FILED PURSUANT TO RULE 424(B)(3)
FILE NO. 333-230950
ONESPAWORLD HOLDINGS LIMITED
SUPPLEMENT NO. 7 TO
PROSPECTUS
DATED MAY 16, 2019
THE DATE OF THIS SUPPLEMENT IS APRIL 29, 2020
This prospectus supplement (this Supplement No. 7) is part of the prospectus of OneSpaWorld Holdings Limited (the Company), dated
May 16, 2019 (as previously supplemented, the Prospectus). This Supplement No. 7 supplements, modifies or supersedes certain information contained in the Prospectus. Any statement in the Prospectus that is modified or
superseded is not deemed to constitute a part of the Prospectus, except as modified or superseded by this Supplement No. 7. Except to the extent that the information in this Supplement No. 7 modifies or supersedes the information contained
in the Prospectus, this Supplement No. 7 should be read, and will be delivered, with the Prospectus. This Supplement No. 7 is not complete without, and may not be utilized except in connection with, the Prospectus.
The purpose of this Supplement No. 7 is to update and supplement the information in the Prospectus with the information contained in the Companys
Amendment No. 1 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the Securities and Exchange Commission (SEC) on April 29, 2020, which is
attached hereto.
Investing in our securities involves risks. See Risk Factors beginning on page 16 of
the Prospectus to read about factors you should consider before buying our common shares and warrants.
We are an emerging growth company
as defined under the federal securities laws and, as such, we intend to comply with reduced disclosure and regulatory requirements.
Neither the SEC
nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy of this Supplement No. 7 or the Prospectus. Any representation to the contrary is a criminal offense.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
☒
|
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the fiscal year ended December 31,
2019
OR
☐
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TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from ________
to__________
Commission File Number:
001-38843
OneSpaWorld Holdings Limited
(Exact name of registrant as specified in its
charter)
Commonwealth of The
Bahamas
|
Not
Applicable
|
(State or other
jurisdiction of
incorporation or
organization)
|
(I.R.S. Employer
Identification
No.)
|
|
|
Harry B. Sands,
Lobosky Management Co. Ltd.
Shirley House
253 Shirley
Street
P.O. Box
N-624
City of
Nassau, Island of New Providence,
Commonwealth of The
Bahamas
|
Not
Applicable
|
(Address of
principal executive offices)
|
(Zip code)
|
Registrant’s telephone
number, including area code: (242) 356-0006
Securities registered pursuant to Section 12(b) of
the Act:
Title of each
class
|
|
Trading
Symbol(s)
|
|
Name of each
exchange on
which
registered
|
Common Shares, par
value (U.S.) $0.0001 per share
|
|
OSW
|
|
The Nasdaq Capital
Market
|
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐Yes ☒ No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. ☐Yes ☒ No
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ☒ Yes ☐ No.
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
|
☐
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|
Accelerated filer
|
☐
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Non-accelerated filer
|
☒
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|
Smaller reporting company
|
☐
|
|
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Emerging growth company
|
☒
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act). ☐Yes ☒ No
The aggregate market value of the
registrant’s common shares held by non-affiliates was $810,087,550 as of June 28, 2019, based on the closing price of the common stock on the Nasdaq Capital Market on June 28, 2019, which is the last business day of the registrant’s most
recently completed second fiscal quarter. For the sole purpose of this calculation, only shares held by members of the board of directors of the registrant were deemed to be held by affiliates of the registrant. This determination of affiliate
status is not necessarily conclusive for other purposes.
As of December 31, 2019, the registrant had 61,119,398 common shares outstanding.
EXPLANATORY NOTE
This Amendment No. 1 on Form
10-K/A (this “Amendment”) amends OneSpaWorld Holdings Limited’s (collectively with its consolidated subsidiaries, “OneSpaWorld,” the “Company,” “we,” “our” or “us”) Annual
Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 30, 2020 (the “Original Filing”).
This Amendment is being filed
for the purpose of providing the information required by Items 10 through 14 of Part III of the Annual Report on Form 10-K. This information was previously omitted from the Original Filing in reliance on General Instruction G(3) to the Annual Report
on Form 10-K, which permits the above-referenced Items to be incorporated in the Annual Report on Form 10-K by reference from a definitive proxy statement, if such definitive proxy statement is filed no later than 120 days after December 31, 2019.
At this time, the Company is filing this Amendment to include Part III information in its Annual Report on Form 10-K because the Company does not intend to file a definitive proxy statement within 120 days of December 31, 2019.
In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Items 10 through 14 of Part III of the
Original Filing are hereby amended and restated in their entirety. In addition, pursuant to Rule 12b-15 under the Exchange Act, the Company is including Item 15
of Part IV with this Amendment, solely to file the certifications required under Section 302 of the Sarbanes-Oxley Act of 2002; however, paragraphs 3, 4 and 5 of the certifications have been omitted because this Amendment does not contain any
financial statements nor does it contain or amend any disclosure with respect to Items 307 and 308 of Regulation S-K.
Except as described above or as
otherwise expressly provided by the terms of this Amendment, no other changes have been made to the Original Filing. Except as otherwise indicated herein, this Amendment continues to speak as of the date of the Original Filing, and the Company has
not updated the disclosures contained therein to reflect any events that occurred subsequent to the date of the Original Filing. Capitalized terms used herein and not otherwise defined are defined as set forth in the Original Filing.
i
TABLE OF CONTENTS
ii
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Board of Directors and Executive Officers
Our Board of Directors (our
“Board”) consists of ten directors. Information regarding our directors and executive officers, including information they have furnished as to their principal occupations, certain other directorships they hold, or have held, and their
ages as of the date hereof is set forth below. Steven J. Heyer and Andrew R. Heyer, members of our Board, are brothers. Other than Steven J. Heyer and Andrew R. Heyer, there are currently no family relationships among any directors or executive
officers.
Name
|
|
Age
|
|
|
Position
|
Leonard Fluxman
|
|
|
60
|
|
|
Executive Chairman
|
Steven J. Heyer
|
|
|
66
|
|
|
Lead Director
|
Glenn J. Fusfield
|
|
|
56
|
|
|
President, Chief Executive Officer
and Director
|
Marc Magliacano
|
|
|
44
|
|
|
Director
|
Andrew R. Heyer
|
|
|
61
|
|
|
Director
|
Walter F. McLallen
|
|
|
54
|
|
|
Director
|
Jeffrey E. Stiefler
|
|
|
72
|
|
|
Director
|
Michael J. Dolan
|
|
|
72
|
|
|
Director
|
Stephen W. Powell
|
|
|
61
|
|
|
Director
|
Maryam Banikarim
|
|
|
50
|
|
|
Director
|
Stephen B. Lazarus
|
|
|
56
|
|
|
Chief Financial Officer and Chief
Operating Officer
|
Leonard Fluxman is our Executive Chairman. Prior to the Business Combination, he served as the President and Chief Executive Officer of Steiner Leisure from January 2001 and as a director from November 1995.
Mr. Fluxman served as President and Chief Operating Officer of Steiner Leisure from January 1999 through December 2000. From November 1995 through December 1998, Mr. Fluxman served as Chief Operating Officer and Chief Financial Officer of
Steiner Leisure. Mr. Fluxman joined Steiner Leisure in June 1994 in connection with Steiner Leisure’s acquisition of Coiffeur Transocean (Overseas), Inc. (“CTO”), which operated a business similar to that of OSW Predecessor. Mr. Fluxman served as
CTO’s Vice President—Finance from January 1990 until June 1994 and as its Chief Operating Officer from June 1994 until November 1996. Mr. Fluxman, a certified public accountant, was employed by Laventhol and Horwath from 1986 to
1989, during a portion of which period he served as a manager. Mr. Fluxman earned a Bachelor of Commerce from the University of Witwatersrand and a degree of Honors Bachelor of Accounting Science from the University of South Africa.
We believe Mr. Fluxman is qualified to serve
as a director due to his prior leadership roles and operations experience, particularly in the consumer and consumer-related products and services industries.
Steven J. Heyer is our Vice Chairman and has over 35 years of experience in the consumer and consumer-related products and services industries, leading a range of companies and brands. Mr. Heyer has applied his
experience and analytical skills in a variety of leadership positions across diverse industry groups, including broadcast media, consumer products, and hotel and leisure companies. Mr. Heyer’s operating experiences include: leading the
turnaround of Outback Steakhouse as an advisor (from 2010 to 2012); as Chief Executive Officer of Starwood Hotels & Resorts Worldwide (from 2004 until 2007); as President and Chief Operating Officer of The Coca-Cola Company (from 2001 to
2004); as a member of the boards of the Hellenic Bottling Company, Coca-Cola FEMSA, and Coca-Cola Enterprises (all from 2001 to 2004); as President and Chief Operating Officer of Turner Broadcasting System, Inc., and a member of AOL Time
Warner’s Operating Committee (from 1994 to 2001); as President and Chief Operating Officer of Young & Rubicam Advertising Worldwide (from 1992 to 1994); and before that, spending 15 years at Booz Allen & Hamilton, ultimately
becoming Senior Vice President and Managing Partner. For the last five years, Mr. Heyer has served on the boards of Lazard Ltd, Lazard Group, and Atkins Nutritionals Inc. (each as further described below), as well as investing in a private
capacity in early stage and venture consumer and consumer media companies. Mr. Heyer has extensive board experience, including: the board of Atkins Nutritionals Inc., which announced in April 2017 that it had entered into a definitive agreement
to be acquired by Conyers Park Acquisition Corp, a publicly traded special purpose acquisition company; Lazard Ltd and Lazard Group (2005 to present); the
1
board of WPP
Group, a publicly traded digital, internet, and traditional advertising company (2000 to 2004); the board of Equifax, the publicly traded consumer credit reporting and insights company (2002
through 2003); the board of Omnicare, Inc., a supplier of pharmaceutical care to the elderly (2008 through 2015); the board of Vitrue, Inc., a provider of social marketing publishing technologies (2007 through 2012); the board of Internet Security Systems, Inc. a provider of internet security software, appliance, and services (2004 through 2005); and the board of Shopkick, a mobile shopping app that rewards customers for walking
into stores. Mr. Heyer received his B.S. from Cornell University and an M.B.A. from New York University. Mr. Heyer is the brother of Mr. Andrew R. Heyer, Haymaker’s President. Mr. Heyer is qualified to serve as a director due to his extensive operations, management and
business background, particularly in the consumer and consumer-related products and services industries. Mr. Heyer is currently the CEO and a board member of Haymaker Acquisition Corp II.
We believe Mr. Heyer is qualified
to serve as a director due to his extensive operations, management and business background, particularly in the consumer and consumer-related products and services industries.
Glenn J. Fusfield is our President and Chief Executive Officer and serves on our Board. Prior to the Business Combination, he served as President and Chief Executive Officer of OSW Predecessor beginning in July 2016, as
President and Chief Operating Officer from April 2007 until July 2016, and as Chief Operating Officer from October 2002 until April 2007. From January 2001 until April 2007, Mr. Fusfield served as Steiner Leisure’s Chief Operating
Officer. Mr. Fusfield joined OSW Predecessor in November 2000 as Senior Vice President, Group Operations. Prior to joining OSW Predecessor, Mr. Fusfield was with Carnival Cruise Lines for 12 years, serving as Director, Hotel Operations,
for Carnival from January 1995 until December 1998, and Vice President, Hotel Operations, from January 1999 to October 2000. Mr. Fusfield earned a B.A. from the University of Denver School of Hotel Management.
We believe Mr. Fusfield is qualified to serve
as a director due to his extensive prior experience in the industry.
Marc Magliacano serves on our Board. Mr. Magliacano joined the board of Steiner Leisure Limited, the former parent company of OneSpaWorld, in December 2015. Mr. Magliacano currently serves as a Managing
Partner for L Catterton’s Flagship Buyout Fund. L Catterton is the largest and most global consumer-focused private equity firm with over $15 billion of equity capital under management across six fund strategies in 17 offices worldwide. Since
1989, the firm has made over 200 investments in leading consumer brands. Mr. Magliacano has been a senior investment professional at L Catterton
since May 2006. Prior to joining L Catterton, from 1999 to 2006, Mr. Magliacano was a Principal at North Castle Partners, a private equity firm
focused on making consumer growth investments that benefit from healthy living and aging trends. While at North Castle, Mr. Magliacano originated and executed investments in the consumer health and wellness sectors. Prior to joining North
Castle, Mr. Magliacano worked at NMS Capital, the merchant bank of NationsBanc Montgomery Securities, making growth investments in early stage consumer and retail businesses. Mr. Magliacano has served on the boards of directors of a
variety of private and public companies, including Restoration Hardware.
We believe Mr. Magliacano is qualified to
serve as a director due to his prior experience on a variety of private and public companies boards.
Andrew R. Heyer serves on our Board and is a finance professional with over 35 years of experience investing in the consumer and consumer-related products and services industries, as well as a senior banker in
leveraged finance, during which time his clients included many large private equity firms. Mr. Heyer has deployed in excess of $1 billion of capital over that time frame and has guided several public and private companies as a member of
their board of directors. Currently, Mr. Heyer is the Chief Executive Officer and Founder of Mistral Equity Partners, a private equity fund manager founded in 2007 that invests in the consumer industry. Prior to founding Mistral in 2007, from
2000 to 2007, Mr. Heyer served as a Founding Managing Partner of Trimaran Capital Partners, a $1.3 billion private equity fund. Mr. Heyer was formerly a vice chairman of CIBC World Markets Corp. and a co-head of the CIBC
Argosy Merchant Banking Funds from 1995 to 2001. Prior to joining CIBC World Markets Corp. in 1995, Mr. Heyer was a founder and Managing Director of The Argosy Group L.P. from 1990 to 1995. Before Argosy, from 1984 to 1990, Mr. Heyer was a
Managing Director at Drexel Burnham Lambert Incorporated, and, prior to that, he worked at Shearson/American Express. Mr. Heyer previously served as a board member of Jamba, Inc. From 1993 through 2009, Mr. Heyer also served on the board
of The Hain Celestial Group, Inc., a natural and organic food and products company. Mr. Heyer also serves as a director of XpresSpa Group, Inc. (formerly known as FORM Holdings, Inc.), a health and wellness services company, since December
2016. Mr. Heyer also serves on the board of several private companies owned in whole or in part by Mistral, including Worldwise, a pet accessories business from 2011 to the
2
present. Mr.
Heyer is a director of The LoveSac Company, a publicly traded branded omni-channel retailer of technology-forward furniture, from 2010 to the present, and Insomnia Cookies, a retailer of desserts open primarily in the evening and nighttime from 2008 to the present. Mr. Heyer has also served on the board of Accel Foods, an incubator and investor in early stage food and beverage companies, since
2015. In the past, Mr. Heyer has served as a director of Las Vegas Sands Corp., a casino company, from 2006 to 2008, El Pollo Loco Holdings, Inc., a casual Mexican restaurant, from 2005
to 2008, and Reddy Ice Holdings, Inc., a manufacturer of packaged ice products, from 2003 to 2006. Mr. Heyer received his B.Sc. and M.B.A. from the Wharton School of the University of
Pennsylvania, graduating magna cum laude. Mr. Heyer is the brother of Mr. Steven J. Heyer, Haymaker’s Chief
Executive Officer.
We believe Mr.
Heyer is qualified to serve as a director due to his extensive finance, investment and operations experience, particularly in the consumer and consumer-related products and services industries.
Walter F. McLallen serves on our Board and is a finance professional with over 25 years of leveraged finance, private equity, restructuring and operations experience. Mr. McLallen has been the Managing Member of
Meritage Capital Advisors, an advisory boutique firm focused on debt and private equity transaction origination, structuring and consulting since 2004. Mr. McLallen has extensive board and organizational experience and has served as a director,
Chairman or Vice Chairman on numerous corporate and non-profit boards and committees, with a significant historical focus on consumer products-related companies. Mr. McLallen has served as a director of publicly traded Centric Brands
Inc., a lifestyle brands collective in the branded and licensed apparel and accessories sectors, since February 2016; The Lovesac Company, a direct to consumer specialty
furniture brand supporting an e-commerce model since June 2019; and Haymaker Acquisition II, a blank-check acquisition company, since May 2019; as well as of private companies, including
Timeless Wine Company, the producer of consumer luxury wine brands Silver Oak, Twomey and OVID, since August 2016; Worldwise, a consumer branded pet products company, since April 2016; adMarketplace, a search engine advertiser, since 2012; Classic
Brands, an e-commerce marketer of mattresses and related products, since August 2018; Dutchland Plastics, a roto-molding plastics manufacturer, since January 2017; Champion One, an optical transceiver manufacturer and marketer, since January 2018;
Frontier Dermatology, a physician practice platform, since January 2019; and Genus Oncology, an early-stage biotechnology company, since 2015. Mr. McLallen is also a founder and Co-Chairman of Tomahawk Strategic Solutions, a law enforcement, military and
corporate training and security company, since 2014. From 2006 to 2015, Mr. McLallen was the Executive Vice Chairman of Remington Outdoor Company, an outdoor consumer platform he co-founded with a major investment firm.
Mr. McLallen was formerly with CIBC World Markets from 1995 to 2004, during which time he was a Managing Director, head of Debt Capital Markets and head of High Yield Distribution. Mr. McLallen started his career in the Mergers &
Acquisitions Department of Drexel Burnham Lambert and was a founding member of The Argosy Group L.P. in 1990. Mr. McLallen received a B.A. with a double major in Economics and Finance from the University of Illinois at Urbana-Champaign.
We believe Mr. McLallen is
qualified to serve as a director due to his extensive consumer, operational and board experience, as well as his background in finance.
Jeffrey E. Stiefler serves on our Board and has spent 45 years leading a wide range of consumer and business services companies across multiple industry sectors, including financial services, financial technology, real
estate, advertising, computer software and services, private equity, and internet start-ups. Mr. Stiefler served as a director and non-executive chairperson of the board of directors of Worldpay, Inc. (formerly known as
Vantiv Holding, LLC) from August 2010 until its initial public offering in March 2012, served as its chairman from March 2012 to January 2018, and then director until WorldPay was acquired by FIS in June, 2019, at which point Mr. Stiefler became
Lead Independent Director of the combined firm. In addition, Mr. Stiefler currently serves on the board of directors of LogicSource Inc. Mr. Stiefler previously served on the boards of directors of LPL Financial Corporation and VeriFone
Systems, Inc., as Lead Director of Taleo Corporation, Inc. prior to its acquisition by Oracle Corporation in April 2012, and Lead Director of Square Trade prior to its acquisition by Allstate in 2017. Mr. Stiefler was the Chairman, President
and CEO of Digital Insight from August 2003 until the company’s acquisition by Intuit in February 2007. Prior to Digital Insight, Mr. Stiefler worked with several private equity firms as an operating advisor and held a variety of
positions at American Express, including President and Director of the company, and President and CEO of American Express Financial Advisors. Mr. Stiefler received a B.A. from Williams College and an M.B.A. from Harvard Business School.
We believe Mr. Stiefler is
qualified to serve as director due to his extensive strategic, operations, financial and leadership experiences at both the company and board levels.
3
Michael J. Dolan serves on our Board. Mr. Dolan has also served as Chief
Executive Officer of Bacardi Limited, the largest privately held spirits company in the world, from November 2014 to September 2017. Prior to that, he served as Interim Chief Executive Officer of Bacardi (May 2014 to November 2014). From November 2011 to May 2014, he served as Chairman of the Board and Chief Executive Officer of IMG Worldwide, a global leader in sports, fashion and media
entertainment. Prior to that, Mr. Dolan served at IMG as President and Chief Operating Officer, from April 2011 to November 2011, and before that as Executive Vice President and Chief
Financial Officer, from April 2010 to April 2011. He served as Executive Vice President and Chief Financial Officer of Viacom, Inc., a leading global entertainment content company, from May
2004 to December 2006. Mr. Dolan served as Senior Advisor to Kohlberg Kravis Roberts & Co., a leading private equity firm with substantial investments in many large consumer retail companies, from October 2004 to May 2005. Prior to that, he served in the following positions with Young & Rubicam, Inc., a marketing and communications company: Chairman of the Board and Chief Executive Officer
(2001 to 2003), Vice Chairman and Chief Operating Officer (2000 to 2001) and Vice Chairman and Chief Financial Officer (1995 to 2000). Mr. Dolan currently serves as Lead Director and Chair
of the Compensation Committee for Mattel, Inc.
We believe Mr. Dolan is qualified to serve as
a director due to his extensive leadership, finance, global consumer products and branding, strategic marketing, and operations experience.
Stephen W. Powell serves on our Board. Mr. Powell’s experience spans private capital investment, investment banking, corporate operating, corporate governance and public accounting roles. Mr. Powell
currently invests in and advises private companies focusing on health and wellness, fitness, nutrition, personal care services and consumer technology sectors. He also serves on the board of directors and as a member of the audit committees of
Haymaker Acquisition Corp. and Massage Envy Holdings, LLC. Previously, he served as a member of the boards of directors of Atkins Nutritionals, Strivectin Skincare, and Fusionetics, LLC and Cover FX Cosmetics. Mr. Powell served as a managing
director of Prospect Capital Corporation from 2015 to 2017, and as a senior advisor to private equity firms Roark Capital Group from 2012 to 2015 and Catterton Partners from 2009 to 2011. From 2006 to 2008, Mr. Powell co-led the capitalization,
acquisitions, merger, restructuring, operations and sale of a salon and spa services, specialty retail, franchising and direct marketing business. From 2001 to 2006, Mr. Powell was head of Consumer Investment Banking for RBC Capital Markets
where he advised private and public companies on capital raising, merger, acquisition and sale initiatives focused on the personal care, fitness, leisure, nutrition and food service sectors. Previously, Mr. Powell was a managing director in the
investment banking groups of Prudential Securities, Wheat First Securities and L.F. Rothschild. He began his investment banking career in the high yield finance group of Merrill Lynch Capital Markets and previously was an audit manager with Arthur
Andersen & Co.
We
believe Mr. Powell is qualified to serve as a director due to his broad experience analyzing, evaluating and advising corporate clients and investee companies, including companies with elements of comparability to the Company, and his board of
directors and audit committee experience.
Maryam Banikarim has served on our Board since May 2019. Ms. Banikarim does not currently serve on any other public boards. Ms. Banikarim is currently the Head of Marketing at Nextdoor. She previously worked at Hyatt
Hotels Corp. as EVP & Global Chief Marketing Officer from 2018 to 2015, at Gannett Co., Inc. as SVP & Chief Marketing Officer from 2015 to 2011, at NBCUniversal Media, LLC as SVP of Integrated Sales Marketing from 2011 to 2009 and at
Univision Communications as Chief Marketing Officer from 2009 to 2002. Ms. Banikarim is currently a member of the Samsung Retail Advisory Board, an executive advisor to Cove Hill Partners, an Executive in Residence at Columbia University and the
chairwoman of the press advocacy group, Reporters Without Boarders USA. Ms. Banikarim earned a Bachelor of Arts degree in political science from Barnard College and an MBA and a Master of International Affairs in National Security from Columbia
University.
We believe Ms.
Banikarim is qualified to serve as a director due to her extensive experience and leadership in marketing.
Stephen B. Lazarus is our Chief Financial Officer and Chief Operating Officer. Prior to the Business Combination, he served as Chief Operating Officer and Chief Financial Officer of Steiner Leisure since December 2014.
From August 2006 to 2014, Mr. Lazarus served as Steiner Leisure’s Executive Vice President and Chief Financial Officer. From July 2003 through August 2006, Mr. Lazarus served as Steiner Leisure’s Senior Vice President and Chief
Financial Officer. From October 1999 until joining Steiner Leisure, Mr. Lazarus was Division Vice President and Chief Financial Officer for Rayovac Corporation’s Latin America Division. From September 1998
4
through
September 1999, Mr. Lazarus was Director, Financial Planning and Analysis for Guinness, a division of Diageo. Prior to that, Mr. Lazarus was with Duracell, Inc. (later a subsidiary
of The Gillette Company) from February 1990 until April 1998, where he held finance and business positions of increasing responsibility. From February 1988 to January 1990, Mr. Lazarus
was employed by Ernst & Young as a senior auditor. Mr. Lazarus earned a Bachelor of Commerce degree from the University of Witwatersrand and a Masters of Science in Management
from the University of London.
Board Composition
We have a three-tier board that consists of
ten directors. Our directors are divided among the three classes as follows:
Class A directors, who
are Messrs. Steven J. Heyer, Andrew R. Heyer, and Leonard Fluxman, whose initial term will expire at the annual meeting of the shareholders occurring in 2020;
Class B directors, who
are Messrs. Marc Magliacano, Jeffrey E. Stiefler, and Walter F. McLallen, whose initial term will expire at the second annual meeting of the shareholders occurring in 2021; and
Class C directors, who
are Messrs. Glenn J. Fusfield, Stephen W. Powell, Michael J. Dolan, and Ms. Maryam Banikarim, whose initial term will expire at the third annual meeting of the shareholders occurring in 2022.
Directors in a particular class will be
elected for three-year terms at the annual meeting of shareholders in the year in which their terms expire. As a result, only one class of directors will be elected at each annual meeting of our shareholders, with the other classes continuing for
the remainder of their respective three-year terms. Each director’s term continues until the election and qualification of his successor, or his earlier death, resignation or removal.
Audit Committee
Our Audit Committee consists of Mr. McLallen
(chairperson), Mr. Powell, Mr. Dolan and Mr. A. Heyer. Mr. McLallen qualifies as an “audit committee financial expert” as that term is defined by the applicable Securities and Exchange Commission (the “SEC”) regulations
and has employment experience in finance or accounting, requisite professional certification in accounting or other comparable experience or background as required by the Nasdaq Stock Market
Rules (the “Nasdaq Rules”). Each of our Audit Committee members is “financially literate” as that term is defined by the Nasdaq Rules and our Board has determined that each is independent pursuant to applicable SEC
regulations and the Nasdaq Rules.
Code of
Business Conduct and Ethics
Our Board
adopted a code of ethics that applies to our executive officers, directors, employees and agents. A copy of the code of ethics will be provided without charge upon request from us, and is available on our corporate website at onespaworld.com. The
information on our website is not part of this report. We intend to disclose any amendments to or waivers of certain provisions of our code of ethics in a Current Report on Form 8-K.
ITEM 11. EXECUTIVE COMPENSATION
Introduction
As an emerging growth company, we have opted to
comply with the executive compensation disclosure rules applicable to “smaller reporting companies” as such term is defined in the rules promulgated under the Securities Act of 1933, as amended (the “Securities Act”). This
section discusses the material components of the executive compensation program for our Chief Executive Officer and our two other most highly compensated officers who we refer to as our “Named Executive Officers”. As of the year ended
December 31, 2019, our Named Executive Officers were Leonard Fluxman, Glenn J. Fusfield and Stephen B. Lazarus.
This discussion may contain forward-looking
statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt in the future may differ materially from the currently planned
programs summarized in this discussion.
5
Summary Compensation Table
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)(1)
|
|
|
Option
Awards
($)(2)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)(3)
|
|
|
All Other
Compensation
($)(4)
|
|
|
Total
($)
|
|
Leonard Fluxman(5)
Executive Chairman
|
|
2019
|
|
|
825,000
|
|
|
|
0
|
|
|
|
10,544,934
|
|
|
|
0
|
|
|
|
92,504
|
|
|
|
11,462,438
|
|
|
|
2018
|
|
|
825,000
|
|
|
|
825,000
|
|
|
|
—
|
|
|
|
825,000
|
|
|
|
77,211
|
|
|
|
2,552,211
|
|
Glenn J. Fusfield(5)
President and
Chief Executive Officer
|
|
2019
|
|
|
525,000
|
|
|
|
0
|
|
|
|
4,217,974
|
|
|
|
0
|
|
|
21,638,734(6)
|
|
|
|
26,381,708
|
|
|
|
2018
|
|
|
440,000
|
|
|
|
500,000
|
|
|
|
—
|
|
|
|
500,000
|
|
|
|
55,256
|
|
|
|
1,495,256
|
|
Stephen B. Lazarus
Chief Operating Officer and
Chief Financial Officer
|
|
2019
|
|
|
525,000
|
|
|
|
0
|
|
|
|
4,841,084
|
|
|
|
0
|
|
|
|
67,183
|
|
|
|
5,433,267
|
|
|
|
2018
|
|
|
525,000
|
|
|
|
393,750
|
|
|
|
—
|
|
|
|
393,750
|
|
|
|
46,172
|
|
|
|
1,358,672
|
|
(1)
|
Amounts reflect the discretionary portion of
the 2018 Annual Performance Bonus paid to each Named Executive Officer, which were paid to reward individual efforts and performance, including in connection with the Business Combination, which was a transformative transaction for the
Company.
|
(2)
|
Amounts reflect the grant date fair value of
stock options granted to the Named Executive Officers as computed in accordance with FASB ASC 718. The assumptions used in calculating the grant date fair value of the stock options are set forth in Note 9 to the Consolidated Financial
Statements included in the Original Filing. The amounts reported in this column reflect the accounting cost for these stock options and do not correspond to the actual economic value that may be received by the Named Executive Officers for the stock
options.
|
(3)
|
No amounts were earned in 2019 for any Named
Executive Officer’s annual performance-based cash incentive bonus opportunity set forth in his Employment Agreement. See “—Narrative to Summary Compensation Table—Executive Employment Agreements” below for further information regarding these bonus opportunities. Amounts reflected for the 2018 fiscal year now correctly reflect the
following annual performance-based cash incentive bonuses that were earned by each Named Executive Officer in 2018 based on achievement of the applicable performance goals: (i) $825,000 for Mr. Fluxman, $500,000 for Mr. Fusfield, and $393,750
for Mr. Lazarus (each, a “2018 Annual Performance Bonus”). The discretionary portions of such 2018 Annual Performance Bonuses are reflected in the “Bonus” column. The “Non-Equity Incentive Plan Compensation”
amounts previously reflected for 2018 in the Company’s 2019 Form 10-K reflected the performance-based cash incentive bonuses paid to the Named Executive Officers in 2018 rather than the amounts earned for each Named Executive Officer in 2018.
|
(4)
|
Amounts reflect: (i) $11,000 for each Named
Executive Officer for 401(k) Plan employer matching contributions; (ii) an annual automobile allowance equal to $15,000 for each of Messrs. Lazarus and Fusfield and $25,000 for Mr. Fluxman, (iii) an amount equal to $35,863 for Mr. Fluxman, $32,477
for Mr. Fusfield and $31,855 for Mr. Lazarus, in each case, for fringe payments received in 2019 for medical, dental, vision and long-term disability premiums, (iv) an amount equal to $19,752 for Mr. Fluxman, $5,410 for Mr. Fusfield and $6,102 for
Mr. Lazarus, in each case, for reimbursement of life insurance premiums, and (v) the incremental cost to the Company for providing services for each Named Executive Officer and their immediate family members at Company facilities in an amount equal
to $889 for Mr. Fluxman, $4,479 for Mr. Fusfield and $3,226 for Mr. Lazarus.
|
(5)
|
Messrs. Fluxman and Fusfield serve on our
Board, but are not paid additional compensation for such service.
|
(6)
|
As described immediately below, this amount
reflects payments to Mr. Fusfield in connection with the Business Combination and certain other corporate transactions, in each case pursuant to prior agreements between Mr. Fusfield and corporate entities other than the Company. We do not consider
this amount representative of the Company’s executive compensation program on a go-forward basis.
|
6
In 2016, OneSpaWorld (Bahamas) entered into two separate exit bonus award agreements with Mr. Fusfield that were subject to certain service
and performance-vesting conditions through an exit event, and the bonuses vested and were paid out by Steiner Management Services, LLC
to Mr. Fusfield upon the consummation of the Business Combination, in amounts equal to $16,706,300 and 1,887,237. See “—Severance, Change in Control and Equity Arrangements—Prior Bonus Arrangements” below for further information regarding these bonuses. The amount reflected also includes $2,976,831 paid by Steiner Leisure to Mr. Fusfield for his share of Nemo’s profits from Steiner Leisure’s sale of the Company and Elemis Group, of which $2,000,000 was used to repay a loan Nemo made to Mr. Fusfield in 2016. This bonus share was subject to Mr. Fusfield’s continued employment through the completion of such sales.
Narrative to Summary
Compensation Table
Executive Employment Agreements
Executive Employment Agreements. Certain of the compensation paid to the Named Executive Officers reflected in the Summary Compensation Table above was provided pursuant to employment agreements with OneSpaWorld Holdings Limited (collectively, the
“Employment Agreements”). Each Employment Agreement provides an initial term ending on December 31, 2020, subject to automatic one-year renewals thereafter unless either party provides 90 days’ prior notice not to renew the term.
The Employment Agreements generally provide for base salary, incentive compensation, benefits, severance protection and a grant of Company stock options. Pursuant to the terms of the Employment Agreements, the Named Executive Officers are subject
to non-competition, non-hire and non-solicitation of employees and customers/suppliers restrictions during employment and for a period of two years following their termination of employment, as well as perpetual mutual
non-disparagement and confidentiality obligations.
Non-Equity Incentive Compensation. For 2019, our Named Executive Officers were eligible to earn annual performance-based cash incentive bonuses pursuant to their respective Employment Agreements. Bonus opportunities for 2019 were based on a formula and
performance criteria approved by our Compensation Committee in its sole discretion. The potential bonus each Named Executive Officer was eligible to earn ranged from 75% to 150% of base salary (with a target bonus equal to 75% of base salary) for
Messrs. Lazarus and Fusfield, and 125% to 250% of base salary (with a target bonus equal to 100% of base salary) for Mr. Fluxman (each applicable target bonus, the Named Executive Officer’s “Target Annual Bonus”), subject to
continued employment through the end of the performance period. Achievement falling below the minimum performance targets would result in no payout of the award, unless our Compensation Committee determined otherwise. The performance goals used to
determine 2019 annual bonuses were based on achievement of budgeted EBITDA levels. These 2019 performance goals were not achieved and as a result, the Company did not pay out such annual performance-based cash incentive bonuses to the Named
Executive Officers for 2019.
Health and Welfare Plans, and Retirement Plans
Health and Welfare Plans. Our Named Executive Officers are eligible to participate in the Company’s standard employee benefit plans, including medical, life, and disability benefits.
Retirement Plan.
We maintain a retirement plan that is intended to qualify for favorable tax treatment under Section 401(a) of the Internal Revenue Code of 1986, as amended (the “Code”), containing a cash or deferred
feature that is intended to meet the requirements of Section 401(k) of the Code (our “401(k) Plan”). All regular U.S. employees who have completed at least three months of service and have attained at least age 21 are generally
eligible to participate in our 401(k) Plan, including our Named Executive Officers. Participants may make pre-tax contributions to the 401(k) Plan from their eligible earnings up to the statutorily prescribed annual limit
on pre-tax contributions under the Code. Participants who are 50 years of age or older may contribute additional amounts based on the statutory limits for catch-up contributions. No minimum benefit is provided under the 401(k)
Plan. An employee is 100% vested in his or her pre-tax deferrals when contributed and employer safe harbor matching contributions, and any other employer contributions vest ratably over four years. Our 401(k) Plan provides for employer
safe harbor matching contributions equal to 100% of up to 3% of compensation plus 50% on the next 2% of compensation, and discretionary employer matching and non-elective contributions.
7
Outstanding Equity Awards At 2019 Fiscal Year End
The following table summarizes the outstanding
equity awards held as of December 31, 2019 by each of the Named Executive Officers.
|
|
Option
Awards
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)(1)
|
|
|
Option Exercise
Price ($)
|
|
|
Option
Expiration
Date
|
Leonard Fluxman
|
|
|
—
|
|
|
|
—
|
|
|
|
2,353,780
|
|
|
|
12.99
|
|
|
3/26/2025
|
Glenn J. Fusfield
|
|
|
—
|
|
|
|
—
|
|
|
|
941,512
|
|
|
|
12.99
|
|
|
3/26/2025
|
Stephen B. Lazarus
|
|
|
—
|
|
|
|
—
|
|
|
|
1,080,599
|
|
|
|
12.99
|
|
|
3/26/2025
|
(1)
|
Each stock option was granted pursuant to our
2019 Equity Incentive Plan (the “2019 Plan”) that was approved by our Board on March 18, 2019 and by our shareholders on March 18, 2019. The stock options will become exercisable if and when the five-day volume weighted average
price of the Company’s common shares reaches $20 per share.
|
Severance, Change in
Control and Equity Arrangements
Severance
Benefits. Each Named Executive Officer’s Employment Agreement provides that, in the event that the Named Executive Officer’s employment is terminated either by the Company without “cause”
(which includes the employer’s delivery of a notice of nonrenewal of the employment term), or by the Named Executive Officer for
“good reason” (in each case as such terms are defined in the employment agreements), in addition to receiving (i) any accrued but unpaid annual bonus, (ii) a pro-rata Target Annual Bonus for the year of the applicable Named Executive
Officer’s termination, and (iii) a lump sum payment equal to the premiums that would be paid by the Named Executive Officer for 24 months’ of COBRA continuation coverage, the Named Executive Officer will be entitled to receive, subject
to the Named Executive Officer’s execution and non-revocation of a release of claims in favor of the Company and its affiliates, (x) a lump sum cash payment equal to—2.5X for each of Messrs. Lazarus and Fusfield, and 3X for
Mr. Fluxman—the sum of the Named Executive Officer’s base salary and Target Annual Bonus, and (y) the annual bonus for the year of the Named Executive Officer’s termination, determined based on actual achievement of the
applicable performance criteria during the performance period of such annual bonus.
In the event that any payment or benefit to be
made to the Named Executive Officers under the Employment Agreements in connection with a change in control would constitute a parachute payment under Section 280G of the Code, then the applicable Named Executive Officer will have such payments
reduced to the largest amount that would result in no portion of such payments being subject to the excise taxes imposed by Section 4999 of the Code, unless such payments, less any excise tax which would be imposed on such payments pursuant to
Section 4999 of the Code, would be greater than such reduced payments, in which case no reduction would occur.
Outstanding
Equity Awards. The purpose of the 2019 Plan is to make available incentives that will assist the Company to attract, retain, and motivate employees, including officers, consultants
and directors. The Company may provide these incentives through the grant of share options, share appreciation rights, restricted shares, restricted share units, performance shares and units and other cash-based or share-based awards. Awards may be
granted under the 2019 Plan to OneSpaWorld employees, including officers, directors or consultants or those of any present or future parent or subsidiary corporation or other affiliated entity. Each Named Executive Officer is party to a Stock Option
Agreement pursuant to the 2019 Plan that provides for the grant of options to purchase the Company’s common shares. If a Named Executive
Officer’s employment is terminated for any reason other than for “cause” (as defined in the 2019 Plan), then the stock options will remain outstanding and may be exercised by the Named Executive Officer until the first to occur of
(x) the stock option’s expiration date or (y) a “change in control” (as defined in the 2019 Plan). If the Named Executive Officer’s employment is terminated by the Company for cause, then the stock options will immediately
terminate. In the event of a change in control, the acquiring or successor entity may assume or
8
continue
all or any awards outstanding or substitute substantially equivalent awards. Any awards which are not assumed or continued in connection with a change in control or are not exercised
or settled prior to the change in control will terminate at the time of the change in control. The 2019 Plan also authorizes the Compensation Committee, in its discretion and without
the consent of any participant, to accelerate the exercisability, vesting and/or settlement of an award in connection with a change in control upon such conditions determined by the
Compensation Committee (including a termination prior to, upon or following such change in control), or cancel each or any outstanding award denominated in shares upon a change in control in exchange for a payment to the participant with respect to each vested share subject to the cancelled award of an amount equal to the excess of the consideration to be paid per share in the change in control transaction over the exercise
price per share, if any, under the award.
