectively,
have been excluded from the calculation of basic and diluted loss per ordinary share for all periods presented with the exception
of the diluted three months September 30, 2017 and 2016 since such shares, if redeemed, only participate in their pro rata share
of the trust earnings. The Company has not considered the effect of the warrants sold in the initial public offering (including
the consummation of the Over-allotment) and Private Placement to purchase an aggregate of 50,300,000 Class A ordinary shares in
the calculation of diluted loss per share, since their inclusion would be anti-dilutive.
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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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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ASC 820,
Fair
Value Measurement and Disclosures
, requires all entities to disclose the fair value of financial instruments, both assets and
liabilities for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current transaction between willing parties. As of September 30, 2017 and December
31, 2016, the recorded values of cash and cash equivalents, prepaid expenses, accounts payable, and accrued expenses approximate
the fair values due to the short-term nature of the instruments.
CF CORPORATION
Notes to Condensed Financial Statements
September 30, 2017
(Unaudited)
Income Taxes
The Company follows the
asset and liability method of accounting for income taxes under FASB ASC 740, “Income Taxes” (“ASC 740”).
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between
the financial statement 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 of the enactment date. Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized.
FASB ASC 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. 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 at September 30, 2017. 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.
There is currently no
taxation imposed on income by the Government of the Cayman Islands. In accordance with Cayman income tax regulations, income taxes
are not levied on the Company. Consequently, income taxes are not reflected in the Company’s unaudited condensed financial
statements. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change
over the next twelve months.
Recent Accounting Pronouncements
Management does not believe
that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect
on the Company’s unaudited condensed financial statements.
Note 3 - Initial Public Offering
On May 25, 2016, the Company
consummated the sale of 60,000,000 units at a price of $10.00 per unit in the initial public offering. On June 29, 2016, the Company
consummated the sale of 9,000,000 additional units pursuant to the exercise in full of the Over-allotment. Each unit consists of
one public share and one-half of one Public Warrant. No fractional Public Warrants will be issued upon separation of the units
and only whole Public Warrants will trade.
The Company incurred approximately
$39.5 million of offering costs in connection with the initial public offering, inclusive of $24.15 million of deferred underwriting
commissions payable to the underwriters from the amounts held in the Trust Account solely in the event the Company completes a
Business Combination. The underwriters are not entitled to any interest accrued on the deferred discount.
Note 4 - Private Placement
Concurrently with the
closing of the initial public offering and the Over-allotment, the Sponsor purchased an aggregate of 15,800,000 Private Placement
Warrants at $1.00 per Private Placement Warrant, generating gross proceeds of $15.8 million in the aggregate. Each Private Placement
Warrant is exercisable to purchase one Class A ordinary share for $11.50 per share. A portion of the proceeds from the sale of
the Private Placement Warrants was added to the proceeds from the initial public offering to be 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.
CF CORPORATION
Notes to Condensed Financial Statements
September 30, 2017
(Unaudited)
Note 5 - Related Party Transactions
Founder Shares
On March 2,
2016, the Company issued an aggregate of 15,000,000 founder shares to the Sponsor in exchange for a capital contribution of
$25,000. On April 19, 2016, the Sponsor surrendered 3,750,000 founder shares to the Company for no consideration, which
the Company cancelled. The Company then issued 3,750,000 founder shares to the Anchor Investors (as defined below) for an
aggregate price of approximately $7,000 in connection with the forward purchase agreements. The Sponsor and the Anchor
Investors currently own 11,250,000 and 3,750,000 founder shares, respectively. The founder shares will automatically convert
into Class A ordinary shares in connection with the consummation of a Business Combination at a ratio such that the number of
Class A ordinary shares issuable upon conversion of all founder shares will equal, in the aggregate, on an as-converted
basis, 20% of the sum of (i) the total number of Class A ordinary shares outstanding upon completion of the initial
public offering (including the Over-allotment), plus (ii) the sum of (a) the total number of Class A ordinary shares 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 (including forward
purchase shares, but not forward purchase warrants), excluding any Class A ordinary shares or equity-linked securities
exercisable for or convertible into Class A ordinary shares issued, or to be issued, to any seller in the initial Business
Combination and any Private Placement Warrants issued to the Sponsor upon conversion of Working Capital Loans, minus (b) the
number of public shares redeemed by public shareholders in connection with the initial Business Combination.
The Sponsor, Chinh E.
Chu and William P. Foley, II have agreed not to transfer, assign or sell any of their founder shares until the earliest of
(a) one year after the completion of the initial Business Combination with respect 50% of their founder shares, (b) two years after
the completion of the initial Business Combination with respect to the remaining 50% of their founder shares, and (c) the date
on which the Company completes a liquidation, merger, share exchange or other similar transaction after an initial Business Combination
that results in all of the Company’s shareholders having the right to exchange their Class A ordinary shares for cash, securities
or other property. The Anchor Investors have agreed not to transfer, assign or sell any of their founder shares until the earlier
to occur of: (i) one year after the completion of the initial Business Combination or (ii) the date on which the Company completes
a liquidation, merger, share exchange or other similar transaction after the initial Business Combination that results in all of
the Company’s shareholders having the right to exchange their Class A ordinary shares for cash, securities or other property
(except to certain permitted transferees). Any permitted transferees will be subject to the same restrictions and other agreements
of the initial shareholders or Anchor Investors, as applicable, with respect to any founder shares. Notwithstanding the foregoing,
if the closing price of the Class A ordinary shares equals or exceeds $12.00 per share (as adjusted for share splits, share capitalizations,
reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150
days after the initial Business Combination, the founder shares held by investors other than the Sponsor, Chinh E. Chu and William
P. Foley, II will be released from the lock-up.
Private Placement Warrants
On May 25, 2016 and June
29, 2016, the Sponsor purchased from the Company an aggregate of 15,800,000 Private Placement Warrants as described in Note 4.