Prior Profits Interests
Arrangements. In December 2015, Mr. Fluxman and Mr. Lazarus were each granted Class B Common Shares in Nemo Investor Aggregator, Limited (“Nemo”), a parent company of OSW Predecessor, which were (and
are) intended to constitute profits interests of Nemo for tax purposes (the “Nemo Shares”). While Nemo is not currently an affiliate of the Company, it does have a meaningful indirect ownership stake in the Company through its holdings
in Steiner Leisure. As a result, the value of the Nemo Shares held by Mr. Fluxman and Mr. Lazarus is inextricably linked to the value of the Company’s common stock, even though these shares were not granted to Mr. Fluxman or Mr. Lazarus
as compensation for their services to the Company. Messrs. Fluxman and Lazarus were granted these Nemo Shares at no purchase price, and such shares were granted subject to a combination of time- and performance-based vesting conditions. The Nemo
Shares represent a right to a fractional portion of the profits and distributions of Nemo in excess of a “floor amount” determined in accordance with Nemo’s operating agreement upon a sale (as specified in the applicable award
agreements). Messrs. Fluxman and Lazarus each still hold their Nemo Shares, which have fully time vested, but remain subject to performance vesting conditions.
Prior Bonus Arrangements. In 2016, Mr. Fusfield entered into two bonus agreements with OneSpaWorld (Bahamas) that granted cash bonuses payable upon an “exit event” (as defined in the agreements), subject to certain conditions,
including Mr. Fusfield’s continued employment through the exit event (except as described below). The cash bonus payment under one of the agreements (the “First
Bonus”) was determined with reference to the “total enterprise value” (as defined in the agreement) of OneSpaWorld (Bahamas) and vested in full upon an exit event. Upon a termination of his
employment without “cause” (as defined in the agreement), Mr. Fusfield remained eligible to receive all or a portion of the cash bonus for up to two years following his termination if an exit event occurred during that period. The other
cash bonus payment (the “Second Bonus”) was equal to 150% of Mr. Fusfield’s annual cash bonuses from 2016 onward, and vested
in 36 equal monthly installments commencing on January 31, 2017 and fully vested upon an “exit event” (as defined in the agreement) if Mr. Fusfield remained employed through the exit event. If Mr. Fusfield was terminated other than for
“cause” (as defined in the agreement), he remained eligible to receive the vested bonus through such date of termination within 60 days following an exit event. The First Bonus and Second Bonus each vested and were paid out by Steiner
Management Services, LLC to Mr. Fusfield upon the consummation of the Business Combination, in amounts equal to $16,706,300 for the First Bonus and $1,887,237 for the Second Bonus. Upon payment of the bonuses, Mr. Fusfield was deemed to have
released OneSpaWorld (Bahamas) and its affiliates from any and all claims relating to the bonus payments.
DIRECTOR
COMPENSATION
Overview
Our Compensation Committee of our Board have the
responsibility and authority to supervise and review the affairs of the Company as they relate to the compensation and benefits of our executive officers and our Board. In carrying out these responsibilities, our Compensation Committee reviews all
components of executive officer and director compensation for consistency with the Company’s compensation philosophy, as in effect from time to time, and with the interests of our shareholders. Our Board, at the recommendation of our
Compensation Committee, is solely responsible for determining the compensation of our Board.
Under our current director compensation program,
all members of our Board who are not employees of the Company receive a yearly cash retainer equal to $50,000 and our Lead Director also receives an additional yearly cash retainer equal to $50,000, in each case, payable at the time of the
director’s election around the time of the Company’s annual shareholder meeting in the form of either cash or restricted stock units. In addition, the chairperson of our Audit Committee receives an additional yearly fee of $30,000, the
chairperson of our Compensation Committee receives an
9
additional yearly fee of $25,000 and the chairperson of our Nominating and Governance Committee receives an additional
yearly fee of $20,000. Each non-employee director (other than Marc Magliacano) also receives a yearly
grant of restricted stock units (“RSUs”) with a value equal to $100,000 (based on the closing stock price of the Company’s common stock on the date immediately preceding the date of grant). The RSUs fully vest upon the one-year anniversary of the grant date, subject to
continuous service. Pursuant to the 2019 Plan, each non-employee director may voluntarily elect to defer the delivery of shares upon vesting of the RSUs generally until the earlier of the 60th day following the non-employee director’s date of their
separation of service or immediately prior to a change in control. We also pay reasonable travel and accommodation expenses of the non-employee directors in connection with their participation in meetings of our Board. For the purposes of director compensation, the term “yearly” refers to a “Board Year” in which a director serves and which begins on the date of the Company’s annual shareholder meeting for such year.
2019 Non-Employee Director Compensation
The following table presents the total
compensation for each person who served as a non-employee director of our Board during 2019. Other than as set forth in the table and described more fully below, we did not pay any compensation, make any equity awards or non-equity awards to, or pay
any other compensation to, any of the other non-employee directors of our Board. Messrs. Fluxman and Fusfield, our Executive Chairman and President and Chief Executive Officer, respectively, receive no compensation for service as directors and,
consequently, are not included in this table. The compensation received by Messrs. Fluxman and Fusfield as employees of the Company is presented in "— Summary Compensation Table".
Name
|
|
Fees Earned
or Paid in
Cash
($)(1)
|
|
|
Stock Awards
($)(2)(3)
|
|
|
Option Awards
($)
|
|
|
Total
($)
|
|
Marc Magliacano
|
|
|
150,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
150,000
|
|
Michael J. Dolan
|
|
|
95,000
|
|
|
|
100,012
|
|
|
|
—
|
|
|
|
195,012
|
|
Steven J. Heyer
|
|
|
100,000
|
|
|
|
100,012
|
|
|
766,904(4)
|
|
|
966,916(4)
|
|
Jeffrey E. Stiefler
|
|
|
50,000
|
|
|
|
100,012
|
|
|
|
—
|
|
|
|
150,012
|
|
Andrew R. Heyer
|
|
|
50,000
|
|
|
|
100,012
|
|
|
|
—
|
|
|
|
150,012
|
|
Maryam Banikarim
|
|
|
50,000
|
|
|
|
100,012
|
|
|
|
—
|
|
|
|
150,012
|
|
Walter F. McLallen
|
|
|
80,000
|
|
|
|
100,012
|
|
|
|
—
|
|
|
|
180,012
|
|
Stephen W. Powell
|
|
|
50,000
|
|
|
|
100,012
|
|
|
|
—
|
|
|
|
150,012
|
|
(1)
|
Reflects the cash retainer earned for each
non-employee director’s board service. The following non-employee directors elected to receive RSUs in lieu of cash with a grant date fair value equal to the cash retainer amounts reflected above: Steven J. Heyer; Andrew R. Heyer; Stephen
Powell; and Jeffrey Stiefler.
|
(2)
|
Represents the aggregate grant date fair
value calculated in accordance with FASB ASC Topic 718 of each grant of RSUs under our 2019 Plan. Each non-employee director (other than Mr. Magliacano) was granted RSUs. The RSUs fully vest upon the one-year anniversary of the grant date, subject
to the non-employee director’s continuous service. The following non-employee directors have voluntarily elected to defer the payment of their 2019 RSUs until the 60th day following their termination of service date: Steven J. Heyer; Andrew R.
Heyer; Stephen Powell; and Jeffrey Stiefler. A portion of the RSUs reflect the RSUs certain non-employee directors elected to receive in lieu of cash, as described further in footnote 1, above.
|
(3)
|
As of December 31, 2019, each of our
non-employee directors held the following number of stock awards and stock options outstanding:
|
10
Name
|
|
Shares subject
to RSUs
(#)
|
|
|
Shares subject
to Options
(#)
|
|
Marc Magliacano
|
|
|
—
|
|
|
|
—
|
|
Michael J. Dolan
|
|
|
6,411
|
|
|
|
—
|
|
Steven J. Heyer
|
|
|
12,821
|
|
|
|
—
|
|
Jeffrey E. Stiefler
|
|
|
9,616
|
|
|
|
—
|
|
Andrew R. Heyer
|
|
|
9,616
|
|
|
|
—
|
|
Maryam Banikarim
|
|
|
6,411
|
|
|
|
—
|
|
Walter F. McLallen
|
|
|
6,411
|
|
|
|
—
|
|
Stephen W. Powell
|
|
|
9,616
|
|
|
|
—
|
|
(4)
|
Steven J. Heyer was granted 171,184 stock
options pursuant to our 2019 Plan. The options would have become exercisable upon the five-day volume weighted average price of the Company’s common shares reaching $20 per share; however, Mr. Heyer subsequently forfeited all such stock
options for no consideration.
|
Compensation Committee Interlocks and Insider Participation
During fiscal 2019, our Compensation Committee
consisted of Mr. Dolan (chairperson), Mr. Powell and Mr. Magliacano, and, commencing on July 30, 2019, Mr. Stiefler. None of the members of our Compensation Committee is, nor was
during fiscal 2019, an officer or employee of the Company. None of the members of our Compensation Committee was formerly an officer of the Company. None of our executive officers serves, or during fiscal 2019 served, as a member of a Board or
Compensation Committee of any entity that has, or during fiscal 2019 had, one or more executive officers serving as a member of our Board or Compensation Committee.
Mr. Magliacano was nominated to our Board by Steiner
Leisure, pursuant to the terms of the Director Designation Agreement. For more information, see the section entitled “Certain Relationships and Related Transactions.”
Securities Authorized for Issuance Under Equity
Compensation Plans
As of December 31, 2019,
the 2019 Plan is the only incentive equity plan administered by the Company. The following table provides information as of December 31, 2019 regarding shares of our common stock that may be issued under the 2019 Plan:
Plan Category
|
|
Number of
Securities to
be Issued
Upon Exercise
of Outstanding
Options,
Warrants
and Rights
|
|
|
Weighted Average
Exercise Price
of Outstanding
Options,
Warrants
and Rights
|
|
|
Number of
Securities
Remaining
Available for
Future
Issuance
Under Equity
Compensation
Plans
|
|
Equity compensation plans approved
by security holders
|
|
4,436,794(1)
|
|
|
$
|
12.99
|
|
|
|
2,563,206
|
|
Equity compensation plans not
approved
by security
holders
|
|
|
0
|
|
|
$
|
—
|
|
|
|
0
|
|
(1)
|
Represents 4,375,892 stock options and 60,902
RSUs outstanding that were granted under the 2019 Plan.
|
11
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
Beneficial Ownership of Securities
The following table sets forth certain
information regarding the beneficial ownership of our common shares as of March 29, 2020 (unless otherwise indicated) by:
|
•
|
each of the
Company’s directors, director nominees and Named Executive Officers;
|
|
•
|
all current
executive officers and directors of the Company as a group; and
|
|
•
|
each person who is
known by the Company to be the beneficial owner of more than 5% of our common shares.
|
The beneficial ownership of our common
shares, subject to the exclusions below, is based on 61,218,151 shares of common stock issued and outstanding as of March 29, 2020.
Beneficial ownership is determined according
to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options, warrants or other derivative securities
that are currently exercisable or convertible or exercisable or convertible within 60 days.
Unless otherwise indicated, we believe that
all persons named in the table below have sole voting and investment power with respect to all shares of our common stock beneficially owned by them.
Name of Beneficial Owner(1)
|
|
Number of
Shares
|
|
|
%
|
|
Directors & Named Executive
Officers:
|
|
|
|
|
|
|
|
|
Leonard Fluxman(2)
|
|
|
2,428,780
|
|
|
|
3.96
|
%
|
Steven J. Heyer(3)
|
|
|
1,721,234
|
|
|
|
2.81
|
%
|
Glenn J. Fusfield(2)
|
|
|
941,521
|
|
|
|
1.53
|
%
|
Marc Magliacano
|
|
|
—
|
|
|
|
—
|
|
Andrew R. Heyer (4)
|
|
|
1,309,679
|
|
|
|
2.13
|
%
|
Walter F. McLallen(5)
|
|
|
271,487
|
|
|
*
|
|
Jeffrey E. Stiefler(6)
|
|
|
84,033
|
|
|
*
|
|
Michael J. Dolan
|
|
|
—
|
|
|
|
—
|
|
Stephen W. Powell
|
|
|
2,500
|
|
|
*
|
|
Maryam Banikarim
|
|
|
—
|
|
|
|
—
|
|
Stephen B. Lazarus(7)
|
|
|
1,155,599
|
|
|
|
1.88
|
%
|
All current directors and officers
as a group (11 persons)
|
|
|
7,914,833
|
|
|
|
12.92
|
%
|
|
|
|
|
|
|
|
|
|
5% Shareholders:
|
|
|
|
|
|
|
|
|
Steiner Leisure Limited(8)
|
|
|
10,034,650
|
|
|
|
16.39
|
%
|
Franklin Resources Inc. (9)
|
|
|
7,005,797
|
|
|
|
11.44
|
%
|
Neuberger Berman Group LLC and
certain of its affiliates(10)
|
|
|
5,869,500
|
|
|
|
9.58
|
%
|
BlackRock, Inc.(11)
|
|
|
3,411,493
|
|
|
|
5.57
|
%
|
*
|
Indicates percentage of less than one
percent.
|
(1)
|
Unless otherwise noted, the business
addresses of each of the following entities or individuals is Shirley House, 253 Shirley Street, P.O. Box N-624, Nassau, New Providence, Commonwealth of The Bahamas.
|
(2)
|
Includes 2,353,780 vested options to purchase
common shares.
|
12
(3)
|
Represents (a) (i) 686,420 common shares held directly by Steven J. Heyer; (ii) 32,379 common shares held by the Harris
Reid Heyer Trust; (iii) 32,379 common shares held by James Heyer Trust; (iv) 32,379 common shares held by the Peter Justin Heyer Trust; and (v) 32,379 common shares held by the William Heyer Trust, and (b) 905,298 warrants exercisable
for common shares on a one-for-one basis consisting of (i) 734,890 warrants held directly by Steven J. Heyer; (ii) 42,602 warrants held by the Harris Reid Heyer Trust; (iii) 42,602 warrants held by James Heyer Trust; (iv) 42,602 warrants held by the Peter
Justin Heyer Trust; and (v) 32,379 warrants held by the William Heyer Trust. Steven J. Heyer and Andrew R. Heyer are the trustees of the Harris Reid Heyer Trust, the James Heyer Trust, the Peter Justin Heyer Trust and the William Heyer Trust, and jointly
have voting and dispositive power of the securities held by such entities. Accordingly, Steven J. Heyer may be deemed to have or share beneficial ownership of such securities.
|
(4)
|
Represents (a) (i) 290,697 common shares held
directly by Andrew R. Heyer; (ii) 150,878 common shares by Heyer Investment Management, LLC; (iii) 32,379 common shares held by the Harris Reid Heyer Trust; (iv) 32,379 common shares held by James Heyer Trust; (v) 32,379 common shares held by the
Peter Justin Heyer Trust; and (vi) 32,379 common shares held by the William Heyer Trust, and (b) 713,588 warrants exercisable for common shares on a one-for-one basis consisting of (i) 415,373 warrants held directly by Andrew R. Heyer;
(ii) 127,807 warrants held by Heyer Investment Management, LLC; (iii) 42,602 warrants held by the Harris Reid Heyer Trust; (iv) 42,602 warrants held by James Heyer Trust; (v) 42,602 warrants held by the Peter Justin Heyer Trust; and (vi) 32,379
warrants held by the William Heyer Trust. Andrew R. Heyer is the managing member of Heyer Investment Management, LLC and has voting and dispositive power of the securities held by such entity. Steven J. Heyer and Andrew R. Heyer are the trustees of
the William Heyer Trust. Steven J. Heyer and Andrew R. Heyer are the trustees of the Harris Reid Heyer Trust, the James Heyer Trust, the Peter Justin Heyer Trust and the William Heyer Trust, and jointly have voting and dispositive power of the
securities held by such entities. Accordingly, Andrew R. Heyer may be deemed to have or share beneficial ownership of such securities.
|
(5)
|
Includes 149,108 warrants exercisable for
common shares on a one-for-one basis.
|
(6)
|
Represents 41,431 common shares and 42,602
warrants exercisable for common shares on a one-for-one basis held by the Stiefler Trust U/T/D 5/31/07. Mr. Stiefler is the trustee of this trust and has voting and dispositive power of the securities held by it. Accordingly, Mr. Stiefler may be
deemed to have or share beneficial ownership of such securities.
|
(7)
|
Includes 1,080,599 vested options to purchase
common shares.
|
(8)
|
Includes 1,486,520 warrants to purchase
common shares. Steiner Leisure is controlled by Nemo Parent, Inc., an international business company incorporated under the laws of the Commonwealth of The Bahamas. Nemo Parent, Inc. is 100% owned by Nemo Investor Aggregator, Limited, a Cayman
Islands exempted company. Nemo Investor Aggregator, Limited is governed by a board of directors consisting of seven directors. Each director has one vote, and the approval of a majority of the directors is required to approve an action of Nemo
Investor Aggregator, Limited. Under the so-called “rule of three,” if voting and dispositive decisions regarding an entity’s securities are made by three or more individuals, and a voting or dispositive decision requires the
approval of a majority of those individuals, then none of the individuals is deemed a beneficial owner of the entity’s securities. Based upon the foregoing analysis, no director of Nemo Investor Aggregator, Limited exercises voting or
dispositive control over any of the securities held by Steiner Leisure, even those in which he or she directly holds a pecuniary interest. Accordingly, none of them will be deemed to have or share beneficial ownership of such shares. The address for
Steiner Leisure is Suite 104A, Saffrey Square, Nassau, Commonwealth of The Bahamas. The address for Nemo Investor Aggregator, Limited is c/o Mourant Ozannes Corporate Services (Cayman) Ltd., 94 Solaris Avenue, PO Box 1348, Camana Bay, Grand Cayman
KY1-1108, Cayman Islands. The address for Nemo Parent, Inc. is c/o Lennox Paton Corporate Services Ltd., 3 Bayside Executive Park, West Bay Street, Nassau, Commonwealth of The Bahamas.
|
(9)
|
Includes 1,051,600 common shares beneficially
owned by Franklin Resources Inc. (“FRI”) issuable upon the exercise of warrants. These common shares are beneficially owned by one or more open‑ or closed‑end investment companies or other managed accounts that are investment
management clients of investment managers that are direct and indirect subsidiaries (each, an “Investment Management Subsidiary” and, collectively, the “Investment Management Subsidiaries”) of FRI. When an investment
management contract
|
13
|
(including a sub‑advisory agreement) delegates to an Investment Management Subsidiary investment discretion or
voting power over the securities held in the investment advisory accounts that are subject to that
agreement, FRI treats the Investment Management Subsidiary as having sole investment discretion or voting
authority, as the case may be, unless the agreement specifies otherwise. The voting and investment powers held by Franklin Mutual Advisers, LLC (“FMA”), an indirect wholly‑owned Investment Management Subsidiary, and Benefit Street Partners LLC (“BSP”), a
direct wholly‑owned Investment Management Subsidiary, are exercised independently from FRI and from all other Investment Management Subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. (the “Principal Shareholders”) each own in excess of 10% of the
outstanding common stock of FRI and are the principal shareholders of FRI. FRI and the Principal Shareholders may be deemed to be, for purposes of Rule 13d‑3 under the Securities Act, the beneficial owners of securities held by persons and entities for whom or for which FRI subsidiaries provide
investment management services. FRI, the Principal Shareholders and each of the Investment Management Subsidiaries disclaim any pecuniary interest in such securities. Templeton Investment Counsel, LLC (“Templeton”) claims
sole voting power over 6,517,154 common shares and sole dispositive power over 6,735,254 common shares. Franklin Templeton Investments Corp. claims sole voting and dispositive power over 270,543 common shares. This information is based solely on a Schedule 13G/A filed by FRI, Templeton, Charles B. Johnson and Rupert H.
Johnson, Jr. with the SEC on February 5, 2020. The address of FRI, Charles B. Johnson and Rupert H.
Johnson, Jr. is One Franklin Parkway, San Mateo, CA 94403-1906 and the address of Templeton is 300 S.E. 2nd Street, Fort Lauderdale, FL 33301.
|
(10)
|
Includes 869,500 warrants to purchase common
shares. Neuberger Berman Group LLC and certain of its affiliates may be deemed to be the beneficial owners of the securities for purposes of Rule 13d-3 under the Exchange Act, because it or certain affiliated persons, including Neuberger Berman
Investment Advisers LLC, the adviser or sub-adviser to the funds holding the securities, and NB Equity Management GP LLC, the General Partner of NB All Cap Alpha Fund L.P., a “feeder” fund operating in a “master-feeder”
structure and the owner of all or substantially all the outstanding shares of NB All Cap Alpha Master Fund Ltd., have shared power to retain, dispose of or vote the securities owned by the funds pursuant to the terms of investment management,
advisory and/or sub-advisory agreements with the funds. Neuberger Berman Group LLC or its affiliated persons do not, however, have any economic interest in the securities held by the funds. The address of Neuberger Berman Group LLC, Neuberger Berman
Investment Advisers LLC, NB Equity Management GP LLC is 1290 Avenue of the Americas, New York, NY 10104.
|
(11)
|
Represents common shares beneficial owned by
BlackRock Inc., of which it has sole voting power of 3,235,625 common shares and sole dispositive power of 3,411,493 common shares. This information is based solely on a Schedule 13G filed with the SEC on February 7, 2020. The address of BlackRock
Inc. is 55 East 52nd Street, New York, NY 10055.
|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Relationships and Transactions with
Directors, Executive Officers and Significant Shareholders
Compensation arrangements with our Named Executive Officers and directors are described elsewhere in this report.
Registration Rights Agreement
Steiner Leisure Limited (“Steiner
Leisure”) and Haymaker Sponsor, LLC (“Haymaker Sponsor”) are entitled to certain customary registration rights pursuant to the Registration Rights Agreement, dated as of March 19, 2019 (the “Registration Rights Agreement”). We have filed a shelf prospectus registering Steiner Leisure’s and Haymaker Sponsor’s common shares. At any time, and from
time to time, Steiner Leisure will be entitled to make up to three demands (and Haymaker Sponsor will be entitled to make up to three demands per year) that a resale of our common shares reasonably expected to exceed $10,000,000 in gross offering
price pursuant to such shelf prospectus be made pursuant to an underwritten offering. In addition, Steiner Leisure and Haymaker Sponsor have customary piggyback registration rights subject to cut-back provisions. We will bear the expenses
incurred in connection with the filing of the shelf prospectus. Pursuant to the Registration Rights Agreement, Steiner Leisure and Haymaker Sponsor have agreed not to transfer any of their shares in us during the seven days before and 90 days after
the pricing of any underwritten offering of our common shares, subject to certain exceptions, and Steiner Leisure and Haymaker Sponsor will enter into a customary lock-up agreement to such effect.
14
In addition, certain private placement investors have certain registration rights under certain subscription agreements.
Indemnity Agreements
On March 19, 2019, we entered into indemnity
agreements with each of our directors and executive officers. Each indemnity agreement provides for indemnification and advancement by the Company of certain expenses and costs relating to claims, suits or proceedings arising from service to the
Company or, at our request, service to other entities, as officers or directors to the maximum extent permitted by applicable law.
Lock-up Agreements
On March 19, 2019, in
connection with the previously entered into business combination, Haymaker Sponsor, Steiner Leisure, our directors and officers, and (solely for the purpose of certain provisions thereof) Haymaker Acquisition
Corp. (“Haymaker”) (the “Lock-up Parties”), entered into a Lock-up Agreement (the “Lock-up Agreement”) with us, that, among other things, modifies that certain lock-up
agreement, dated as of October 24, 2017, by and among Haymaker, Haymaker Sponsor, and the directors and officers of Haymaker. Pursuant to the Lock-up Agreement, the Lock-up Parties agreed that they would not, subject to certain
limited exceptions, transfer or sell their common shares for a period of six months after March 19, 2019, the date on which we completed the business combination.
Review, Approval or
Ratification of Transactions with Related Persons
Consistent with Bahamian law and our Amended
and Restated Memorandum of Association and Articles of Association, we adopted a code of ethics that will prohibit directors and executive officers from engaging in transactions that may result in a conflict of interest with us. The code of ethics
includes a policy requiring that our Board review any transaction a director or executive officer proposes to have with us that could give rise to a conflict of interest or the appearance of a conflict of interest, including any transaction that
would require disclosure under Item 404(a) of Regulation S-K. In conducting this review, our Board is obligated to ensure that all such transactions are approved by a majority of our Board not otherwise interested in the
transaction and are fair and reasonable to us and on terms not less favorable to us than those available from unaffiliated third parties.
Our Audit Committee also reviews and approves
any transactions between the Company and any related person (as defined in Item 404 of Regulation S-K) on an ongoing basis, in accordance with Company policies and procedures; keeps the Company’s independent auditor informed of the
Committee’s understanding of the Company’s relationships and transactions with related persons that are significant to the Company and whether the Audit Committee has concerns regarding relationships or transactions with related persons
and, if so, the substance of those concerns; and reviews and discusses with the Company’s independent auditor the independent auditor’s evaluation of the Company’s identification of, accounting for, and disclosure of its
relationships and transactions with related persons, including any significant matters arising from the audit regarding the Company’s relationships and transactions with related persons.
Director Independence
Our Board determines the independence of our
directors by applying the independence principles and standards established by the SEC and the Nasdaq Rules.
The Nasdaq Rules require listed companies to
have a board of directors with at least a majority of “Independent Directors” (as such term is defined in the Nasdaq Rules). Under the Nasdaq Rules, in order for a director to be deemed independent, the board of directors must determine
that the individual does not have a relationship that would interfere with the director’s exercise of independent judgment in carrying out his or her responsibilities.
15
In accordance with the Nasdaq Rules, our Board will annually determine each director’s independence. We will not
consider a director independent unless our Board has determined that he or she has no material relationship with us. We will monitor the relationships of our directors and officers through a questionnaire each director will complete no
less frequently than annually and update periodically as information provided in the most recent questionnaire changes.
As part of its analysis, our Board
affirmatively determined that Messrs. Dolan, McLallen, Magliacano, Stiefler and Powell and Ms. Banikarim are independent. In making these determinations, our Board reviewed and
discussed information provided by the directors and the Company with regard to each director’s business and other outside activities as they may relate to the Company and our management team.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth the fees paid to Ernst & Young that were incurred by the Company and paid by the Company in fiscal year 2019 and the fees incurred by the Company and paid by Nemo (the parent
company of OneSpaWorld’s predecessor) in fiscal year 2018.
|
|
Year Ended December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Audit Fees(1)
|
|
$
|
2,275,000
|
|
|
$
|
2,499,102
|
|
Audit-Related Fees(2)
|
|
|
—
|
|
|
|
—
|
|
Tax Fees(3)
|
|
|
47,900
|
|
|
|
4,500
|
|
All Other Fees(4)
|
|
|
—
|
|
|
|
—
|
|
Total Fees
|
|
$
|
2,322,900
|
|
|
$
|
2,503,602
|
|
(1)
|
Audit Fees. Audit fees consist of fees billed for professional services rendered for the audits of our financial statements, review of financial
statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by Ernst & Young in connection with statutory and regulatory
filings.
|
(2)
|
Audit-Related Fees. Audit-related fees would include assurance and related services that are reasonably related to the performance of the audit or review
of our financial statements and are not reported under “Audit Fees.” These services would include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting
standards.
|
(3)
|
Tax Fees. Tax fees consist of fees billed for professional services for tax compliance and tax advice.
|
(4)
|
All Other Fees. All other fees would include fees for products and services other than the services reported above.
|
Audit Committee
Pre-Approval Policies and Procedures
Our
Audit Committee has adopted a policy and related procedures requiring its pre-approval of all audit and non-audit services to be rendered by Ernst & Young. These policies and procedures are intended to ensure that the provision of such services
does not impair Ernst & Young’s independence. These services may include audit services, audit-related services, tax services and other services. The policy provides for the annual establishment of fee limits for various types of audit
services, audit-related services, tax services and other services, within which the services are deemed to be pre-approved by our Audit Committee. Ernst & Young is required to provide to our Audit Committee back-up information with respect to
the performance of such services.
Our
Audit Committee has delegated to its chair the authority to pre-approve services, up to a specified fee limit, to be rendered by Ernst & Young and requires that the chair report to our Audit Committee any pre-approval decisions made by the chair
at the next scheduled meeting of our Audit Committee.
All services performed by Ernst & Young
for the Company were pre-approved by our Audit Committee.
16
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(b) The following is a list of all exhibits
filed as a part of this report.
Document Exhibit Number
|
|
Exhibit Description
|
|
|
|
2.1
|
|
Business Combination
Agreement, dated as of November 1, 2018, by and among Steiner Leisure, Steiner US, Nemo UK, Steiner UK, SMS, the Seller Representative, Haymaker, OneSpaWorld, Dory US Merger Sub, Dory Foreign Holding Company, Dory Intermediate and Dory US Holding
Company (incorporated by reference to Amendment No. 4 to Form S-4 filed on February 14, 2019).
|
3.1
|
|
Amended and Restated
Memorandum of Association and Articles of Association OneSpaWorld Holdings Limited (incorporated by reference to Exhibit 3.1 to Form 8-K filed on March 25, 2019).
|
4.1**
|
|
Description of Registered
Securities.
|
10.1
|
|
First Lien Credit Agreement,
by and among OneSpaWorld Holdings Limited, Dory Intermediate LLC, Dory Acquisition Sub, Inc., the lenders party thereto and Goldman Sachs Lending Partners LLC, as the Administrative Agent and as the Collateral Agent (incorporated by reference to
Exhibit 10.1 to Form 8-K filed on March 25, 2019).
|
10.2
|
|
Second Lien Credit Agreement,
by and among OneSpaWorld Holdings Limited, Dory Intermediate LLC, the lenders party thereto and Cortland Capital Market Services LLC, as the Administrative Agent and as the Collateral Agent (incorporated by reference to Exhibit 10.2 to Form 8-K
filed on March 25, 2019).
|
10.3
|
|
Registration Rights
Agreement, by and among OneSpaWorld Holdings Limited, Steiner Leisure Limited, Haymaker Sponsor, LLC and, solely for the purpose of certain provisions thereof, Haymaker Acquisition Corp. (incorporated by reference to Exhibit 10.3 to Form 8-K filed
on March 25, 2019).
|
10.4
|
|
Lock-up Agreement, by and
among OneSpaWorld Holdings Limited, Steiner Leisure Limited, Haymaker Sponsor, LLC, directors and officers of OneSpaWorld Holdings and Haymaker Acquisition Corp., and solely for the purpose of certain provisions thereof, Haymaker Acquisition Corp.
(incorporated by reference to Exhibit 10.4 to Form 8-K filed on March 25, 2019).
|
10.5
|
|
Amended and Restated Warrant
Agreement, by and between OneSpaWorld Holdings Limited and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 10.5 to Form 8-K filed on March 25, 2019).
|
10.6†
|
|
2019 Equity Incentive Plan
(incorporated by reference to Exhibit 10.6 to Form 8-K filed on March 25, 2019).
|
10.7
|
|
Form of Indemnity Agreement
(incorporated by reference to Exhibit 10.7 to Amendment No. 2 to Registration Statement on Form S-4 filed on January 22, 2019).
|
10.8
|
|
Sponsor Support Agreement,
dated as of November 1, 2018, among Haymaker Sponsor, Haymaker, OneSpaWorld, and Steiner Leisure (incorporated by reference to Exhibit 10.4 to Amendment No. 2 to Registration Statement on Form S-4 filed on January 22, 2019).
|
17
Document Exhibit Number
|
|
Exhibit Description
|
|
|
|
10.9
|
|
Amendment No. 1 to Sponsor
Support Agreement, dated as of January 7, 2019, by and among Haymaker Sponsor, Haymaker, OneSpaWorld and Steiner Leisure (incorporated by reference to Exhibit 10.5 to Amendment No. 2 to Registration Statement on Form S-4 filed on January 22,
2019).
|
10.10
|
|
Director Designation
Agreement, by and among OneSpaWorld Holdings Limited, Haymaker Sponsor, LLC and Steiner Leisure Limited (incorporated by reference to Exhibit 10.2 to Amendment No. 2 to Registration Statement on Form S-4 filed on January 22, 2019).
|
10.11†
|
|
Employment and Severance
Agreement, dated as of November 1, 2018, by and between OneSpaWorld Holdings Limited and Glenn J. Fusfield (incorporated by reference to Exhibit 10.10 to Amendment No. 4 to Registration Statement on Form S-4 filed on November 13, 2018).
|
10.12†
|
|
Employment and Severance
Agreement, dated as of November 1, 2018, by and between OneSpaWorld Holdings Limited and Leonard Fluxman (incorporated by reference to Exhibit 10.9 to Registration Statement on Form S-4 filed on November 13, 2018).
|
10.13†
|
|
Employment and Severance
Agreement, dated as of November 1, 2018, by and between OneSpaWorld Holdings Limited and Stephen B. Lazarus (incorporated by reference to Exhibit 10.11 to Registration Statement on Form S-4 filed on November 13, 2018).
|
21.1**
|
|
Subsidiaries of OneSpaWorld
Holdings Limited.
|
23.1**
|
|
Consent of Ernst & Young
LLP.
|
31.1*
|
|
Certification of the
Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.
|
31.2*
|
|
Certification of the
Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.
|
32.1**
|
|
Section 1350 Certification of
Principal Executive Officer.
|
32.2**
|
|
Section 1350 Certification of
Principal Financial Officer.
|
**
|
Previously filed with the Registrant’s
Annual Report on Form 10-K filed with the SEC on March 30, 2020.
|
†
|
Indicates a management contract or
compensatory plan.
|
18
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
ONESPAWORLD HOLDINGS
LIMITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Stephen B.
Lazarus
|
|
|
|
|
|
Name: Stephen B.
Lazarus
|
|
|
|
|
|
Title: Chief Operating Officer
and
|
|
|
|
|
|
Chief Financial
Officer
|
|
|
|
|
|
|
Date:
|
|
April 29, 2020
|
|
|
|
19
PROSPECTUS
24,500,000 Common Shares
44,004,911 Common Shares by the Selling Shareholders
8,000,000 Warrants by the Selling Shareholders
OneSpaWorld Holdings Limited
This prospectus relates to the resale from time to time of (a) an aggregate of 44,004,911 common shares, par value $0.0001 per share (the
common shares), consisting of (i) 36,004,911 common shares and (ii) 8,000,000 common shares issuable upon the exercise of warrants to purchase common shares at an exercise price of $11.50 per share (the warrants), and (b)
8,000,000 warrants by the selling shareholders named in this prospectus (each a Selling Shareholder and collectively, the Selling Shareholders). This prospectus also relates to the issuance by us of up to 24,500,000 common
shares upon the exercise of warrants.
On March 19, 2019, we consummated the business combination (the Business Combination)
contemplated by that certain Business Combination Agreement, dated as of November 1, 2018 (as amended, the Transaction Agreement), by and among us, Steiner Leisure Limited, an international business company incorporated under the
laws of the Commonwealth of The Bahamas (Steiner Leisure), Steiner U.S. Holdings, Inc., a Florida corporation, Nemo (UK) Holdco, Ltd., a limited company formed under the laws of England and Wales, Steiner UK Limited, a limited company
formed under the laws of England and Wales, Steiner Management Services, LLC, a Florida limited liability company, Haymaker Acquisition Corp., a Delaware corporation, Dory US Merger Sub, LLC, a Delaware limited liability company, Dory Acquisition
Sub, Limited, an international business company incorporated under the laws of the Commonwealth of The Bahamas, Dory Intermediate LLC, a Delaware limited liability company, and Dory Acquisition Sub, Inc., a Delaware corporation.
We are registering the resale of common shares and warrants as required by (i) an amended and restated registration rights agreement (the
Registration Rights Agreement) entered into by and among us, Haymaker, Steiner Leisure and Haymaker Sponsor, LLC, a limited liability company registered in the Cayman Islands, and (ii) certain subscription agreements we entered into with
certain private placement investors in connection with the Business Combination. We will receive the proceeds from the exercise of the warrants, but not from the resale of the common shares or warrants by the Selling Shareholders.
We will bear all costs, expenses and fees in connection with the registration of the common shares and warrants. The Selling Shareholders will
bear all commissions and discounts, if any, attributable to their respective sales of the common shares and warrants.
Our common shares
are listed on The Nasdaq Capital Market (Nasdaq) under the symbol OSW. On May 6, 2019, the closing sale price of our common shares was $13.97. Our warrants are not currently quoted on any national securities exchange.
Investing in our common shares involves risks that are described in the Risk
Factors section beginning on page 16 of this prospectus.
Neither the Securities and Exchange Commission nor any
state securities commission has approved or disapproved of the securities to be issued under this prospectus or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is May 16, 2019.
TABLE OF CONTENTS
You should rely only on the information contained or incorporated by reference in this prospectus. No one has been authorized
to provide you with information that is different from that contained or incorporated by reference in this prospectus. This prospectus is dated as of the date set forth on the cover hereof. You should not assume that the information contained in
this prospectus is accurate as of any date other than that date. You should not assume that the information incorporated by reference in this prospectus is accurate as of any date other than the date of such incorporated document.
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These forward-looking statements relate to expectations for future financial performance,
business strategies or expectations for our business. Specifically, forward-looking statements may include statements relating to:
|
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the demand for the Companys services together with the possibility that the Company may be adversely
affected by other economic, business, and/or competitive factors or changes in the business environment in which the Company operates;
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changes in consumer preferences or the market for the Companys services; changes in applicable laws or
regulations;
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the availability of competition for opportunities for expansion of the Companys business; difficulties of
managing growth profitably;
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the loss of one or more members of the Companys management team;
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changes in the market for the products we offer for sale;
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other risks and uncertainties included from time to time in the Companys reports (including all amendments
to those reports) filed with the U.S. Securities and Exchange Commission;
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other risks and uncertainties indicated in this prospectus, including those set forth under the section entitled
Risk Factors; and
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other statements preceded by, followed by or that include the words estimate, plan,
project, forecast, intend, expect, anticipate, believe, seek, target or similar expressions.
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These forward-looking statements are based on information available as of the date of this prospectus and current expectations, forecasts and
assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. We do not undertake any obligation to update
forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those
expressed or implied by these forward-looking statements. For a discussion of the risks involved in our business and investing in our common shares, see the section entitled Risk Factors.
Should one or more of these risks or uncertainties materialize, or should any of the underlying assumptions prove incorrect, actual results
may vary in material respects from those expressed or implied by these forward-looking statements. You should not place undue reliance on these forward-looking statements.
ii
SUMMARY OF THE PROSPECTUS
This summary highlights selected information from this prospectus and may not contain all of the information that is important to you in
making an investment decision. Before investing in our securities, you should carefully read this entire prospectus, including our combined financial statements and the related notes included in this prospectus and the information set forth under
the headings Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations. See also the section entitled Where You Can Find More Information.
OSW Predecessor is comprised of the net assets and operations of (i) the following wholly owned subsidiaries of Steiner
Leisure: OneSpaWorld LLC, Steiner Spa Asia Limited, Steiner Spa Limited, and Steiner Marks Limited, (ii) the following respective indirect subsidiaries of Steiner Leisure: Mandara PSLV, LLC, Mandara Spa (Hawaii), LLC, Florida Luxury Spa Group,
LLC, Steiner Transocean U.S., Inc., Steiner Spa Resorts (Nevada), Inc., Steiner Spa Resorts (Connecticut), Inc., Steiner Resort Spas (California), Inc., Steiner Resort Spas (North Carolina), Inc., OSW SoHo LLC, OSW Distribution LLC, Steiner Training
Limited, STO Italy S.r.l., One Spa World LLC, Mandara Spa Services LLC, OneSpaWorld Limited, OneSpaWorld (Bahamas) Limited (formerly known as Steiner Transocean Limited), OneSpaWorld Medispa LLC, OneSpaWorld Medispa Limited, OneSpaWorld Medispa
(Bahamas) Limited (formerly known as STO Medispa Limited), Mandara Spa (Cruise I), LLC, Mandara Spa (Cruise II), LLC, Steiner Transocean (II) Limited, The Onboard Spa by Steiner (Shanghai) Co., Ltd., Mandara Spa LLC, Mandara Spa Puerto Rico,
Inc., Mandara Spa (Guam), L.L.C., Mandara Spa (Bahamas) Limited, Mandara Spa Aruba N.V., Mandara Spa Polynesia Sarl, Mandara Spa (Saipan), Inc., Mandara Spa Asia Limited, PT Mandara Spa Indonesia, Spa Services Asia Limited, Mandara Spa Palau,
Mandara Spa (Malaysia) Sdn. Bhd., Mandara Spa Ventures International Sdn. Bhd., Spa Partners (South Asia) Limited, Mandara Spa (Maldives) PVT LTD, and Mandara Spa (Fiji) Limited, (iii) Medispa Limited, a majority-owned subsidiary of Steiner
Leisure, and (iv) the timetospa.com website, owned by Elemis USA, Inc. (formerly known as Steiner Beauty Products, Inc.).
At
the closing of the Business Combination, OneSpaWorld became the ultimate parent company of Haymaker and OSW Predecessor. Unless the context otherwise requires, OneSpaWorld, we, us, our and the
Company refer to OneSpaWorld Holdings Limited and its subsidiaries.
Unless otherwise indicated or the context
otherwise requires, references in this prospectus to OneSpaWorld, the Company, we, our us and other similar terms refer to OneSpaWorld Holdings Limited and its consolidated subsidiaries.
Unless otherwise specified, share calculations do not include any common shares issuable upon the exercise of outstanding Warrants
to purchase common shares.
Overview
We are the pre-eminent global operator of health and wellness centers onboard cruise ships and a
leading operator of health and wellness centers at destination resorts worldwide. Our highly trained and experienced staff offer guests a comprehensive suite of premium health, fitness, beauty and wellness services and products onboard 163 cruise
ships and at 67 destination resorts globally as of December 31, 2018. With over 80% market share in the highly attractive outsourced maritime health and wellness market, we are the market leader at approximately 10x the size of our closest maritime
competitor. Over the last 50 years, we have built our leading market position on our depth of staff expertise; broad and innovative service and product offerings; expansive global recruitment, training and logistics platform; and decades-long
relationships with cruise and destination resort partners. Throughout our history, our mission has been simple: helping guests look and feel their best during and after their stay.
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At our core, we are a global services company. We serve a critical role for our cruise line
and destination resort partners, operating a complex and increasingly important aspect of their overall guest experience. Decades of investment and know-how have allowed us to construct an unmatched global
infrastructure to manage the complexity of our operations, which in 2017 included nearly 8,000 annual voyages with visits to over 1,100 ports of call around the world. We have consistently expanded our onboard offerings with innovative, leading-edge
service and product introductions, and developed a powerful back-end recruiting, training and logistics platform to manage our operational complexity, maintain our industry-leading quality standards and
maximize revenue per center. The combination of our renowned recruiting and training platform, deep labor pool, global logistics and supply chain infrastructure and proven revenue management capabilities represents a significant competitive
advantage that we believe is not economically feasible to replicate.
The majority of our revenue and profits are earned through long-term revenue sharing agreements with cruise
line partners that economically align both parties and contribute to our attractive asset-light financial profile. These agreements average approximately five years in length and provide us with the exclusive right to offer health, fitness, beauty
and wellness services and the ability to sell complementary products onboard the ships it serves. Under these long-term agreements, cruise line partners retain a specified percentage of revenues from all our sales onboard. This inherent alignment
encourages collaboration in all aspects of our operations, including facility design, product innovation, pre- and post-cruise sales opportunities, capacity utilization initiatives and other data-driven
strategies to drive increased guest traffic and revenue growth. Most of our cruise line agreements encompass 100% of a partner cruise lines existing fleet and all new ships introduced by the cruise line during the term of the agreement. As
opposed to fixed-rent landlords, cruise lines and destination resorts serve as our aligned economic partners.
We are recognized by our
cruise line and destination resort partners and our guests for our comprehensive suite of services and products. We curate and deliver an exhaustive range of offerings centered on providing specific health and wellness solutions to meet our
guests lifestyle routines or objectives. These services include: (i) traditional body, salon, and skin care services and products; (ii) specialized fitness classes and personal fitness training; (iii) innovative pain management,
detoxifying programs and comprehensive body composition analyses; (iv) weight management programs and products; and (v) advanced medi-spa services. We also offer our guests access to leading beauty
and wellness brands including ELEMIS®, Kérastase® and Dysport®, with
many brands
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offered exclusively by us at sea. On average, guests spend $230 per visit and our solution sales approach drives substantial retail sales, with approximately 25% of our revenues derived from the
sale of retail products.
Our
state-of-the-art health and wellness centers are designed and branded for each cruise line and destination resort to optimize the
guest experience, align with the overall hospitality atmosphere and maximize productivity. Centers can employ up to 45 highly trained professionals and range in size from 200 to over 30,000 square feet, depending on the cruise or resort
partners needs.
Our cruise line relationships average over 20 years and encompass substantially all of the major global cruise
lines, including Carnival Cruise Line, Royal Caribbean, Princess Cruises, Norwegian Cruise Lines, Celebrity Cruises, Costa and Holland America, among many others. These partnerships extend across contemporary, premium, luxury and budget cruise lines
that operate ships globally. We maintain an exceptional contract renewal rate with our cruise line partners, having renewed approximately 95% of our contracts based on ship count over the last 15 years, including 100% of our contracts with ships
larger than 3,500 berths. We have not only maintained relationships with existing cruise line partners, but have a history of winning contracts and gaining market share. In 2019, we signed an agreement with the new lifestyle brand Virgin Voyages as
the exclusive operator of the spa and wellness offerings onboard the first three Virgin vessels planned to launch in 2020, 2021 and 2022. In 2018, we signed an agreement with Celebrity Cruises as the exclusive operator of health and wellness centers
onboard our highly anticipated Edge Class of mega ships, including the Celebrity Edge, which launched in November 2018, and three additional mega ships scheduled to launch in 2020, 2021 and 2022.
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On land, we have longstanding relationships with the worlds leading destination hotel and resort operators, including Marriott, Starwood, Hilton, ClubMed, Caesars Entertainment, Lotte,
Loews and Four Seasons, among others.
As a Bahamian international business company that earns a substantial portion of our revenue in low- or no-tax jurisdictions, we have benefited from a highly attractive effective cash tax rate. Additionally, we have minimal capital expenditures as third parties typically
fund the build-out, maintenance, and refurbishment of our onboard health and wellness centers. The combination of our attractive tax rate and asset-light operating model leads to a financial profile that
delivers exceptional Unlevered After-Tax Free Cash Flow. Annually, from 2016 through 2018, we converted approximately 90% of our Adjusted EBITDA to Unlevered After-Tax
Free Cash Flow.
We have driven strong financial results and believe our leading market position in a growing industry, differentiated
business model and entrenched partner relationships position our business for continued growth. For the year ended December 31, 2018, we achieved revenues of $540.8 million, Adjusted EBITDA of $58.6 million, Net Income of
$13.7 million and Unlevered After-Tax Free Cash Flow of $52.9 million. For a reconciliation of non-GAAP financial measures to GAAP measures see
Summary Historical and Other Financial Information included elsewhere in this prospectus.
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Attractive Market Opportunity
We operate at the intersection of the highly attractive health and wellness and travel leisure industries. We are well-positioned to continue
growing through the cruise industrys reliable new cruise ship and passenger growth, consumers desire for travel and experiences and the increasing focus on health and wellness in consumers every day lives.
Highly Dependable Cruise Industry Growth
The cruise industry has been among the fastest-growing segments in the travel leisure industry with passenger growth for more than 20
consecutive years, including through the recessions of 2001 and 2008. We estimate, based on annual statistics published by Cruise Lines International Association (CLIA), that global passenger counts have grown every year from
approximately 6.3 million passengers in 1995 to an all-time high of 28.0 million passengers in 2018, representing a compound annual growth rate of 6.7%. This dependable passenger growth has been
driven by consistent, significant investments in new cruise ship capacity, strong loyalty among experienced cruisers and the large and growing appeal of cruising to all demographics, including millennials. In 2019, millennials are projected to
represent the largest segment of the U.S. population, and according to CLIAs 2018 cruise travel report, they are also most likely to book a cruise for their next vacation.
Cruising remains underpenetrated globally and is poised for continued growth. Based on research from CLIA,
in 2016, cruise passengers in the United States represented 3.6% of the population, which was second to Australia with a penetration rate of 5.4%. According to 2017 data, these penetration rates compare favorably against alternative vacations and
leisure activities, including visits to the Disneyland theme park at 5.6% of the U.S. population, visits to U.S. snowsports facilities at 16.8% of the U.S. population, and visits to Australian snowsports facilities at 8.7% of the Australian
population. China remains incredibly underpenetrated with a cruising penetration rate of just 0.2% of the population in 2017, representing a significant opportunity.
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Today, the Fourth Wave of cruise industry expansion is in our early phases in
Asia, as cruise operators and the Chinese government invest heavily in Asian cruise port infrastructure. The global cruise market has witnessed three distinct periods, or waves, of geographic expansion over the last 40 years as the
industry grew its presence into new regions of the world. The first wave comprised the period during the early 1980s that saw the emergence of the North American and Caribbean cruise market. The second wave occurred in the late 1990s and
early 2000s as the European market evolved to reflect the itinerary diversity seen in North America, and the third wave was driven by industry expansion to the rest of the world, excluding Asia, in the latter half of the 2000s. Each of
these waves saw investment by cruise lines in new ship capacity to service these regions, as well as significant investment by cruise operators and local governments in cruise port infrastructure to enable increased itinerary diversity and enhance
the attractiveness of cruise travel throughout these regions. In 2015, Carnival Corporation and the Chinese State Shipbuilding Corporation established a joint venture for a shipbuilding consortium at a Shanghai shipyard, which will build mega class
cruise ships for the Chinese market. Cruise Industry News reports that Asian cruise capacity grew at a CAGR of 18.3% from 2011 to 2015 and is projected to grow at a 15.2% CAGR from 2015 to 2022. Cruise Industry News projects passenger counts in the
Asian market will reach European volumes within the next 5 to 10 years, and some cruise operators predict during that time that Asian passenger counts may even surpass North American volumes, which are the largest in the world.
Consumers Increasingly Spending on Experiences and Travel
Global consumers are increasingly prioritizing experiences over products, creating a significant tailwind for leisure and travel. According to
Coresight Research, since 2002, the split of U.S. discretionary spending has shifted from 50% services and 50% products to 55% services and 45% products in 2017. This change implies an incremental $139 billion in spending on services or related
experiences, such as travel, in the United States alone. Globally, according to the World Bank, the number of international travel departures around the world has roughly doubled over the past two decades from more than 600 million in 1996 to
1.3 billion in 2015. The outlook remains positive, as the Deloitte 2018 Travel and Hospitality Industry Overview projects that the global hotel industry will sustain strong 5%-6% growth to achieve a
record $170 billion in gross booking in 2018. We are poised to benefit from global consumers shift toward experiences and travel with a global network of health and wellness centers onboard cruise ships and at premier destination resorts
around the world.
Large and Growing Health and Wellness Industry
Our health and wellness centers cater to guests seeking a continuation of their wellness activities while traveling and those who want to trial
services while away from home. According to The Global Wellness Institute (GWI), the global wellness economy is growing at nearly twice the rate of the broader economy, achieving a total value of $4.2 trillion in 2017. As consumers
increasingly incorporate health and wellness activities into their daily lives, they are placing a higher priority on health and wellness services while traveling. GWI estimates that wellness-related tourism grew at twice the rate of general tourism
from 2015 to 2017 and projects it to grow at a 7.5% compound annual growth rate from $639 billion in 2017 to $919 billion in 2022.
Our
Evolution
Our history dates back to the early 1960s, when we opened the worlds first salons at sea onboard transatlantic
cruise ships, including the Queen Mary and Queen Elizabeth II. Over more than 50 years, we have continuously defined and redefined the onboard health and wellness category by consistently expanding our onboard offerings with innovative and
leading-edge service and product introductions, while developing the powerful back-end recruiting, training and logistics platforms to manage and optimize the complexity of our operations and maintain our
industry-leading quality standards. We have successfully evolved the onboard health and wellness category from what was once a consumer-centric amenity for passengers to a key onboard revenue driver for cruise line partners.
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In 2015, a consortium led by L Catterton acquired Steiner Leisure, the holding
company of OneSpaWorld (the 2015 Transaction). Since then, OneSpaWorld has strengthened its already proven platform by leveraging L Cattertons expertise in multi-unit retail and customer acquisition. At sea, OneSpaWorld
has enhanced collaboration with its cruise line partners to reinforce its market leading position and introduced innovative revenue initiatives to accelerate its onboard revenue growth. Key recent initiatives include:
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enhancing and expanding collaboration with cruise line and resort partners;
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creating pre-marketing,
pre-booking and pre-payment platforms with optimal positioning on cruise line websites;
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employing data-driven, dynamic pricing of services to optimize facility utilization and revenue generation;
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incorporating advanced direct marketing programs, including personalized communications and value promotions, to
drive traffic;
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shifting revenue mix towards higher value-add services through new
service introductions and higher-ticket products coupled with enhanced consultative sales training techniques;
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expanding medi-spa services to the majority of ships within our fleet;
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collaborating with global brands to leverage our powerful retail channel and captive audience of over
20 million consumers with above average household income;
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increasing frequency of budgeting and KPI reviews with cruise partners;
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improving staff productivity through enhanced incentive and retention measures; and
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leveraging the strength of our global marketing, recruiting, training, logistics and facility design platforms
across our destination resort partnerships.
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Today, our comprehensive suite of premium health, fitness, beauty and
wellness services and products reaches more consumers than ever before, with 165 centers onboard cruise ships addressing a captive audience of over 20 million passengers annually and 67 destination resort centers serving global travelers at
premier destination resorts around the world.
Our Strengths
Global Leader in the Hospitality-Based Health & Wellness Industry
As the pre-eminent global operator of health and wellness centers onboard cruise ships and a leading
operator of health and wellness centers at destination resorts worldwide, we are at the center of the intersection between the health and wellness and travel leisure industries. Global wellness tourism is a $639 billion industry, according to
the GWI, and is projected to grow at a compound annual growth rate of 7.5% through 2022. We command over 80% market share in the highly attractive outsourced maritime health and wellness market and we are nearly 10x the size of our closest
competitor. Through our market share, we have access to a captive audience of over 20 million passengers. Cruise ship guests are an attractive demographic with average annual household incomes of over $100,000. Based on an independent study
conducted by a global strategy consulting firm, approximately 45% of cruise guests are interested in or have participated in wellness activities during their cruise while our revenues have been historically driven by approximately 10% of cruise ship
passengers. As a result of our scale, our captive audience and consumers increasing desire for more health and wellness services, we are well-positioned in the growing global health and wellness industry and have a large addressable market at
sea and on land.
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Differentiated Business Model That Would Be Difficult and
Non-Economical to Replicate
For more than 50 years, our business model has been built
through investment in global infrastructure and training, decades-long relationships with our cruise line and destination resort partners and our reputation for offering guests a
best-in-class wellness experience. The robust infrastructure and processes required to operate and maximize revenue across our network of global health and wellness
centers separates us from our peers. We embarked on almost 8,000 voyages that welcomed over 20 million passengers at more than 163 ports of embarkation in 2017. Our business model is centered on providing our partners with the following
solutions:
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Global Recruiting, Training and LogisticsWe recruit, train and manage over 3,000 professionals
annually around the world, representing 86 nationalities and 27 spoken languages. With nine global training facilities, we can accommodate each cruise lines needs for specific onboard staff with complex language, cultural and service modality
requirements and are the only company with the infrastructure to commission highly trained staff at over 1,100 ports of call worldwide at a moments notice.
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Supply Chain and LogisticsWe manage the complex distribution of all products and supplies to our
floating centers, leveraging proprietary data to accurately forecast and stock each center. Products can only be loaded at designated ports around the world during a limited window of time while the ship is in port, adding to the
complexity of the process.
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Yield and Revenue ManagementWe have developed proprietary technology, processes and staff training
tools to consistently measure, analyze and maximize onboard revenue.
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Exclusive Relationships with Global BrandsDue to our scale, superior operations, industry longevity
and attractive captive audience, we currently have over 600 product SKUs offered through the OneSpaWorld platform at sea, including ELEMIS, Kérastase, Thermage®, GoodFeet® Arch Supports and GO SMILE® Teeth Whitening.
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Facility Design and Branding ExpertiseWe design our state-of-the-art health and wellness centers specifically for each cruise line and destination resort partner by creating bespoke branding and concepts to optimize
guest experiences and maximize productivity.
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The above capabilities have contributed to building a differentiated and
defensible strategy around our leading market position in a growing and attractive industry.
Unmatched Breadth of Service and Product Offering
We offer our guests a comprehensive suite of health and wellness services and products to meet any and all of their needs. We are
continuously innovating and evolving our offerings based on the latest trends and tailors our service and product offerings to regional preferences. In addition to wellness and beauty services, we offer the latest in fitness, a full range of massage
treatments, nutrition/weight management consultations, teeth whitening, acupuncture and wellness services. OneSpaWorld has also introduced innovative, higher-ticket medi-spa services, including BOTOX® Cosmetic, Dysport, Restylane®, CoolSculpting®, Thermage and dermal fillers, among
others. With our captive audience of over 20 million cruise guests annually, OneSpaWorld is a compelling distribution channel for leading wellness and beauty brands. Renowned brands, including ELEMIS and Kérastase, have partnered with us
for exclusive distribution at sea. Cruise and resort partners depend on us to provide their guests with the best and broadest assortment of services and products to enhance their vacation experience.
Entrenched Partnerships with Economic Alignment
We have cultivated partnerships with many of the largest and most reputable cruise lines and premier resorts in the world. Our cruise line
relationships average over 20 years and encompass substantially all of the major
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global cruise lines, including Carnival Cruise Line, Royal Caribbean, Princess Cruises, Norwegian Cruise Lines, Celebrity Cruises, Costa and Holland America, among many others. The majority of
our revenues and profits are earned through our long-term revenue sharing agreements with our cruise line partners that economically align both parties and create a collaborative relationship. On land, we partner with market leaders at
highly-attractive destinations, including Atlantis Paradise Island Bahamas, The Ocean Club, a Four Seasons Resort, Hilton Hawaiian Village Beach Resort and Spa and the Mohegan Sun Resort. Our long-standing relationships, with economic alignment at
the core, strengthens our competitive advantage.
Highly Visible and Predictable Revenue Streams
We consistently have access to over 20 million passengers annually with passenger growth expected to continue as new ships are
commissioned in the industry. This new ship growth is highly visible as demonstrated in a publicly available global order book outlining over five years of new ship orders. Across our contracts, OneSpaWorld typically operates on all ships in a fleet
and on new ships added during the contract term, securing both existing and new ship revenue. A new ship requires approximately two to four years to be built and is rarely delayed as cruise lines typically sell out the vessels maiden voyage
over a year in advance. New ships do not have a revenue ramp-up period given these advanced marketing efforts. Cruise line partners are experts at dependably filling their ships with passengers, as
demonstrated by the industry average occupancy rate of above 100%, even through recessionary periods. Due to consistent industry practices and decades of proprietary operating history data, OneSpaWorld has strong visibility into our future revenue
realization for the next three to five years.
Asset-Light Model with Tremendous After-Tax Free Cash Flow Generation
Third parties typically fund the build-out, maintenance, and refurbishment of our onboard health and
wellness centers, resulting in an asset-light profile with minimal capex required. Our capital expenditures have averaged 1% of revenues over the last three years. Being a Bahamian international business company and earning a significant portion of
our revenue in low-tax or no-tax jurisdictions, our effective cash tax rate has been approximately 2% over the last three years. This combination translates to
exceptional after-tax free cash flow. Annually, from 2016 through 2018, we converted approximately 90% of its Adjusted EBITDA to Unlevered After-Tax Free Cash Flow.
Seasoned and Proven Leadership Team
OneSpaWorld is led by a management team that has operated Steiner for nearly 20 years. Our Executive Chairman, Leonard Fluxman, and CFO
and COO, Stephen Lazarus, together led Steiner Leisure as a public company for more than a decade. Mr. Fluxman, Mr. Lazarus and our Chief Executive Officer, Glenn Fusfield, now lead an internally developed senior management team with over
150 years of combined industry experience. We will also benefit from Haymakers investing and operational experience at Fortune 500 companies, particularly in the consumer and hospitality sectors. The OneSpaWorld management teams
deep experience and proven track record in managing the business in both public and private markets positions makes OneSpaWorld an attractive vehicle for future long-term growth within the global hospitality-based health and wellness industry.
Growth Strategies
Our management plans
to continue growing the business through the following strategies:
Capture Highly Visible New Ship Growth with Current Cruise Line Partners
We will continue benefiting from the cruise industrys capacity growth, with a consistent and visible pipeline of new ships
commissioned annually by our cruise line partners. From 2019 to 2023, our existing cruise
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line partners are expected to build 35 new ships, representing over 119,000 new berths, which is an approximate 25% increase in our estimated year-end 2018
berth count. Approximately 85% of our 2020 projected revenues at sea are expected to be generated from the existing fleet and new ships being launched by cruise lines already under contract with us. As our existing cruise line partners, expand into
the Asian region over the longer-term, we will be well-positioned to grow revenue alongside our cruise line partners as we have over 70% market share in the region today. Through established cruise line partner relationships, current contracts and
an approximately 95% contract renewal rate over the last 15 years, we are well-positioned to capture new ship growth over the long term.
Expand
Market Share by Adding New Potential Cruise Line Partners
Although we have over 80% market share in the outsourced maritime health
and wellness market, there is an opportunity to continue to grow our market share by winning new contracts. Recently, we won a contract with the new lifestyle brand Virgin Voyages to operate the spa and wellness offerings onboard the first three
Virgin vessels, planned to launch in 2020, 2021 and 2022, and a contract with Celebrity Cruise Lines to design and operate the health and wellness centers onboard their four new mega ships to be commissioned between 2018 and 2022. We also routinely
meets with cruise lines that do not currently outsource their health and wellness centers or utilize our smaller competitors but that may have an interest in contracting with us in the future due to our strong reputation and historical results. As
evidenced by our successful history of winning new contracts, we are focused on continuing to grow our market share at sea over time.
Continue
Launching More Value-Added Services and Products
We have successfully innovated services and products to meet guests
ever-changing needs, attract more guests and generate more revenue per guest. Medi-spa has been a highly successful innovation for OneSpaWorld at sea and is now a critical component of our offerings. Performed
by licensed physicians, the medi-spa offerings provide the latest cosmetic medical services to guests such as non-surgical cosmetic procedures, including BOTOX Cosmetic,
Dysport, Restylane, CoolSculpting, Thermage and dermal fillers. Guests purchasing medi-spa services spend on average up to 10x more than on traditional services. We also initiated a trial of Kérastase,
a leading global professional hair care brand, in 2017 and experienced a 30% increase in total guest spending and improved retail attachment by more than 25% during the trial period. We will continue to focus on launching higher value-add products and services that meet guest demands and drive traffic through our highly productive centers.
Focus on Enhancing Health and Wellness Center Productivity
Cruise lines have become increasingly focused on growing onboard revenue as a way to enhance revenue beyond traditional cabin ticket sales.
Between 2011 and 2017, onboard spend as a percentage of total cruise line revenue has increased over 480 basis points to nearly 30%, translating to $2 billion of incremental onboard spending. We provide services to approximately 10% of cruise
passengers on any one journey, while 45% of passengers say they are interested in using the centers onboard, per an independent global consulting study. We are focused on collaborating with cruise line partners to increase passenger penetration and
maximize revenue yield through the following initiatives:
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Increase Pre-Booking and
Pre-Payment Capture RateWe are working with our cruise line partners to expand our marketing efforts to reach a guest before boarding a ship through
pre-booking. Pre-booked appointments yield approximately 60% more revenue than services booked onboard the ship. Due to our success across select cruise lines that have
implemented pre-booking capabilities, we are in the process of implementing pre-booking across many of our other partner cruise lines.
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Expand Targeted Marketing and Promotion InitiativesWe are now directly marketing and distributing
promotions to onboard passengers as a result of enhanced collaboration with select cruise line partners. These promotions are personalized and individually tailored to guests profiles and have successfully driven traffic and revenue at our
health and wellness centers. Examples include happy anniversary messages to couples, happy birthday notes to individual guests, and promotional retail credits offered to guests who visit our centers before the end of their
cruise. On vessels implementing these initiatives, guests that received these customized promotions were responsible for over 6.5% of revenues generated during the year ended December 31, 2018 and spent approximately 5.5% more during their
visit than guests that did not receive customized promotions.
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Utilize Technology to Increase Utilization and Enhance Service MixWe have recently begun to
successfully introduce and expand technology-enabled dynamic pricing initiatives with selected cruise line partners. While dynamic pricing strategies have historically been applied manually by onboard staff, we are currently rolling out online and pre-cruise access to drive off-peak utilization rates and fill higher-demand time slots with higher-value bookings. This enhanced dynamic pricing capability is currently
available with only a few cruise line partners, representing a significant opportunity for revenue growth as it is rolled out and optimized fleet-wide.
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Extend Retail Beyond the ShipOur Shop & Ship program provides guests the ability to buy
retail products onboard and have products shipped directly to their home to avoid the hassle of packing products in their luggage. On average, a Shop & Ship customer spends more than 3.5x the amount of a
non-Shop & Ship customer on retail products. The Shop & Ship program, combined with our eCommerce platform timetospa.com, gives us the ability to maintain a connection with each guest
beyond the cruise voyage.
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Selectively Expand Footprint at Destination Resorts
We have long-standing relationships with many leading hotel and hospitality companies around the world such as Marriott, Starwood, Hilton,
ClubMed, Caesars Entertainment, Lotte, Loews and Four Seasons, among others. We believe we are a proven turnkey operator for our partners. With health and wellness centers in 67 destination resorts, with 17 in North America and 50 in Asia, this
reflects only a handful of resort centers per partner, or approximately 1% of our partners total resorts. As such, we believe there is significant potential to operate additional centers within their resort partner portfolios. We will
selectively expand our resort footprint when attractive unit economics can be generated. Given our unit growth potential, global infrastructure and proven platform, we have a significant opportunity to further expand our destination resort
footprint.
Risk Factors
Our
business is subject to numerous risks and uncertainties, including those highlighted in the section entitled Risk Factors immediately following this prospectus summary, that represent challenges that we face in connection with the
successful implementation of our strategy and the growth of our business.
Corporate Information
We are an international business company incorporated under the laws of the Commonwealth of The Bahamas that was incorporated on
October 5, 2018 in order to become the parent company of OSW Predecessor following the consummation of a business combination with Haymaker, a blank check company incorporated in the State of Delaware. On March 19, 2019, we consummated the
Business Combination and, in connection therewith, became a successor issuer to Haymaker by operation of Rule 12g-3(a) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange
Act).
11
Our principal executive offices are located at 770 South Dixie Highway, Suite 200, Coral
Gables, FL 33146, and our telephone number is (305) 358-9002. Our website address is onespaworld.com. Information contained on our website is not a part of this prospectus, and the inclusion of our
website address in this prospectus is an inactive textual reference only.
12
SUMMARY HISTORICAL AND OTHER FINANCIAL INFORMATION
The following tables contain summary historical financial data for OSW Predecessor as of December 31, 2018 and 2017 and for the years
ended December 31, 2018, 2017 and 2016, derived from the audited combined financial statements of OSW Predecessor included elsewhere in this prospectus. The summary historical financial data of OSW Predecessor is not intended to be an indicator
of our financial condition or results of operations in the future.
The information below is only a summary and should be read in
conjunction with the section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations and the audited combined financial statements of OSW Predecessor, and the notes related thereto,
included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenues
|
|
$
|
410,927
|
|
|
$
|
383,686
|
|
|
$
|
362,698
|
|
Product Revenues
|
|
|
129,851
|
|
|
|
122,999
|
|
|
|
113,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
540,778
|
|
|
|
506,685
|
|
|
|
476,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue and Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Services
|
|
|
352,382
|
|
|
|
332,360
|
|
|
|
318,001
|
|
Cost of Products
|
|
|
110,793
|
|
|
|
107,990
|
|
|
|
106,259
|
|
Administrative
|
|
|
9,937
|
|
|
|
9,222
|
|
|
|
10,432
|
|
Salary and Payroll Taxes
|
|
|
15,624
|
|
|
|
15,294
|
|
|
|
14,454
|
|
Amortization of Intangible Assets
|
|
|
3,521
|
|
|
|
3,521
|
|
|
|
3,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cost of Revenues and Operating Expenses
|
|
|
492,257
|
|
|
|
468,387
|
|
|
|
452,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
|
48,521
|
|
|
|
38,298
|
|
|
|
23,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
(34,099
|
)
|
|
|
|
|
|
|
|
|
Interest Income
|
|
|
238
|
|
|
|
408
|
|
|
|
340
|
|
Other (Expense) / Income
|
|
|
171
|
|
|
|
(217
|
)
|
|
|
(178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Income (Expense), net
|
|
|
(33,690
|
)
|
|
|
191
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Provision for Income Taxes
|
|
|
14,831
|
|
|
|
38,489
|
|
|
|
23,779
|
|
Provision for Income Taxes
|
|
|
1,088
|
|
|
|
5,263
|
|
|
|
5,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
13,743
|
|
|
$
|
33,226
|
|
|
$
|
18,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(1)
|
|
$
|
58,622
|
|
|
$
|
55,902
|
|
|
$
|
51,746
|
|
Unlevered After-Tax Free Cash Flow
|
|
$
|
52,913
|
|
|
$
|
52,774
|
|
|
$
|
48,020
|
|
% Conversion
|
|
|
90.3
|
%
|
|
|
94.4
|
%
|
|
|
92.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Balance Sheet Data (At Period End):
|
|
|
|
|
|
|
|
|
Working Capital(2)
|
|
$
|
22,419
|
|
|
$
|
17,252
|
|
Total Assets
|
|
|
272,659
|
|
|
|
267,072
|
|
Total Liabilities
|
|
|
400,242
|
|
|
|
41,791
|
|
Total Equity (Deficit)
|
|
|
(127,583
|
)
|
|
|
225,281
|
|
(1)
|
We define Adjusted EBITDA as Net Income plus Provision for Income Taxes, Other Income, Non-Controlling Interest, Interest Expense, and Depreciation & Amortization, with adjustments for
|
13
|
non-recurring items, related party transactions, contribution from the historical timetospa.com channel, purchase price accounting adjustments
relating to the 2015 Transaction (as defined below), discrepancies between cash and booked Provision for Income Taxes and non-cash contract expenses. See Unaudited Pro Forma Condensed
Combined Financial Information. We define Unlevered After-Tax Free Cash Flow as Adjusted EBITDA minus capital expenditures and cash taxes paid.
|
The following table reconciles Net Income to Adjusted EBITDA and Unlevered After-Tax Free
Cash Flow for the years ended December 31, 2018, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Year Ended December 31,
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Net Income
|
|
$
|
13,743
|
|
|
$
|
33,226
|
|
|
$
|
18,164
|
|
Provision for Income Taxes
|
|
|
1,088
|
|
|
|
5,263
|
|
|
|
5,615
|
|
Other Income
|
|
|
(409
|
)
|
|
|
(191
|
)
|
|
|
(162
|
)
|
Non-Controlling Interest(a)
|
|
|
(3,857
|
)
|
|
|
(2,109
|
)
|
|
|
(3,261
|
)
|
Interest Expense
|
|
|
34,099
|
|
|
|
|
|
|
|
|
|
Non-GAAP Management Adjustments(b)
|
|
|
|
|
|
|
(1,208
|
)
|
|
|
270
|
|
Related Party Adjustments(c)
|
|
|
2,860
|
|
|
|
9,925
|
|
|
|
18,953
|
|
timetospa.com Adjustments(d)
|
|
|
|
|
|
|
(805
|
)
|
|
|
(1,388
|
)
|
Depreciation & Amortization
|
|
|
10,055
|
|
|
|
9,829
|
|
|
|
12,884
|
|
Addback for Non-Cash Prepaid Expenses(e)
|
|
|
1,043
|
|
|
|
1,972
|
|
|
|
671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
58,622
|
|
|
$
|
55,902
|
|
|
$
|
51,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
(4,983
|
)
|
|
|
(2,683
|
)
|
|
|
(3,081
|
)
|
Cash Taxes(f)
|
|
|
(726
|
)
|
|
|
(445
|
)
|
|
|
(645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unlevered After-Tax Free Cash
Flow
|
|
$
|
52,913
|
|
|
$
|
52,774
|
|
|
$
|
48,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Conversion(g)
|
|
|
90.3
|
%
|
|
|
94.4
|
%
|
|
|
92.8
|
%
|
|
(a)
|
Non-Controlling Interest refers to amounts paid to a joint venture
partner of OSW Predecessor.
|
|
(b)
|
Non-GAAP Management Adjustments refers to adjustments for certain one-time income or expenses and reflects timing discrepancies for certain cash income or expense items.
|
|
(c)
|
Related Party Adjustments refers to adjustments to reflect the impact of agreements with related parties for
the full periods presented.
|
|
(d)
|
As a result of our planned separation from Steiner Leisure, OSW Predecessor no longer operates
timetospa.com as a standalone e-commerce business with focused marketing efforts and paid search advertising, as it had operated the channel through December 31, 2017. timetospa.com is now a
post-cruise sales tool where guests may continue their wellness journey after disembarking. This adjustment removes the impact of timetospa.com in the historical financial period due to this change in business model and to assist in comparing
such periods with later periods.
|
|
(e)
|
Addback for Non-Cash Prepaid Expenses refers to non-cash expenses incurred in connection with certain contracts.
|
|
(f)
|
Cash Taxes refers to cash taxes paid or payable.
|
|
(g)
|
Unlevered After-Tax Free Cash Flow Conversion is calculated as Adjusted
EBITDA less Capital Expenditures and Provision for Income Taxes, divided by Adjusted EBITDA.
|
(2)
|
Working capital calculated as current assets less current liabilities, less cash and cash equivalents.
|
Non-GAAP Financial Information
We believe that these non-GAAP measures, when reviewed in conjunction with generally accepted accounting principals (GAAP)
financial measures, and not in isolation or as substitutes for analysis of our
14
results of operations under GAAP, are useful to investors as they are widely used measures of performance and the adjustments we make to these non-GAAP measures provide investors further insight
into our profitability and additional perspectives in comparing our performance to other companies and in comparing our performance over time on a consistent basis. Adjusted EBITDA and Unlevered After-Tax Free Cash Flow have limitations as
profitability measures in that they do not include total amounts for interest expense on our debt and provision for income taxes, and the effect of our expenditures for capital assets and certain intangible assets. In addition, all of these non-GAAP
measures have limitations as profitability measures in that they do not include the impact of certain expenses related to items that are settled in cash. Because of these limitations, the Company relies primarily on its GAAP results.
In the future, we may incur expenses similar to those for which adjustments are made in calculating Adjusted EBITDA. Our presentation of
Adjusted EBITDA should not be construed as a basis to infer that our future results will be unaffected by extraordinary, unusual or non-recurring items.
15
RISK FACTORS
An investment in our securities involves a high degree of risk. You should carefully consider the risks described below before making an
investment decision. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. The trading price of our
securities could decline due to any of these risks, and, as a result, you may lose all or part of your investment.
Risks Related to Our Business
We Depend on Our Agreements with Cruise Lines and Destination Resort Health and Wellness Centers; if These Agreements Terminate, Our Business
Would Be Harmed
A significant portion of our revenues are generated from our cruise ship health and wellness operations. The
cruise line agreements have specific terms, ranging from 2.6 to 10.7 years with an average remaining term per ship of approximately 3 years as of December 31, 2018. As of that date, cruise line agreements that expire within one year covered 16
of the 163 ships served by us. These 16 ships accounted for approximately 3.80% of our 2018 revenues. These agreements, as well as our other cruise line agreements, may not be renewed after their expiration date on similar terms or at all. Any
renewals may cause reductions in our margins. From time to time, the amounts we pay to cruise lines and land-based venues increase upon entering into renewals of agreements.
In addition, these agreements provide for termination by the cruise lines with limited or no advance notice under certain circumstances,
including, among other things, the withdrawal of a ship from the cruise trade, the sale or lease of a ship or our failure to achieve specified passenger service standards. As of December 31, 2018, agreements for four ships provided for
termination for any reason by the cruise line on 90 days notice, and with respect to four of our ships, we are operating without written agreements. These four ships (which are included in the 163 ships referenced above) accounted for 5.0% of
our 2018 revenues. Termination of significant cruise line agreements or a series of other cruise line agreements, either upon completion of their terms or prior thereto, could have a material adverse effect on our results of operations and financial
condition. Some of our land-based health and wellness center agreements also provide for termination with limited advance notice under certain circumstances.
As a result of the consolidation of the cruise industry, the number of independent cruise lines has decreased in recent years, and this trend
may continue. Also, historically, some smaller cruise lines have ceased operating for economic reasons and this may happen to other cruise lines in the future. As a result of these factors, a small number of cruise companies, all of which currently
are our customers, dominate the cruise industry. Revenues from passengers of each of the following cruise line companies accounted for more than ten percent of our total revenues in 2018, 2017 and 2016, respectively: Carnival (including Carnival,
Carnival Australia, Costa, Holland America, P&O, Princess and Seabourn cruise lines): 48.5%, 48.6% and 48.1% and Royal Caribbean (including Royal Caribbean, Celebrity Cruises, Pullmantur, and Azamara cruise lines): 21.0%, 20.8% and 20.2% and
Norwegian Cruise Lines: 13.8%, 13.0% and 13.2%. These companies also accounted for 138 of the 163 ships served by us as of December 31, 2018. If we cease to serve one of these cruise companies, or a substantial number of ships operated by a
cruise company, it could materially adversely affect our results of operations and financial condition.
We Depend on the Cruise Industry and Their
Risks Are Risks to Us
Cruise lines compete for consumer disposable leisure time dollars with other vacation alternatives, such as
hotels and sightseeing vacations. Demand for cruises is dependent on the underlying economic strength of the countries from which cruise lines source their passengers. Economic changes that reduce disposable income or consumer confidence in the
countries from which our cruise line partners source their passengers may affect demand for vacations, including cruise vacations, which are discretionary purchases.
16
Despite the general historic trend of growth in the volume of cruise passengers, in 2018 and
future years, the global economic environment could cause the number of cruise passengers to decline or be maintained through discounting, which could result in an increased number of passengers with limited discretionary spending ability. A
significant decrease in passenger volume could have a material adverse effect on our results of operations and financial condition.
A
continuing industry trend reported by CLIA is the growing number of passengers sourced from outside North America. We believe that non-North American passengers spend less on our services and products than
North American passengers. Other recent trends are those of certain cruise lines reducing the number of cruises to certain long-standing destinations and replacing them with alternative exotic destinations, as well as extending the length of
voyages. A number of such replacements and extensions result in cruises producing lower revenues to us than cruises to the prior destinations and of certain long-standing durations. The continuation of these trends could materially adversely affect
the results of our shipboard health and wellness operations.
A significant portion of the cruise industrys growth is expected to
come from expansion of markets outside of our core North American market. Our facilities on North American ships are our best performing facilities, and there is no guarantee that we will be able to generate the same revenue performance in non-North American markets. Additionally, our cruise partners dictate the itineraries on which their ships sail, and they may change itineraries to be less favorable to our revenue performance.
Accidents and other incidents involving cruise ships can materially adversely affect the cruise industry, as well as our results of operations
and financial condition. Among other things, accidents reduce our revenues and increase the costs of our maritime-related insurance. In addition, accidents can adversely affect consumer demand for cruise vacations.