Each Private Placement Warrant entitles the holder to purchase one Class A ordinary share at $11.50 per share. The Private Placement
Warrants (including the Class A ordinary shares issuable upon exercise of the Private Placement Warrants) will not be transferable,
assignable or salable until 30 days after the completion of the initial Business Combination, and they will be non-redeemable so
long as they are held by the Sponsor or its permitted transferees. If the Private Placement Warrants are held by someone other
than the Sponsor or its 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. Otherwise, the Private Placement Warrants have terms and provisions that
are identical to those of the Public Warrants and have no net cash settlement provisions.
If the Company does not
complete a Business Combination, then the proceeds of the sale of the Private Placement Warrants will be part of the liquidating
distribution to the public shareholders and the Private Placement Warrants will expire worthless.
Forward Purchase Agreements
On April 19, 2016, the
Company entered into forward purchase agreements pursuant to which certain investors (“Anchor Investors”) (including
two affiliates of the Sponsor) agreed to purchase an aggregate of 51,000,000 Class A ordinary shares plus an aggregate of 19,083,333
redeemable warrants (one redeemable warrant for every three forward purchase shares purchased) at $10.00 per Class A ordinary share
for an aggregate purchase price of $510 million, in a private placement to occur concurrently with the closing of an initial
Business Combination. In connection with these agreements, the Company issued an aggregate of 3,750,000 founder shares to such
investors. The founder shares issued to such investors are subject to similar contractual conditions and restrictions as the founder
shares issued to the Sponsor. The Anchor Investors will have redemption rights with respect to any public shares they own but have
waived redemption rights with respect to their founder shares. The forward purchase agreements also provide that the investors
are entitled to a right of first offer with respect to any proposed sale of additional equity or equity-linked securities by the
Company for capital raising purposes in connection with the closing of an initial Business Combination (other than shares and warrants
pursuant to forward purchase agreements) and registration rights with respect to the shares, warrants and Class A ordinary shares
underlying the forward purchase warrants.
CF CORPORATION
Notes to Condensed Financial Statements
September 30, 2017
(Unaudited)
On April 22, 2016, the
Company entered into an agreement in connection with the forward purchase agreements described above, pursuant to which Citigroup
Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC agreed to act
as placement agents (the “Placement Agents”) in the related private placement. In connection therewith, the Placement
Agents are entitled to placement agent fees in an aggregate amount of: (i) up to 3.5% of the aggregate proceeds received from the
forward purchase shares (or $17.85 million), contingently payable at the consummation of an initial Business Combination, (ii)
an additional placement agent fee of 0.5% of the aggregate proceeds received from the sales of the forward purchase agreements
(or $2.55 million) at the Company’s sole discretion as determined at the time of the consummation of an initial Business
Combination, and (iii) reimbursement of reasonable legal counsel fees and expenses up to an aggregate amount of $275,000, which
will be paid upon the earlier of the consummation of an initial Business Combination and December 1, 2017.
Due to Related Parties
The Company’s Sponsor
and other related parties have loaned the Company an aggregate amount of $225,733 to be used for the payment of costs related to
the initial public offering. These borrowings are non-interest bearing, unsecured and due on demand. The Company has not yet repaid
this amount as of September 30, 2017.
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 Working Capital Loans. In July 2017, the
Sponsor loaned an aggregate of $750,000 to the Company. If the Company completes a Business Combination, the Company will repay
the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans
will be repaid only out of funds held outside the Trust Account. In the event that the Company does not complete a Business Combination,
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 may be used to repay the Working Capital Loans. 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. The Working Capital Loans will
either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000
of such Working Capital Loans may be convertible into warrants of the post Business Combination entity at a price of $1.00
per warrant. Any such warrants would have identical terms as the Private Placement Warrants.
Administrative Service Fee
The Company has agreed,
commencing on May 25, 2016 through the earlier of the Company’s consummation of a Business Combination and liquidation, to
pay an affiliate of the Sponsor a monthly fee of $10,000 for office space, and secretarial and administrative services. The Company
recorded $30,000 and $0 in expense for the three months ended September 30, 2017 and 2016, respectively, and recorded $90,000 and
$40,000 in expense for the nine months ended September 30, 2017 and for the period from February 26, 2016 (Date of Inception) through
September 30, 2016, respectively.
Note 6 - Commitments & Contingencies
Registration Rights
The Sponsor is entitled
to registration rights pursuant to a registration rights agreement entered into on May 19, 2016 with respect to the founder shares
and Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any Class A ordinary
shares issuable upon the conversion of the founder shares, the exercise of the Private Placement Warrants and warrants that may
be issued upon conversion of Working Capital Loans). The Sponsor may make up to three demands, excluding short form demands, that
the Company register such securities. In addition, the Sponsor has “piggy-back” registration rights with respect to
registration statements filed subsequent to the consummation of a Business Combination. However, the registration rights agreement
provides that the Company will not permit any registration statement filed under the Securities Act to become effective until termination
of the applicable lock-up period. The Company will bear the expenses incurred in connection with the filing of any such registration
statements.
CF CORPORATION
Notes to Condensed Financial Statements
September 30, 2017
(Unaudited)
Pursuant to the forward
purchase agreements described below, the Company agreed to file within 30 days after the closing of the Business Combination a
registration statement for a secondary offering of the forward purchase shares and the forward purchase warrants (and underlying
Class A ordinary shares) and to maintain the effectiveness of such registration statement until the earliest of (A) the
date on which the Anchor Investors cease to hold the securities covered thereby, (B) the date all of the securities covered thereby
can be sold publicly without restriction or limitation under Rule 144 under the Securities Act and (C) the second anniversary of
the date of effectiveness of such registration statement, subject to certain conditions and limitations set forth in the forward
purchase agreements.