Other unscheduled withdrawals of ships from service, delays in new ship introductions, environmental violations by cruise lines, restricted
access of cruise ships to environmentally sensitive regions, hurricanes and other adverse weather conditions and increases in fuel costs could also materially adversely impact the cruise industry. For example, in the past, hurricanes have caused the
withdrawal of ships that we served from service for use in hurricane relief efforts, as well as the temporary closing of cruise ports and the destruction of a cruise pier facility. A number of cruise ships have experienced outbreaks of illnesses
that have affected, at times, hundreds of passengers on a ship. In addition, epidemics affecting global regions could also adversely affect cruise ship travel. Also, in recent years, plane crashes, violence and other crimes, passenger accidents,
disappearances and assaults, fatalities from shore excursion activities, shipboard fires and other incidents have brought adverse publicity to the travel industry, including the cruise industry. The public concern over these incidents, especially if
they are repeated, or other negative publicity about the cruise industry, could adversely affect the demand for cruises and adversely affect our results of operations and financial condition. The cruise lines capacity has grown in recent years
and is expected to continue to grow over the next few years as new ships are introduced. In order to utilize the new capacity, it is likely that the cruise industry will need to increase its share of the overall vacation market. In order to increase
that market share, cruise lines may be required to offer discounted fares to prospective passengers, which would have the potentially adverse effects on us described above.
Severe weather conditions, both at sea and at ports of embarkation, also could adversely affect the cruise industry. The cruise industry also
relies to a significant extent on airlines to transport passengers to ports of embarkation. Changes in airline service to cruise embarkation and disembarkation locations could adversely affect us. In addition, any strikes or other disruptions of
airline service, including those that could follow terrorist attacks or armed hostilities, could adversely affect the ability of cruise passengers or our shipboard staff to reach their ports of embarkation, or could cause cancellation of cruises.
Cruise ships have increasingly had itineraries which provide for the ships to be in port during cruises. When cruise ships are in port,
our revenues are adversely affected.
17
Cruise ships periodically go into dry-dock for
routine maintenance, repairs and refurbishment for periods ranging from one to three weeks. Cruise ships also may be taken out of service for non-routine maintenance and repairs as a result of damage from an
accident or otherwise, such as the Costa Concordia and Carnival Triumph incidents. A ship also may go out of service with respect to us if it is transferred to a cruise line we do not serve or if it is retired from service. While we
attempt to plan appropriately for the scheduled removal from service of ships we serve, unexpected removals from service of ships we serve can hamper the efficient distribution of our shipboard personnel, in addition to causing unexpected reductions
in our shipboard revenues.
We Are Required to Make Minimum Payments under Our Agreements and May Face Increasing Payments to Cruise Lines and
Owners of Our Destination Resort Health and Wellness Centers
We are obligated to make minimum annual payments to certain cruise
lines and owners of our land-based venues regardless of the amount of revenues we receive from customers. We may also be required to make such minimum annual payments under any future agreements into which we enter. Accordingly, we could be
obligated to pay more in minimum payments than the amount we collect from customers. As of December 31, 2018, these payments are required by cruise line agreements covering a total of 145 ships served by us and by 6 of the agreements for our
destination resort health and wellness centers.
As of December 31, 2018, we guaranteed total minimum payments to cruise lines
(excluding payments based on minimum amounts per passenger per day of a cruise applicable to certain ships served by us) and owners of our land-based venues of approximately $126,000,000 in the aggregate in 2019. As we renew or enter into new
agreements with cruise lines and land-based venues, we may experience increases in such required payments and such increases may materially adversely affect our results of operations and financial condition.
We Depend on the Continued Viability of the Ships and Destination Resort Health and Wellness Centers We Serve
Our revenues from our shipboard guests and guests at our destination resort health and wellness centers can only be generated if the ships and
land-based venues we serve continue to operate. Historically, some smaller cruise lines we served have ceased operating for economic reasons. We cannot be assured of the continued viability of any of the land-based venues (including our ability to
protect our investments in build-outs of health and wellness centers) or cruise lines that we serve, particularly in the event of recurrence of the more severe aspects of the economic slowdown experienced in certain prior years. To the extent that
cruise lines or land-based venues we serve, or could potentially serve in the future, cease to operate, our results of operations and financial condition could be adversely affected.
Increased Costs Could Adversely Impact our Financial Results
In addition to the adverse effects on the cruise industry of high fuel costs described above, periods of higher fuel costs adversely affect us
directly. We depend on commercial airlines for the transportation of our shipboard employees to and from the ships we serve and, as a result, we pay for a relatively large number of flights for these employees each year. During times of higher fuel
costs, such as those experienced in certain prior years, airfares, including those applicable to the transportation of our employees, have been increased by the airlines we have utilized. Increased transportation costs associated with increased fuel
costs also add to the costs of delivery of our products to the ships we serve and other destinations. Higher fuel charges also increase the cost to consumers of transportation to cruise ship destination ports and to venues where we operate our
destination resort health and wellness centers and also increase the cost of utilities at our destination resort health and wellness centers. Periods of increasing fuel costs would likely cause these transportation costs to correspondingly increase.
Extended periods of increased airfares could adversely impact our results of operations and financial condition.
Increases in prices of
other commodities utilized by us in our business could adversely affect us. For example, in certain prior years, as a result of increases in the cost of cotton, the cost to us of linens and uniforms
18
utilized in our operations has increased. Our land-based health and wellness operations also have experienced an increase in the cost of electrical utilities. A continuing increase in these costs
or similar costs applicable to our operations could adversely impact our results of operations and financial condition.
We Depend on Our Key
Officers and Qualified Employees
Our continued success will depend to a significant extent on our senior executive officers,
including Leonard Fluxman, our Executive Chairman, Glenn Fusfield, our Chief Executive Officer and President, and Stephen Lazarus, our Chief Financial Officer and Chief Operating Officer. The loss of the services of any of these persons or other key
management personnel could have a material adverse effect on our business. Our continued success also is dependent on our ability to recruit and retain personnel qualified to perform our services. Shipboard employees typically are employed pursuant
to agreements with terms of nine months. Our land-based health and wellness employees generally are employed without contracts, on an at-will basis. Other providers of shipboard health and wellness services
compete with us for shipboard personnel. We also compete with destination resort health and wellness centers and other employers for our shipboard and land-based health and wellness personnel. We may not be able to continue to attract a sufficient
number of applicants possessing the requisite training and skills necessary to conduct our business. Our inability to attract a sufficient number of qualified applicants to provide our services and products could adversely impact our results of
operations and financial condition. In addition, in recent years, the immigration approval process in the United States has proceeded at a slower pace than previously had been the case. Since many of our shipboard employees are not United States
citizens, exacerbation of this trend could adversely affect our ability to meet our shipboard staffing needs on a timely basis.
Almost
all of our shipboard personnel come from jurisdictions outside the United States. Our ability to obtain non-United States shipboard employees is subject to regulations in certain countries from which we source
a number of our employees and, in the case of one country, control by an employment company that acts on behalf of employees and potential employees from that country. In addition, in that country, we are required to deal with local employment
companies to facilitate the hiring of employees. Our ability to obtain shipboard employees from those countries on economic terms that are acceptable to us may be hampered by evolving regulatory requirements and/or our inability to enter into an
acceptable agreement with the applicable local employment company.
We continue to be in negotiations with respect to the non-management employees of our luxury health and wellness centers at the Atlantis Paradise Island and the Ocean Club, a Four Seasons Resort in The Bahamas, becoming subject to a collective bargaining agreement.
While no groups of employees at any of our other operations have commenced similar organizational activities, we cannot guarantee that our other employees will remain non-unionized. Collective bargaining
agreements may require us to negotiate wages, salaries, benefits and other terms with one or more groups of our employees collectively, through a union representative, and could adversely affect our results of operations by increasing our labor
costs or otherwise restricting our ability to maximize the efficiency of our operations.
In addition, the various jurisdictions where we
operate our health and wellness centers have their own licensing or similar requirements applicable to our employees, which could affect our ability to open new health and wellness centers on a timely basis or adequately staff existing health and
wellness centers. The ship we serve that is United States-based also is subject to United States labor law requirements that can result in delays in obtaining adequate staffing.
Possible Adverse Changes in United States or Foreign Tax Laws or Changes in Our Business Could Increase Our Taxes
Background
We are a Bahamas international
business company (IBC) that owns, among other entities, OneSpaWorld (Bahamas) Limited (formerly known as Steiner Transocean Limited) (OneSpaWorld (Bahamas)), our principal
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subsidiary and a Bahamas IBC that conducts our shipboard operations, primarily outside United States waters (which constitutes most of our shipboard activities), and OneSpaWorld LLC, a Florida
limited liability company that performs administrative services in connection with our operations in exchange for fees from OneSpaWorld (Bahamas) and other subsidiaries.
We also own, directly or indirectly, the shares of additional subsidiaries organized in the United States, the United Kingdom and other
taxable jurisdictions, as well as subsidiaries organized in jurisdictions that do not subject the subsidiaries to taxation.
Currently, we
and our non-United States subsidiaries are not subject to Bahamas income tax or other (including United States federal) income tax, except as set forth below. Our United States subsidiaries are subject to
United States federal income tax as a consolidated group at regular corporate rates up to 21%. Generally, any dividends paid by our United States holding company to its parent, are subject to a 30% United States withholding tax. Other than as
described below, we believe that none of the income generated by our non-United States subsidiaries should be effectively connected with the conduct of a trade or business in the United States and, accordingly, that such income should not be
subject to United States federal income tax.
A foreign corporation generally is subject to United States federal corporate income tax at
a rate of up to 21% on its United States-source income that is effectively connected with its trade or business within the United States and on certain limited types of its foreign-source income that is effectively connected to a trade or
business it conducts in the United States. A foreign corporation also can be subject to a branch profits tax of 30% imposed on its after-tax earnings that are so effectively connected.
OneSpaWorld (Bahamas) has three types of income: income from the provision of health and wellness services, income from the sales of health
and wellness products and income from leasing (at rates determined on an arms length basis) our shipboard employees and space to a United States subsidiary that performs health and wellness services and sells health and wellness products while
the ships are in United States waters and pays OneSpaWorld (Bahamas) the amounts referenced above (the U.S. Waters Activities).
We believe that most of OneSpaWorld (Bahamas)s shipboard income should be treated as foreign-source income not effectively connected to
a business it conducts in the United States. This belief is based on the following:
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all of the functions performed, resources employed and risks assumed in connection with the performance of the
above-mentioned services and sales (other than OneSpaWorld (Bahamas)s involvement in the U.S. Waters Activities) occur outside of the United States; and
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income to OneSpaWorld (Bahamas) from the U.S. Waters Activities is income effectively connected with a United
States trade or business, and thus subject to United States income taxation, but constitutes a small percentage of OneSpaWorld (Bahamas)s total income.
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The Risks to OneSpaWorld
Under United
States Internal Revenue Service (IRS) regulations, as of January 1, 2007, all or a portion of OneSpaWorld (Bahamas)s income for periods commencing on or after that date could be subject to United States federal income tax
at a rate of up to 35% with respect to income earned prior to January 1, 2018 and up to 21% with respect to income earned thereafter:
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to the extent the income from OneSpaWorld (Bahamas)s shipboard operations that OneSpaWorld believes are
performed outside of United States territorial waters is considered by the IRS to be attributable to functions performed, resources employed or risks assumed within the United States or its possessions or territorial waters;
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to the extent the income from OneSpaWorld (Bahamas)s sale of health and wellness products for use,
consumption, or disposition in international waters is considered by the IRS to be attributable to
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functions performed, resources employed or risks assumed within the United States, its possessions or territorial waters; or
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to the extent that passage of title or transfer of ownership of products sold by OneSpaWorld (Bahamas) for use,
consumption or disposition outside international waters, takes place in the United States or a United States office materially participates in such sales.
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If OneSpaWorld (Bahamas) is considered to be a controlled foreign corporation (CFC), any of its shipboard income would be
considered income from sources within the United States and would be subject to United States federal income tax unless such income is attributable to functions performed, resources employed or risks assumed in a foreign country or countries.
A foreign corporation is a CFC if more than 50% of (i) the total combined voting power of all classes of stock entitled to vote or
(ii) the total value of the stock of such corporation is owned or considered as owned by U.S. Shareholders on any day during the taxable year of such corporation. A U.S. Shareholder, generally, means a United
States person who owns directly, indirectly or constructively at least 10% of the voting power or value of the stock of a foreign corporation. A United States person is a citizen or resident of the United States, a domestic
partnership, a domestic corporation, any domestic estate or a trust over which a United States court is able to exercise administrative supervision and over which one or more United States persons have authority to control all substantial decisions.
Under certain constructive ownership rules, taking into account changes introduced by the Tax Cuts and Jobs Act (TCJA), a foreign corporation may in certain circumstances be treated as a CFC under downward attribution rules
even in circumstances where the foreign corporation is not owned directly or indirectly by any U.S. Shareholders. However, the IRS has announced that, pending the issuance of further guidance, taxpayers may ignore the particular downward attribution
rule that can give rise to such results, solely for purposes of the income-source rules described above. Accordingly, we believe that OneSpaWorld (Bahamas) should not be characterized as a CFC, solely for purposes of the income-sourcing rules
described above.
If OneSpaWorld (Bahamas) is subject to United States federal income tax (at a rate of up to 21%) on its United States
-source income and on certain of its foreign-source income that is effectively connected to a business it conducts in the United States, it also would be subject to a branch profits tax of 30% imposed on its
after-tax earnings withdrawn, or considered to be withdrawn, from its United States business.
Certain non-United States jurisdictions may also assert that OneSpaWorld (Bahamas)s income is
subject to their income tax.
Some of our United Kingdom, Bahamas and United States subsidiaries provide goods and/or services to us and
certain of our other subsidiaries. The United Kingdom or United States tax authorities may assert that some or all of these transactions do not contain arms length terms. In that event, income or deductions could be reallocated among our
subsidiaries in a manner that could increase the United Kingdom or United States tax on us. This reallocation also could result in the imposition of interest and penalties.
We cannot assure you that the tax laws on which we have relied to minimize our income taxes will remain unchanged in the future.
Our land-based operations, the income from which is generally taxable, have significantly increased and we intend to consider land-based
opportunities in the future (though we cannot assure you that we will be successful in finding appropriate opportunities). To the extent that we are able to effectively implement this strategy, the amount of our income that is subject to tax would
significantly increase.
The Success of Health and Wellness Centers Depends on the Hospitality Industry
We are dependent on the hospitality industry for the success of destination resort centers. To the extent that consumers do not choose to stay
at venues where we operate health and wellness centers, over which we have no
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control, our business, financial condition and results of operations could be materially adversely affected. The hospitality industry is subject to risks that are similar to those of the cruise
industry.
The considerations described above regarding the effects of adverse economic conditions on the cruise industry apply similarly
to the hospitality industry, including the resorts where we have operations. Periods of economic slowdown result in reduced destination resort occupancy rates and decreased spending by destination resort guests, including at the resorts where we
operate health and wellness centers. The recurrence of challenging economic conditions, as well as instances of increased fuel costs, which have occurred in certain prior years, could result in lower resort occupancy, which would have a direct,
adverse effect on the number of resort guests that purchase our health and wellness services and products at the venues in question. Accordingly, such lower occupancy rates at the resorts we serve could have a material adverse effect on our results
of operations and financial condition.
The following are other risks related to the hospitality industry:
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changes in the national, regional and local conditions (including major national or international terrorist
attacks, armed hostilities or other significant adverse events, including an oversupply of hotel properties or a reduction in demand for hotel rooms);
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the possible loss of funds expended for build-outs of health and wellness centers at venues that fail to open,
underperform or close due to economic slowdowns or otherwise;
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the attractiveness of the venues to consumers and competition from comparable venues in terms of, among other
things, accessibility and cost;
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the outbreaks of illnesses, or the perceived risk of such outbreaks, in locations where we operate land-based
health and wellness centers;
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weather conditions, including natural disasters, such as earthquakes, hurricanes, tsunamis and floods;
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possible labor unrest or changes in economics based on collective bargaining activities;
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changes in ownership, maintenance or room rates of, or popular travel patterns and guest demographics at the
venues we serve;
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possible conversion of guest rooms at hotels to condominium units and the decrease in health and wellness center
usage that often accompanies such conversions, and the related risk that condominium hotels are less likely to be suitable venues for our health and wellness centers;
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reductions in resort occupancy during major renovations or as a result of damage or other causes;
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acquisition by resort chains of health and wellness service providers to create captive in-house brands and development by resort chains of their own proprietary health and wellness service providers, reducing the opportunity for third-party health and wellness providers like us; and
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the financial condition of the airline industry, as well as elimination of, or reduction in, airline service to
locations where we operate resort facilities, which would result in fewer guests at those venues.
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We Compete with Passenger
Activity Alternatives
We compete with passenger activity alternatives on cruise ships and with competing providers of services and
products similar to our services and products seeking agreements with cruise lines. Gambling casinos, bars and a variety of shops are found on almost all of the ships served by us. In addition, ships dock in ports which provide opportunities for
additional shopping as well as other activities that compete with us for passenger attention and disposable income, and cruise ships are increasingly offering itineraries providing for greater numbers of port days. Cruise ships also typically offer
swimming pools and other recreational facilities and activities, as well as musical and other entertainment, all without additional charge to the passengers. Certain
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cruise lines we formerly served have engaged the services of third parties or their own personnel for the operation of the health and wellness centers for all or some of their ships. Additional
cruise lines could take similar actions in the future. In addition, there are certain other entities offering services in the cruise industry similar to those provided by us and we may not be able to serve new cruise ships that come into service and
that are not covered by our cruise line agreements.
Many of the land-based venues that we serve or may serve in the future offer
recreational entertainment facilities and activities similar to those offered on cruise ships, often without additional charge to guests. A number of the hotels we serve also offer casino gambling. These activities and facilities compete with us for
customer time and disposable income. Our destination resort health and wellness centers also compete with other health and wellness centers in their vicinities, as well as with other beauty, relaxation or other therapeutic alternatives. These
include salons that offer these services at prices significantly lower than those charged by us. We believe, however, that the prices charged by us are appropriate for the quality of the experience we provide in our respective markets. In addition,
we also compete, both for customers and for contracts with hotels, with health and wellness centers and beauty salons owned or operated by companies that have offered their destination resort health and wellness services longer than we have, some of
which enjoy greater name recognition with customers and prospective customers than health and wellness centers operated by us. Also, a number of these health and wellness center operators may have greater resources than we do. Further, some hotel
operators provide health and wellness services themselves. If we are unable to compete effectively in one or more areas of our operations, our results of operations and financial condition could be adversely affected.
Risks Relating to Non-U.S. Operations and Hostilities
The cruise lines we serve operate in waters and call on ports throughout the world and our destination resort health and wellness centers are
located in a variety of countries. Operating internationally exposes us to a number of risks, including increased exposure to a wider range of regional and local economic conditions, volatile local political conditions, potential changes in duties
and taxes, including changing and/or uncertain interpretations of existing tax laws and regulations, required compliance with additional laws and policies affecting cruising, vacation or maritime businesses or governing the operations of
foreign-based companies, currency fluctuations, interest rate movements, difficulties in operating under local business environments, port quality and availability in certain regions, U.S. and global anti-bribery laws or regulations, imposition of
trade barriers and restrictions on repatriation of earnings.
Operating globally also exposes us to numerous and sometimes conflicting
legal, regulatory and tax requirements. In many parts of the world, including countries in which we operate, practices in the local business communities might not conform to international business standards. We must adhere to policies designed to
promote legal and regulatory compliance as well as applicable laws and regulations. However, we might not be successful in ensuring that our employees, agents, representatives and other third parties with whom we associate throughout the world
properly adhere to them. Failure by us, our employees or any of these third parties to adhere to our policies or applicable laws or regulations could result in penalties, sanctions, damage to our reputation and related costs which in turn could
negatively affect our results of operations and cash flows.
As a global operator, our business may also be impacted by changes in U.S.
policy or priorities in areas such as trade, immigration and/or environmental or labor regulations, among others. Depending on the nature and scope of any such changes, they could impact our domestic and international business operations. Any such
changes, and any international response to them, could potentially introduce new barriers to passenger or crew travel and/or cross border transactions, impact our guest experience and/or increase our operating costs.
The waters and countries in which we operate include geographic regions that, from time to time, experience political and civil unrest and
armed hostilities. In recent years, cruise ships, including those we serve, have experienced attempted pirate attacks off the coast of Africa. In addition, in past years, our hotel health and wellness center operations in Asia have been adversely
affected by terrorist bombings. Political unrest in areas
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where we operate health and wellness centers also has adversely affected our operations and continued political unrest in the Middle East has adversely affected the travel industry in that
region. The threat of additional attacks and of armed hostilities internationally or locally may cause prospective travelers to cancel their plans, including plans for cruise or land-based venue vacations. Weaker cruise industry and land-based venue
performance could have a material adverse effect on our results of operations and financial condition.
If we are unable to address these
risks adequately, our financial position and results of operations could be adversely affected, including potentially impairing the value of our ships and other assets.
Severe Weather Can Disrupt Our Operations
Our operations may be impacted by adverse weather patterns or other natural disasters, such as hurricanes, earthquakes, floods, fires,
tornados, tsunamis, typhoons and volcanic eruptions. It is possible that cruises we serve could be forced to alter itineraries or cancel a cruise or a series of cruises or tours due to these or other factors, which would have an adverse effect on
our net revenue yields and profitability. Extreme weather events, such as hurricanes, floods and typhoons, may not only cause disruption, alteration, or cancellation of cruises and closures of destination resort health and wellness centers and may
also adversely impact commercial airline flights and other transport or prevent certain individuals from electing to utilize our offerings altogether. In addition, these extreme weather conditions could result in increased wave and wind activity,
which would make it more challenging to sail and dock ships and could cause sea/motion sickness among guests and crew on the ships we serve. These events could have an adverse impact on the safety and satisfaction of cruising and could have an
adverse impact on our net revenue yields and profitability. Additionally, these extreme weather conditions could impact our ability to provide our cruise products and services as well as to obtain insurance coverage for operations in such areas at
reasonable rates.
Risk of Early Termination of Land-Based Health and Wellness Center Agreements
A number of our land-based health and wellness center agreements provide that landlords may terminate the agreement prior to its expiration
date (provided, in some cases, that we receive certain compensation with respect to our build-out expenses and earnings lost as a result of such termination). While we always attempt to negotiate the best deal
we can in this regard, we may not be able to successfully negotiate a termination fee in any of our future agreements or that any amounts we would receive in connection with such termination accurately reflects the economic value of the assets we
would be leaving behind as a result of such termination. In addition, in the event of certain terminations of an agreement with a land-based venue, such as by the venue operator after our breach of an agreement, or as a result of the bankruptcy of a
venue, even if we have a provision in our agreement providing for a termination payment, we could receive no compensation with respect to build-out expenditures we have incurred.
We also attempt to obtain terms in our land-based health and wellness center agreements that protect us in the event that the lessors
lender forecloses and takes over the property in question. However, we cannot always obtain such protective non-disturbance terms. In the event that the lender to a land-based venue owner under an
agreement where no such non-disturbance term is included forecloses on that property, our agreement could be terminated prior to the expiration of its term. In such case, in addition to the loss of income from
that health and wellness center, we could lose the residual value of any investment we made to build out that facility.
Delays in New Ship
Introductions Could Slow Our Growth
Our growth depends, in part, on our serving new cruise ships brought into service. A number of
cruise lines we serve have experienced in the past, and could experience in the future, delays in bringing new ships into service. In addition, there is a limited number of shipyards in the world capable of constructing large cruise ships in
accordance with the standards of major cruise lines. This also may contribute to delays in new ship construction. Such delays could slow our growth and have an adverse impact on our results of operations and financial condition.
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Changes in and Compliance with Laws and Regulations Relating to Environment, Health, Safety, Security,
Data Privacy and Protection, Tax and Anti-Corruption under Which We Operate May Lead to Litigation, Enforcement Actions, Fines, or Penalties
We are subject to numerous international, national, state and local laws, regulations and treaties covering many areas, including social
issues, health, safety, security, data privacy and protection, and tax. Failure to comply with these laws, regulations, treaties and agreements could lead and has led to enforcement actions, fines, civil or criminal penalties or the assertion of
litigation claims and damages. These issues are, and we believe will continue to be, an area of focus by the relevant authorities throughout the world. Accordingly, new legislation, regulations or treaties, or changes thereto, could impact our
operations and would likely subject us to increased compliance costs in the future. In addition, training of crew may become more time consuming and may increase our operating costs due to increasing regulatory and other requirements.
Environmental laws and regulations or liabilities arising from past or future releases of, or exposure to, hazardous substances or vessel
discharges, including ballast water and waste disposal, could materially adversely affect our business, profitability and financial condition. Some environmental groups have lobbied for more stringent regulation of cruise ships. Various agencies and
regulatory organizations have enacted or are considering new regulations or policies, such as stricter emission limits to reduce greenhouse gas effects, which could adversely impact the cruise industry.
Our guest and employee relationships provide us with access to sensitive data. We are subject to laws and requirements related to the
treatment and protection of such sensitive data. We may be subject to legal liability and reputational damage if we do not comply with data privacy and protection regulations. Various governments, agencies and regulatory organizations have enacted
and are considering new regulations and implementation of rules for existing regulations. Additional requirements could negatively impact our ability to market cruises to consumers and increase our costs.
We are subject to the examination of our income tax returns by tax authorities in the jurisdictions where we operate. There can be no
assurance that the outcome from these examinations will not adversely affect our profitability.
As budgetary constraints continue to
adversely impact the jurisdictions in which we operate, increases in income or other taxes affecting our operations may be imposed. Some social activist groups have lobbied for more taxation on income generated by cruise companies. Certain groups
have also generated negative publicity for us. In recent years, certain members of the U.S. Congress have proposed various forms of legislation that would result in higher taxation on income generated by cruise companies.
Our global operations subject us to potential liability under anti-corruption, economic sanctions, and other laws and regulations. The Foreign
Corrupt Practices Act, the UK Bribery Act and other anti-corruption laws and regulations (Anti-Corruption Laws) prohibit corrupt payments by our employees, vendors, or agents. While we devote substantial resources to our global
compliance programs and have implemented policies, training, and internal controls designed to reduce the risk of corrupt payments, our employees, vendors, or agents may violate our policies. Our failure to comply with Anti-Corruption Laws could
result in significant fines and penalties, criminal sanctions against us, our officers, or our employees, prohibitions or limitations on the conduct of our business, and damage to our reputation. Operations outside the U.S. may also be affected by
changes in economic sanctions, trade protection laws, policies, and other regulatory requirements affecting trade and investment. We may be subject to legal liability and reputational damage if we improperly sell goods or otherwise operate
improperly in areas subject to economic sanctions such as Crimea, Iran, North Korea, Cuba, Sudan, and Syria or if we improperly engage in business transactions with persons subject to economic sanctions.
These various international laws and regulations could lead and have led to enforcement actions, fines, civil or criminal penalties or the
assertion of litigation claims and damages. In addition, improper conduct by our
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employees or agents could damage our reputation and lead to litigation or legal proceedings that could result in significant awards or settlements to plaintiffs and civil or criminal penalties,
including substantial monetary fines. Such events could lead to an adverse impact on our financial condition or profitability, even if the monetary damage is mitigated by our insurance coverage.
As a result of ship or other incidents, litigation claims, enforcement actions and regulatory actions and investigations, including, but not
limited to, those arising from personal injury, loss of life, loss of or damage to personal property, business interruption losses or environmental damage to any affected coastal waters and the surrounding areas, may be asserted or brought against
various parties, including us. The time and attention of our management may also be diverted in defending such claims, actions and investigations. We may also incur costs both in defending against any claims, actions and investigations and for any
judgments, fines, or civil or criminal penalties if such claims, actions or investigations are adversely determined and not covered by our insurance policies.
Product Liability and Other Potential Claims Could Adversely Affect Us
The nature and use of our products and services could give rise to liability if a customer were injured while receiving one of our services.
Guests at our health and wellness centers could be injured, among other things, in connection with their use of our fitness equipment, sauna facilities or other facilities. If any of these events occurred, we could incur substantial litigation
expense and be required to make payments in connection with settlements of claims or as a result of judgments against us.
We maintain
insurance to cover a number of risks associated with our business. While we seek to obtain comprehensive insurance coverage at commercially reasonable rates, we cannot be certain that appropriate insurance will be available to us in the future on
commercially reasonable terms or at all. Our insurance policies are subject to coverage limit, exclusions and deductible levels and are subject to non-renewal upon termination at the option of the applicable
insurance company. Our inability to obtain insurance coverage at commercially reasonable rates for the potential liabilities that we face could have a material adverse effect on our results of operations and financial condition. In addition, in
connection with insured claims, we bear the risks associated with the fact that insurers often control decisions relating to pre-trial settlement of claims and other significant aspects of claims and their
decisions may prove to not be in our best interest in all cases.
We believe that our current coverage is adequate to protect us against
most of the significant risks involved in the conduct of our business, but we self-insure or use higher deductibles for various risks. Accordingly, we are not protected against all risks (including failures by third-party service providers such as
insurance brokers to fulfill their duties), which could result in unexpected increases in our expenses in the event of certain claims against us.
If the types of services we offer increase, the potential for claims against us also could increase. We self-insure potential claims regarding
certain of our medi-spa services. High visibility claims also could cause us to receive adverse publicity and suffer a loss of sales, and, therefore, our results of operations and financial condition could be
materially adversely affected in such cases. We are, and may in the future be, subject to other legal proceedings, including claims presented as class actions. Litigation is subject to many uncertainties, and we cannot predict the outcome of
individual matters. It is reasonably possible that the final resolution of these matters could have a material adverse effect on our results of operations and financial condition.
Our Indebtedness Could Adversely Affect Our Financial Condition and Ability to Operate and We May Incur Additional Debt
As of March 31, 2019, we had $233.5 million of secured indebtedness under our First Lien Term Loan Facility and Second Lien Term Loan
Facility, and have available an additional (x) $20 million under our First Lien Revolving Facility and (y) $5 million under our First Lien Delayed Draw Facility (collectively, the New
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Credit Facilities). Our debt level and the terms of our financing arrangements could adversely affect our financial condition and limit our ability to successfully implement our growth
strategies. In addition, under the New Credit Facilities, certain of our direct and indirect subsidiaries have granted the lenders a security interest in substantially all of their assets. Our ability to meet our debt service obligations will
depend on our future performance, which will be affected by the other risk factors described herein. If we do not generate enough cash flow to pay our debt service obligations, we may be required to refinance all or part of our existing debt, sell
our assets, borrow more money or raise equity. We may not be able to take any of these actions on a timely basis, on terms satisfactory to us, or at all.
The New Credit Facilities bear interest at variable rates. If market interest rates increase, variable rate debt will create higher debt
service requirements, which could adversely affect our cash flow.
Our Credit Facilities Contain Financial and Other Covenants. The Failure to
Comply with Such Covenants Could Have An Adverse Effect on Us
Our New Credit Facilities contain certain financial covenants and a
number of traditional negative covenants, including limitations on our ability to, among other things, incur and/or undertake asset sales and other dispositions, liens, indebtedness, certain acquisitions, and investments,
consolidations, mergers, reorganizations and other fundamental changes, payment of dividends and other distributions to equity and warrant holders and prepayments of material subordinated debt, in each case, subject to customary exceptions. Any
failure to comply with the restrictions of the New Credit Facilities may result in an event of default under the agreements. If an event of default occurs, the lenders under the New Credit Facilities are entitled to take various actions, including
the acceleration of amounts due under the New Credit Facilities and all actions permitted to be taken by a secured creditor, subject to customary intercreditor provisions among the first and second lien secured parties.
If We Are Unable to Execute Our Growth Strategies, Including Our Ability to Offer and Integrate New Services and Products, Our Business Could Be
Adversely Affected
The demands of consumers with respect to health and wellness services and products continue to evolve. Among
other things, there is a continuing trend to add services at health and wellness centers similar to those traditionally provided in medical facilities, including services relating to skin care. If we are unable to identify and capture new audiences,
our ability to successfully integrate additional services and products will be adversely affected. Our ability to provide certain additional services depends on our ability to find appropriate third parties with whom to work in connection with these
services and, in certain cases, could be dependent on our ability to fund substantial costs. We cannot assure you that we will be able to find such appropriate third parties or be able to fund such costs. We also cannot assure you that we will be
able to continue to expand our health and wellness services sufficiently to keep up with consumer demand. Accordingly, we may not be able to successfully implement our growth strategies or continue to maintain sales at our current rate, or at all.
If we fail to implement our growth strategies, our sales and profitability may be negatively impacted, which would adversely affect our business, financial condition and results of operations.
Our Business Could Be Adversely Affected if We Are Unable to Successfully Protect Our Trademarks or Obtain New Trademarks
The market for our services and products depends to a significant extent upon the value associated with our brand names. Although we take
appropriate steps to protect our brand names, in the future, we may not be successful in asserting trademark protection in connection with our efforts to grow our business or otherwise due to the nature of certain of our marks or for other reasons.
In addition, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. The costs required to protect our trademarks and trade names may be substantial. If other
parties infringe on our intellectual property rights, the value of our brands in the marketplace may be diluted. In addition, any infringement of our intellectual
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property rights would likely result in a commitment of our time and resources to protect these rights through litigation or otherwise. One or more adverse judgments with respect to these
intellectual property rights could negatively impact our ability to compete and could adversely affect our results of operations and financial condition.
We Are Subject to Currency Risk
Fluctuations in currency exchange rates compared to the U.S. dollar can impact our results of operations, most significantly because we pay for
the administration of recruitment and training of our shipboard personnel in U.K. pounds sterling and Euros. Accordingly, while the relative strength of the U.S. dollar has improved recently, renewed weakness of the U.S. dollar against those
currencies can adversely affect our results of operations, as has occurred in some recent years. To the extent that the U.K. pound sterling or the Euro is stronger than the U.S. dollar, our results of operations and financial condition could be
adversely affected.
We May Be Exposed to the Threat of Cyber Attacks and/or Data Breaches
Cyberattacks can vary in scope and intent from economically driven attacks to malicious attacks targeting our key operating systems with the
intent to disrupt, disable or otherwise cripple our maritime and/or land-based operations. This can include any combination of phishing attacks, malware and/or viruses targeted at our key systems. The breadth and scope of this threat has grown over
time, and the techniques and sophistication used to conduct cyber attacks, as well as the sources and targets of the attacks, change frequently. While we invest time, effort and capital resources to secure our key systems and networks, we cannot
provide assurance that we will be successful in preventing or responding to all such attacks.
A successful cyberattack may target us
directly, or may be the result of a third-party vendors inadequate care. In either scenario, we may suffer damage to our key systems and/or data that could interrupt our operations, adversely impact our reputation and brand and expose us to
increased risks of governmental investigation, litigation and other liability, any of which could adversely affect our business. Furthermore, responding to such an attack and mitigating the risk of future attacks could result in additional operating
and capital costs in systems technology, personnel, monitoring and other investments.
In addition to malicious cyber attacks, we are also
subject to various risks associated with the collection, handling, storage and transmission of sensitive information. In the course of doing business, we collect large volumes of internal, customer and other third-party data, including personally
identifiable information and individual credit data, for various business purposes. We are subject to federal, state and international laws (including the European Union General Data Protection Regulation (the GDPR), which took effect in
May 2018), as well as industry standards, relating to the collection, use, retention, security and transfer of personally identifiable information and individual credit data. In many cases, these laws apply not only to third-party transactions, but
also to transfers of information between us and our subsidiaries, and among us, our subsidiaries and other parties with which we have commercial relations. Several jurisdictions have passed laws in this area, and other jurisdictions are considering
imposing additional restrictions. These laws continue to develop and may be inconsistent from jurisdiction to jurisdiction. Complying with emerging and changing international requirements has caused, and may cause, us to incur substantial costs or
require us to change our business practices. If we fail to comply with the various applicable data collection and privacy laws, we could be exposed to fines, penalties, restrictions, litigation or other expenses, and our business could be adversely
impacted.
Even if we are fully compliant with legal and/or industry standards and any relevant contractual requirements, it still may not
be able to prevent security breaches involving sensitive data and/or critical systems. Any breach, theft, loss, or fraudulent use of guest, employee, third-party or company data, could adversely impact our reputation and brand and our ability to
retain or attract new customers, and expose us to risks of data loss, business disruption, governmental investigation, litigation and other liability, any of which could adversely affect our business. Significant capital investments and other
expenditures could be required to remedy the
28
problem and prevent future breaches, including costs associated with additional security technologies, personnel, experts and credit monitoring services for those whose data has been breached.
Further, if it or our vendors experience significant data security breaches or fail to detect and appropriately respond to significant data security breaches, we could be exposed to government enforcement actions and private litigation.
Changes in Privacy Law Could Adversely Affect Our Ability to Market Our Services Effectively
Our ability to market our services effectively is an important component of our business. We rely on a variety of direct marketing techniques,
including telemarketing, email marketing, and direct mail. Any further restrictions under laws such as the Telemarketing Sales Rule, the CAN-SPAM Act of 2003, the GDPR and various United States state laws or
new federal laws regarding marketing and solicitation, or international data protection laws that govern these activities, could adversely affect the continuing effectiveness of telemarketing, email, and postal mailing techniques and could force
further changes in our marketing strategy. If this were to occur, we may be unable to develop adequate alternative marketing strategies, which could impact our ability to effectively market and sell our services.
In addition, we collect information relating to our customers for various business purposes, including marketing and promotional purposes. The
collection and use of personal data, such as, among other things, credit card information, is governed by privacy laws and regulations of the United States and other jurisdictions. Privacy regulations continue to evolve and, occasionally, may be
inconsistent from one jurisdiction to another. Compliance with applicable privacy regulations may increase our operating costs and/or adversely impact our ability to market our services and products and serve our customers. In addition, non-compliance with applicable privacy regulations by us or, in some instances, non-compliance by third parties engaged by us, or a breach of security systems storing our data
may result in fines, payment of damages or restrictions on our use or transfer of data.
Risks Related to Ownership of Our Securities
Each of Steiner Leisure and Haymaker Sponsor Owns a Significant Portion of Our Shares and Have Representation on Our Board; Steiner Leisure and Haymaker
Sponsor May Have Interests That Differ from Those of Other Shareholders
Approximately 14% of our common shares are beneficially
owned by Steiner Leisure, approximately 5% of our common shares are beneficially owned by Haymaker Sponsor and approximately 29% of our common shares are beneficially owned by certain investors that, in connection with the Business Combination and
concurrently with the execution of the Transaction Agreement, entered into Subscription Agreements pursuant to which, among other things, such investors (the Private Placement Investors) agreed to subscribe for and purchase, and we
agreed to issue and sell to such investors, 12,249,637 of our common shares and 3,105,294 OneSpaWorld Private Placement Warrants for gross proceeds of approximately $122,496,370 (the Primary Private Placement), in each case, prior to
giving effect to the exercise of warrants. These levels of ownership interest assume no exercise of outstanding warrants to purchase our common shares. In addition, one of our director nominees was designated by Steiner Leisure and two of our
director nominees are affiliated with Haymaker Sponsor. As a result, Steiner Leisure and Haymaker Sponsor may be able to significantly influence the outcome of matters submitted for director action, subject to our directors obligation to act
in the interest of all of our shareholders, and for shareholder action, including the designation and appointment of the OneSpaWorld Board (and committees thereof) and approval of significant corporate transactions, including business combinations,
consolidations and mergers. The influence of Steiner Leisure and Haymaker Sponsor over our management could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain
control of us, which could cause the market price of our common shares to decline or prevent our shareholders from realizing a premium over the market price for our common shares. Additionally, Haymaker Sponsor is in the business of making
investments in companies, and Haymaker Sponsor (or its affiliates) may from time to time acquire and hold interests in businesses that compete directly or indirectly with
29
us or that supply us with goods and services. Haymaker Sponsor (or its affiliates) may also pursue acquisition opportunities that may be complementary to (or competitive with) our business, and
as a result those acquisition opportunities may not be available to us.
Under the Business Opportunities section of our
Memorandum and Articles of Association (Articles), among other things, we have renounced any interest or expectancy of us or our subsidiaries being offered an opportunity to participate in any potential transaction opportunities
available to Steiner Leisure and certain of its affiliates and related parties, such parties have no obligation to communicate or offer such potential transaction opportunities to us and such parties will have no duty to refrain from engaging in the
same or similar businesses as us. Prospective investors in our common shares should consider that the interests of Steiner Leisure and Haymaker Sponsor may differ from their interests in material respects.
If We Fail to Maintain an Effective System of Internal Control over Financial Reporting, We May Not Be Able to Accurately Report Our Financial Results
or Prevent Fraud; as a Result, Shareholders Could Lose Confidence in Our Financial and Other Public Reporting, Which Is Likely to Negatively Affect Our Business and the Market Price of Our Common Shares
Effective internal control over financial reporting is necessary for us to provide reliable financial reports and prevent fraud. Any failure to
implement required new or improved controls, or difficulties encountered in our implementation could cause us to fail to meet our reporting obligations. In addition, any testing conducted by us, or any testing conducted by our independent registered
public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas
for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which is likely to negatively affect our business and the market price of our shares.
We will be required to disclose changes made in our internal controls and procedures on a quarterly basis and our management will be required
to assess the effectiveness of these controls annually.
However, for as long as we are an emerging growth company under the
JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act. We could be an emerging
growth company for up to five years. An independent assessment of the effectiveness of our internal controls could detect problems that our managements assessment might not. Undetected material weaknesses in our internal controls could
lead to financial statement restatements and require us to incur the expense of remediation.
The Market Price and Trading Volume of Our Common
Shares May Be Volatile and Could Decline Significantly Following the Business Combination
The stock markets, including Nasdaq,
where our common shares are listed, have from time to time experienced significant price and volume fluctuations. Even if an active, liquid and orderly trading market develops and is sustained for our common shares following the Business
Combination, the market price of our common shares may be volatile and could decline significantly. In addition, the trading volume in our common shares may fluctuate and cause significant price variations to occur. If the market price of our common
shares declines significantly, you may be unable to resell your shares at or above the market price of our common shares as of the date of the consummation of the Business Combination. We cannot assure you that the market price of our common shares
will not fluctuate widely or decline significantly in the future in response to a number of factors, including, among others, the following:
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the realization of any of the risk factors presented in this registration statement/prospectus;
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actual or anticipated differences in our estimates, or in the estimates of analysts, for our revenues, results of
operations, level of indebtedness, liquidity or financial condition;
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30
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additions and departures of key personnel;
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failure to comply with the requirements of Nasdaq;
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failure to comply with the Sarbanes-Oxley Act or other laws or regulations;
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future issuances, sales or resales, or anticipated issuances, sales or resales, of our common shares;
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publication of research reports about us, our resorts, or the lodging industry generally;
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the performance and market valuations of other similar companies;
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broad disruptions in the financial markets, including sudden disruptions in the credit markets;
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speculation in the press or investment community;
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actual, potential or perceived control, accounting or reporting problems; and
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changes in accounting principles, policies and guidelines.
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In the past, securities class-action litigation has often been instituted against companies following periods of volatility in the market
price of their shares. This type of litigation could result in substantial costs and divert our managements attention and resources, which could have a material adverse effect on us.
An active trading market for our warrants may not develop
Our warrants are not currently listed on any national securities exchange, and there is currently a very limited trading market for our
warrants. An active trading market for our warrants may never develop or be sustained. If the market does not develop or is not sustained, it may be difficult for warrantholders to sell our warrants at a price that is attractive or at all.
If Securities or Industry Analysts Do Not Publish Research, Publish Inaccurate or Unfavorable Research or Cease Publishing Research About Us, Our Share
Price and Trading Volume Could Decline Significantly
The market for our common shares will depend in part on the research and
reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on us. If no securities or industry analysts commence coverage of us, the market price
and liquidity for our common shares could be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade their opinions about our common shares, publish inaccurate or
unfavorable research about us, or cease publishing about us regularly, demand for our common shares could decrease, which might cause our share price and trading volume to decline significantly.
Future Issuances of Debt Securities and/or Equity Securities May Adversely Affect Us, Including the Market Price of Our Common Shares, and May Be
Dilutive to Our Existing Shareholders
In the future, we may incur debt and/or issue equity ranking senior to our common shares.
Those securities will generally have priority upon liquidation. Such securities also may be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable
securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common shares. Because our decision to issue debt and/or equity in the future will depend, in part, on market conditions and other
factors beyond our control, we cannot predict or estimate the amount, timing, nature or success of our future capital raising efforts. As a result, future capital raising efforts may reduce the market price of our common shares and be dilutive to
our existing shareholders.
31
You May Have Difficulty Enforcing Judgments Against Us
We are an international business company incorporated under the laws of the Commonwealth of The Bahamas. A substantial portion of our assets
are located outside the United States. As a result, it may be difficult or impossible to:
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effect service of process within the United States upon us; or
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enforce, against us, court judgments obtained in U.S. courts, including judgments relating to U.S. federal
securities laws.
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It is unlikely that Bahamian courts would entertain original actions against Bahamian companies, their
directors or officers predicated solely upon U.S. federal securities laws. The Bahamian courts may apply any rule of Bahamian law which is mandatory irrespective of the governing law and may refuse to apply a rule of such governing law of the
relevant documents, if it is manifestly incompatible with the public policy of The Bahamas. Furthermore, judgments based upon any civil liability provisions of the U.S. federal securities laws are not directly enforceable in The Bahamas. Rather, a
lawsuit must be brought in The Bahamas on any such judgment. The courts of The Bahamas would recognize a U.S. judgment as a valid judgment, and permit the same to provide the basis of a fresh action in The Bahamas and should give a judgment based
thereon without there being a re-trial or reconsideration of the merits of the case provided that (i) the courts in the United States had proper jurisdiction under Bahamian conflict of law rules over the
parties subject to such judgment, (ii) the judgment is for a debt or definite sum of money other than a sum payable in respect of taxes or charges of a like nature or in respect of a fine or penalty, (iii) the U.S. courts did not
contravene the rules of natural justice of The Bahamas, (iv) the judgment was not obtained by fraud on the part of the party in whose favor the judgment was given or of the court pronouncing it, (v) the enforcement of such judgment would
not be contrary to the public policy of The Bahamas, (vi) the correct procedures under the laws of The Bahamas are duly complied with, (vii) the judgment is not inconsistent with a prior Bahamian judgment in respect of the same matter and
(viii) enforcement proceedings are instituted within six years after the date of such judgment.
Certain Provisions in Our Articles May Limit
Shareholders Ability to Affect a Change in Management or Control
Our Articles include certain provisions which may have the
effect of delaying or preventing a future takeover or change in control of us that shareholders may consider to be in their best interests. Among other things, our Articles provide for a classified Board serving staggered terms of three years, super
majority voting requirements with respect to certain significant transactions and restrictions on the acquisition of greater than 9.99% ownership without our Boards approval. Our equity plans and our officers employment agreements
provide certain rights to plan participants and those officers, respectively, in the event of a change in control of us. For more information, see Description of Our Securities included elsewhere in this prospectus.
32
USE OF PROCEEDS
All of the common shares and warrants offered by the Selling Shareholders pursuant to this prospectus will be sold by the Selling Shareholders
for their respective accounts. We will not receive any of the proceeds from these sales.
The Selling Shareholders will pay any
underwriting fees, discounts, selling commissions, stock transfer taxes and certain legal expenses incurred by such Selling Shareholders in disposing of their common shares, and we will bear all other costs, fees and expenses incurred in effecting
the registration of the common shares covered by this prospectus, including, without limitation, all registration and filing fees, Nasdaq listing fees and fees and expenses of our counsel and our independent registered public accountants.
We will receive the proceeds from the exercise of the warrants, but not from the sale of the common shares issuable upon such exercise.
33
DIVIDENDS
We have not paid any cash dividends to date. Our Board of Directors (our Board) intends to evaluate adopting a policy of paying
cash dividends. In evaluating any dividend policy, our Board may consider our financial condition and results of operations, certain tax considerations, capital requirements, alternative uses for capital, industry standards and economic conditions.
Whether we adopt such a dividend policy and the frequency and amount of any dividends declared will be within the discretion of our Board.
34
SELECTED HISTORICAL FINANCIAL INFORMATION
The following tables contain selected historical financial data for OSW Predecessor as of December 31, 2018 and 2017 and for the years
ended December 31, 2018, 2017 and 2016, derived from the audited combined financial statements of OSW Predecessor included elsewhere in this prospectus. The selected historical financial data of OSW Predecessor is not intended to be an
indicator of our financial condition or results of operations in the future.
The information below is only a summary and should be read
in conjunction with the section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations and the audited combined financial statements of OSW Predecessor, and the notes related thereto,
included elsewhere in this prospectus.
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|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Year Ended December 31,
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2018
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|
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2017
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|
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2016
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Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenues
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|
$
|
410,927
|
|
|
$
|
383,686
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|
|
$
|
362,698
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|
Product Revenues
|
|
|
129,851
|
|
|
|
122,999
|
|
|
|
113,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
540,778
|
|
|
|
506,685
|
|
|
|
476,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue and Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Services
|
|
|
352,382
|
|
|
|
332,360
|
|
|
|
318,001
|
|
Cost of Products
|
|
|
110,793
|
|
|
|
107,990
|
|
|
|
106,259
|
|
Administrative
|
|
|
9,937
|
|
|
|
9,222
|
|
|
|
10,432
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|
Salary and Payroll Taxes
|
|
|
15,624
|
|
|
|
15,294
|
|
|
|
14,454
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|
Amortization of Intangible Assets
|
|
|
3,521
|
|
|
|
3,521
|
|
|
|
3,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cost of Revenues and Operating Expenses
|
|
|
492,257
|
|
|
|
468,387
|
|
|
|
452,677
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
|
48,521
|
|
|
|
38,298
|
|
|
|
23,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
(34,099
|
)
|
|
|
|
|
|
|
|
|
Interest Income
|
|
|
238
|
|
|
|
408
|
|
|
|
340
|
|
Other (Expense) / Income
|
|
|
171
|
|
|
|
(217
|
)
|
|
|
(178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Income (Expense), net
|
|
|
(33,690
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)
|
|
|
191
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Provision for Income Taxes
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|
|
14,831
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|
|
|
38,489
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|
|
|
23,779
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Provision for Income Taxes
|
|
|
1,088
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|
|
|
5,263
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|
|
|
5,615
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
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|
$
|
13,743
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|
|
$
|
33,226
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|
|
$
|
18,164
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
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|
$
|
59,202
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|
|
$
|
55,902
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|
|
$
|
51,746
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Unlevered After-Tax Free Cash Flow
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|
$
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53,493
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|
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$
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52,774
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|
|
$
|
48,020
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% Conversion
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|
|
90.4
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%
|
|
|
94.4
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%
|
|
|
92.8
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%
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
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|
|
2018
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|
|
2017
|
|
Balance Sheet Data (At Period End):
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|
|
|
|
|
|
|
|
Working Capital
|
|
$
|
22,419
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|
|
$
|
17,252
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Total Assets
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|
|
272,659
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|
|
|
267,072
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Total Liabilities
|
|
|
400,242
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|
|
|
41,791
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|
Total Deficit
|
|
|
(127,583
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)
|
|
|
225,281
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|
35
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The historical combined financial statements of OSW Predecessor are included in this prospectus. Prior to the Business Combination,
OneSpaWorld had no material operations, assets or liabilities.
The unaudited pro forma condensed combined income statement for the year
ended December 31, 2018 was derived from OSW Predecessors audited combined income statement for the year ended December 31, 2018 and Haymakers audited statement of operations for the year ended December 31, 2018.
The unaudited pro forma condensed combined income statement for the year ended December 31, 2018 gives pro forma effect to the Business
Combination as if it had occurred on January 1, 2018. The unaudited pro forma condensed combined balance sheet as of December 31, 2018 gives pro forma effect to the Business Combination as if it was completed on December 31, 2018.
This information should be read together with (i) Haymakers historical financial statements and related notes for the year
ended December 31, 2018, as well as Haymakers Managements Discussion and Analysis of Financial Condition and Results of Operations, included in Haymakers Annual Report on Form
10-K for the year ended December 31, 2018, and (ii) OSW Predecessors historical consolidated financial statements and related notes for the year ended December 31, 2018, as well as
Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this prospectus.
The unaudited pro forma condensed combined financial statements give effect to the Business Combination in accordance with the acquisition
method of accounting for business combinations, with Haymaker deemed to be the accounting acquirer because, among other reasons:
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cash consideration was transferred from Haymaker to the Sellers; and
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former Haymaker stockholders and Haymaker Sponsor in connection with the Business Combination, own, in the
aggregate, 56.8% of our common shares, which represents a controlling interest in us, immediately after giving effect to the Business Combination.
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The unaudited pro forma condensed combined financial statements reflect adjustments to the historical financial information that are expected
to have a continuing impact on the results of the combined company, factually supportable and directly attributable to the following events and transactions:
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|
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the Business Combination;
|
|
|
|
the payment of the cash consideration to the Sellers;
|
|
|
|
the closing of the Primary Private Placement;
|
|
|
|
the conversion of each Class A Share into the right to receive one fully paid and non-assessable common share;
|
|
|
|
each Haymaker Public Warrant becoming exercisable for one common share, on the same terms and conditions as those
applicable to the Haymaker Public Warrants;
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|
|
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the Founder Shares converting into 6.7 million of our common shares (3.7 million of which, subject to
certain adjustments, were transferred and forfeited to us) and the right to receive 1.6 million of our common shares upon the occurrence of certain events; such deferred common shares are not included in the EPS calculations set forth below;
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|
|
|
the repayment of $352.4 million of outstanding indebtedness, of OSW Predecessor as of December 31, 2018
and the entry into the Debt Financing at the time of the Business Combination;
|
|
|
|
each of the Founder Warrants becoming exercisable for one common shares; and
|
36
|
|
|
the redemption of 1,286,613 Class A Shares by Haymakers public stockholders in accordance with
Haymakers amended and restated certificate of incorporation.
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Haymaker provided its public stockholders with the
opportunity to redeem, upon the closing of the Business Combination, each Class A Share then held by them for cash equal to their pro rata share of the aggregate amount on deposit (as of two business days prior to the closing of the Business
Combination) in the Trust Account, which held the proceeds (including interest, which was net of taxes payable) of the Haymaker IPO.
The
unaudited pro forma condensed combined financial information is for illustrative purposes only. The actual results may differ significantly from those reflected in the pro forma financial statements for a number of reasons, including, but not
limited to, differences between the assumptions used to prepare the pro forma financial statements and actual amounts. The financial results may have been different had the companies always been combined. You should not rely on the unaudited pro
forma condensed combined financial information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined company will experience. OSW Predecessor and
Haymaker have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
37
PRO FORMA CONDENSED COMBINED INCOME STATEMENT
For the year ended December 31, 2018
(Dollars in thousands, except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Haymaker
|
|
|
OSW
Predecessor
|
|
|
Pro Forma
Adjustments
|
|
|
|
|
|
Pro Forma
|
|
Service revenues
|
|
$
|
|
|
|
$
|
410,927
|
|
|
$
|
|
|
|
|
|
|
|
$
|
410,927
|
|
Product revenues
|
|
|
|
|
|
|
129,851
|
|
|
|
|
|
|
|
|
|
|
|
129,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
540,778
|
|
|
|
|
|
|
|
|
|
|
|
540,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
|
|
|
|
352,382
|
|
|
|
(235
|
)
|
|
|
(a.
|
)
|
|
|
352,147
|
|
Cost of products
|
|
|
|
|
|
|
110,793
|
|
|
|
|
|
|
|
|
|
|
|
110,793
|
|
Administrative
|
|
|
4,691
|
|
|
|
9,937
|
|
|
|
(3,862
|
)
|
|
|
(a.
|
),
|
|
|
10,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(g.
|
)
|
|
|
|
|
Salary and payroll taxes
|
|
|
|
|
|
|
15,624
|
|
|
|
|
|
|
|
|
|
|
|
15,624
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
3,521
|
|
|
|
13,950
|
|
|
|
(b.
|
)
|
|
|
17,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues and operating expenses
|
|
|
4,691
|
|
|
|
492,257
|
|
|
|
9,853
|
|
|
|
|
|
|
|
506,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(4,691
|
)
|
|
|
48,521
|
|
|
|
(9,853
|
)
|
|
|
|
|
|
|
33,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities held in Trust
|
|
|
449
|
|
|
|
|
|
|
|
(449
|
)
|
|
|
(c.
|
)
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
(34,099
|
)
|
|
|
19,247
|
|
|
|
(d.
|
)
|
|
|
(14,852
|
)
|
Interest income
|
|
|
5,656
|
|
|
|
238
|
|
|
|
(5,656
|
)
|
|
|
(c.
|
)
|
|
|
238
|
|
Other income
|
|
|
|
|
|
|
171
|
|
|
|
|
|
|
|
|
|
|
|
171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
6,105
|
|
|
|
(33,690
|
)
|
|
|
13,142
|
|
|
|
|
|
|
|
(14,443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income taxes
|
|
|
1,414
|
|
|
|
14,831
|
|
|
|
3,289
|
|
|
|
|
|
|
|
19,534
|
|
Provision for income taxes
|
|
|
1,017
|
|
|
|
1,088
|
|
|
|
|
|
|
|
(e.
|
)
|
|
|
2,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
397
|
|
|
$
|
13,743
|
|
|
$
|
3,289
|
|
|
|
|
|
|
$
|
17,429
|
|
Net Income attributable to non-controlling
interest
|
|
|
|
|
|
|
3,857
|
|
|
|
|
|
|
|
|
|
|
|
3,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to parent
|
|
$
|
397
|
|
|
$
|
9,886
|
|
|
$
|
3,289
|
|
|
|
|
|
|
$
|
13,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share (f.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.44
|
)*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.22
|
|
Diluted
|
|
$
|
(0.44
|
)*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.20
|
|
Weighted average common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,911,510
|
#
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,118,298
|
|
Diluted
|
|
|
9,911,510
|
#
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,118,298
|
|
*
|
Net loss per common sharebasic and diluted excludes interest income attributable to common shares subject
to redemption of $4,773,466 for the year ended December 31, 2018.
|
#
|
Excludes an aggregate of up to 30,961,528 shares subject to redemption as of December 31, 2018.
|
38
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
As of December 31, 2018
(Dollars in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Haymaker
|
|
|
OSW
Predecessor
|
|
|
Pro Forma
Adjustments
|
|
|
|
|
|
Pro Forma
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
221
|
|
|
$
|
15,302
|
|
|
$
|
(3,196
|
)
|
|
|
(a.
|
)
|
|
$
|
12,327
|
|
Accounts receivable, net
|
|
|
|
|
|
|
25,352
|
|
|
|
|
|
|
|
|
|
|
|
25,352
|
|
Inventories, net
|
|
|
|
|
|
|
32,265
|
|
|
|
2,295
|
|
|
|
(b.
|
)
|
|
|
34,560
|
|
Other current assets
|
|
|
93
|
|
|
|
8,041
|
|
|
|
|
|
|
|
|
|
|
|
8,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
314
|
|
|
|
80,960
|
|
|
|
(901
|
)
|
|
|
|
|
|
|
80,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note receivable due from affiliate of the Parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in Trust Account
|
|
|
336,671
|
|
|
|
|
|
|
|
(336,671
|
)
|
|
|
(a.
|
)
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
16,239
|
|
|
|
11,815
|
|
|
|
(c.
|
)
|
|
|
28,054
|
|
Intangible assets, net
|
|
|
|
|
|
|
131,517
|
|
|
|
493,483
|
|
|
|
(d.
|
)
|
|
|
625,000
|
|
Goodwill
|
|
|
|
|
|
|
33,864
|
|
|
|
78,171
|
|
|
|
(e.
|
)
|
|
|
112,035
|
|
Deferred tax assets
|
|
|
|
|
|
|
4,265
|
|
|
|
(4,172
|
)
|
|
|
(f.
|
)
|
|
|
93
|
|
Other noncurrent assets, net
|
|
|
|
|
|
|
5,814
|
|
|
|
731
|
|
|
|
(i.
|
)
|
|
|
6,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
336,985
|
|
|
$
|
272,659
|
|
|
$
|
242,456
|
|
|
|
|
|
|
$
|
852,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
7,595
|
|
|
$
|
|
|
|
|
|
|
|
$
|
7,595
|
|
Accounts payablerelated parties
|
|
|
|
|
|
|
6,553
|
|
|
|
|
|
|
|
|
|
|
|
6,553
|
|
Accrued expenses
|
|
|
3,805
|
|
|
|
27,211
|
|
|
|
(3,684
|
)
|
|
|
(g.
|
)
|
|
|
27,332
|
|
Income tax payable
|
|
|
1,012
|
|
|
|
670
|
|
|
|
|
|
|
|
|
|
|
|
1,682
|
|
Other current liabilities
|
|
|
|
|
|
|
1,210
|
|
|
|
|
|
|
|
|
|
|
|
1,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,817
|
|
|
|
43,239
|
|
|
|
(3,684
|
)
|
|
|
|
|
|
|
44,372
|
|
Deferred rent
|
|
|
|
|
|
|
645
|
|
|
|
|
|
|
|
|
|
|
|
645
|
|
Deferred tax liabilities
|
|
|
94
|
|
|
|
|
|
|
|
77
|
|
|
|
(f.
|
)
|
|
|
171
|
|
Income tax contingency
|
|
|
|
|
|
|
3,918
|
|
|
|
|
|
|
|
|
|
|
|
3,918
|
|
Long-term debt
|
|
|
|
|
|
|
352,440
|
|
|
|
(113,347
|
)
|
|
|
(i.
|
)
|
|
|
239,093
|
|
Deferred underwriting fees
|
|
|
12,150
|
|
|
|
|
|
|
|
(12,150
|
)
|
|
|
(j.
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
17,061
|
|
|
$
|
400,242
|
|
|
$
|
(129,104
|
)
|
|
|
|
|
|
$
|
288,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock subject to possible redemption
|
|
$
|
314,924
|
|
|
$
|
|
|
|
$
|
(314,924
|
)
|
|
|
(k.
|
)
|
|
$
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock, $0.0001 par value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(k.
(m.
|
),
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
Class B convertible common stock, $0.0001 par value
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(m.
|
)
|
|
|
|
|
Additional paid-in capital
|
|
|
4,266
|
|
|
|
|
|
|
|
556,952
|
|
|
|
(o.
|
)
|
|
|
561,218
|
|
Non-controlling interest
|
|
|
|
|
|
|
3,586
|
|
|
|
2,169
|
|
|
|
(n.
|
)
|
|
|
5,755
|
|
Accumulated earnings (loss)
|
|
|
733
|
|
|
|
(130,520
|
)
|
|
|
126,711
|
|
|
|
(l.
(h.
|
),
)
|
|
|
(3,076
|
)
|
Accumulated Other Comprehensive Loss
|
|
|
|
|
|
|
(649
|
)
|
|
|
649
|
|
|
|
(l.
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
$
|
5,000
|
|
|
$
|
(127,583
|
)
|
|
$
|
686,481
|
|
|
|
|
|
|
$
|
563,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
336,985
|
|
|
$
|
272,659
|
|
|
$
|
242,456
|
|
|
|
|
|
|
$
|
852,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
Notes to Unaudited Pro Forma Combined Financial Statements
1. Basis of Pro Forma Presentation
Overview
The unaudited pro forma condensed combined financial statements have been prepared assuming the Business Combination is accounted
for using the acquisition method of accounting with Haymaker as the acquiring entity and OSW Predecessor as the acquiree. Under the acquisition method of accounting, Haymakers assets and liabilities will retain their carrying values and the
assets and liabilities of OSW Predecessor, including its predecessors assets and liabilities, will be recorded at their fair values measured as of the acquisition date. The excess of the purchase price over the estimated fair values of net
assets acquired will be recorded as goodwill. The pro forma adjustments have been prepared as if the Business Combination and the other related transactions had taken place on December 31, 2018 in the case of the unaudited pro forma condensed
combined balance sheets and on January 1, 2018 in the case of the unaudited pro forma condensed combined income statements.
The
acquisition method of accounting is based on Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) 805, Business Combinations (ASC 805), and uses the fair value concepts defined in
FASB ASC 820, Fair Value Measurements (ASC 820). ASC 805 requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date by Haymaker, who was determined to be the
accounting acquirer.
Under ASC 805, acquisition-related transaction costs are not included as a component of consideration transferred
but are accounted for as expenses in the periods in which such costs are incurred, or if related to the issuance of debt, capitalized as debt issuance costs. Acquisition-related transaction costs expected to be incurred as part of the Business
Combination include estimated fees related to the issuance of long-term debt, as well as advisory, legal and accounting fees.
The
unaudited pro forma condensed combined financial statements should be read in conjunction with (i) Haymakers historical financial statements and related notes for the year ended December 31, 2018, as well as Haymakers
Managements Discussion and Analysis of Financial Condition and Results of Operations, included in Haymakers Annual Report on Form 10-K for the year ended December 31, 2018, (ii) OSW
Predecessors historical combined financial statements and related notes for the year ended December 31, 2018, as well as Managements Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this prospectus.
The pro forma adjustments represent managements estimates based on information available as
of the date of this prospectus and are subject to change as additional information becomes available and additional analyses are performed. The unaudited pro forma condensed combined financial statements do not reflect possible adjustments related
to restructuring or integration activities that have yet to be determined or transaction or other costs following the Business Combination that are not expected to have a continuing impact. In addition, the unaudited pro forma condensed combined
financial statements do not reflect additional costs and expenses that OneSpaWorld may incur as a public company (other than those incurred by Haymaker and reflected in the unaudited pro forma condensed combined financial statements). Further, one-time transaction-related expenses anticipated to be incurred prior to, or concurrent with, closing the Business Combination and the other related transactions are not included in the unaudited pro forma
condensed combined income statements. However, the impact of such transaction expenses is reflected in the unaudited pro forma condensed combined balance sheet as a decrease to retained earnings and a decrease to cash, unless otherwise noted.
2. Preliminary Allocation of Purchase Price
The total purchase consideration for the Business Combination has been allocated to the assets acquired, liabilities assumed, and non-controlling interest for purposes of the unaudited pro forma condensed combined
40
financial information based on their estimated relative fair values. The allocation of the purchase consideration herein is preliminary. The final allocation of the purchase consideration for the
Business Combination will be determined after the completion of a thorough analysis to determine the fair value of all assets acquired, liabilities assumed and non-controlling interest, but in no event later
than one year following the completion of the Business Combination.
Accordingly, the final acquisition accounting adjustments could
differ materially from the preliminary amounts presented in these unaudited pro forma condensed combined financial statements.
Any
increase or decrease in the fair value of the assets acquired, liabilities assumed and non-controlling interest, as compared to the information shown herein, could also change the portion of the purchase
consideration allocable to goodwill and could impact the operating results of OneSpaWorld following the Business Combination due to differences in the allocation of the purchase consideration, depreciation and amortization related to some of these
assets and liabilities. The purchase consideration was preliminarily allocated as follows:
|
|
|
|
|
(In thousands)
|
|
|
|
Cash paid to Selling Equityholders
|
|
$
|
659,065
|
|
Equity consideration paid to Selling Equityholders
|
|
|
141,552
|
|
|
|
|
|
|
|
|
$
|
800,617
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,302
|
|
Accounts receivable, net
|
|
|
25,352
|
|
Inventories, net
|
|
|
34,560
|
|
Other current assets
|
|
|
8,041
|
|
Property and equipment, net
|
|
|
28,054
|
|
Intangible assets, net
|
|
|
625,000
|
|
Other noncurrent assets, net
|
|
|
5,814
|
|
Deferred tax asset
|
|
|
93
|
|
Goodwill
|
|
|
112,035
|
|
Current liabilities
|
|
|
(43,239
|
)
|
Deferred tax liabilities
|
|
|
(77
|
)
|
Other long-term liabilities
|
|
|
(4,563
|
)
|
Non-controlling interest
|
|
|
(5,755
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
800,617
|
|
|
|
|
|
|
The estimated value of the equity consideration paid, or deemed paid, to the Sellers includes our common
shares with an assumed fair value of approximately $141.6 million. The estimated value of the aggregate equity consideration issued to the Sellers of $85.5 million reflects an assumed per share market value of common shares of OneSpaWorld
of $10.00.
The consideration above does not include five million of deferred shares, with an assumed value of $50.0 million
(reflecting an assumed per share value of $10.0 per share), issued to the Sellers.
Preliminary identifiable intangible assets in the
unaudited pro forma condensed combined financial information consist of intangibles derived from retail concession agreements, lease agreements, a trade name and a licensing agreement. Retail concession agreements and lease agreements (collectively,
agreements) were valued through application of the multi-period excess earnings method. Under this method, revenues, operating expenses and other costs associated with these agreements were estimated in order to derive cash flows
attributable to the existing agreements. The resulting cash flows were then discounted to present value at rates reflective of the risk and return expectations of the agreements to arrive at the fair value of the agreements as of December 31,
2018. The amortization related to the agreements is reflected as unaudited pro forma adjustments
41
to the unaudited pro forma condensed combined income statements using the straight line method of amortization. Company management has determined the estimated remaining useful lives of the
retail concession agreements and lease agreements based on the projected economic benefits associated with these interests. The trade name and licensing agreements were valued through application of the relief from royalty method. Under this method
a royalty rate is applied to the revenues associated with the trade name to capture value associated with use of the name as if licensed. The resulting royalty savings are then discounted to present value at rates reflective of the risk and return
expectations of the interests to derive their respective fair values as of December 31, 2018. Company management has determined that the trade name is preliminarily estimated to have an indefinite useful life while the licensing agreement life
is estimated based on the projected economic benefits associated with this interest.
The preliminary allocation of the purchase
consideration to property and equipment was based on the fair value of such assets determined using the trending method of the cost approach. Depreciation expense for property and equipment was preliminarily estimated based on a straight line
methodology, which approximates the remaining weighted useful life of such underlying assets. The fair value of the inventory was determined through use of the replacement cost approach.
The amount that will ultimately be allocated to these identified intangible assets, property and equipment and inventory and the related
amount of amortization and depreciation, may differ materially from this preliminary allocation.
Goodwill represents the excess of the
total purchase consideration over the fair value of the underlying net assets, largely arising from the workforce and extensive efficient distribution network that has been established by OSW Predecessor.
3. Pro Forma Adjustments and Assumptions
The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Business Combination and
other transactions described above and has been prepared for informational purposes only. The unaudited pro forma condensed combined income statements are not necessarily indicative of what the actual results of operations would have been had the
Business Combination taken place on the date indicated, nor is it indicative of the future consolidated results of operations of the combined company. The unaudited pro forma condensed combined financial information is based upon the historical
consolidated financial statements of Haymaker and OSW Predecessor and should be read in conjunction with their historical financial statements included elsewhere in this prospectus.
The historical consolidated financial statements have been adjusted in the unaudited pro forma condensed combined financial information to
give effect to pro forma events that are (1) directly attributable to the Business Combination, the Primary Private Placement and the Debt Financing, (2) factually supportable, and (3) with respect to the income statements, expected
to have a continuing impact on the results of OneSpaWorld.
There were no intercompany balances or transactions between Haymaker and OSW
Predecessor as of the dates and for the periods of these unaudited pro forma combined financial statements.
The pro forma combined
consolidated provision for income taxes does not necessarily reflect the amounts that would have resulted had the companies filed consolidated income tax returns during the periods presented.
The pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma condensed combined income statements are based
upon the number of OneSpaWorlds shares outstanding, assuming the Business Combination and the Primary Private Placement occurred on January 1, 2018.
42
Pro Forma Adjustments to the Income Statements:
(a)
|
Represents the adjustment to depreciation of $0.2 million for the year ended December 31, 2018. The
adjustment is reflecting the impact of the changes in fair values of property and equipment, based on the preliminary purchase price allocation.
|
(b)
|
Represents the adjustment to amortization of $14.0 million for the year ended December 31, 2018,
reflecting the impact of the changes in fair value of intangible assets based on the preliminary purchase price allocation. Amortization of the acquired intangible assets will be recognized on a straight line basis over the estimated useful life,
which represents the projected economic benefits associated with the acquired intangible assets.
|
(c)
|
Represents the adjustment to eliminate the historical interest income and unrealized gains of Haymaker
associated with the funds that were held in the Trust Account, which were used to fund portions of the cash consideration and debt refinancing in connection with the Business Combination.
|
(d)
|
Represents the removal of previous interest on the OSW Predecessor debt repaid at the closing by the Seller. An
adjustment has also been made that represents the increased interest expense related to the issuance of new debt in connection with the Business Combination.
|
The pro forma interest expense assumes a weighted average interest rate of approximately 5.59% on the Initial Term Facility ($208.5 million),
Second Lien Term Facility ($25.0 million) and Revolving Credit Facility ($12.4 million). Each 1/8% change in the assumed rate would create a $0.3 million change in annual interest expense.
Included in the adjustments to interest expense is deferred financing expense of $1.1 million for the year ended December 31, 2018.
(e)
|
This adjustment represents the estimated income tax effect of the pro forma adjustments. The tax effect of the pro-forma adjustments was calculated using the historical statutory rates in effect for the periods presented. The blended statutory rate is 0% due to the fact that the pro forma adjustments predominately relate to
businesses that are in zero tax rate jurisdictions.
|
(f)
|
Pro forma basic earnings per share was computed by dividing pro forma net income attributable to OneSpaWorld
common shareholders by the weighted average of Class A Shares, as if such shares were issued and outstanding as of January 1, 2018. Basic shares outstanding were calculated based on the following common shares outstanding:
|
|
|
|
|
|
|
|
At
December 31,
2018
|
|
Our common shares held by Haymaker Public Stockholders
|
|
|
31,713,387
|
|
Our common shares held by Haymaker Sponsor
|
|
|
3,000,000
|
|
Our common shares held by Private Placement Investors
|
|
|
12,249,637
|
|
Our common shares held by Sellers
|
|
|
14,155,274
|
|
|
|
|
|
|
Total common shares outstanding
|
|
|
61,118,298
|
|
|
|
|
|
|
Equity considerationEmployee option pool
|
|
|
7,000,000
|
|
|
|
|
|
|
Diluted shares outstanding
|
|
|
68,118,298
|
|
|
|
|
|
|
Pro forma dilutive earnings per share was computed using the treasury stock buyback method to
determine the potential dilutive effect of its outstanding options. The employee option pool is the number of options available for issue at the time of closing, but no options were issued at that time.
43
The currently outstanding Haymaker Public Warrants, the Founder Warrants and the Private
Placement Warrants with an exercise price of $11.50 per share became exercisable for one common share. The Haymaker Public Warrants, the Founder Warrants and the Private Placement Warrants are not dilutive on a pro forma basis and have been excluded
from the diluted number of our common shares outstanding at the time of closing; however, the potential dilutive impact will ultimately be recognized based on the actual market price on the date of measurement.
Similarly, the Founder Shares that became converted into the right to receive 1,600,000 of our common shares upon the occurrence of certain
events are not dilutive on a pro forma basis and would have been excluded from the diluted number of our common shares outstanding at the time of the closing.
(g)
|
The adjustment represents the removal of $3.9 million of transaction fees incurred in the year ended
December 31, 2018. Transaction costs are eliminated from pro forma income statements because they are nonrecurring charges that are directly attributable to the transaction.
|
Pro Forma Adjustments to the Balance Sheet:
(a)
|
Represents the net adjustment to cash associated with Haymakers payment of cash consideration in the
Business Combination:
|
Pro forma net adjustment to cash associated with purchase adjustments (in thousands):
|
|
|
|
|
(In thousands)
|
|
Scenario 1
|
|
Haymaker cash previously held in Trust
Account(1)
|
|
$
|
336,671
|
|
Proceeds from the primary private
placement(2)
|
|
|
122,496
|
|
Proceeds from new debt(3)
|
|
|
245,900
|
|
Shareholder redemptions(4)
|
|
|
(12,866
|
)
|
Cash consideration(5)
|
|
|
(659,065
|
)
|
Payment of transaction costs(6)
|
|
|
(36,332
|
)
|
|
|
|
|
|
Net adjustment to cash
|
|
$
|
(3,196
|
)
|
|
|
|
|
|
(1)
|
Represents the adjustment related to the reclassification of the cash equivalents held in the Trust Account in
form of investments to cash and cash equivalents to reflect the fact that these investments were available for use in connection with the Business Combination and the payment of a portion of the cash consideration.
|
(2)
|
Represents the shares and warrants OneSpaWorld issued and sold to the Private Placement Investors for gross
proceeds of approximately $122.5 million.
|
(3)
|
Represents additional funds raised through the new loans.
|
(4)
|
Represents cash paid for redemptions of Haymaker common shares.
|
(5)
|
Represents the cash consideration portion of the total consideration that is expected to be paid to effectuate
the Business Combination prior to any Sellers costs and amounts to be paid under the escrow agreement.
|
(6)
|
Reflects the impact of estimated transaction costs of $36.3 million including fees and costs attributable
to debt and equity consideration.
|
|
(b)
|
Represents the adjustment to inventory to reflect their estimated fair values on the preliminary purchase price
allocation (see Note 2).
|
|
(c)
|
Represents the adjustment to property and equipment to (i) reflect the adjustment to the respective fixed
asset category to reflect their estimated fair values based on the preliminary purchase price allocation, and (ii) to eliminate the historical accumulated depreciation (see Note 2).
|
|
(d)
|
Represents the adjustment to intangible assets to reflect their estimated fair values on the preliminary
purchase price allocation (see Note 2).
|
44
|
(e)
|
Represents the adjustment to goodwill based on the preliminary purchase price allocation (see Note 2).
|
|
|
|
|
|
(In thousands)
|
|
|
|
Concession Agreements
|
|
$
|
598,300
|
|
Lease Agreements
|
|
|
19,300
|
|
Trade Name
|
|
|
5,900
|
|
Licensing Agreement
|
|
|
1,500
|
|
|
|
|
|
|
|
|
$
|
625,000
|
|
|
|
|
|
|
|
(f)
|
Represents the adjustment to the deferred tax assets and liability. The deferred taxes are primarily related to
the difference between the financial statement and tax basis for depreciation and amortization. The basis difference primarily results from the Business Combination where Haymaker receives a step-up value
adjustment on certain assets for financial accounting purposes.
|
|
(g)
|
Represents the payment of accrued transaction expenses of $3.7 million.
|
|
(h)
|
Represents the transaction cost expense at closing going against retained earnings. Of the $36.3 million,
$3.8 million has been recognized in retained earnings. This figure represents the total estimated transaction expense net of deferred financing fees (note i), the Private Placement fee that reduces additional paid in capital (note o), the
accrued transaction expenses (note g) and the deferred underwriting costs accrued by Haymaker (note j).
|
|
(i)
|
Represents the repayment of OSW Predecessor debt ($352.4 million) at the closing by the Seller and the issuance
of $245.9 million of new long-term debt in the form of an Initial Term Facility ($208.5 million) and Second Lien Term Facility ($25.0 million) and Revolving Credit Facility of ($12.4 million). The adjustment reflects related deferred
financing costs of $7.5 million, of which $0.7 million has been allocated to other non-current assets as it relates to the Revolving Credit Facility, and the remainder has been netted against
long-term debt. These unaudited pro forma condensed combined financial statements are presented as such to better reflect indebtedness following the Business Combination.
|
|
(j)
|
Represents the payment of deferred underwriting costs of $12.2 million.
|
|
(k)
|
Represents an adjustment to reflect that at the time of issuance, certain Haymaker common stock was subject to
a possible redemption and, as such, an amount of $314.9 million was classified as temporary equity in Haymakers historical consolidated balance sheet as of December 31, 2018. As of the balance sheet, $12.9 million of common
stock of Haymaker was redeemed at an assumed redemption price of $10.00 per Class A Share and the remaining outstanding common stock of $302.0 million has been reclassified from redeemable equity to additional paid-in capital and Class A common stock, $0.0001 par value.
|
|
(l)
|
Represents the elimination of our accumulated deficit of $130.5 million and accumulated other
comprehensive loss of $0.6 million.
|
|
(m)
|
Represents the Founder Shares being converted into 6.7 million of our common shares (3.7 million,
subject to certain adjustments, of which were transferred and forfeited to OneSpaWorld) and the right to receive 1.6 million of our common shares upon the occurrence of certain events. Such deferred common shares are not included in the EPS
calculations set forth above.
|
45
|
(n)
|
Represents the adjustment to non-controlling interest to reflect the
estimated fair values on the preliminary purchase price allocation (see Note 2).
|
|
(o)
|
Represents the pro forma adjustment to additional paid-in capital.
|
|
|
|
|
|
(In thousands)
|
|
|
|
Reverse Haymaker historical APIC
|
|
$
|
|
|
Conversion of redeemable shares held by Haymakers public stockholders to APIC, net of par
amount
|
|
|
302,054
|
|
Increase to APIC attributable to the stock issued to the Selling Equityholders
|
|
|
141,552
|
|
Increase to APIC attributable to the Private Placement
|
|
|
122,496
|
|
Reduction to APIC attributable to the Private Placement fee
|
|
|
(9,150
|
)
|
|
|
|
|
|
Pro forma adjustment to APIC
|
|
$
|
556,952
|
|
|
|
|
|
|
46
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our audited financial condition and results of operations should be read in conjunction with the
information presented in Selected Historical Financial Information and our combined financial statements and the notes thereto included elsewhere in this prospectus. In addition to historical information, the following discussion
contains forward-looking statements, such as statements regarding our expectation for future performance, liquidity and capital resources, that involve risks, uncertainties and assumptions that could cause actual results to differ materially from
those contained in or implied by any forward-looking statements. Factors that could cause such differences include those identified below and those described in the sections entitled Cautionary Note Regarding Forward-Looking Statements,
Risk Factors and Unaudited Pro Forma Condensed Combined Financial Information. We assume no obligation to update any of these forward-looking statements.