Underwriting Agreement
The Company granted the
underwriters a 45-day option to purchase up to 9,000,000 additional units to cover over-allotments at the initial public offering
price less the underwriting discounts and commissions. The underwriters fully exercised the Over-allotment on June 29, 2016, generating
additional gross proceeds of $90 million.
The Company paid $0.20
per unit, or $13.8 million in the aggregate, to the underwriters, upon the closing of the initial public offering. $0.35 per unit,
or $24.15 million in the aggregate will be payable to the underwriters for deferred underwriting commissions. The deferred fee
will become payable to the underwriter 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.
Note 7 - Shareholders’ Equity
Class A ordinary
shares
- The Company is authorized to issue 400,000,000 Class A ordinary shares with a par value of $0.0001
per share. Holders of the Company’s Class A ordinary shares are entitled to one vote for each share. At September 30, 2017
and December 31, 2016, there were 69,000,000 Class A ordinary shares issued and outstanding, including 62,337,495 and 64,066,643
shares of Class A ordinary shares subject to possible redemption, respectively.
Class B ordinary
shares (founder shares)
- The Company is authorized to issue 50,000,000 Class B ordinary shares with a par value of $0.0001
per share. Holders of the Company’s Class B ordinary shares are entitled to one vote for each share. The founder shares will
automatically convert into Class A ordinary shares on the first business day following the consummation of the initial Business
Combination. The ratio at which founder shares will convert into Class A ordinary shares will be such that the number of Class
A ordinary shares issuable upon conversion of all founder shares will equal, in the aggregate, on an as-converted basis, 20% of
the sum of (i) the total number of Class A ordinary shares outstanding upon the completion of the initial public offering
(including the Over-allotment), plus (ii) the sum of (a) the total number of Class
A ordinary shares 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 (including
forward purchase shares, but not forward purchase warrants), excluding any Class A ordinary shares or equity-linked securities
exercisable for or convertible into Class A ordinary shares issued, or to be issued, to any seller in the initial Business Combination
and any Private Placement Warrants issued to the Sponsor upon conversion of Working Capital Loans, minus (b) the number of public
shares redeemed by public shareholders in connection with the initial Business Combination.
As of September 30, 2017
and December 31, 2016, the Company had 15,000,000 founder shares issued and outstanding.
Holders of Class A ordinary
shares and Class B ordinary shares will vote together as a single class on all matters submitted to a vote of shareholders except
as required by law, except that prior to a Business Combination, only holders of Class B ordinary shares have the right to elect
the Company’s directors.
Preferred shares
-
The Company is authorized to issue 1,000,000 preferred shares with a par value of $0.0001 per share. At September 30, 2017 and
December 31, 2016, there were no preferred shares issued or outstanding.
CF CORPORATION
Notes to Condensed Financial Statements
September 30, 2017
(Unaudited)
Warrants
-
The Public Warrants will become exercisable on the later of (a) 30 days after the completion of a Business Combination
and (b) May 26, 2017; provided in each case that the Company has an effective registration statement under the Securities Act covering
the Class A ordinary shares 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 a Business Combination, the Company will use its best efforts to file with the SEC a registration statement
for the registration, under the Securities Act, of the Class A ordinary shares issuable upon exercise of the Public Warrants. The
Company will use its best efforts to cause the same to become effective and to maintain the effectiveness of such registration
statement, and a current prospectus relating thereto, until the expiration of the Public Warrants in accordance with the provisions
of the warrant agreement. If a registration statement covering the Class A ordinary shares issuable upon exercise of the warrants
is not effective by the sixtieth (60th) 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. The Public Warrants will expire five years after the completion of a Business Combination or earlier
upon redemption or liquidation.
The Private Placement
Warrants are identical to the Public Warrants underlying the units sold in the initial public offering, except that the Private
Placement Warrants and the Class A ordinary shares issuable upon exercise of the Private Placement Warrants will not be transferable,
assignable or salable until 30 days after 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 its permitted transferees. If
the Private Placement Warrants are held by someone other than the Sponsor or its 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.
The Company may call the
Public Warrants for:
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in whole and not in part;
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at a price of $0.01 per warrant;
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upon a minimum of 30 days prior written notice of redemption; and
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if, and only if, the last reported sales price of the ordinary shares equals or exceeds $18.00 per share 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.
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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. In no event will the Company be required to net cash settle its warrants. 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 8 - Merger Agreement
Merger Consideration
Pursuant to the Merger
Agreement, at the time of closing (the “Effective Time”), each issued and outstanding share of FGL common stock, par
value $0.01 per share (the “FGL Common Stock”), immediately prior to the Effective Time (other than any shares of FGL
Common Stock owned by FGL as treasury stock or by any FGL subsidiary or owned by the Company, Parent, Merger Sub or any other subsidiary
of the Company,
which will be cancelled and no payment will be made with respect thereto),
and
shares granted pursuant to FGL’s equity plan, will be cancelled and converted automatically into the right
to receive $31.10 in cash, without interest (the “Merger Consideration”). The Merger Agreement permits FGL to pay out
a regular quarterly cash dividend on FGL Common Stock prior to the closing of the transaction (the “Closing”) in an
amount not in excess of $0.065 per share, per quarter (the per share amount of FGL’s most recently declared quarterly dividend).