The information for the years ended December 31, 2018, 2017 and 2016 are derived from OSW Predecessors audited combined
financial statements and the notes thereto included elsewhere in this prospectus.
Any reference to OneSpaWorld refers
to OneSpaWorld Holdings Limited and our consolidated subsidiaries on a forward-looking basis or, as the context requires, to the historical results of OSW Predecessor. Any reference to OSW Predecessor refers to the entities comprising
the OneSpaWorld business prior to the consummation of the Business Combination.
Overview
We are the pre-eminent global operator of health and wellness centers onboard cruise ships and a
leading operator of health and wellness centers at destination resorts worldwide. Our highly-trained and experienced staff offer guests a comprehensive suite of premium health, fitness, beauty and wellness services and products onboard 163 cruise
ships and at 67 destination resorts globally as of December 31, 2018. With over 80% market share in the highly attractive outsourced maritime health and wellness market, we are the market leader at approximately 10x the size of our closest
maritime competitor. Over the last 50 years, we have built our leading market position on our depth of staff expertise, broad and innovative service and product offerings, expansive global recruitment, training and logistics platform as well as
decades-long relationships with cruise and destination resort partners. Throughout our history, our mission has been simplehelping guests look and feel their best during and after their stay.
At our core, we are a global services company. We serve a critical role for our cruise line and destination resort partners, operating a
complex and increasingly important aspect of our cruise line and destination resort partners overall guest experience. Decades of investment and know-how have allowed us to construct an unmatched global
infrastructure to manage the complexity of our operations, which in 2018 included nearly 8,000 annual voyages with visits to over 1,100 ports of call around the world. We have consistently expanded our onboard offerings with innovative and
leading-edge service and product introductions, and developed the powerful back-end recruiting, training and logistics platforms to manage our operational complexity, maintain our industry-leading quality
standards, and maximize revenue per center. The combination of our renowned recruiting and training platform, deep labor pool, global logistics and supply chain infrastructure and proven revenue management capabilities represents a significant
competitive advantage that we believe is not economically feasible to replicate.
Matters Affecting Comparability
Supply Agreement
We purchase beauty
products for resale from an entity (the Supplier Entity) that was, during the periods presented, a wholly-owned subsidiary of Steiner Leisure. OSW Predecessor and the Supplier Entity entered into
47
an agreement, effective as of January 1, 2017 (subsequently amended in 2018), which established the prices at which beauty products will be purchased by us from the Supplier Entity for a
term of 10 years (the Supply Agreement). The Supply Agreement has had a positive impact on our business as it has reduced the cost of products for retail goods and has lowered the cost of products used in services. The prices of beauty
products purchased by OSW Predecessor from the Supplier Entity prior to 2017 were not comparable to those set forth under the Supply Agreement and applicable to future periods. As a result, our operations and financial condition in periods prior to
January 1, 2017 differ materially from those ended after that date.
The Supply Agreement was effective as of January 1, 2017,
however, existing inventories of products purchased prior to the effectiveness of the Supply Agreement were not fully depleted until the end of the third quarter of 2017. Beginning October 1, 2017, the cost of products used in services and cost
of products reflect the actual pricing under the Supply Agreement because, at that time, all inventory on hand was purchased under the terms of the Supply Agreement.
In order to quantify the impact of the Supply Agreement on the comparability of our financial statements between periods, the following table
sets forth the decrease in cost of products used in services and cost of products that would have been reflected in the financial statements of us for the periods presented if all inventory on hand during such periods was purchased under the terms
of the Supply Agreement (i.e., as if no existing inventories of products purchased prior to the effectiveness of the Supply Agreement were sold during the periods presented):
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Decrease in Cost of Products Used in Services
|
|
$
|
|
|
|
$
|
4,170
|
|
|
$
|
7,824
|
|
Decrease in Cost of Products
|
|
|
|
|
|
|
5,214
|
|
|
|
10,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
9,384
|
|
|
$
|
18,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In order to further quantify the impact of the Supply Agreement on the comparability of our financial
statements between periods, the following table sets forth the increase in cost of products used in services and cost of products that would have been reflected in the financial statements of us for the periods presented if all inventory on hand
during such periods was purchased prior to the effectiveness of the Supply Agreement:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Increase in Cost of Products Used in Services
|
|
$
|
8,886
|
|
|
$
|
3,282
|
|
Increase in Cost of Products
|
|
|
13,844
|
|
|
|
5,897
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,730
|
|
|
$
|
9,179
|
|
|
|
|
|
|
|
|
|
|
timetospa.com Business Model
As a result of our planned separation from Steiner Leisure, we are no longer operating timetospa.com as a standalone e-commerce business with focused marketing efforts and paid search advertising through December 31, 2017. timetospa.com is now a post-cruise sales tool where guests may continue their wellness journey
after disembarking. Revenue and net income in the years ended December 31, 2017 and 2016 are not directly comparable to revenue and net income in the year ended December 31, 2018 due to this change in the timetospa.com business
model.
Key Performance Indicators
In assessing the performance of our business, we consider several key performance indicators used by management. These key indicators include:
|
|
|
Ship Count. The number of ships, both on average during the period and at period end, on which we operate
health and wellness centers. This is a key metric that impacts revenue and profitability.
|
48
|
|
|
Average Weekly Revenue Per Ship. A key indicator of productivity per ship. Revenue per ship can be
affected by the various sizes of health and wellness centers and categories of ships on which we serve.
|
|
|
|
Average Revenue Per Shipboard Staff Per Day. We utilize this performance metric to assist in determining
the productivity of our onboard staff, which we believe is a critical element of our operations.
|
|
|
|
Destination Resort Count. The number of destination resorts, both on average during the period and at
period end, on which we operate the health and wellness centers. This is a key metric that impacts revenue and profitability.
|
|
|
|
Average Weekly Revenue Per Destination Resort Health and Wellness Center. A key indicator of productivity
per destination resort health and wellness center. Revenue per destination resort health and wellness center in a period can be affected by the mix of North American and Asian centers for such period because North American centers are typically
larger and produce substantially more revenues per center than Asian centers. Additionally, average weekly revenue can also be negatively impacted by renovations of our destination resort health and wellness centers.
|
The following table sets forth the above key performance indicators for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Year Ended
December 31,
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Average Ship Count
|
|
|
156.7
|
|
|
|
154.0
|
|
|
|
151.0
|
|
Period End Ship Count
|
|
|
163
|
|
|
|
157
|
|
|
|
156
|
|
Average Weekly Revenue Per Ship
|
|
$
|
60,421
|
|
|
$
|
56,999
|
|
|
$
|
53,741
|
|
Average Revenue Per Shipboard Staff Per Day
|
|
$
|
474
|
|
|
$
|
446
|
|
|
$
|
427
|
|
Average Resort Count
|
|
|
61.9
|
|
|
|
51.6
|
|
|
|
48.1
|
|
Period End Resort Count
|
|
|
67
|
|
|
|
54
|
|
|
|
50
|
|
Average Weekly Revenue Per Resort
|
|
$
|
13,927
|
|
|
$
|
16,400
|
|
|
$
|
18,765
|
|
Key Financial Definitions
Revenues. Revenues consist primarily of sales of services and sales of products to cruise ship passengers and destination resort
guests. The following is a brief description of the components of our revenues:
|
|
|
Service revenues. Service revenues consist primarily of sales of health and wellness services, including a
full range of massage treatments, facial treatments, nutritional/weight management consultations, teeth whitening, mindfulness services and medi-spa services to cruise ship passengers and destination resort
guests. We bill our services at rates which inherently include an immaterial charge for products used in the rendering of such services, if applicable.
|
|
|
|
Product revenues. Product revenues consist primarily of sales of health and wellness products, such as
facial skincare, body care, orthotics and detox supplements to cruise ship passengers, destination resort guests and timetospa.com customers.
|
Cost of services. Cost of services consists primarily of an allocable portion of payments to cruise lines (which are derived as
a percentage of service revenues or a minimum annual rent or a combination of both), an allocable portion of wages paid to shipboard employees, an allocable portion of staff-related shipboard expenses, costs related to recruitment and training of
shipboard employees, wages paid directly to destination resort employees, payments to destination resort venue owners, the allocable cost of products consumed in the rendering of a service and health and wellness center depreciation. Cost of
services has historically been highly variable; increases and decreases in cost of services are primarily attributable to a corresponding increase or decrease in service revenues. Cost of services has tended to remain consistent as a percentage of
service revenues.
49
Cost of products. Cost of products consists primarily of the cost of products
sold through our various methods of distribution, an allocable portion of wages paid to shipboard employees and an allocable portion of payments to cruise lines and destination resort partners (which are derived as a percentage of product revenues
or a minimum annual rent or a combination of both). Cost of products has historically been highly variable, increases and decreases in cost of products are primarily attributable to a corresponding increase or decrease in product revenues. Cost of
products has tended to remain consistent as a percentage of product revenues.
Administrative. Administrative expenses are
comprised of expenses associated with corporate and administrative functions that support our business, including fees for professional services, insurance, headquarter rent and other general corporate expenses. We expect administrative expenses to
increase due to additional legal, accounting, insurance and other expenses related to becoming a public company.
Salary and payroll
taxes. Salary and payroll taxes are comprised of employee expenses associated with corporate and administrative functions that support our business, including fees for employee salaries, bonuses, payroll taxes, pension/401K and other
employee costs.
Amortization of intangible assets. Amortization of intangible assets are comprised of the amortization of
intangible assets with definite useful lives (e.g. customer contracts, trade names, long-term leases) and amortization expenses associated with the 2015 Transaction.
Other income (expense), net. Other income (expense) consists of royalty income, interest income, interest expense and minority
interest expense.
Provision for income taxes. Provision for income taxes includes current and deferred federal income tax
expenses, as well as state and local income taxes. See Critical Accounting PoliciesIncome Taxes included elsewhere in this prospectus.
Net income. Net income consists of income from operations less other income (expense) and provision for income taxes.
Revenue Drivers and Business Trends
Our
revenues and financial performance are impacted by a multitude of factors, including, but not limited to:
|
|
|
The number of ships and destination resorts in which we operate health and wellness centers. Revenue is
impacted by net new ship growth and the increase in the number of destination resort health and wellness centers in each period.
|
|
|
|
The size and offerings of new health and wellness centers. We have focused our attention on the innovation
and provision of higher value added and price point services such as medi-spa and advanced facial techniques, which require treatment rooms equipped with specific equipment and staff trained to perform these
services. As our cruise line partners continue to invest in new ships with enhanced health and wellness centers that allows for more advanced treatment rooms and larger staff sizes, we are able to increase the availability of these services, driving
an overall shift towards a more attractive service mix.
|
|
|
|
Expansion of value-added services and products across modalities in existing health and wellness centers.
We continue to expand our higher value added and price point offerings in existing health and wellness centers, including introducing premium medi-spa services, resulting in higher guest spending.
|
|
|
|
The mix of ship count across contemporary, premium, luxury and budget categories. Revenue generated per
shipboard health and wellness center differs across contemporary, premium, luxury and budget ship categories due to the size of the health and wellness centers, services offered, guest demographics and guest spending patterns.
|
50
|
|
|
The mix of cruise geography and itinerary. Revenue generated per shipboard health and wellness center is
influenced by each cruise itinerary including the number of sea versus port days, which impacts center utilization, as well as the geographic sailing region which may impact offerings of services and products to best address guest preferences.
|
|
|
|
Collaboration with cruise line partners including targeted marketing and promotion initiatives as well as
implementation of proprietary technologies to increase center utilization via pre-booking and pre-payment. We are now directly marketing and distributing promotions
to onboard passengers as a result of enhanced collaboration with select cruise line partners. We have also begun to implement proprietary pre-booking and pre-payment
technology platforms that interface with our cruise line partners pre-cruise planning systems. These areas of increased collaboration with cruise line partners are resulting in higher revenue generation
across our health and wellness centers.
|
|
|
|
The impact of weather. Our health and wellness centers onboard cruise ships and in select destination
resorts may be negatively affected by hurricanes. The negative impact of hurricanes is highest during peak hurricane season from August to October.
|
The effect of each of these factors on our revenues and financial performance varies from period to period.
Results of Operations
Comparison of Results for
the Years Ended December 31, 2018 (audited) and December 31, 2017 (audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
2018
|
|
|
% of
Total
Revenue
|
|
|
2017
|
|
|
% of
Total
Revenue
|
|
|
$
|
|
|
%
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenues
|
|
$
|
410,927
|
|
|
|
76.0
|
%
|
|
$
|
383,686
|
|
|
|
75.7
|
%
|
|
$
|
27,241
|
|
|
|
7.1
|
%
|
Product Revenues
|
|
|
129,851
|
|
|
|
24.0
|
%
|
|
|
122,999
|
|
|
|
24.3
|
%
|
|
|
6,852
|
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
540,778
|
|
|
|
100.0
|
%
|
|
|
506,685
|
|
|
|
100.0
|
%
|
|
|
34,093
|
|
|
|
6.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues and Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Services
|
|
|
352,382
|
|
|
|
65.2
|
%
|
|
|
332,360
|
|
|
|
65.6
|
%
|
|
|
20,022
|
|
|
|
6.0
|
%
|
Cost of Products
|
|
|
110,793
|
|
|
|
20.5
|
%
|
|
|
107,990
|
|
|
|
21.3
|
%
|
|
|
2,803
|
|
|
|
2.6
|
%
|
Administrative
|
|
|
9,937
|
|
|
|
1.8
|
%
|
|
|
9,222
|
|
|
|
1.8
|
%
|
|
|
715
|
|
|
|
7.8
|
%
|
Salary and Payroll Taxes
|
|
|
15,624
|
|
|
|
2.9
|
%
|
|
|
15,294
|
|
|
|
3.0
|
%
|
|
|
330
|
|
|
|
2.2
|
%
|
Amortization of Intangible Assets
|
|
|
3,521
|
|
|
|
0.7
|
%
|
|
|
3,521
|
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cost of Revenues and Operating Expenses
|
|
|
492,257
|
|
|
|
91.0
|
%
|
|
|
468,387
|
|
|
|
92.4
|
%
|
|
|
23,870
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
|
48,521
|
|
|
|
9.0
|
%
|
|
|
38,298
|
|
|
|
7.6
|
%
|
|
|
10,223
|
|
|
|
26.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
(34,099
|
)
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
|
(34,099
|
)
|
|
|
NM
|
|
Interest Income
|
|
|
238
|
|
|
|
|
|
|
|
408
|
|
|
|
0.1
|
%
|
|
|
(170
|
)
|
|
|
(41.4
|
%)
|
Other (Expense)/Income
|
|
|
171
|
|
|
|
|
|
|
|
(217
|
)
|
|
|
|
|
|
|
388
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Income, net
|
|
|
(33,690
|
)
|
|
|
6.2
|
%
|
|
|
191
|
|
|
|
|
|
|
|
(33,881
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Provision for Income Taxes
|
|
|
14,831
|
|
|
|
2.7
|
%
|
|
|
38,489
|
|
|
|
7.6
|
%
|
|
|
(23,658
|
)
|
|
|
(61.5
|
%)
|
Provision for Income Taxes
|
|
|
1,088
|
|
|
|
0.2
|
%
|
|
|
5,263
|
|
|
|
1.0
|
%
|
|
|
(4,175
|
)
|
|
|
(79.3
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
13,743
|
|
|
|
2.5
|
%
|
|
$
|
33,226
|
|
|
|
6.6
|
%
|
|
$
|
(19,483
|
)
|
|
|
(58.6
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues. Revenues increased approximately 6.7%, or $34.1 million, to $540.8 million
in 2018, from $506.7 million in 2017. The increase was driven by six incremental net new shipboard health and wellness
51
centers added to the fleet, 14 incremental net new destination resort health and wellness centers opened, a continued trend towards larger and enhanced shipboard health and wellness centers as
well as increased guest spending on higher-priced services, product innovation and improved collaboration with partners such as the continued rollout of new direct marketing initiatives onboard. The revenue increase was offset by one-time changes in the business model for the timetospa.com website.
For the year ended
December 31, 2018, the 20 incremental net new health and wellness centers contributed $20.1 million, the increase in average price of services and products sold contributed $15.3 million and the increase in the volume of services sold
at existing health and wellness centers contributed $1.0 million in increased revenue, respectively, offset by a decrease of $2.2 million due to the change in the timetospa.com website business model. The revenue growth over this
time period was relatively proportional between service and product revenues:
|
|
|
Service revenues. Service revenues increased approximately 7.1%, or $27.2 million, to
$410.9 million in 2018, from $383.7 million in 2017.
|
|
|
|
Product revenues. Product revenues increased approximately 5.6%, or $6.9 million, to
$129.9 million in 2018, from $123.0 million in 2017.
|
The productivity of shipboard health and wellness
centers increased for 2018 compared to 2017 as evidenced by an increase in both average weekly revenues and revenues per shipboard staff per day. Average weekly revenues increased by 6.0% to $60,421 in 2018, from $56,999 in 2017, and revenues per
shipboard staff per day increased by 6.3% over the same time period. We had an average of 2,852 shipboard staff members in service in 2018 compared to an average of 2,809 shipboard staff members in service in 2017.
The productivity of destination resort health and wellness centers, measured by average weekly revenues, decreased 12.9% to $13,927 in 2018,
from $16,400 in 2017. The decrease in productivity was primarily driven by one large destination resort health and wellness center being under renovation as well as the addition of smaller health and wellness centers in Asia that generate lower
revenue and the closure of a large health and wellness center in Las Vegas.
Cost of services. Cost of services increased
$20.0 million in 2018 compared to 2017. The increase was primarily attributable to an increase in service revenues which accounted for an increase of $23.6 million, offset by the effect of reduced costs under the Supply Agreement which
decreased cost of services by $4.2 million. Cost of services as a percentage of service revenues decreased to 85.8% in 2018, from 86.6% in 2017. The decrease was primarily attributable to the effect of the Supply Agreement.
Cost of products. Cost of products increased $2.8 million in 2018 compared to 2017. The increase was primarily attributable
to an increase in product revenues which accounted for an increase of $6.1 million and an increase in payments to cruise and destination resort partners of $3.0 million, offset by the effect of the Supply Agreement which decreased cost of
products by $5.2 million. Cost of products as a percentage of product revenues decreased to 85.3% in 2018, from 87.8% in 2017. The decrease was attributable to the effect of reduced costs under the Supply Agreement.
Administrative. Administrative expenses increased $0.7 million in 2018 compared to 2017. The increase in administrative
expenses was driven primarily by expenses incurred in connection with the Business Combination.
Salary and payroll taxes.
Salary and payroll taxes increased $0.3 million in 2018 compared to 2017. The increase was primarily related to additional merit-based compensation.
Amortization of intangible assets. Amortization of intangible assets remained flat at $3.5 million in 2018 and 2017.
52
Other income (expense), net. Other income (expense), net decreased
$33.9 million in 2018 compared to 2017. This decrease was primarily attributable to an increase in interest expense related to internal restructuring, which resulted in debt previously held at the parent level being assigned to us in
anticipation of the Business Combination.
Provision for income taxes. Provision for income taxes decreased
$4.2 million in 2018 compared to 2017. This decrease was primarily due to a favorable impact of the Act which resulted in a lower U.S. federal tax rate effective January 1, 2018. Cash taxes as a percentage of income before provision for
income taxes for the years ended December 31, 2018 and 2017 were 4.9% and 1.2%, respectively.
Net income. Net income
was $13.7 million in 2018 compared to net income of $33.2 million in 2017. This decrease in net income was due to all of the factors described above.
Comparison of Results for the Years Ended December 31, 2017 (audited) and December 31, 2016 (audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
2017
|
|
|
% of
Total
Revenue
|
|
|
2016
|
|
|
% of
Total
Revenue
|
|
|
$
|
|
|
%
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenues
|
|
$
|
383,686
|
|
|
|
75.7
|
%
|
|
$
|
362,698
|
|
|
|
76.2
|
%
|
|
$
|
20,988
|
|
|
|
5.8
|
%
|
Product Revenues
|
|
|
122,999
|
|
|
|
24.3
|
%
|
|
|
113,586
|
|
|
|
23.9
|
%
|
|
|
9,413
|
|
|
|
8.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
506,685
|
|
|
|
100.0
|
%
|
|
|
476,284
|
|
|
|
100.0
|
%
|
|
|
30,401
|
|
|
|
6.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues and Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Services
|
|
|
332,360
|
|
|
|
65.6
|
%
|
|
|
318,001
|
|
|
|
66.8
|
%
|
|
|
14,359
|
|
|
|
4.5
|
%
|
Cost of Products
|
|
|
107,990
|
|
|
|
21.3
|
%
|
|
|
106,259
|
|
|
|
22.3
|
%
|
|
|
1,731
|
|
|
|
1.6
|
%
|
Administrative
|
|
|
9,222
|
|
|
|
1.8
|
%
|
|
|
10,432
|
|
|
|
2.2
|
%
|
|
|
(1,210
|
)
|
|
|
(11.6
|
%)
|
Salary and Payroll Taxes
|
|
|
15,294
|
|
|
|
3.0
|
%
|
|
|
14,454
|
|
|
|
3.0
|
%
|
|
|
840
|
|
|
|
5.8
|
%
|
Amortization of Intangible Assets
|
|
|
3,521
|
|
|
|
0.7
|
%
|
|
|
3,521
|
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cost of Revenues and Operating Expenses
|
|
|
468,387
|
|
|
|
92.4
|
%
|
|
|
452,667
|
|
|
|
95.0
|
%
|
|
|
15,720
|
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
|
38,298
|
|
|
|
7.6
|
%
|
|
|
23,617
|
|
|
|
5.0
|
%
|
|
|
14,681
|
|
|
|
62.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income
|
|
|
408
|
|
|
|
0.1
|
%
|
|
|
340
|
|
|
|
0.1
|
%
|
|
|
68
|
|
|
|
20.0
|
%
|
Other (Expense)/Income
|
|
|
(217
|
)
|
|
|
|
|
|
|
(178
|
)
|
|
|
|
|
|
|
(39
|
)
|
|
|
21.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Income, net
|
|
|
191
|
|
|
|
|
|
|
|
162
|
|
|
|
|
|
|
|
29
|
|
|
|
17.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Provision for Income Taxes
|
|
|
38,489
|
|
|
|
7.6
|
%
|
|
|
23,779
|
|
|
|
5.0
|
%
|
|
|
14,710
|
|
|
|
61.9
|
%
|
Provision for Income Taxes
|
|
|
5,263
|
|
|
|
1.0
|
%
|
|
|
5,615
|
|
|
|
1.2
|
%
|
|
|
(352
|
)
|
|
|
(6.3
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
33,226
|
|
|
|
6.6
|
%
|
|
$
|
18,164
|
|
|
|
3.8
|
%
|
|
$
|
15,062
|
|
|
|
82.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues. Revenues increased approximately 6.4%, or $30.4 million, to $506.7 million
in 2017, from $476.3 million in 2016. The increase was driven by one incremental net new shipboard health and wellness center added to the fleet, four net new destination health and wellness resort centers opened, a continued trend towards
larger and enhanced health and wellness centers, as well as increased guest spending on higher-priced services, product innovation and improved collaboration with partners, such as continued rollout of new direct marketing initiatives
onboard.
For the year ended December 31, 2017, the five incremental net new health and wellness centers contributed
$5.7 million, the increase in average price of services and products sold contributed $12.6 million and the
53
increase in the volume of services sold at existing health and wellness centers contributed $12.0 million in increased revenue. The revenue growth over this time period was driven more from
products than services:
|
|
|
Service revenues. Service revenues increased approximately 5.8%, or $21.0 million, to
$383.7 million in 2017, from $362.7 million in 2016.
|
|
|
|
Product revenues. Product revenues increased approximately 8.3%, or $9.4 million, to
$123.0 million in 2017, from $113.6 million in 2016.
|
The productivity of shipboard health and wellness
centers increased for 2017 compared to 2016, as evidenced by an increase in both average weekly revenues and revenues per shipboard staff per day. Average weekly revenues increased by 6.1% to $56,999 in 2017, from $53,741 in 2016, and revenues per
shipboard staff per day increased by 4.3% over the same time period. We had an average of 2,809 shipboard staff members in service in 2017 compared to an average of 2,708 shipboard staff members in service in 2016.
The productivity of destination resort health and wellness centers, measured by average weekly revenues, decreased 12.6% to $16,400 in 2017,
from $18,765 in 2016. The decrease in productivity was primarily driven by one large destination resort health and wellness center being under renovation, the addition of smaller health and wellness centers in Asia that generate lower revenue and
the impact of hurricanes in 2017.
Cost of services. Cost of services increased $14.4 million in 2017 compared to 2016.
The increase was primarily attributable to an increase in service revenues which accounted for an increase of $18.4 million, offset by the effect of reduced costs under the Supply Agreement which decreased cost of services by $3.6 million.
Cost of services as a percentage of service revenues decreased to 86.6% in 2017, from 87.7% in 2016. The decrease was primarily attributable to the effect of reduced costs under the Supply Agreement and an increase in higher margin services.
Cost of products. Cost of products increased $1.7 million in 2017 compared to 2016. The increase was primarily attributable
to an increase in product revenues which accounted for an increase of $7.1 million, offset by the effect of reduced costs under the Supply Agreement which decreased cost of products by $5.4 million. Cost of products as a percentage of
product revenues decreased to 87.8% in 2017, from 93.5% in 2016. The decrease was attributable to the effect of reduced costs under the Supply Agreement.
Administrative. Administrative expenses decreased $1.2 million in 2017 compared to 2016. The decrease in administrative
expenses was driven partially by a continued decrease in corporate marketing expenses and corporate overhead related to the timetospa.com business.
Salary and payroll taxes. Salary and payroll taxes increased $0.8 million in 2017 compared to 2016. The increase in salary
and payroll taxes was driven primarily by additional merit-based compensation and headcount additions to support growth in the business.
Amortization of intangible assets. Amortization of intangible assets remained flat at $3.5 million in 2017 and 2016.
Other income (expense), net. Other income (expense), net remained flat at income of $0.2 million in 2017 and 2016.
Provision for income taxes. Provision for income taxes decreased $0.4 million in 2017 compared to 2016, driven primarily by
the reevaluation of deferred tax assets in 2017 in connection with a decrease in the U.S. federal tax rate, offset by the effect of a reduction in tax reserves related to an examination by a foreign taxing authority of dividends paid by a
wholly-owned subsidiary of Steiner Leisure. Cash taxes as a percentage of income before provision for income taxes for the years ended December 31, 2017 and 2016 was 1.2% and 2.7%, respectively.
54
Net income. Net income was $33.2 million in 2017 compared to net income
of $18.2 million in 2016. This increase in net income was due to all of the factors described above.
Liquidity and Capital Resources
Overview
We have historically
funded our operations with cash flow from operations, except with respect to certain expenses and operating costs that had been paid by Steiner Leisure on our behalf, and, when needed, with borrowings under our credit facility. Steiner Leisure has
paid on our behalf expenses associated with the allocation of Parent corporate overhead and costs associated with the purchase of products from related parties and forgiven by Steiner Leisure. Historical operating cash flows exclude OSW
Predecessors expenses and operating costs paid by Steiner Leisure on behalf of us. Consequently, our combined historical cash flows may not be indicative of cash flows had we been a separate stand-alone entity, or of our future cash flows.
Our principal uses for liquidity have been distributions to Steiner Leisure, debt service and working capital. We believe our sources of
liquidity and capital will be sufficient to finance our continued operations, growth strategy and additional expenses we expect to incur as a public company for at least the next 12 months.
Cash Flows
The following table
shows summary cash flow information for the years ended December 31, 2018, 2017 and 2016 (audited).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Net Income
|
|
$
|
13,743
|
|
|
$
|
33,226
|
|
|
$
|
18,164
|
|
Depreciation & Amortization
|
|
|
10,055
|
|
|
|
9,829
|
|
|
|
12,884
|
|
Amortization of Deferred Financing Costs
|
|
|
1,243
|
|
|
|
|
|
|
|
|
|
Provision for Doubtful Accounts
|
|
|
18
|
|
|
|
18
|
|
|
|
18
|
|
Allocation of Parent Corporate Overhead(1)
|
|
|
11,731
|
|
|
|
11,666
|
|
|
|
11,250
|
|
Deferred Income Taxes
|
|
|
(1
|
)
|
|
|
3,350
|
|
|
|
(472
|
)
|
Change in Working Capital(1)
|
|
|
(4,402
|
)
|
|
|
12,029
|
|
|
|
34,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Operating Activities(1)
|
|
|
32,387
|
|
|
|
70,118
|
|
|
|
76,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
(4,983
|
)
|
|
|
(2,683
|
)
|
|
|
(3,081
|
)
|
Note Receivable from Parent
|
|
|
|
|
|
|
|
|
|
|
(5,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Used in Investing Activities
|
|
|
(4,983
|
)
|
|
|
(2,683
|
)
|
|
|
(8,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Distributions to Parent(1)
|
|
|
(15,690
|
)
|
|
|
(60,893
|
)
|
|
|
(70,348
|
)
|
Distribution to NCI
|
|
|
(4,867
|
)
|
|
|
(4,606
|
)
|
|
|
(1,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Used in Financing
Activities(1)
|
|
|
(20,557
|
)
|
|
|
(65,499
|
)
|
|
|
(71,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rates
|
|
|
(216
|
)
|
|
|
124
|
|
|
|
(480
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
|
$
|
6,631
|
|
|
$
|
2,060
|
|
|
$
|
(3,863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Allocation of Parent Corporate Overhead was paid by Steiner Leisure on our behalf. Additionally, Change in
Working Capital was benefited by costs associated with the purchase of inventory from related parties and forgiven by Steiner Leisure, which were reported as a non-cash reduction to accounts payable-related
parties of $0, $0 and $32,987, for the years ended December 31, 2018, 2017 and 2016, respectively. The amounts related to the allocation of Parent corporate overhead and costs associated with the purchase of products from related parties and
forgiven by Steiner Leisure were considered non-cash contributions and
|
55
|
enabled us to make increased cash distributions to Steiner Leisure, which are classified in financing cash outflows.
|
Comparison of Results for the Years Ended December 31, 2018 (audited) and December 31, 2017 (audited)
Operating activities. Our net cash provided by operating activities decreased $37.7 million to $32.4 million in 2018,
from $70.1 million in 2017. This decrease was due primarily to an unfavorable change in operating assets and liabilities, as well as a lower net income. The unfavorable change in operating assets and liabilities was largely driven by a change
in the payment terms, the effect of reduced costs under the Supply Agreement and the depletion of existing inventories of products purchased prior to the effectiveness of the Supply Agreement of $9.4 million in 2017. The unfavorable change in
net income was primarily due to interest expense of $34.1 million in 2018 related to an internal restructuring, which resulted in debt previously held at the parent level being assigned to us in anticipation of the Business Combination.
Investing activities. Our net cash used by investing activities increased $2.3 million to $5.0 million in 2018, from
$2.7 million in 2017. This increase was largely driven by the renovation of a destination resort health and wellness center.
Financing activities. Our net cash used by financing activities decreased $44.9 million to $20.6 million in 2018, from
$65.5 million in 2017. This decrease was largely due to a decrease in distributions to Steiner Leisure and its affiliates.
Comparison of
Results for the Years Ended December 31, 2017 (audited) and December 31, 2016 (audited)
Operating activities.
Our net cash provided by operating activities decreased $6.5 million to $70.1 million in 2017, from $76.7 million in 2016. This decrease was due primarily to an unfavorable change in operating assets and liabilities, partially
offset by higher net income. The unfavorable change in operating assets and liabilities was largely driven by a change in the payment terms, the effect of reduced costs under the Supply Agreement and the depletion of existing inventories of products
purchased prior to the effectiveness of the Supply Agreement of $9.4 million in 2017. The increase in net income was due to the reasons described above under Results of OperationsComparison of Results for the Years Ended
December 31, 2017 (audited) and December 31, 2016 (audited).
Investing activities.
Our net cash used by investing activities decreased $5.8 million to $2.7 million in 2017, from $8.5 million in 2016. This decrease was due to a loan from us to a wholly-owned subsidiary of Steiner Leisure for
5.0 million in 2016.
Financing activities. Our net cash used by financing activities decreased $6.0 million
to $65.5 million in 2017, from $71.5 million in 2016. This decrease was due to distributions to Steiner Leisure and its affiliates.
Seasonality
A significant portion of our
revenues are generated onboard cruise ships. Certain cruise lines, and, as a result, we have experienced varying degrees of seasonality as the demand for cruises is stronger in the Northern Hemisphere during the summer months and during holidays.
Accordingly, the third quarter and holiday periods generally result in the highest revenue yields for us. Further, cruises and destination resort health and wellness centers have been negatively affected by the frequency and intensity of hurricanes.
The negative impact of hurricanes is highest during peak hurricane season from August to October.
Off-Balance
Sheet Arrangements
Other than the operating lease arrangements described below, we have no
off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, income or expenses, results of
operations, liquidity, capital expenditures or capital resources.
56
Contractual Obligations
The following table summarizes certain of our obligations as of December 31, 2018 and the estimated timing and effect that such
obligations are expected to have on liquidity and cash flows in future periods (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment due by period
|
|
|
Total
|
|
|
2019
|
|
|
2020-2021
|
|
|
2022-2023
|
|
|
Thereafter
|
|
Cruise Line Agreements(1)(3)
|
|
$
|
130,677
|
|
|
$
|
122,677
|
|
|
$
|
8,000
|
|
|
$
|
|
|
|
$
|
|
|
Operating Leases(2)(3)
|
|
|
23,444
|
|
|
|
3,443
|
|
|
|
5,341
|
|
|
|
4,397
|
|
|
|
10,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
154,121
|
|
|
$
|
126,120
|
|
|
$
|
13,341
|
|
|
$
|
4,397
|
|
|
$
|
10,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Cruise Line Agreements. A large portion of our revenues are generated on cruise ships. We have
entered into agreements of varying terms with the cruise lines under which services and products are paid for by cruise passengers. These agreements provide for us to pay the cruise line commissions for use of their shipboard facilities, as well as
fees for staff shipboard meals and accommodations. These commissions are based on a percentage of revenue, a minimum annual amount, or a combination of both. Some of the minimum commissions are calculated as a flat dollar amount, while others are
based upon minimum passenger per diems for passengers actually embarked on each cruise of the respective vessel. Staff shipboard meals and accommodations are charged by the cruise lines on a per staff per day basis. We recognize all expenses related
to cruise line commissions, minimum arrears payment, and staff shipboard meals and accommodations, generally, as they are incurred and includes such expenses in cost of revenues in the accompanying combined statements of income. For cruises in
process at period end, an accrual is made to record such expenses in a manner that approximates a pro-rata basis. In addition, staff-related expenses such as shipboard employee commissions are recognized in
the same manner.
|
(2)
|
Operating Leases. We lease office and warehouse space, as well as office equipment and
automobiles, under operating leases. We also make certain payments to the owners of the destination resorts where destination resort health and wellness centers are located. Destination resort health and wellness centers generally require rent based
on a percentage of revenues. In addition, as part of the rental arrangements for some of the destination resort health and wellness centers, we are required to pay a minimum annual rental regardless of whether such amount would be required to be
paid under the percentage rent arrangement. Substantially all of these arrangements include renewal options ranging from three to five years. Rental expense incurred under operating leases for the years ended December 31, 2018, 2017 and 2016
were $9.5 million, $8.8 million and $9.5 million, respectively.
|
(3)
|
The amounts presented represent minimum annual commitments under our cruise line agreements and operating lease
obligations. Certain minimum annual commitments, if any, are not currently determinable for fiscal years other than 2019.
|
Critical
Accounting Policies
General. Our combined financial statements include the accounts of the wholly-owned direct and
indirect subsidiaries of Steiner Leisure listed in Note 1 and include the accounts of a company partially owned by OneSpaWorld Medispa (Bahamas) Limited, in which OneSpaWorld (Bahamas) Limited (100% owner of OneSpaWorld Medispa (Bahamas) Limited)
has a controlling interest. The combined financial statements also include the accounts and results of operations associated with the timetospa.com website owned by Elemis USA, Inc. Our combined financial statements do not represent the
financial position and results of operations of a legal entity but rather a combination of entities under our common control that have been carved out of Steiner Leisures consolidated financial statements and reflect significant
assumptions and allocations. All significant intercompany transactions and balances have been eliminated in combination.
Our combined
financial statements include the assets, liabilities, revenues and expenses specifically related to our operations. We receive services and support from various functions performed by Steiner Leisure and
57
costs associated with these functions have been allocated to us. These allocations are necessary to reflect all of the costs of doing business and include costs related to certain Steiner Leisure
corporate functions including, but not limited to, senior management, legal, human resources, finance, IT and other shared services that have been allocated to us based on direct usage or benefit where identifiable, with the remainder allocated on a
pro rata basis determined by an estimate of the percentage of time Steiner Leisure employees devoted to us, as compared to total time available or by the headcount of employees at Steiner Leisures corporate headquarters that are fully
dedicated to our entities in relation to the total employee headcount. These allocated costs are reflected in salary and payroll taxes and administrative expenses in the combined statements of income.
Management considers these allocations to be a reasonable reflection of the utilization of services by or benefit provided to us. However, the
allocations may not be indicative of the actual expenses that would have been incurred had we operated as an independent, stand-alone entity.
We believe the assumptions and allocations underlying the accompanying combined financial statements and notes to the combined financial
statements are reasonable, appropriate and consistently applied for the periods presented. We believe the combined financial statements reflect all costs of doing business.
Our combined financial statements have been prepared in conformity with GAAP.