CF CORPORATION
Notes to Condensed Financial Statements
September 30, 2017
(Unaudited)
At the Effective Time,
each (i) option to purchase shares of FGL Common Stock, (ii) restricted share of FGL Common Stock and (iii) performance-based restricted
stock unit relating to shares of FGL Common Stock, in each case, whether vested or unvested, will become fully vested and automatically
converted into the right to receive a cash payment equal to the product of (1) the number of shares subject to the award (for restricted
stock units, determined at the target performance level), multiplied by (2) the Merger Consideration (less the exercise price per
share in the case of stock options). Each stock option and restricted stock unit relating to shares of Fidelity & Guaranty
Life Holdings, Inc., a subsidiary of FGL (“FGLH”), whether vested or unvested, will become fully vested and automatically
converted into the right to receive a cash payment equal to the product of (A) the number of shares of FGLH stock subject to the
award, multiplied by (B) $176.32 (less the exercise price in the case of such stock options), and each dividend equivalent held
in respect of a share of FGLH stock (a “DER”), whether vested or unvested, will become fully vested and automatically
converted into the right to receive a cash payment equal to the amount accrued with respect to such DER.
During the three and nine
months ended September 30, 2017, the Company incurred approximately $14.2 million in expenses related to the merger with FGL.
Representations, Warranties and Covenants
The Merger Agreement contains
customary representations, warranties and covenants by the Company, Parent, Merger Sub and FGL.
Conditions to Closing
Consummation of the FGL
Business Combination is subject to satisfaction or waiver of customary closing conditions, including, among others, approval by
the Company’s shareholders of the Merger Agreement and the issuance of the Company’s ordinary shares in connection
with the FGL Business Combination, approval by FGL’s stockholders and delivery at least twenty (20) days prior to the
Closing of an information statement to be filed with (and cleared by) the SEC.
Following the execution
of the Merger Agreement, FS Holdco II Ltd. (“FS Holdco”), a wholly owned subsidiary of HRG Group, Inc. (“HRG”)
and FGL’s majority stockholder, executed and delivered to FGL and the Company an irrevocable written consent approving and
adopting the Merger Agreement and the transactions contemplated thereby. As a result, the holders of a majority of the outstanding
shares of FGL Common Stock have adopted and approved the Merger Agreement.
Termination
The Merger Agreement contains
customary termination rights, including, among others, (i) by mutual written consent of the Company and FGL, (ii) by the Company
or FGL if the FGL Business Combination is prohibited by law, (iii) by the Company or FGL if the Company does not obtain approval
of its shareholders and (iv) by the Company or FGL if the FGL Business Combination is not consummated prior to January 24, 2018,
subject to extension under certain circumstances. Upon termination of the Merger Agreement under specified circumstances, FGL may
be required to pay a termination fee to the Company in an aggregate amount of $50,000,000.
In addition, Blackstone
Tactical Opportunities Fund II L.P. (“BTO Fund”), certain affiliated funds of GSO Capital Partners LP (“GSO”)
and Fidelity National Financial, Inc. (“FNF”) have executed limited guaranties in favor of FGL to guarantee, in the
event of the termination of the Merger Agreement as a result of the Company’s, Parent’s or Merger Sub’s intentional
and material breach or fraud, the payment of a portion of any damages determined in a final judgment by a court or governmental
authority or pursuant to a settlement by written agreement of the parties to the Merger Agreement, up to a specified portion of
the total transaction value.
Equity Commitment Letters
In connection with the
Merger Agreement, the Company obtained the following equity commitment letters for the purpose of funding the FGL Business Combination
consideration and related transactions and paying the costs and expenses incurred in connection therewith (the “Equity Commitment
Letters”):
CF CORPORATION
Notes to Condensed Financial Statements
September 30, 2017
(Unaudited)
BTO Fund Equity Commitment Letter
Pursuant to equity commitment
letters (the “BTO Fund Equity Commitment Letters”) from BTO Fund, dated as of May 24, 2017, BTO Fund has committed,
on the terms and subject to the conditions set forth therein, at the Closing, to purchase, or cause the purchase of, equity of
the Company for an aggregate cash purchase price of $225 million (the “BTO Fund Commitment”). BTO Fund is an investment
fund under common control with CFS Holdings (Cayman) L.P. (“CFS”), a shareholder of the Company and a party to the
forward purchase agreements.
The obligation of BTO
Fund to fund the BTO Fund Commitment will terminate automatically and immediately upon the earliest to occur of (a) the Closing,
(b) the termination of the Merger Agreement and (c) FGL or any of its affiliates or representatives asserting any claim against
BTO Fund in connection with the Merger Agreement or the Share Purchase Agreement (as defined below), as applicable, or any of the
transactions contemplated by the BTO Fund Equity Commitment Letters or the Merger Agreement or Share Purchase Agreement, as applicable,
subject to certain exceptions.
FNF Equity Commitment Letters
Pursuant to equity commitment
letters (the “FNF Equity Commitment Letters”) from FNF, dated as of May 24, 2017, FNF has committed, on the terms and
subject to the conditions set forth therein, at the Closing, to purchase, or cause the purchase of, equity of the Company for an
aggregate cash purchase price equal to (x) $235 million plus (y) up to an aggregate of $195 million to offset any redemptions of
the Company’s
ordinary shares
in connection with the shareholder vote
to approve the FGL Business Combination on or after the date of the FNF Equity Commitment Letters and prior to the Closing (the
“FNF Commitment”). The Company’s Co-Executive Chairman, William P. Foley, II, is also the non-executive Chairman
of the Board of FNF.
The obligation of FNF
to fund the FNF Commitment will terminate automatically and immediately upon the earliest to occur of (a) the Closing (upon funding),
(b) the termination of the Merger Agreement and (c) FGL or any of its affiliates or representatives asserting any claim against
FNF in connection with the Merger Agreement or the Share Purchase Agreement, as applicable, or any of the transactions contemplated
by the FNF Equity Commitment Letters or the Merger Agreement or Share Purchase Agreement, as applicable, subject to certain exceptions.
GSO Equity Commitment Letters
Pursuant to equity commitment
letters (the “GSO Equity Commitment Letters”) from GSO, dated as of May 24, 2017, GSO has committed, on the terms and
subject to the conditions set forth therein, to purchase, or cause the purchase of, preferred shares of the Company for an aggregate
cash purchase price equal to (x) $275 million plus (y) up to an aggregate of $465 million to offset any redemptions of the Company’s
ordinary shares in connection with the shareholder vote to approve the FGL Business Combination on or after the date of the GSO
Equity Commitment Letters and prior to the Closing (the “GSO Commitment”).
The obligation of GSO
to fund the GSO Commitment will terminate automatically and immediately upon the earliest to occur of (a) the Closing (upon funding),
(b) the termination of the Merger Agreement and (c) FGL or any of its affiliates or representatives asserting any claim against
GSO in connection with the Merger Agreement or the Share Purchase Agreement, as applicable, or any of the transactions contemplated
by the GSO Equity Commitment Letters or the Merger Agreement or Share Purchase Agreement, as applicable, subject to certain exceptions.
Forward Purchase Backstop Equity Commitment Letters
Pursuant to equity commitment
letters (the “Forward Purchase Backstop Equity Commitment Letters”) from BTO Fund and FNF, dated as of May 24, 2017,
(i) BTO Fund has committed, on the terms and subject to the conditions set forth therein, at the Closing, to purchase, or cause
the purchase of, equity of the Company for an aggregate cash purchase price equal to one-third (1/3) of the aggregate amount, if
any, not funded by one or more purchasers under the forward purchase agreements at or prior to the closing pursuant to the forward
purchase agreements (the “FPA Shortfall”), up to an aggregate amount of $100 million, and (ii) FNF has committed, on
the terms and subject to the conditions set forth therein, at the Closing, to purchase, or cause the purchase of, equity of the
Company for an aggregate cash purchase price equal to two-thirds (2/3) of the FPA Shortfall, up to an aggregate amount of $200
million (the “Forward Purchase Backstop Commitments”).
CF CORPORATION
Notes to Condensed Financial Statements
September 30, 2017
(Unaudited)
In exchange for providing
the Forward Purchase Backstop Commitments, promptly following the closing, the Company will pay to BTO Fund or its designated affiliate
the amount of $1.5 million and to FNF the amount of $3.0 million, with such amounts payable whether or not any portion of the Forward
Purchase Backstop Commitment is ultimately required to be funded. BTO Fund and FNF have agreed to forego receiving such fees in
light of the additional commitments of the Anchor Investors to purchase 20,000,000 ordinary shares in connection with the rights
of first offer set forth in the forward purchase agreements.
The obligation of the
parties to the Forward Purchase Backstop Equity Commitment Letters (the “Forward Purchase Backstop Parties”) to fund
the Forward Purchase Backstop Commitments will terminate automatically and immediately upon the earliest to occur of (a) the Closing
(upon funding), (b) the termination of the Merger Agreement in accordance with its terms and (c) FGL or any of its affiliates or
representatives asserting any claim against any Forward Purchase Backstop Party in connection with the Merger Agreement or Share
Purchase Agreement, as applicable, or any of the transactions contemplated by the Forward Purchase Backstop Equity Commitment Letters
or the Merger Agreement or Share Purchase Agreement, as applicable, subject to certain exceptions.
The Equity Commitment
Letters include an aggregate of $57 million in commitments that relate to the Company’s purchase of the Acquired Companies
(as defined below) pursuant to the Share Purchase Agreement , of which $23 million would be used to offset a portion of net redemptions,
if any, by public shareholders of the Company in connection with the shareholder vote to approve the FGL Business Combination and
$9 million would be used to fund any FPS Shortfall.
Investor Agreement
On October 6, 2017, the Company entered
into a second amended and restated investor agreement (the “Investor Agreement”) with BTO Fund, GSO and FNF (collectively,
“the Investor Agreement Parties”), which amended and restated the amended and restated investor agreement, dated as
of June 6, 2017, pursuant to which the Company agreed that, without the Investor Agreement Parties’ prior written consent,
the Company would not amend, modify, grant any waiver under or seek to terminate any of the transaction agreements relating to
the FGL Business Combination, or take any action concerning settlements, stipulations or judgments relating to government authorities
or make any regulatory filings contemplated by the Merger Agreement, subject in each case to certain exceptions and qualifications.
Pursuant to the Investor
Agreement, the terms of the equity to be issued pursuant to the Equity Commitment Letters will be as follows:
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With respect to the BTO Fund Commitment under the BTO Fund Equity Commitment Letters, BTO Fund will purchase ordinary shares. BTO Fund will receive one ordinary share in exchange for each $10.00 funded pursuant to its equity commitment letters.
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With respect to the FNF Commitment described in the FNF Equity
Commitment Letters, FNF will purchase (i) $135 million of newly issued ordinary shares for $10.00 per share and (ii) $100 million,
plus additional amounts, if any, pursuant to FNF’s commitment to offset redemptions of public shares in connection with the
FGL Business Combination, of preferred shares of the Company on the terms set forth in the Investor Agreement and warrants of the
Company on the terms as set forth in the FNF Fee Letter (as defined below). The terms of the preferred shares to be issued to FNF
set forth in the Investor Agreement are identical to those set forth in the GSO Side Letter described below. FNF will also have
the right, provided that FNF has first requested the Company to remarket the preferred shares, commencing 10 years after the issuance
of the preferred shares, to convert such shares into a number of ordinary shares of the Company as determined by dividing (i) the
aggregate par value (including dividends paid in kind and unpaid accrued dividends) of the preferred shares that FNF wishes to
convert by (ii) the higher of (a) a 5% discount to the 30-day volume weighted average price (“VWAP”) of the ordinary
shares following the conversion notice, and (b) the then-current Floor Price. The “Floor Price” will be $8.00 per share
during the 11th year post-funding, $7.00 per share during the 12th year post-funding, and $6.00 during the 13th year post-funding
and thereafter.