We have identified the policies outlined below as critical to our business operations and an understanding of our results of operations. This
discussion is not intended to be a comprehensive description of all accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States,
with no need for managements judgment in their application. The impact on our business operations and any associated risks related to these policies is discussed under results of operations, below, where such policies affect our reported and
expected financial results. For a detailed discussion on the application of these and other accounting policies, please see Note 2 in the Notes to the Combined Financial Statements. Note that our preparation of our combined financial statements
included in this prospectus requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of
revenue and expenses during the reporting period. There can be no assurance that actual results will be consistent with those estimates.
Cost of revenues includes:
|
|
|
Cost of services. Cost of services consists primarily of the cost of product consumed in the rendering of
a service, an allocable portion of wages paid to shipboard employees, an allocable portion of payments to cruise lines (which are derived as a percentage of service revenues or a minimum annual rent or a combination of both), an allocable
portion of staff-related shipboard expenses, costs related to recruitment and training of shipboard employees, wages paid directly to destination resort employees, payments to destination resort venue owners, and health and wellness facility
depreciation.
|
|
|
|
Cost of products. Cost of products consists primarily of the cost of products sold through our various
methods of distribution, an allocable portion of wages paid to shipboard employees, an allocable portion of payments to cruise lines and destination resort partners (which are derived as a percentage of product revenues or a minimum annual rent or a
combination of both).
|
Cost of revenues may be affected by, among other things, sales mix, production levels, exchange
rates, changes in supplier prices and discounts, purchasing and manufacturing efficiencies, tariffs, duties, freight and inventory costs and increases in fuel costs. Certain cruise line and destination resort health and wellness center agreements
provide for increases in the percentages of services and products revenues and/or, as the case may be, the amount of minimum annual payments over the terms of those agreements. These payments may also be increased under new agreements with cruise
lines and destination resort health and wellness center owners that replace expiring agreements.
58
Cost of products includes the cost of products sold through various methods of distribution.
Operating expenses include administrative expenses, salaries and payroll taxes. In addition, operating expenses include amortization of
certain intangibles relating to acquisitions.
Revenue Recognition. We recognize revenues earned as services are provided
and as products are sold. All taxable revenue transactions are presented on a net-of tax basis. Revenue from gift certificate sales is recognized upon gift certificate redemption and upon recognition of
breakage (non-redemption of a gift certificate after a specified period of time). We do not charge administrative fees on unused gift cards, and our gift cards do not have an expiration date. Based
on historical redemption rates, a relatively stable percentage of gift certificates will never be redeemed. We use the redemption recognition method for recognizing breakage related to certain gift certificates for which it has sufficient historical
information. Under the redemption recognition method, revenue is recorded in proportion to, and over the time period gift cards are actually redeemed. Breakage is recognized only if OSW Predecessor determines that it does not have a legal obligation
to remit the value of unredeemed gift certificates to government agencies under the unclaimed property laws in the relevant jurisdictions. OSW Predecessor determines the gift certificate breakage rate based upon historical redemption patterns. At
least three years of historical data, which is updated annually, is used to estimate redemption patterns.
Long-Lived Assets.
OSW Predecessor reviews long-lived assets for impairment whenever events or changes in circumstances indicate, based on estimated future cash flows, that the carrying amount of these assets may not be fully recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of an asset (asset group) to future undiscounted cash flows expected to be generated by the asset (asset group). An asset group is the lowest level of assets and
liabilities for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. When estimating future cash flows, OSW Predecessor considers:
|
|
|
only the future cash flows that are directly associated with and that are expected to arise as a direct result of
the use and eventual disposition of the asset group;
|
|
|
|
potential events and changes in circumstance affecting key estimates and assumptions; and
|
|
|
|
the existing service potential of the asset (asset group) at the date tested.
|
If an asset (asset group) is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount
of the asset (asset group) exceeds our fair value. When determining the fair value of the asset (asset group), we consider the highest and best use of the assets from a market-participant perspective. The fair value measurement is generally
determined through the use of independent third-party appraisals or an expected present value technique, both of which may include a discounted cash flow approach, which reflects assumptions of what market participants would utilize to price the
asset (asset group).
Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Assets
to be abandoned, or from which no further benefit is expected, are written down to zero at the time that the determination is made and the assets are removed entirely from service.
Income Taxes. Our U.S. entities, other than those that are domiciled in U.S. territories, file their U.S. tax return as part of
a consolidated tax filing group, while our entities that are domiciled in U.S. territories file specific returns. In addition, our foreign entities file income tax returns in their respective countries of incorporation, where required. For the
purposes of our combined financial statements included in this prospectus, we account for income taxes under the separate return method of accounting. This method requires the allocation of current and deferred taxes to us as if it were a separate
taxpayer. Under this method, the resulting portion of current income taxes payable that is not actually owed to the tax authorities is written-off through equity.
Taxes payable in the combined balance sheets, as of December 31, 2018 and 2017 reflects current income tax amounts actually owed to the
tax authorities, as of those dates, as well as the accrual for uncertain tax
59
positions. The write-off of current income taxes payable not actually owed to the tax authorities is included in net Parent investment in the accompanying
combined balance sheets, as of December 31, 2018 and 2017. Deferred income taxes are recognized based upon the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Deferred income tax provisions and benefits are based on the changes to the asset or liability from period to period. A valuation allowance is
provided on deferred tax assets if it is determined that it is more likely than not that the deferred tax assets will not be realized. The majority of our income is generated outside of the United States.
We believe a large percentage of our shipboard service income is foreign-source income, not effectively connected to a business we conduct in
the United States and, therefore, not subject to U.S. income taxation.
We recognize interest and penalties within the provision for
income taxes in the combined statements of income. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.
We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to
evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.
The second step is to measure the tax benefit as the largest amount of benefit, determined on a cumulative probability basis, which is more than 50% likely of being realized upon ultimate settlement.
Recently Issued Accounting Pronouncements
With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during
the year ended December 31, 2018 that are of significance, or potential significance, to us based on our current operations. The following summary of recent accounting pronouncements is not intended to be an exhaustive description of the
respective pronouncement.
In May 2014, the FASB issued ASU 2014-09. The core principle of the
guidance in ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to
be entitled in exchange for those goods or services. The guidance in this ASU supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry specific guidance throughout the Industry Topics of the ASC.
Additionally, ASU 2014-09 supersedes some cost guidance included in Subtopic 605-35, Revenue RecognitionConstruction-Type and Production-Type Contracts.
In periods subsequent to the initial issuance of this ASU, the FASB has issued additional ASUs clarifying items within Topic 606, as
follows:
|
|
|
In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts
with Customers (Topic 606): Principal versus Agent Considerations (ASU 2016-08). The amendments in ASU 2016-08 serve to clarify the implementation
guidance on principal versus agent considerations.
|
|
|
|
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts
with Customers (Topic 606): Identifying Performance Obligations and Licensing (ASU 2016-10). The purpose of ASU 2016-10 is to clarify two aspects of
Topic 606: identifying performance obligations and the licensing implementation guidance (while retaining the related principles for those areas).
|
|
|
|
In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts
with Customers (Topic 606) (ASU 2016-12). The purpose of ASU 2016-12 is to address certain issues identified to improve Topic 606 by enhancing guidance
on assessing collectability, presentation of sales taxes and other similar taxes collected from customers, noncash consideration and completed contracts and contract modifications at transition.
|
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The FASB issued updates ASU 2016-08, ASU 2016-10 and ASU 2016-12 to provide guidance to improve the operability and understandability of the implementation guidance included in ASU
2014-09. ASU 2016-08, ASU 2016-10 and ASU 2016-12 have the same effective date and
transition requirements of ASU 2015-14, which defers the effective date and transition of ASU 2014-09 annual reporting periods beginning after December 15, 2018,
and interim periods within annual periods beginning after December 15, 2019, with early adoption permitted. The Company plans to adopt this standard, other related revenue standard clarifications and technical guidance effective for the annual
period ending December 31, 2019 and quarterly periods beginning January 1, 2020. The Company has elected the modified retrospective transition approach. Under this method, the standard will be applied only to the most current period
presented and the cumulative effect of applying the standard will be recognized at the date of initial application. The Company is progressing through our implementation plan and is continuing to evaluate the impact of the standard on our processes,
accounting systems, controls and financial disclosures. The Company is not able to determine at this time if the adoption of this guidance will have a material impact on the Companys combined financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASU 2016-02) to increase transparency and
comparability among organizations by recognizing rights and obligations resulting from leases as lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The update requires lessees to
recognize for all leases with a term of 12 months or more at the commencement date: (a) a lease liability or a lessees obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset or a
lessees right to use or control the use of a specified asset for the lease term. Under the update, lessor accounting remains largely unchanged. The update requires a modified retrospective transition approach for leases existing at, or entered
into after, the beginning of the earliest comparative period presented in the financial statements and do not require any transition accounting for leases that expire before the earliest comparative period presented. The update is effective
retrospectively for annual periods beginning after December 15, 2019, and interim periods beginning after December 15, 2020, with early adoption permitted. We are not able to determine at this time if the adoption of this guidance will
have a material impact on our combined financial statements.
In March 2016, the FASB issued ASU
2016-04, Recognition of Breakage for Certain Prepaid Stored-Value Products (a consensus of the FASB Emerging Issues Task Force). ASU 2016-04 requires
entities that sell certain prepaid stored-value products redeemable for goods, services or cash at third-party merchants to derecognize liabilities related to those products for breakage (i.e., the value that is ultimately not redeemed by the
consumer). This guidance is effective for annual periods beginning after December 15, 2018. Early adoption is permitted. Entities can use either a full retrospective approach, meaning they would apply the guidance to all periods presented, or a
modified retrospective approach, meaning they would apply it only to the most current period presented with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. We are currently evaluating the methods
and impact of adopting this new guidance on our combined financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial InstrumentsCredit Losses (Topic 326). This ASU amends the Boards guidance on the impairment of financial instruments. The ASU adds to GAAP an impairment model (known as the
current expected credit losses model) that is based on an expected losses model rather than an incurred losses model. Under the new guidance, an entity recognizes as an allowance our estimate of expected credit losses. The ASU is also intended to
reduce the complexity of GAAP by decreasing the number of impairment models that entities use to account for debt instruments. The update is effective for fiscal years beginning after December 15, 2020. We are currently assessing the future
impact the adoption of this guidance will have on our combined financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses eight specific cash flow issues with the objective of reducing the existing
diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under existing guidance. The update is effective for annual
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periods beginning after December 15, 2018. The amendments should be applied using a retrospective transition method to each period presented. We do not anticipate the adoption of this
guidance will have a material impact on our combined financial statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16). This ASU was issued as part of the Boards
initiative to reduce complexity in accounting standards. This ASU eliminates an exception in ASC 740, which prohibits the immediate recognition of income tax consequences of intra-entity asset transfers other than inventory. Under ASU 2016-16, entities will be required to recognize the immediate current and deferred income tax effects of intra-entity asset transfers, which often involve a subsidiary of a company transferring intellectual property
to another subsidiary. The new guidance will be effective for annual periods beginning after December 15, 2018. This ASUs amendments should be applied on a modified retrospective basis, recognizing the effects in retained earnings as of
the beginning of the year of adoption. We do not anticipate the adoption of this guidance will have a material impact on our combined financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted
Cash. This ASU requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts
generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The update is effective for annual periods beginning after December 15, 2018. We do not anticipate the
adoption of this guidance will have a material impact on our combined financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals)
of assets or businesses by clarifying the definition of a business. The definition of a business affects many areas of accounting including acquisition, disposals, goodwill and consolidation. The update is effective for annual periods beginning
after December 31, 2018. The amendments in this update should be applied prospectively on or after the effective date. We do not anticipate the adoption of this guidance will have a material impact on our combined financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment (ASU 2017-04). This ASU simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Previously, in
computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of our assets and liabilities following the procedure that would be required in determining the
fair value of assets acquired and liabilities assumed in a business combination. Instead, under ASU 2017-04, an entity should perform our annual, or interim, goodwill impairment test by comparing the fair
value of a reporting unit with our carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total
amount of goodwill allocated to the reporting unit. The new guidance is effective for an entitys annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and early adoption is permitted for interim
or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently assessing the future impact the adoption of this guidance will have on our combined financial statements.
Inflation and Economic Conditions
We do
not believe that inflation has had a material adverse effect on our revenues or results of operations. However, public demand for activities, including cruises, is influenced by general economic conditions, including inflation. Periods of economic
softness could have a material adverse effect on the cruise industry and hospitality industry upon which we are dependent. Such a slowdown has adversely affected our results of
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operations and financial condition in certain prior years. Recurrence of the more severe aspects of the recent adverse economic conditions, as well as periods of fuel price increases, could have
a material adverse effect on our results of operations and financial condition during the period of such recurrence. Weakness in the U.S. dollar compared to the U.K. pound sterling and the Euro also could have a material adverse effect on our
results of operations and financial condition.
U.S. Tax Reform
On December 22, 2017, the U.S. enacted significant changes to tax law following the passage and signing of TCJA. The Company has completed
the analysis of the tax accounting implications of the TCJA during the year ended December 31, 2018 in accordance with the terms of SEC Staff Bulletin 118. The Company did not record any adjustments in the year ended December 31, 2018 to
provisional amounts that were material to our combined financial statements.
Quantitative and Qualitative Disclosures of Market Risks
Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevalent market interest rates. Market risk
refers to the risk of loss from adverse changes in market prices and interest rates.
Concentration of credit risk.
Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. We maintain cash and cash equivalents with high quality financial
institutions. As of December 31, 2018, 2017 and 2016, we had three cruise companies that represented greater than 10% of accounts receivable. We do not normally require collateral or other security to support normal credit sales. We control
credit risk through credit approvals, credit limits, and monitoring procedures.
Accounts receivable are stated at amounts due from
customers, net of an allowance for doubtful accounts. We record an allowance for doubtful accounts with respect to accounts receivable using historical collection experience, and generally, an account receivable balance is written off once it is
determined to be uncollectible. We review the historical collection experience and consider other facts and circumstances and adjust the calculation to record an allowance for doubtful accounts as appropriate. If our current collection trends were
to differ significantly from historic collection experience, we would make a corresponding adjustment to the allowance. As of December 31, 2018 and 2017, the allowance for doubtful accounts was $0.6 million and $0.5 million,
respectively. Bad debt expense is included within administrative operating expenses in the combined statements of income and is immaterial of the years ended December 31, 2018, 2017 and 2016.
Interest rate risk. We are subject to interest rate risk in connection with borrowing based on a variable interest rate.
Derivative financial instruments, such as interest rate swap agreements and interest rate cap agreements, may be used for the purpose of managing fluctuating interest rate exposures that exist from our variable rate debt obligations that are
expected to remain outstanding. Interest rate changes do not affect the market value of such debt, but could impact the amount of our interest payments, and accordingly, our future earnings and cash flows, assuming other factors are held constant.
Foreign currency risk. The fluctuation in currency exchange rates is not a significant risk for us, as most of our revenues
are earned and expenses are incurred in U.S. Dollars.
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BUSINESS
Company Overview
We are the pre-eminent global operator of health and wellness centers onboard cruise ships and a leading operator of health and wellness centers at destination resorts worldwide. Our highly trained and experienced staff offer
guests a comprehensive suite of premium health, fitness, beauty and wellness services and products onboard 163 cruise ships and at 67 destination resorts globally as of December 31, 2018. With over 80% market share in the highly attractive
outsourced maritime health and wellness market, we are the market leader at approximately 10x the size of our closest maritime competitor. Over the last 50 years, we have built our leading market position on our depth of staff expertise; broad and
innovative service and product offerings; expansive global recruitment, training and logistics platform; and decades-long relationships with cruise and destination resort partners. Throughout our history, our mission has been simple: helping guests
look and feel their best during and after their stay.
At our core, we are a global services company. We serve a critical role for our
cruise line and destination resort partners, operating a highly complex and increasingly important aspect of their overall guest experience. Decades of investment and know-how have allowed us to construct an
unmatched global infrastructure to manage the complexity of our operations, which in 2017 included nearly 8,000 annual voyages with visits to over 1,100 ports of call around the world. We have consistently expanded our onboard offerings with
innovative, leading-edge service and product introductions, and developed a powerful back-end recruiting, training and logistics platform to manage our operational complexity, maintain our industry-leading
quality standards and maximize revenue per center. The combination of our renowned recruiting and training platform, deep labor pool, global logistics and supply chain infrastructure and proven revenue management capabilities represents a
significant competitive advantage that we believe is not economically feasible to replicate.
The majority of our revenue and profits are earned through long-term revenue sharing agreements with cruise
line partners that economically align both parties and contribute to our attractive asset-light financial profile. These agreements average approximately five years in length and provide us with the exclusive right to offer health, fitness, beauty
and wellness services and the ability to sell complementary products onboard the ships it serves. Under these long-term agreements, cruise line partners retain a specified percentage of revenues from all our sales onboard. This inherent alignment
encourages collaboration in all aspects of our operations,
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including facility design, product innovation, pre- and post-cruise sales opportunities, capacity utilization initiatives and other data-driven strategies
to drive increased guest traffic and revenue growth. Most of our cruise line agreements encompass 100% of a partner cruise lines existing fleet and all new ships introduced by the cruise line during the term of the agreement. As opposed to
fixed-rent landlords, cruise lines and destination resorts serve as our aligned economic partners.
We are recognized by our cruise line
and destination resort partners and our guests for our comprehensive suite of services and products. We curate and deliver an exhaustive range of offerings centered on providing specific health and wellness solutions to meet our guests
lifestyle routines or objectives. These services include: (i) traditional body, salon, and skin care services and products; (ii) specialized fitness classes and personal fitness training; (iii) innovative pain management, detoxifying
programs and comprehensive body composition analyses; (iv) weight management programs and products; and (v) advanced medi-spa services. We also offer our guests access to leading beauty and wellness
brands including ELEMIS®, Kérastase® and Dysport®, with many brands
offered exclusively by us at sea. On average, guests spend $230 per visit and our solution sales approach drives substantial retail sales, with approximately 25% of our revenues derived from the sale of retail products.
Our
state-of-the-art health and wellness centers are designed and branded for each cruise line and destination resort to optimize the
guest experience, align with the overall hospitality atmosphere and maximize productivity. Centers can employ up to 45 highly trained professionals and range in size from 200 to over 30,000 square feet, depending on the cruise or resort
partners needs.
Our cruise line relationships average over 20 years and encompass substantially all of the major global cruise
lines, including Carnival Cruise Line, Royal Caribbean, Princess Cruises, Norwegian Cruise Lines, Celebrity Cruises, Costa and Holland America, among many others. These partnerships extend across contemporary, premium, luxury and budget cruise lines
that operate ships globally. We maintain an exceptional contract renewal rate with our cruise line partners, having renewed approximately 95% of our contracts based on ship count over the last 15 years, including 100% of our contracts with ships
larger than 3,500 berths. We have not only maintained relationships with existing cruise line partners, but have a history of winning contracts and
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gaining market share. In 2019, we signed an agreement with the new lifestyle brand Virgin Voyages as the exclusive operator of the spa and wellness offerings onboard the first three Virgin
vessels planned to launch in 2020, 2021 and 2022. In 2018, we signed an agreement with Celebrity Cruises as the exclusive operator of health and wellness centers onboard our highly anticipated Edge Class of mega ships, including the Celebrity
Edge, which launched in November 2018, and three additional mega ships scheduled to launch in 2020, 2021 and 2022. On land, we have longstanding relationships with the worlds leading destination hotel and resort operators, including Marriott,
Starwood, Hilton, ClubMed, Caesars Entertainment, Lotte, Loews and Four Seasons, among others.
As a Bahamian international business company that earns a substantial portion of our revenue in low- or no-tax jurisdictions, we have benefited from a highly attractive effective cash tax rate. Additionally, we have minimal capital expenditures as third parties typically
fund the build-out, maintenance, and refurbishment of our onboard health and wellness centers. The combination of our attractive tax rate and asset-light operating model leads to a financial profile that
delivers exceptional Unlevered After-Tax Free Cash Flow. Annually, from 2016 through 2018, we converted approximately 90% of our Adjusted EBITDA to Unlevered After-Tax
Free Cash Flow.
We have driven strong financial results and believe our leading market position in a growing industry, differentiated
business model and entrenched partner relationships position our business for continued growth. For the year ended December 31, 2018, we achieved revenues of $540.8 million, Adjusted EBITDA of $58.6 million, Net Income of
$13.7 million and Unlevered After-Tax Free Cash Flow of $52.9 million. For a
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reconciliation of non-GAAP financial measures to GAAP measures see Summary Historical and Other Financial Information.
Attractive Market Opportunity
We operate
at the intersection of the highly attractive health and wellness and travel leisure industries. We are well-positioned to continue growing through the cruise industrys reliable new cruise ship and passenger growth, consumers desire for
travel and experiences and the increasing focus on health and wellness in consumers every-day lives.
Highly Dependable Cruise Industry Growth
The cruise industry has been among the fastest-growing segments in the travel leisure industry with passenger growth for more than
20 consecutive years, including through the recessions of 2001 and 2008. We estimate, based on annual statistics published by Cruise Lines International Association (CLIA), that global passenger counts have grown every year from
approximately 6.3 million passengers in 1995 to an all-time high of 28.0 million passengers in 2018, representing a compound annual growth rate of 6.7%. This dependable passenger growth has been
driven by consistent, significant investments in new cruise ship capacity, strong loyalty among experienced cruisers and the large and growing appeal of cruising to all demographics, including millennials. In 2019, millennials are projected to
represent the largest segment of the U.S. population, and according to CLIAs 2018 cruise travel report, they are also most likely to book a cruise for their next vacation.
Cruising remains underpenetrated globally and is poised for continued growth. Based on research from CLIA,
in 2016, cruise passengers in the United States represented 3.6% of the population, which was second to Australia with a penetration rate of 5.4%. According to 2017 data, these penetration rates compare favorably against alternative vacations and
leisure activities, including visits to the Disneyland theme park at 5.6% of the U.S. population, visits to U.S. snowsports facilities at 16.8% of the U.S. population, and visits to Australian snowsports facilities at 8.7% of the Australian
population. China remains incredibly underpenetrated with a cruising penetration rate of just 0.2% of the population in 2017, representing a significant opportunity.
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Today, the Fourth Wave of cruise industry expansion is in our early phases in
Asia, as cruise operators and the Chinese government invest heavily in Asian cruise port infrastructure. The global cruise market has witnessed three distinct periods, or waves, of geographic expansion over the last 40 years as the
industry grew its presence into new regions of the world. The first wave comprised the period during the early 1980s that saw the emergence of the North American and Caribbean cruise market. The second wave occurred in the late 1990s and
early 2000s as the European market evolved to reflect the itinerary diversity seen in North America, and the third wave was driven by industry expansion to the rest of the world, excluding Asia, in the latter half of the 2000s. Each of
these waves saw investment by cruise lines in new ship capacity to service these regions, as well as significant investment by cruise operators and local governments in cruise port infrastructure to enable increased itinerary diversity and enhance
the attractiveness of cruise travel throughout these regions. In 2015, Carnival Corporation and the Chinese State Shipbuilding Corporation established a joint venture for a shipbuilding consortium at a Shanghai shipyard, which will build mega class
cruise ships for the Chinese market. Cruise Industry News reports that Asian cruise capacity grew at a CAGR of 18.3% from 2011 to 2015 and is projected to grow at a 15.2% CAGR from 2015 to 2022. Cruise Industry News projects passenger counts in the
Asian market will reach European volumes within the next 5 to 10 years, and some cruise operators predict during that time that Asian passenger counts may even surpass North American volumes, which are the largest in the world.
Consumers Increasingly Spending on Experiences and Travel
Global consumers are increasingly prioritizing experiences over products, creating a significant tailwind for leisure and travel. According to
Coresight Research, since 2002, the split of U.S. discretionary spending has shifted from 50% services and 50% products to 55% services and 45% products in 2017. This change implies an incremental $139 billion in spending on services or related
experiences, such as travel, in the United States alone. Globally, according to the World Bank, the number of international travel departures around the world has roughly doubled over the past two decades from more than 600 million in 1996 to
1.3 billion in 2015. The outlook remains positive, as the Deloitte 2018 Travel and Hospitality Industry Overview projects that the global hotel industry will sustain strong 5%-6% growth to achieve a
record $170 billion in gross booking in 2018. We are poised to benefit from global consumers shift toward experiences and travel with a global network of health and wellness centers onboard cruise ships and at premier destination resorts
around the world.
Large and Growing Health and Wellness Industry
Our health and wellness centers cater to guests seeking a continuation of their wellness activities while traveling and those who want to trial
services while away from home. According to The Global Wellness Institute (GWI), the global wellness economy is growing at nearly twice the rate of the broader economy, achieving a total value of $4.2 trillion in 2017. As consumers
increasingly incorporate health and wellness activities into their daily lives, they are placing a higher priority on health and wellness services while traveling. GWI estimates that wellness-related tourism grew at twice the rate of general tourism
from 2015 to 2017 and projects it to grow at a 7.5% compound annual growth rate from $639 billion in 2017 to $919 billion in 2022.
Our
Evolution
Our history dates back to the early 1960s, when we opened the worlds first salons at sea onboard transatlantic
cruise ships, including the Queen Mary and Queen Elizabeth II. Over more than 50 years, we have continuously defined and redefined the onboard health and wellness category by consistently expanding our onboard offerings with innovative and
leading-edge service and product introductions, while developing the powerful back-end recruiting, training and logistics platforms to manage and optimize the complexity of our operations and maintain our
industry-leading quality standards. We have successfully evolved the onboard health and wellness category from what was once a consumer-centric amenity for passengers to a key onboard revenue driver for cruise line partners.
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In 2015, a consortium led by L Catterton acquired Steiner Leisure, the holding
company of OneSpaWorld (the 2015 Transaction). Since then, OneSpaWorld has strengthened its already proven platform by leveraging L Cattertons expertise in multi-unit retail and customer acquisition. At sea, OneSpaWorld has
enhanced collaboration with its cruise line partners to reinforce its market leading position and introduced innovative revenue initiatives to accelerate its onboard revenue growth. Key recent initiatives include:
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enhancing and expanding collaboration with cruise line and resort partners;
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creating pre-marketing,
pre-booking and pre-payment platforms with optimal positioning on cruise line websites;
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employing data-driven, dynamic pricing of services to optimize facility utilization and revenue generation;
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incorporating advanced direct marketing programs, including personalized communications and value promotions, to
drive traffic;
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shifting revenue mix towards higher value-add services through new
service introductions and higher-ticket products coupled with enhanced consultative sales training techniques;
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expanding medi-spa services to the majority of ships within our fleet;
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collaborating with global brands to leverage our powerful retail channel and captive audience of over
20 million consumers with above average household income;
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increasing frequency of budgeting and KPI reviews with cruise partners;
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improving staff productivity through enhanced incentive and retention measures; and
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leveraging the strength of our global marketing, recruiting, training, logistics and facility design platforms
across our destination resort partnerships.
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Today, our comprehensive suite of premium health, fitness, beauty and
wellness services and products reaches more consumers than ever before, with 165 centers onboard cruise ships addressing a captive audience of over 20 million passengers annually and 67 destination resort centers serving global travelers at
premier destination resorts around the world.
Our Strengths
Global Leader in the Hospitality-Based Health & Wellness Industry
As the pre-eminent global operator of health and wellness centers onboard cruise ships and a leading
operator of health and wellness centers at destination resorts worldwide, we are at the center of the intersection between the health and wellness and travel leisure industries. Global wellness tourism is a $639 billion industry, according to
the GWI, and is projected to grow at a compound annual growth rate of 7.5% through 2022. We command over 80% market share in the highly attractive outsourced maritime health and wellness market and we are nearly 10x the size of our closest
competitor. Through our market share, we have access to a captive audience of over 20 million passengers. Cruise ship guests are an attractive demographic with average annual household incomes of over $100,000. Based on an independent study
conducted by a global strategy consulting firm, approximately 45% of cruise guests are interested in or have participated in wellness activities during their cruise while our revenues have been historically driven by approximately 10% of cruise ship
passengers. As a result of our scale, our captive audience and consumers increasing desire for more health and wellness services, we are well-positioned in the growing global health and wellness industry and have a large addressable market at
sea and on land.
Differentiated Business Model That Would Be Difficult and Non-Economical to Replicate
For more than 50 years, our business model has been built through investment in global infrastructure and training, decades-long
relationships with our cruise line and destination resort partners and our reputation for
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offering guests a best-in-class wellness experience. The robust infrastructure and processes required to operate
and maximize revenue across our network of global health and wellness centers separates us from our peers. We embarked on almost 8,000 voyages that welcomed over 20 million passengers at more than 163 ports of embarkation in 2018. Our business
model is centered on providing our partners with the following solutions:
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Global Recruiting, Training and LogisticsWe recruit, train and manage over 3,000 professionals
annually around the world, representing 86 nationalities and 27 spoken languages. With nine global training facilities, we can accommodate each cruise lines needs for specific onboard staff with complex language, cultural and service modality
requirements and are the only company with the infrastructure to commission highly trained staff at over 1,100 ports of call worldwide at a moments notice.
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Supply Chain and LogisticsWe manage the complex distribution of all products and supplies to our
floating centers, leveraging proprietary data to accurately forecast and stock each center. Products can only be loaded at designated ports around the world during a limited window of time while the ship is in port, adding to the
complexity of the process.
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Yield and Revenue ManagementWe have developed proprietary technology, processes and staff training
tools to consistently measure, analyze and maximize onboard revenue.
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Exclusive Relationships with Global BrandsDue to our scale, superior operations, industry longevity
and attractive captive audience, we currently have over 600 product SKUs offered through the OneSpaWorld platform at sea, including ELEMIS, Kérastase, Thermage, GoodFeet Arch Supports and GO SMILE Teeth Whitening.
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Facility Design and Branding ExpertiseWe design our state-of-the-art health and wellness centers specifically for each cruise line and destination resort partner by creating bespoke branding and concepts to optimize
guest experiences and maximize productivity.
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The above capabilities have contributed to building a differentiated and
defensible strategy around our leading market position in a growing and attractive industry.
Unmatched Breadth of Service and Product Offering
We offer our guests a comprehensive suite of health and wellness services and products to meet any and all of their needs. We are
continuously innovating and evolving our offerings based on the latest trends and tailor our service and product offerings to regional preferences. In addition to wellness and beauty services, we offer the latest in fitness, a full range of massage
treatments, nutrition/weight management consultations, teeth whitening, acupuncture and wellness services. OneSpaWorld has also introduced innovative, higher-ticket medi-spa services, including BOTOX Cosmetic,
Dysport, Restylane, CoolSculpting, Thermage and dermal fillers, among others. With our captive audience of over 20 million cruise guests annually, OneSpaWorld is a compelling distribution channel for leading wellness and beauty brands. Renowned
brands, including ELEMIS and Kérastase, have partnered with us for exclusive distribution at sea. Cruise and resort partners depend on us to provide their guests with the best and broadest assortment of services and products to enhance their
vacation experience.
Entrenched Partnerships with Economic Alignment
We have cultivated partnerships with many of the largest and most reputable cruise lines and premier resorts in the world. Our cruise line
relationships average over 20 years and encompass substantially all of the major global cruise lines, including Carnival Cruise Line, Royal Caribbean, Princess Cruises, Norwegian Cruise Lines, Celebrity Cruises, Costa and Holland America, among many
others. The majority of our revenues and profits are earned through our long-term revenue sharing agreements with our cruise line partners that economically align both parties and create a collaborative relationship. On land, we partner with market
leaders at highly-attractive
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destinations, including Atlantis Paradise Island Bahamas, The Ocean Club, a Four Seasons Resort, Hilton Hawaiian Village Beach Resort and Spa and the Mohegan Sun Resort. Our long-standing
relationships, with economic alignment at the core, strengthens our competitive advantage.
Highly Visible and Predictable Revenue Streams
We consistently have access to over 20 million passengers annually with passenger growth expected to continue as new ships
are commissioned in the industry. This new ship growth is highly visible as demonstrated in a publicly available global order book outlining over five years of new ship orders. Across our contracts, OneSpaWorld typically operates on all ships in a
fleet and on new ships added during the contract term, securing both existing and new ship revenue. A new ship requires approximately two to four years to be built and is rarely delayed as cruise lines typically sell out the vessels maiden
voyage over a year in advance. New ships do not have a revenue ramp-up period given these advanced marketing efforts. Cruise line partners are experts at dependably filling their ships with passengers, as
demonstrated by the industry average occupancy rate of above 100%, even through recessionary periods. Due to consistent industry practices and decades of proprietary operating history data, OneSpaWorld has strong visibility into our future revenue
realization for the next three to five years.
Asset-Light Model with Tremendous After-Tax Free Cash Flow Generation
Third parties typically fund the build-out, maintenance, and refurbishment of our onboard health and
wellness centers, resulting in an asset-light profile with minimal capex required. Our capital expenditures have averaged 1% of revenues over the last three years. Being a Bahamian international business company and earning a significant portion of
our revenue in low-tax or no-tax jurisdictions, our effective cash tax rate has been approximately 2% over the last three years. This combination translates to
exceptional after-tax free cash flow. Annually, from 2016 through 2018, we converted approximately 90% of our Adjusted EBITDA to Unlevered After-Tax Free Cash Flow.
Proven Management Team
OneSpaWorld is led by a management team that has operated Steiner for nearly 20 years. Our Executive Chairman, Leonard Fluxman, and CFO
and COO, Stephen Lazarus, together led Steiner Leisure as a public company for more than a decade. Mr. Fluxman, Mr. Lazarus and our Chief Executive Officer, Glenn Fusfield, now lead an internally developed senior management team with over
150 years of combined industry experience. We will also benefit from Haymakers investing and operational experience at Fortune 500 companies, particularly in the consumer and hospitality sectors. The OneSpaWorld management teams
deep experience and proven track record in managing the business in both public and private markets positions makes OneSpaWorld an attractive vehicle for future long-term growth within the global hospitality-based health and wellness industry.
Growth Strategies
Our management plans
to continue growing the business through the following strategies:
Capture Highly Visible New Ship Growth with Current Cruise Line Partners
We will continue benefiting from the cruise industrys capacity growth, with a consistent and visible pipeline of new ships
commissioned annually by our cruise line partners. From 2019 to 2023, our existing cruise line partners are expected to build 35 new ships, representing over 119,000 new berths, which is an approximate 25% increase in our estimated year end 2018
berth count. Approximately 85% of our 2020 projected revenues at sea are expected to be generated from the existing fleet and new ships being launched by cruise lines already under contract with us. As our existing cruise line partners, expand into
the Asian region over the longer-term, we will be well-positioned to grow revenue alongside our cruise line partners as we have over 70% market share
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in the region today. Through established cruise line partner relationships, current contracts and an approximately 95% contract renewal rate over the last 15 years, we are well-positioned to
capture new ship growth over the long term.
Expand Market Share by Adding New Potential Cruise Line Partners
Although we have over 80% market share in the outsourced maritime health and wellness market, there is an opportunity to continue to grow our
market share by winning new contracts. Recently, we won a contract with the new lifestyle brand Virgin Voyages to operate the spa and wellness offerings onboard the first three Virgin vessels, planned to launch in 2020, 2021 and 2022, and a contract
with Celebrity Cruise Lines to design and operate the health and wellness centers onboard their four new mega ships to be commissioned between 2018 and 2022. We also routinely meets with cruise lines that do not currently outsource their health and
wellness centers or utilize our smaller competitors but that may have an interest in contracting with us in the future due to our strong reputation and historical results. As evidenced by our successful history of winning new contracts, we are
focused on continuing to grow our market share at sea over time.
Continue Launching More Value-Added Services and Products
We have successfully innovated services and products to meet guests ever-changing needs, attract more guests and generate more revenue
per guest. Medi-spa has been a highly successful innovation for OneSpaWorld at sea and is now a critical component of our offering. Performed by licensed physicians, the
medi-spa offering provides the latest cosmetic medical services to guests such as non-surgical cosmetic procedures, including BOTOX® Cosmetic, Dysport®, Restylane®, CoolSculpting®, Thermage® and dermal fillers. Guests purchasing medi-spa services spend on average up to 10x more
than on traditional services. We also initiated a trial of Kérastase®, a leading global professional hair care brand, in 2017 and experienced a 30% increase in total guest spending and
improved retail attachment by more than 25% during the trial period. We will continue to focus on launching higher value-add products and services that meet guest demands and drive traffic through our highly
productive centers.
Focus on Enhancing Health and Wellness Center Productivity
Cruise lines have become increasingly focused on growing onboard revenue as a way to enhance revenue beyond traditional cabin ticket sales.
Between 2011 and 2017, onboard spend as a percentage of total cruise line revenue has increased over 480 basis points to nearly 30%, translating to $2 billion of incremental onboard spending. We provide services to approximately 10% of cruise
passengers on any one journey, while 45% of passengers say they are interested in using the centers onboard, per an independent global consulting study. We are focused on collaborating with cruise line partners to increase passenger penetration and
maximize revenue yield through the following initiatives:
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Increase Pre-Booking and
Pre-Payment Capture RateWe are working with our cruise line partners to expand our marketing efforts to reach a guest before boarding a ship through
pre-booking. Pre-booked appointments yield approximately 60% more revenue than services booked onboard the ship. Due to our success across select cruise lines that have
implemented pre-booking capabilities, we are in the process of implementing pre-booking across many of our other partner cruise lines.
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Expand Targeted Marketing and Promotion InitiativesWe are now directly marketing and distributing
promotions to onboard passengers as a result of enhanced collaboration with selected cruise line partners. These promotions are personalized and individually tailored to guests profiles and have successfully driven traffic and revenue at our
health and wellness centers. Examples include happy anniversary messages to couples, happy birthday notes to individual guests, and promotional retail credits offered to guests who visit our centers before the end of their
cruise. On vessels implementing these initiatives, guests that received these customized promotions were responsible for over 6.5% of revenues generated during the year ended December 31, 2018 and spent approximately 5.5% more during their
visit than guests that did not receive customized promotions.
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Utilize Technology to Increase Utilization and Enhance Service MixWe have recently begun to
successfully introduce and expand technology-enabled dynamic pricing initiatives with selected cruise line partners. While dynamic pricing strategies have historically been applied manually by onboard staff, we are currently rolling out online and pre-cruise access to drive off-peak utilization rates and fill higher-demand time slots with higher-value bookings. This enhanced dynamic pricing capability is currently
available with only a few cruise line partners, representing a significant opportunity for revenue growth as it is rolled out and optimized fleet-wide.
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Extend Retail Beyond the ShipOur Shop & Ship program provides guests the ability to buy
retail products onboard and have products shipped directly to their home to avoid the hassle of packing products in their luggage. On average, a Shop & Ship customer spends more than 3.5x the amount of a
non-Shop & Ship customer on retail products. The Shop & Ship program, combined with our eCommerce platform timetospa.com, gives us the ability to maintain a connection with each guest
beyond the cruise voyage.
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Selectively Expand Footprint at Destination Resorts
We have long-standing relationships with many leading hotel and hospitality companies around the world such as Marriott, Starwood, Hilton,
ClubMed, Caesars Entertainment, Lotte, Loews and Four Seasons, among others. We believe we are a proven turnkey operator for our partners. With health and wellness centers in 67 destination resorts, with 17 in North America and 50 in Asia, this
reflects only a handful of resort centers per partner, or approximately 1% of our partners total resorts. As such, we believe there is significant potential to operate additional centers within their resort partner portfolios. We will
selectively expand our resort footprint when attractive unit economics can be generated. Given our unit growth potential, global infrastructure and proven platform, we have a significant opportunity to further expand our destination resort
footprint.