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With respect to the GSO Commitment under the GSO Equity Commitment Letters, GSO will purchase preferred shares and be issued warrants of the Company on the terms set forth in the GSO Side Letter (as defined below).
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In the event that public shareholders redeem their public shares in connection with the FGL Business Combination, a certain portion of the GSO Commitment and the FNF Commitment, as described in their respective equity commitment letters, shall be allocated
pro rata
based on their aggregate commitments thereunder.
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With respect to the Forward Purchase Backstop Equity Commitment Letters, each of FNF and BTO Fund will purchase ordinary shares and one-third (1/3) of one detachable warrant (with such warrants having the same terms as the forward purchase warrants). BTO Fund will receive one ordinary share and one-third (1/3) of a warrant in exchange for each $10.00 funded pursuant to the Forward Purchase Backstop Equity Commitment Letters. In addition, FNF and BTO Fund will together purchase ordinary shares equal to the number of ordinary shares that the purchasers under the forward purchase agreements who fail to fund, if any, would have acquired pursuant to the forward purchase agreements in connection with the FGL Business Combination (including pursuant to the conversion of founder shares into ordinary shares). FNF will purchase two-thirds (2/3) of such ordinary shares, if any, and BTO will purchase one-third (1/3) of such ordinary shares, if any.
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CF CORPORATION
Notes to Condensed Financial Statements
September 30, 2017
(Unaudited)
The Investor Agreement
further provides that the Investor Agreement Parties will receive registration rights on customary terms with respect to the ordinary
shares, preferred shares and warrants (and the ordinary shares underlying such warrants) issued pursuant to the Equity Commitment
Letters.
GSO Side Letter
On May 24, 2017, the
Company entered into a side letter agreement, as amended on October 6, 2017, with GSO (the “GSO Side Letter”), which
provides that the terms of the preferred shares to be issued to GSO will include: a dividend rate of 7.5% per annum (subject to
increase in the period beginning 10 years after issuance based on the then-current LIBOR rate), payable quarterly in cash or additional
preferred shares of the Company, at the Company’s option; five year call protection; and the right of holders thereof to
request the Company to re-market the preferred shares commencing in the sixth year following issuance, subject to the terms and
conditions specified therein. In addition, GSO will also have the right, commencing 10 years after the issuance of the preferred
shares, provided that GSO has first requested the Company to remarket the preferred shares as described below, to convert such
shares into a number of ordinary shares of the Company as determined by dividing (i) the aggregate par value (including dividends
paid in kind and unpaid accrued dividends) of the preferred shares that GSO wishes to convert by (ii) the higher of (a) a 5% discount
to the 30-day VWAP of the ordinary shares following the conversion notice, and (b) the then-current Floor Price.
From the fifth anniversary
of the funding date, upon GSO’s request, the Company is required (subject to customary black-out provisions) to re-market
the preferred equity its existing terms. To the extent market conditions make such re-marketing impracticable, the Company
may temporarily delay such re-marketing provided that the preferred equity is re-marketed within six months of the date of GSO’
initial request. To the extent it is unlikely that remarketing the preferred shares on the then existing terms will receive
a valuation by a prospective purchaser of par or greater than par, the Company may, upon GSO’s request, modify the terms
of the preferred shares to improve the sale of such shares with the intention of preserving rating agency equity credit. If the
proceeds from any sales resulting from such marketing are less than the outstanding balance of the applicable preferred shares
(including dividends paid in kind and unpaid accrued dividends), the Company will reimburse GSO up to a maximum of 10% of par (including
paid in kind and unpaid accrued dividends) for actual losses incurred by GSO upon the sale of its preferred shares under the terms
of the remarketing mechanism, with such amount payable either in cash, ordinary shares, or any combination thereof, at the Company’s
option. If the Company chooses to deliver ordinary shares to GSO, the number of such shares to be delivered will be determined
by dividing (i) the amount of actual losses to be paid to GSO by (ii) the higher of (a) an 8% discount to the 30-day VWAP of the
ordinary shares following the remarketing period, and (b) $6.00.
The terms of the preferred
equity are expected to include customary covenants for senior preferred equity, including limitations on debt incurrence, equity
issuances and payments of dividends, and covenants requiring compliance with a set of financial covenants, affirmative covenants
and negative covenants that mirror those contained in the credit facility documentation in effect as of the funding date. The preferred
equity will rank senior in priority to all other existing and future equity securities of the Company with respect to distribution
rights and liquidation preference. In addition, holders of preferred equity are expected to have board observation and customary
registration rights with respect to such shares.
Pursuant to the GSO
Side Letter, for the period from the date of the GSO Side Letter until the earlier of (a) the mutual agreement by the parties thereto
not to execute definitive documentation relating to the GSO Commitment, (b) the date of Closing (the “Closing Date”),
and (c) the first anniversary of the GSO Side Letter, the Company agreed (i) not to, directly or indirectly solicit, participate
in any negotiations or discussion with or provide or afford access to information to any third party with respect to, or otherwise
effect, facilitate, encourage or accept any offers for the purchase or provision of the preferred equity to be issued to GSO pursuant
to the GSO Commitment Letters (the “GSO Preferred Equity”) or any alternative equity or debt financing arrangements,
in each case, to be put in place in connection with the FGL Business Combination in replacement of the GSO Preferred Equity or
any portion thereof (other than pursuant to the Equity Commitment Letters, forward purchase agreements or the debt commitment letter),
and (ii) if the FGL Business Combination is not consummated and the Company pursues an alternative transaction with FGL within
the period ending on the first anniversary of the GSO Side Letter, and another financing source or institution proposes to provide
financing in connection with such alternative transaction, the Company will provide GSO a reasonable opportunity to provide such
financing in lieu of any other financing source or institution on equivalent terms.
CF CORPORATION
Notes to Condensed Financial Statements
September 30, 2017
(Unaudited)
Amendment Fees
As consideration
for amending and restating the Investor Agreement on October 6, 2017 to better align the terms of the preferred shares with the
requirements of the rating agencies, the Company agreed to pay $1.1 million to FNF or one or more of its designees at the Closing.
As consideration for entering into the amendment to the GSO Side Letter on October 6, 2017 to better align the terms of the preferred
shares with the requirements of the rating agencies, the Company agreed to pay $2.9 million to GSO or to one or more of its designees
at the Closing.
GSO Fee Letter
As consideration for
the GSO Commitment (including the backstop commitment) and the agreements of GSO under the GSO Commitment Letters, limited guaranty
and the GSO Side Letter, the Company also entered into a fee letter agreement with GSO, dated May 24, 2017 (the “GSO Fee
Letter”), pursuant to which the Company has agreed to pay to GSO the following fees at Closing:
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the original issue discount of $5.5 million in respect of the preferred shares issued to GSO (the “GSO OID”);
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a commitment fee of $6.975 million (the “GSO Commitment Fee”);
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|
|
|
|
·
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penny warrants convertible, in the aggregate, for 3.3% of the Company’s ordinary shares (on a fully diluted basis) (the “GSO Investment Warrants”); and
|
|
|
|
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·
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if, and to the extent, any amount of the preferred equity under GSO’s backstop commitment is funded (the “GSO Backstop Equity”), then (x) a funding fee of 0.5% of the amount of the GSO Backstop Equity that is funded (together with the GSO OID and the GSO Commitment Fee, the “GSO Closing Payments”), and (y) penny warrants attached to the GSO Backstop Equity that are convertible, in the aggregate, for the result of (1) the proportion of the GSO Backstop Equity that is funded, and (2) 3.5% of the Company’s ordinary shares (on a fully diluted basis) (together with the GSO Investment Warrants, the “GSO Warrants”).
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The GSO Closing Payments
will be paid as a reduction of the purchase price payable by GSO for the preferred equity under the GSO Commitment Letters. The
Company has also agreed to pay or reimburse GSO for fees and expenses of counsel in connection with GSO’s anticipated purchase
of the preferred equity.
CF CORPORATION
Notes to Condensed Financial Statements
September 30, 2017
(Unaudited)
FNF Fee Letter
As consideration for
the FNF Commitment (including the backstop commitment) and the agreements of FNF under the FNF Commitment Letters and limited guaranty,
the Company also entered into a fee letter agreement with FNF (the “FNF Fee Letter”), dated May 24, 2017, pursuant
to which the Company has agreed to pay to FNF the following fees at Closing:
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·
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the original issue discount of $2.0 million in respect of the preferred shares issued to FNF (the “FNF OID”)
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·
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a commitment fee of $2.925 million (the “FNF Commitment Fee”);
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·
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penny warrants convertible, in the aggregate, for 1.2% of the Company’s ordinary shares (on a fully diluted basis) (the “FNF Investment Warrants”); and
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·
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if, and to the extent, any amount of the preferred equity under FNF’s backstop commitment is funded (the “FNF Backstop Equity”), (x) a funding fee of 0.5% of the amount of the FNF Backstop Equity that is funded (together with the FNF OID and the FNF Commitment Fee, the “FNF Closing Payments”), and (y) penny warrants attached to the FNF Backstop Equity that are convertible, in the aggregate, for the result of (1) the proportion of the FNF Backstop Equity that is funded, and (2) 1.5% of the Company’s ordinary shares (on a fully diluted basis) (together with the FNF Investment Warrants, the “FNF Warrants”).
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The FNF Closing Payments
will be paid as a reduction of the purchase price payable by FNF for the preferred equity under the FNF Equity Commitment Letters.
The Company has also agreed to pay or reimburse FNF for fees and expenses of counsel in connection with FNF’s anticipated
purchase of the preferred equity.
Debt Commitment Letter
On May 24, 2017, Parent,
an indirect wholly owned subsidiary of the Company, entered into a commitment letter with Royal Bank of Canada (“RBC”)
and RBC Capital Markets, LLC (the “Debt Commitment Letter”), pursuant to which RBC committed to make available to Parent
and a co-borrower to be determined by Parent and BTO Fund (collectively with its affiliates and Parent, the “Debt Sponsors”)
in accordance with the terms of the Debt Commitment Letter, on the Closing Date, to the extent the specified borrowers do not receive
$425 million of gross proceeds from the issuance of senior unsecured notes on the Closing Date, $425 million of senior unsecured
increasing rate loans (“Bridge Loans”) for the purpose of, among other things, repaying and terminating the existing
indebtedness of FGLH, a wholly owned subsidiary of FGL, under its revolving credit facility and senior unsecured notes indenture.
To the extent that the Debt Sponsors or Parent elect to not repay and terminate such existing indebtedness of FGLH on or prior
to the Closing Date, then the commitments of RBC in respect of the Bridge Loans will be reduced in accordance with the terms of
the Debt Commitment Letter.
As consideration
for the debt commitment, the Company is required to make a commitment fee equal to 1.25% of the amount of the Bridge Loans
(or approximately $5.3 million), whether or not any Bridge Loans are made. The Company recognized this fee as a prepaid and
other current asset and a corresponding liability in the accompanying Balance Sheet as of September 30, 2017.
The Bridge Loans will
accrue interest at a rate of LIBOR plus 5.25% for the first three months following the Closing Date. Thereafter, the interest rate
will increase by 0.50% every three months up to an amount agreed between Parent and RBC. The Bridge Loans will mature on the first
anniversary of the Closing Date (the “Maturity Date”). On the Maturity Date, any Bridge Loan that has not been previously
repaid in full will be automatically converted into a senior unsecured term loan that is due on the date that is eight years after
the Closing Date.
On May 31, 2017, Parent,
RBC, RBC Capital Markets, LLC, Bank of America, N.A. (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith
Incorporated entered into an amended and restated Debt Commitment Letter, pursuant to which Bank of America became an Initial Lender
(as defined in the Debt Commitment Letter) and has agreed to provide 50% of the Bridge Loans.
CF CORPORATION
Notes to Condensed Financial Statements
September 30, 2017
(Unaudited)
Amendments to Forward Purchase Agreements
On May 24, 2017, the
Company entered into amendments (the “FPA Amendments”) to the forward purchase agreements to which it and BilCar, LLC,
CC Capital Management, LLC and CFS (the “Amendment Parties”) are parties, pursuant to which the Amendment Parties agreed,
among other things, to add FGL as a third party beneficiary of such forward purchase agreements, to prohibit assignments and amendments
of such forward purchase agreements without FGL’s consent and to entitle FGL to specific performance of such forward purchase
agreements. Furthermore, the FPA Amendment to the forward purchase agreement with CFS provides that CFS shall not be excused from
its obligation to purchase the Forward Purchase Securities (as defined in the forward purchase agreements) in connection with the
FGL Business Combination without the consent of FGL.
FSRD Share Purchase Agreement
On May 24, 2017, the Company and Parent entered into a
share purchase agreement (the “Share Purchase Agreement”) with HRG, Front Street Re (Delaware) Ltd.
(“FSRD”), a Delaware corporation and a wholly owned indirect subsidiary of HRG, Front Street Re (Cayman) Ltd., an
exempted company incorporated in the Cayman Islands with limited liability (“Front Street Cayman”), and Front
Street Re Ltd., an exempted company incorporated in Bermuda with limited liability (together with Front Street Cayman, the
“Acquired Companies”), pursuant to which, subject to the terms and conditions set forth therein, Parent has
agreed to purchase from FSRD all of the issued and outstanding shares of the Acquired Companies. The purchase price will be
$65 million, subject to customary adjustments for transaction expenses. The definitive documentation contains customary
representations, warranties and indemnification obligations. HRG has further agreed to reduce the purchase price, and to
indemnify Parent, for dividends and other value transfers by the Acquired Companies to HRG and its affiliates from December
31, 2016 through the Closing. The Closing of the transaction is subject to the satisfaction of customary closing conditions,
including receipt of required regulatory approvals, as well as the consummation of the FGL Business Combination. As
noted above, in connection therewith, the Company entered into equity commitment letters with BTO Fund, GSO and FNF and a
forward purchase agreement backstop letter agreement with BTO Fund and FNF for an aggregate amount of $57 million, $23
million of which would be used to offset a portion of net redemptions, if any, by public shareholders of the Company in
connection with the shareholder vote to approve the FGL Business Combination and $9 million of which would be used to fund
any FPA Shortfall.
In addition, on May
24, 2017, the Company, HRG, FS Holdco and Parent agreed that FS Holdco may, at its option, cause Parent and FS Holdco to make a
joint election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended, with respect to the FGL Business Combination
and the deemed stock purchases of FGL’s subsidiaries. Such an election is only applicable to HRG and could have the effect
of reducing the amount of taxable gain taken into account by HRG in connection with the FGL Business Combination. In the event
FS Holdco elects to make such an election, it will be required to pay Parent $30 million, plus the amount, if any, by which FGL’s
and its subsidiaries’ incremental current tax costs that are attributable to such election exceed $6 million, and Parent
will be required to pay FS Holdco the amount, if any, by which FGL’s and its subsidiaries’ incremental current tax
savings that are attributable to such election exceed $6 million.
ROFO Offering
On June 21, 2017,
the Company entered into equity purchase agreements (the “Purchase Agreements”) with certain accredited investors (the
“Equity Purchasers”) in connection with the rights of first offer under the forward purchase agreements. Pursuant to
the Purchase Agreements, the Equity Purchasers agreed to purchase, on the terms and subject to the conditions specified therein,
an aggregate of 20,000,000 Class A ordinary shares of the Company for a purchase price of $10.00 per share, immediately prior to
the Closing. At the Company’s option, such shares may be purchased from the Company in a
private placement and/or from the Company’s shareholders who have validly requested for their shares to be redeemed in connection
with the FGL Business Combination. Certain of the Equity Purchasers, including Keith W. Abell, Richard N. Massey and James A. Quella,
each of whom is an independent director of the Company, are also party to the forward purchase agreements. In connection with the
Purchase Agreements, the Company has agreed to pay advisory fees of an aggregate of $8.0 million to certain financial advisors
at the Closing.
Note 9 - Fair Value Measurements
The following table
presents information about the Company’s assets that are measured on a recurring basis as of September 30, 2017 and December
31, 2016 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value.
CF CORPORATION
Notes to Condensed Financial Statements
September 30, 2017
(Unaudited)
September 30, 2017
|
|
Quoted Prices
|
|
|
Significant Other
|
|
|
Significant Other
|
|
|
|
in Active Markets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
Description
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Investments and cash equivalents held in Trust Account
|
|
$
|
693,802,061
|
|
|
$
|
-
|
|
|
$
|
-
|
|
December 31, 2016
|
|
Quoted Prices
|
|
|
Significant Other
|
|
|
Significant Other
|
|
|
|
in Active Markets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
Description
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Investments and cash equivalents held in Trust Account
|
|
$
|
690,887,027
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately $148,000
and $30,000 of the balance in the Trust Account was held in cash as of September 30, 2017 and December 31, 2016, respectively.