Health and Wellness Services
We curate and deliver an exhaustive range of offerings for our cruise and destination resort partners centered around a holistic wellness
approach which includes:
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Spa and Beauty. We offer massages and a broad variety of other body and beauty treatments including
facials, hair cutting and styling, manicures and pedicures, and tanning. Additionally, we offer teeth whitening services in the majority of our onboard health and wellness centers.
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Medi-spa. We offer
medi-spa services on the majority of our ships. Our service menu consists of the leading medi-spa brands including BOTOX Cosmetic, Dysport, Restylane, CoolSculpting,
Thermage, and dermal fillers, among others. Currently, medi-spa services are available on 91 ships and administered by certified medical physicians.
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Fitness. We offer guests use of fitness centers as well as paid services by a fitness professional to our
cruise and destination resort guests. The fitness centers are typically free and offer guests use of strength equipment, cardiovascular equipment such as treadmills, elliptical machines, exercise bicycles and rowing and stair machines. Boutique
fitness classes, including yoga, Pilates, cycling, and aerobics, are also available to guests for a fee or at no charge, depending on the class. Our fitness instructors are available to provide paid services, such as body composition analysis and
personal training.
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Nutrition. In addition to fitness services, we offer guests paid services including personal nutritional
and dietary advice, weight management, nutrition coaching and detoxification. Guests can begin a program on the cruise and remain connected to our professional coach after the cruise to ensure successful completion of the program, such as a
nutrition or detoxification plan.
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Health. We first introduced acupuncture in 2005 and have since rapidly expanded our health and pain
management, offerings to be one of our largest categories. Today, we offer acupuncture, electro acupuncture, cupping, posture and gait analysis, GoodFeet Arch Supports, physical therapy, and
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NormaTec® recovery. Our services are enhanced by our retail channel; GoodFeet, a premium arch support insert, is now a leading retail
product for us.
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Mind-Body and Wellness. We also offer our guests yoga, Tai Chi and sound therapy in addition to meditation
and biofeedback.
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Products
We sell over 600 branded product SKUs due to our scale, superior operations, industry longevity and attractive captive audience at sea and on
land. We sell products from leading brands including ELEMIS, Thermage, Dysport, GoodFeet Arch Supports and GO SMILE Teeth Whitening. We have an exclusive 10-year supply contract with ELEMIS. We believe we have
a leading retail attachment rate based on the number of products purchased in conjunction with a service compared to the broader retail industry. Approximately 25% of our revenues come from product sales, enabling incremental revenue even at full
treatment room utilization.
We have two warehouses, one 20,000 square foot bonded warehouse in Miami, FL and another 4,000 square foot
warehouse in New Jersey. The Miami warehouse provides fulfillment services for cruise inventory, and the New Jersey warehouse provides fulfillment for e-Commerce and the Shop & Ship program.
Health and Wellness Centers
As of
December 31, 2018, we operated state-of-the-art health and wellness centers across a total of 163 ships, including
almost all of the major cruise lines globally, and 67 resorts principally in the United States, the Caribbean and Asia. Centers are designed and branded for each cruise and destination resort partner to optimize the guest experience, maximize
revenues and align with our partners hospitality environment. Centers can range in size from approximately 200 square feet to over 30,000 square feet and generally provide fitness areas, treatment rooms and salons, as well as elaborate thermal
suites and/or saunas. Cruise centers are generally located on higher ship decks, which encourages increased passenger interest and guest traffic.
Facility Design
Our partners seek
differentiated health and wellness experiences for their guests. As such, we provide design capabilities for our cruise line and destination resort partners, creating bespoke branding and design consulting to optimize guest experiences and maximize
revenues. We operate health and wellness centers under proprietary brands of Mandara and Chavana as well as brands curated specifically for each cruise line, complete with cruise line and/or ship-specific service menus. We have 34 health and
wellness centers under the Mandara brand, 12 centers under the Chavana brand, one destination resort health and wellness center under the ELEMIS brand, and one center under our newest destination resort health and wellness brand, Glow, a
Mandara Spa.
Principal Cruise Line Customers
A significant portion of our revenues is generated from each of the following cruise lines, which accounted for more than ten percent of our
total revenues in 2018, 2017 and 2016, respectively: Carnival (including Carnival, Carnival Australia, Costa, Holland America, P&O, Princess and Seabourn cruise lines): 48.5%, 48.6% and 48.1%, Royal Caribbean (including Royal Caribbean,
Celebrity Cruises, Pullmantur and Azamara cruise lines): 21.0%, 20.8% and 20.2% and Norwegian Cruise Line: 13.8%, 13.0% and 13.2%. These companies, combined, accounted for 138 of the 163 ships served by OneSpaWorld as of December 31, 2018. Our
contracts are signed at the cruise line-level, not with the parent operator, giving OneSpaWorld a diverse customer base despite parent-level consolidation. Our contracts average 5 years in duration.
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The numbers of ships served as of December 31, 2018 under cruise line agreements with
the respective cruise lines (including ships temporarily out of service for routine dry dock maintenance) are listed below:
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Cruise Line
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Ships
Served
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Azamara
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3
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Carnival
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26
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Carnival Australia
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5
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Celebrity
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1
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Costa
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14
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Crystal
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3
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Disney
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4
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Holland America
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15
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Norwegian
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16
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P&O
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7
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Princess
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17
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Pullmantur
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4
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Royal Caribbean
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25
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Saga
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2
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Seabourn
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5
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Silversea
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8
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Marella
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2
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Windstar
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6
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Total
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163
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Resort Locations and Partners
As of December 31, 2018, we provided health and wellness services at destination resorts in the following locations:
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Country
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Number of
Destination
Resort
Centers
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United States(1)
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14
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Maldives
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13
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Vietnam
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12
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Malaysia
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10
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Indonesia
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5
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Bahamas
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3
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Palau
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2
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Russia
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2
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United Arab Emirates
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2
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Bahrain
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1
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Aruba
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1
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Egypt
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1
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Japan
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1
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Total
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67
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(1)
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Including Puerto Rico.
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Cruise Line and Resort Agreements
Through the cruise line and resort agreements, we have the exclusive right to offer health, fitness, beauty and wellness services and the
ability to sell complementary products onboard the ships and at destination resorts
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we serve. Under the cruise agreements, guests pay for our services through the cruise partners who retain a specified percentage of gross receipts from such sales before remitting the remainder
to us. Our revenue share agreements result in a highly variable cost model, where the primary fixed costs are the meals and accommodations for our cruise employees. Most of the cruise line agreements cover all of the then-operating ships of a cruise
line and typically new ships are added to ships in service through an amendment to the agreement. The agreements have specified terms ranging from one to eight years, with an average remaining term per ship of approximately five years. Cruise lines
can terminate the agreements with limited or no advance notice under certain circumstances, including, among other things, the withdrawal of a ship from the cruise trade, the sale or lease of a ship, or our failure to achieve specified passenger
service standards. However, we have never had a contract terminated prior to our respective expiration date.
We operate our destination
resort centers pursuant to agreements with the owners of the properties involved. Our destination resort centers generally are required to pay rent based on a percentage of our revenues, with others having fixed rents. Some of our destination resort
center agreements also require that we make minimum rental payments irrespective of the amount of our revenues. The terms of the agreements for our destination resort centers generally range from five to 20 years (including the terms of renewals
available at our option). In North America, destination resort centers generally have a higher investment cost and lower revenue share with higher staff costs and contracts lasting 10 years on average. In Asia, destination resort centers have lower
investment cost, higher revenue share, lower staff costs, and contracts averaging five years.
Recruiting and Training
Our continued success is dependent, in part, on our ability to attract qualified employees. Our goal in recruiting and training new employees
is to have available a sufficient number of skilled personnel trained in our customer service philosophy. We recruit prospective cruise employees from geographies including the British Isles, Australia, South Africa, the Philippines, Canada, the
Caribbean and continental Europe, providing an ample pipeline of talent to fulfill any demographic preferences. Recruitment professionals source potential employees using a variety of recruitment techniques including advertisements in trade and
other publications, appearances at beauty, hair, and fitness trade shows, meetings with students at trade schools, and recommendations from our employees. Candidates are generally required to have received prior training and certifications in the
services they will perform and are tested in their specific modalities. Prospective employees for destination resorts are also required to have received prior training but are recruited in a customary manner within the respective destination region.
Our candidates complete a rigorous training program at one of our nine global training facilities or at one of the destination resorts.
We train over 3,000 employees annually and have 56 training, administrative, and recruitment staff to execute that training. Training courses are typically conducted over a period of one to six weeks, depending on the modality, and emphasize use of
personalized, attentive guest care and the unique requirements of each cruise line partner. Additionally, employees are trained from day one in yield management and cross-selling products. This training covers, among other things, maximization of
revenues, personnel supervision, customer service, and administrative matters, including interaction with cruise line and destination resort personnel. Given the complex human capital requirements, we consider our recruitment and training
infrastructure to be a key barrier to entry.
Marketing and Promotion
We promote our services and products to cruise passengers and resort guests through targeted marketing, including pre-and post-cruise emails, website advertising, on-site demonstrations and seminars, video presentations shown on in-cabin/in-room television, ship newsletters, tours of our centers, and dedicated signage around the ship. We also encourage our employees to cross-sell as they believe that such cross-promotional activities
frequently result in our customers purchasing services and/or products in addition to those they initially contemplated buying. For example, we cross-sell the fitness body assessment with detox programs, vitamins, and
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seaweed wraps. We also maintain a dedicated sales desk to facilitate pre-cruise health and wellness services booking and to disseminate health and wellness
information for charters and other groups of cruise passengers.
Recent collaborative initiatives with cruise line partners have proven to
enhance performance across certain key performance indicators. We have developed a fully integrated pre-booking platform which allows guests to book health and wellness treatments six to eight weeks prior to
the voyage. Pre-booked and pre-paid guests on average spend approximately 60% more than guests who book services once already onboard. We recently introduced targeted
marketing, including the positive surprise direct marketing campaign where guests receive a targeted gift card to celebrate a birthday, honeymoon, anniversary, or other special occasion. Guests who received the positive
surprise campaign spent approximately 50% more in the health and wellness centers, which translated to a 6% increase in onboard spend. We have begun rolling out our dynamic pricing model to our full cruise fleet, which provides the ability to
optimize demand and maximize utilization of the health and wellness center. We continually monitors the results of our marketing efforts and adjust our strategies in order to use our marketing resources in a cost-effective manner.
Competition
We face competition in our
cruise ships and destination resorts. On cruise ships, we compete with passenger activity alternatives for onboard passenger dollars. We also compete with other maritime wellness facility providers, including cruise lines that insource the activity
as well as other outsource providers. The largest outsource provider after us is currently Canyon Ranch, which operates on 22 ships as of December 31, 2018. Across the resorts business, we compete with other hotel operators that outsource
health and wellness services. The destination resorts business is highly fragmented, and there is no one leader within this category.
Seasonality
A significant portion of our revenues are generated onboard cruise ships. Certain cruise lines, and, as a result, we have experienced
varying degrees of seasonality as the demand for cruises is stronger in the Northern Hemisphere during the summer months and during holidays. Accordingly, the third quarter and holiday periods generally result in the highest revenue yields for us.
Further, cruises and destination resort health and wellness centers have been negatively affected by the frequency and intensity of hurricanes. The negative impact of hurricanes is highest during peak hurricane season from August to October.
Trademarks
We hold or control numerous
trademarks in the United States and a number of other countries. Our most recognized health and wellness products and services trademarks are for Mandara and Chavana. We believe that the use of our trademarks is important in establishing and
maintaining our reputation for providing high quality health and wellness services as well as cosmetic goods, and we are committed to protecting these trademarks by all appropriate legal means.
Registrations for the OneSpaWorld, Mandara and Chavana trademarks, among others, have been obtained in a number of countries throughout the
world. We continue to apply for other trademark registrations in various countries.
While a number of the trademarks we use have been
registered in the United States and other countries, the registrations of other trademarks that we use are pending. Recently we have adopted the mark OneSpaWorld as the trade name of our maritime health and wellness business to reflect
our position as a global provider of shipboard products and services.
We license Mandara for use by luxury destination
resorts in certain Asian countries.
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Properties
Our hotel spas are operated under agreements with the hotel operators or owners, as the case may be, of those venues. Our other facilities,
including our warehouses, are leased from the owners of the venues where they are located. Our principal office is located in Nassau, The Bahamas, and we own an office building in Coral Gables, Florida where certain administrative functions are
located. We believe that our existing facilities are adequate for our current and planned levels of operations and that alternative sites are readily available on competitive terms in the event that any of our material leases are not renewed.
Employees
As of December 31, 2018,
we had a total of 4,146 employees. Of that number, 3,660 worked in health and wellness operations, and 458 represented management and sales personnel and support staff, while 28 were involved in recruiting and training. We have one health and
wellness center manager in each center and can have up to 45 total staff depending on the size of the center. Cruise employees typically are employed under nine month-long agreements with fixed terms. In recent years, we have improved staff
retention, resulting in a more experienced staff across our fleet. Employees at our destination resorts generally are employed without contracts, on an at-will basis, although most of our employees in Asia
have one- or two-year contracts.
Most cruise and
destination resort employees compensation consists of commission based on the volume of revenues generated by the employee. Cruise managers receive incentive payments, including a commission based on the volume of revenue generated by our
staff under their management. Destination resort managers receive a salary, plus bonus, if appropriate, based on various criteria. We believe that our relations with our employees are satisfactory.
Legal Proceedings
None.
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MANAGEMENT
The following table provides information regarding our executive officers and directors, including their ages, as of April 18, 2019:
Directors and Executive Officers
Our Board consists of nine directors. Our directors and executive officers are as follows:
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Name
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Age
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Position
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Leonard Fluxman
|
|
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60
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Executive Chairman
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Steven J. Heyer
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66
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Vice Chairman
|
Glenn J. Fusfield
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56
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President, Chief Executive Officer and Director
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Marc Magliacano
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44
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Director
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Andrew R. Heyer
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61
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|
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Director
|
Walter F. McLallen
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|
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53
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|
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Director
|
Jeffrey E. Stiefler
|
|
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72
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|
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Director
|
Michael J. Dolan
|
|
|
72
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|
|
Director
|
Stephen W. Powell
|
|
|
60
|
|
|
Director
|
Maryam Banikarim
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|
|
50
|
|
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Director
|
Stephen B. Lazarus
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56
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Chief Financial Officer and Chief Operating Officer
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Leonard Fluxman is our Executive Chairman. Prior to the Business Combination, he served as the
President and Chief Executive Officer of Steiner Leisure from January 2001 and as a director from November 1995. Mr. Fluxman served as President and Chief Operating Officer of Steiner Leisure from January 1999 through December 2000. From November
1995 through December 1998, Mr. Fluxman served as Chief Operating Officer and Chief Financial Officer of Steiner Leisure. Mr. Fluxman joined Steiner Leisure in June 1994 in connection with Steiner Leisures acquisition of Coiffeur
Transocean (Overseas), Inc. (CTO), which operated a business similar to that of OSW Predecessor. Mr. Fluxman served as CTOs Vice PresidentFinance from January 1990 until June 1994 and as its Chief Operating
Officer from June 1994 until November 1996. Mr. Fluxman, a certified public accountant, was employed by Laventhol and Horwath from 1986 to 1989, during a portion of which period he served as a manager. Mr. Fluxman earned a Bachelor of
Commerce from the University of Witwatersrand and a degree of Honors Bachelor of Accounting Science from the University of South Africa.
Steven J. Heyer is our Vice Chairman and has over 35 years of experience in the consumer and consumer-related products and
services industries, leading a range of companies and brands. Mr. Heyer has applied his experience and analytical skills in a variety of leadership positions across diverse industry groups, including broadcast media, consumer products, and
hotel and leisure companies. Mr. Heyers operating experiences include: leading the turnaround of Outback Steakhouse as an advisor (from 2010 to 2012); as Chief Executive Officer of Starwood Hotels & Resorts Worldwide (from 2004
until 2007); as President and Chief Operating Officer of The Coca-Cola Company (from 2001 to 2004); as a member of the boards of the Hellenic Bottling Company, Coca-Cola FEMSA, and Coca-Cola Enterprises (all from 2001 to 2004); as President and
Chief Operating Officer of Turner Broadcasting System, Inc., and a member of AOL Time Warners Operating Committee (from 1994 to 2001); as President and Chief Operating Officer of Young & Rubicam Advertising Worldwide (from 1992 to
1994); and before that, spending 15 years at Booz Allen & Hamilton, ultimately becoming Senior Vice President and Managing Partner. For the last five years, Mr. Heyer has served on the boards of Lazard Ltd, Lazard Group, and Atkins
Nutritionals Inc. (each as further described below), as well as investing in a private capacity in early stage and venture consumer and consumer media companies. Mr. Heyer has extensive board experience, including: the board of Atkins
Nutritionals Inc., which announced in April 2017 that it had entered into a definitive agreement to be acquired by Conyers Park Acquisition Corp, a publicly traded special purpose acquisition company; Lazard Ltd and Lazard Group (2005 to present);
the board of WPP Group,
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a publicly traded digital, internet, and traditional advertising company (2000 to 2004); the board of Equifax, the publicly traded consumer credit reporting and insights company (2002 through
2003); the board of Omnicare, Inc., a supplier of pharmaceutical care to the elderly (2008 through 2015); the board of Vitrue, Inc., a provider of social marketing publishing technologies (2007 through 2012); the board of Internet Security Systems,
Inc. a provider of internet security software, appliance, and services (2004 through 2005); and the board of Shopkick, a mobile shopping app that rewards customers for walking into stores. Mr. Heyer received his B.S. from Cornell University and
an M.B.A. from New York University. Mr. Heyer is the brother of Mr. Andrew Heyer, Haymakers President. Mr. Heyer is qualified to serve as a director due to his extensive operations, management and business background,
particularly in the consumer and consumer-related products and services industries.
Glenn J. Fusfield is our President and
Chief Executive Officer and serves on our Board. Prior to the Business Combination, he served as President and Chief Executive Officer of OSW Predecessor beginning in July 2016, as President and Chief Operating Officer from April 2007 until July
2016, and as Chief Operating Officer from October 2002 until April 2007. From January 2001 until April 2007, Mr. Fusfield served as Steiner Leisures Chief Operating Officer. Mr. Fusfield joined OSW Predecessor in November 2000 as
Senior Vice President, Group Operations. Prior to joining OSW Predecessor, Mr. Fusfield was with Carnival Cruise Lines for 12 years, serving as Director, Hotel Operations, for Carnival from January 1995 until December 1998, and Vice President,
Hotel Operations, from January 1999 to October 2000. Mr. Fusfield earned a B.A. from the University of Denver School of Hotel Management.
Marc Magliacano serves on our Board. Mr. Magliacano joined the board of Steiner Leisure Limited, the former parent company of
OneSpaWorld, in December 2015. Mr. Magliacano currently serves as a Managing Partner for L Cattertons Flagship Buyout Fund. L Catterton is the largest and most global consumer-focused private equity firm with over
$15 billion of equity capital under management across six fund strategies in 17 offices worldwide. Since 1989, the firm has made over 200 investments in leading consumer brands. Mr. Magliacano has been a senior investment professional at
L Catterton since May 2006. Prior to joining L Catterton, from 1999 to 2006, Mr. Magliacano was a Principal at North Castle Partners, a private equity firm focused on making consumer growth investments that benefit from healthy
living and aging trends. While at North Castle, Mr. Magliacano originated and executed investments in the consumer health and wellness sectors. Prior to joining North Castle, Mr. Magliacano worked at NMS Capital, the merchant bank of
NationsBanc Montgomery Securities, making growth investments in early stage consumer and retail businesses. Mr. Magliacano has served on the boards of directors of a variety of private and public companies, including Restoration Hardware.
Andrew R. Heyer serves on our Board and is a finance professional with over 35 years of experience investing in the consumer and
consumer-related products and services industries, as well as a senior banker in leveraged finance, during which time his clients included many large private equity firms. Mr. Heyer has deployed in excess of $1 billion of capital over that
time frame and has guided several public and private companies as a member of their board of directors. Currently, Mr. Heyer is the Chief Executive Officer and Founder of Mistral Equity Partners, a private equity fund manager founded in 2007
that invests in the consumer industry. Prior to founding Mistral in 2007, from 2000 to 2007, Mr. Heyer served as a Founding Managing Partner of Trimaran Capital Partners, a $1.3 billion private equity fund. Mr. Heyer was formerly a
vice chairman of CIBC World Markets Corp. and a co-head of the CIBC Argosy Merchant Banking Funds from 1995 to 2001. Prior to joining CIBC World Markets Corp. in 1995, Mr. Heyer was a founder
and Managing Director of The Argosy Group L.P. from 1990 to 1995. Before Argosy, from 1984 to 1990, Mr. Heyer was a Managing Director at Drexel Burnham Lambert Incorporated, and, prior to that, he worked at Shearson/American Express.
Mr. Heyer previously served as a board member of Jamba, Inc. From 1993 through 2009, Mr. Heyer also served on the board of The Hain Celestial Group, Inc., a natural and organic food and products company. Mr. Heyer has also served as a
director of XpresSpa Group, Inc. (formerly known as FORM Holdings, Inc.), a health and wellness services company, since December 2016. Mr. Heyer also serves on the board of several private companies owned in whole or in part by Mistral,
including Worldwise, a pet accessories business from 2011 to the present, The LoveSac Company, a branded omni-channel retailer of technology-forward furniture, from 2010
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to the present, and Insomnia Cookies, a retailer of desserts open primarily in the evening and nighttime from 2008 to the present. Mr. Heyer has also served on the board of Accel Foods, an
incubator and investor in early stage food and beverage companies, since 2015. In the past, Mr. Heyer has served as a director of Las Vegas Sands Corp., a casino company, from 2006 to 2008, El Pollo Loco Holdings, Inc., a casual Mexican
restaurant, from 2005 to 2008, and Reddy Ice Holdings, Inc., a manufacturer of packaged ice products, from 2003 to 2006. Mr. Heyer received his B.Sc. and M.B.A. from the Wharton School of the University of Pennsylvania, graduating magna cum
laude. Mr. Heyer is the brother of Mr. Steven Heyer, Haymakers Chief Executive Officer. Mr. Heyer is qualified to serve as a director due to his extensive finance, investment and operations experience, particularly in the
consumer and consumer-related products and services industries.
Walter F. McLallen serves on our Board and is a finance
professional with over 25 years of leveraged finance, private equity, restructuring and operations experience. Mr. McLallen has been the Managing Member of Meritage Capital Advisors, an advisory boutique firm focused on debt and private equity
transaction origination, structuring and consulting since 2004. Mr. McLallen has extensive board and organizational experience and has served as a director, Chairman or Vice Chairman on numerous corporate
and non-profit boards and committees, with a significant historical focus on consumer products-related companies. Mr. McLallen has served as a director of publicly traded Centric Brands Inc., a
lifestyle brands collective in the branded and licensed apparel and accessories sectors, since February 2016; as well as of private companies, including Timeless Wine Company, the producer of consumer luxury wine brands Silver Oak, Twomey and OVID,
since August 2016; Worldwise, a consumer branded pet products company, since April 2016; adMarketplace, a search engine advertiser, since 2012; Classic Brands, an e-commerce marketer of mattresses and related
products, since August 2018; Dutchland Plastics, a roto-molding plastics manufacturer, since January 2017; Champion One, an optical transceiver manufacturer and marketer, since January 2018; and Genus Oncology, an early-stage biotechnology company,
since 2015. Mr. McLallen is also a founder and Co-Chairman of Tomahawk Strategic Solutions, a law enforcement, military and corporate training and security company, since 2014. From 2006 to
2015, Mr. McLallen was the Executive Vice Chairman of Remington Outdoor Company, an outdoor consumer platform he co-founded with a major investment firm. Mr. McLallen was formerly with CIBC
World Markets from 1995 to 2004, during which time he was a Managing Director, head of Debt Capital Markets and head of High Yield Distribution. Mr. McLallen started his career in the Mergers & Acquisitions Department of Drexel Burnham
Lambert and was a founding member of The Argosy Group L.P. in 1990. Mr. McLallen received a B.A. with a double major in Economics and Finance from the University of Illinois at Urbana-Champaign. Mr. McLallen is qualified to serve as a
director due to his extensive consumer, operational and board experience, as well as his background in finance.
Jeffrey E.
Stiefler serves on our Board and has spent 45 years leading a wide range of consumer and business services companies across multiple industry sectors, including financial services, financial technology, real estate, advertising, computer
software and services, private equity, and internet start-ups. Mr. Stiefler served as a director and non-executive chairperson of the board of
directors of Worldpay, Inc. (formerly known as Vantiv Holding, LLC) from August 2010 until its initial public offering in March 2012, served as its chairman from March 2012 to January 2018, and currently serves as a director. In addition,
Mr. Stiefler currently serves on the board of directors of LogicSource Inc. Mr. Stiefler previously served on the boards of directors of LPL Financial Corporation and VeriFone Systems, Inc., and served as Lead Director of Taleo
Corporation, Inc. prior to its acquisition by Oracle Corporation in April 2012. Mr. Stiefler served as a Venture Partner with Emergence Capital Partners from 2008 through the beginning of 2013. Mr. Stiefler was the Chairman, President and
CEO of Digital Insight from August 2003 until the companys acquisition by Intuit in February 2007. Prior to Digital Insight, Mr. Stiefler worked with several private equity firms as an operating advisor and held a variety of positions at
American Express, including President and Director of the company, and President and CEO of American Express Financial Advisors. Mr. Stiefler received a B.A. from Williams College and an M.B.A. from Harvard Business School. Mr. Stiefler is
qualified to serve as director due to his extensive strategic, operations, financial and leadership experiences at both the company and board levels.
Michael J. Dolan serves on our Board. Mr. Dolan has also served as Chief Executive Officer of Bacardi Limited, the largest
privately held spirits company in the world, from November 2014 to September 2017. Prior
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to that, he served as Interim Chief Executive Officer of Bacardi (May 2014 to November 2014). From November 2011 to May 2014, he served as Chairman of the Board and Chief Executive Officer of IMG
Worldwide, a global leader in sports, fashion and media entertainment. Prior to that, Mr. Dolan served at IMG as President and Chief Operating Officer, from April 2011 to November 2011, and before that as Executive Vice President and Chief
Financial Officer, from April 2010 to April 2011. He served as Executive Vice President and Chief Financial Officer of Viacom, Inc., a leading global entertainment content company, from May 2004 to December 2006. Mr. Dolan served as Senior
Advisor to Kohlberg Kravis Roberts & Co., a leading private equity firm with substantial investments in many large consumer retail companies, from October 2004 to May 2005. Prior to that, he served in the following positions with
Young & Rubicam, Inc., a marketing and communications company: Chairman of the Board and Chief Executive Officer (2001 to 2003), Vice Chairman and Chief Operating Officer (2000 to 2001) and Vice Chairman and Chief Financial Officer (1995 to
2000). Mr. Dolan is qualified to serve as a director due to his extensive leadership, finance, global consumer products and branding, strategic marketing, and operations experience.
Stephen W. Powell serves on our Board and invests in and advises private growth companies with a focus on consumer health and
wellness, fitness, nutrition, personal care services and consumer technology sectors. Mr. Powells experience spans private capital investment, corporate finance, public accounting and corporate operating roles. Mr. Powell currently
serves as a member of the board of directors and a member of the audit committee of Massage Envy Holdings, LLC. Previously, he served as a member of the boards of directors of Atkins Nutritionals, Strivectin Skincare, Fusionetics, LLC and Cover FX
Cosmetics. Mr. Powell served as a managing director of Prospect Capital Corporation from 2015 to 2017 and as a senior advisor to private equity firms Roark Capital Group from 2012 to 2015 and Catterton Partners from 2009 to 2011. From 2006 to
2009, Mr. Powell co-led the capitalization, acquisitions, merger, restructuring, and operations of a national-scale salon services, beauty specialty retail and direct marketing business and its sale to
Regis Corporation. From 2001 to 2006, Mr. Powell was head of Consumer Investment Banking for RBC Capital Markets where he advised private and public companies on capital raising, merger, acquisition and sale initiatives focused on the personal
care, fitness, leisure, nutrition and food service sectors. Previously, Mr. Powell was a managing director in the investment banking groups of Prudential Securities, Wheat First Securities and L.F. Rothschild. He began his investment banking
career in the high yield finance group of Merrill Lynch Capital Markets and previously was an audit manager with Arthur Andersen & Co. Mr. Powell is qualified to serve as a director due to his broad experience crafting and executing
corporate finance and strategic initiatives leveraging extensive relationships across health and wellness, fitness, nutrition, and personal care sectors.
Maryam Banikarim has served on our Board since May 2019. Ms. Banikarim previously worked at Hyatt Hotels Corp. as EVP &
Global Chief Marketing Officer from 2015 to 2018, at Gannett Co., Inc. as SVP & Chief Marketing Officer from 2011 to 2015, at NBCUniversal Media, LLC as SVP of Integrated Sales Marketing from 2009 to 2011 and at Univision Communications as Chief
Marketing Officer from 2002 to 2009. Ms. Banikarim is currently a member of the Samsung Retail Advisory Board, an executive advisor to Cove Hill Partners, an Executive in Residence at Columbia University and the chairwoman of the press advocacy
group, Reporters Without Boarders USA. Ms. Banikarim earned a Bachelor of Arts degree in political science from Barnard College and an MBA and a Master of International Affairs in National Security from Columbia University. Ms. Banikarim is
qualified to serve as a director due to her extensive experience and leadership in marketing.
Stephen B. Lazarus is our
Chief Financial Officer and Chief Operating Officer. Prior to the Business Combination, he served as Chief Operating Officer and Chief Financial Officer of Steiner Leisure since December 2014. From August 2006 to 2014, Mr. Lazarus served as
Steiner Leisures Executive Vice President and Chief Financial Officer. From July 2003 through August 2006, Mr. Lazarus served as Steiner Leisures Senior Vice President and Chief Financial Officer. From October 1999 until joining
Steiner Leisure, Mr. Lazarus was Division Vice President and Chief Financial Officer for Rayovac Corporations Latin America Division. From September 1998 through September 1999, Mr. Lazarus was Director, Financial Planning and
Analysis for Guinness, a division of Diageo. Prior to that, Mr. Lazarus was with Duracell, Inc. (later a subsidiary of The Gillette Company) from February 1990 until April 1998, where he held finance and business positions of
82
increasing responsibility. From February 1988 to January 1990, Mr. Lazarus was employed by Ernst & Young as a senior auditor. Mr. Lazarus earned a Bachelor of Commerce degree
from the University of Witwatersrand and a Masters of Science in Management from the University of London.
The Nominating and Governance
Committee of the Board will prepare policies regarding director qualification requirements and the process for identifying and evaluating director candidates for adoption by the Board. The above-mentioned attributes, along with the leadership skills
and other experiences of our officers and Board members described above, are expected to provide us with a diverse range of perspectives and judgment necessary to facilitate our goals of shareholder value appreciation through organic and acquisition
growth.
Board Composition
We have a
three-tier board that consists of ten directors. Our directors are divided among the three classes as follows:
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Class A directors, who are Messrs. Steven J. Heyer, Andrew R. Heyer, and Leonard Fluxman, whose initial term
will expire at the first annual meeting of the shareholders occurring in 2020;
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Class B directors, who are Messrs. Marc Magliacano, Jeffrey E. Stiefler, and Walter F. McLallen, whose
initial term will expire at the second annual meeting of the shareholders occurring in 2021; and
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Class C directors, who are Messrs. Glenn J. Fusfield, Stephen W. Powell, Michael J. Dolan and
Ms. Maryam Banikarim, whose initial term will expire at the third annual meeting of the shareholders occurring in 2022.
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Directors
in a particular class will be elected for three-year terms at the annual meeting of shareholders in the year in which their terms expire. As a result, only one class of directors will be elected at each annual meeting of our shareholders, with the
other classes continuing for the remainder of their respective three-year terms. Each directors term continues until the election and qualification of his successor, or his earlier death, resignation or removal.
Board Committees
Audit Committee
The Audit Committee consists of Mr. McLallen (chairperson), Mr. Powell and Mr. Dolan. Mr. McLallen qualifies as an
audit committee financial expert as that term is defined by the applicable SEC regulations and has employment experience in finance or accounting, requisite professional certification in accounting or other comparable experience or
background as required by the Nasdaq corporate governance listing standards. Each of the Audit Committee members is financially literate as that term is defined by the Nasdaq corporate governance listing standards and the Board has
determined that each is independent pursuant to applicable SEC regulations and the Nasdaq corporate governance listing standards.
Our
Board has adopted an Audit Committee Charter, which is available on our corporate website at onespaworld.com. The information on our website is not part of this prospectus.
Compensation Committee
Our Compensation
Committee consists of Mr. Dolan (chairperson), Mr. Powell and Mr. Magliacano. The Board has determined that each member of the Compensation Committee is independent pursuant to the Nasdaq corporate governance listing standards.
The Compensation Committee assists our Board in reviewing and approving or recommending our compensation structure, including all forms of
compensation relating to our directors and executive officers. Our Board has adopted a written charter for the Compensation Committee, which is available on our corporate website at onespaworld.com. The information on our website is not
part of this prospectus.
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Nominating and Governance Committee
Our Nominating and Governance Committee consists of Mr. Dolan (chairperson), Mr. McLallen and Ms. Banikarim. The Board has
determined that each member of the Nominating and Governance Committee is independent pursuant to the Nasdaq corporate governance listing standards. Our Nominating and Governance Committee assists our Board in selecting individuals qualified to
become our directors and in determining the composition of the Board and its committees. Our Board adopted a Nominating and Governance Committee Charter, which is available on our corporate website at onespaworld.com. The information on
our website is not part of this prospectus.
Code of Business Conduct and Ethics
Our Board adopted a code of business conduct and ethics that apply to its executive officers, directors and employees and agents. A copy of the
code of ethics will be provided without charge upon request from us, and is available on our corporate website at onespaworld.com. The information on our website is not part of this prospectus. We intend to disclose any amendments to or
waivers of certain provisions of our code of ethics in a Current Report on Form 8-K.
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EXECUTIVE COMPENSATION
Introduction
This section provides an overview of OSW
Predecessors executive compensation program, including a narrative description of the material factors necessary to understand the information disclosed in the summary compensation table below.
As an emerging growth company, we have opted to comply with the executive compensation disclosure rules applicable to smaller reporting
companies as such term is defined in the rules promulgated under the Securities Act, which require compensation disclosure for its principal executive officer and its two other most highly compensated executive officers. For the year ended
December 31, 2018, OSW Predecessors named executive officers are Leonard Fluxman, Stephen B. Lazarus and Glenn J. Fusfield. Throughout this section, these three officers are referred to as OSW Predecessors named executive
officers.
In connection with the consummation of the Business Combination, we adopted the 2019 Equity Incentive Plan and have made
grants to our named executive officers thereunder. See 2019 Equity Incentive Plan below.
The compensation
reported in this summary compensation table below is not necessarily indicative of how our named executive officers will be compensated in the future.
Summary Compensation Table
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Name
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Year
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Salary
($)
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Non-Equity
Incentive
Compensation
($)
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All Other
Compensation
($)(1)
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Total
($)
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Leonard Fluxman
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2018
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825,000
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825,000
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77,211
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1,727,211
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2017
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825,000
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825,000
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70,887
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1,720,887
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Stephen B. Lazarus
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2018
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525,000
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393,750
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46,172
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964,922
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2017
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525,000
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393,750
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55,846
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974,596
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Glenn J. Fusfield
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2018
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440,000
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330,000
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55,256
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825,256
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2017
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440,000
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490,339
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56,468
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986,807
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(1)
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For Mr. Fluxman, includes annual automobile allowance equal to $25,000; for Messrs. Lazarus and Fusfield,
includes annual automobile allowance equal to $15,000. For Messrs. Fluxman, Lazarus and Fusfield, includes $10,600 of 401(k) plan employer matching contributions.
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Narrative to Summary Compensation Table
Executive
Employment Agreements
Certain of the compensation paid to Messrs. Fluxman, Lazarus and Fusfield reflected in the summary
compensation table was provided pursuant to employment agreements with Steiner Leisure (a parent company to us) for Messrs. Fluxman and Lazarus, and with OneSpaWorld (Bahamas) (an entity comprising part of us) for Mr. Fusfield (together the
Employment Agreements). The Employment Agreements generally provide for base salary, incentive compensation, benefits, severance protection and certain restrictive covenants. Specifically, the named executive officers are subject to a non-competition covenant and a non-solicit of employees and customers/suppliers for a period of two-years following their termination
of employment.
Incentive Equity, Health and Welfare Plans, and Retirement Plans
Incentive Equity. Each of Messrs. Fluxman and Lazarus are party to Profits Interest Unit Agreements with Nemo Investor Aggregator,
Limited (Nemo), a parent company of OSW Predecessor, dated December 9, 2015
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(each, an Award Agreement). The Award Agreements provide for the grant of Class B Common Shares in Nemo, which are intended to constitute profits interests of Nemo for tax
purposes. Messrs. Fluxman and Lazarus were granted these Class B Common Shares at no purchase price, and those Class B Common Shares are subject to a combination of time and performance-based vesting conditions. Such Class B Common
Shares represent a right to a fractional portion of the profits and distributions of Nemo in excess of a floor amount determined in accordance with Nemos operating agreement.
Health and Welfare Plans. Our named executive officers are eligible to participate in employee benefit plans, including medical, life,
and disability benefits.
Retirement Plan. We participate in a retirement plan that is intended to qualify for favorable tax
treatment under Section 401(a) of the Internal Revenue Code of 1986, as amended, or the Code, containing a cash or deferred feature that is intended to meet the requirements of Section 401(k) of the Code. Employees of certain Seller
entities who have completed at least three months of service and have attained at least age 21 are generally eligible to participate in the plan. Participants may make pre-tax contributions to the plan from
their eligible earnings up to the statutorily prescribed annual limit on pre-tax contributions under the Code. Participants who are 50 years of age or older may contribute additional amounts based on the
statutory limits for catch-up contributions. All employee and employer contributions are allocated to each participants individual account and are then invested in selected investment alternatives
according to the participants directions. Pre-tax contributions by participants and contributions that OSW Predecessor makes to the plan and the income earned on those contributions are generally not
taxable to participants until withdrawn, and all contributions are generally deductible by OSW Predecessor when made. Participant contributions are held in trust as required by law. No minimum benefit is provided under the plan. An employee is 100%
vested in his or her pre-tax deferrals when contributed and employer safe harbor matching contributions, and any other employer contributions ratably over four years. The plan provides for employer safe harbor
matching contributions equal to 100% up to 3% of compensation plus 50% on the next 2% of compensation, and discretionary employer matching and non-elective contributions.
Outstanding Equity Awards at Fiscal Year End
The following table sets forth outstanding Class B Common Shares of Nemo (a parent company of OSW Predecessor) held by each of the named
executive officers as of December 31, 2018.
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Equity awards(1)
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Name
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Grant
date
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Number of
shares or units
of stock that
have not
vested(2)
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Market Value
of shares or
units of stock
that have
not
vested
($)(3)
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Equity
Incentive Plan
Awards: number of
unearned shares,
units or other rights
that have not vested
(#)(4)
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Equity
Incentive Plan
Awards: market or
payout value of
unearned shares,
units, or other
rights that
have
not vested
($)(3)
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Leonard Fluxman
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12/9/15
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4,495.83
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12,588.34
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Stephen B. Lazarus
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12/9/15
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1,798.25
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3,596.50
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(1)
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Represents Class B Common Shares granted to our named executive officers pursuant to Award Agreements.
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(2)
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Vest 25% on each of the first four anniversaries of the grant date.
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(3)
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The Class B Common Shares represent a profits interest in Nemo. No value is realized as a result of
vesting of these shares.
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(4)
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Vest only upon an exit event (as defined in the applicable Award Agreement) only to the extent the applicable
participation threshold is first allocated to all of the outstanding classes of units under the organizational document for Nemo.
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Name
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Number of Class B
Common
Shares acquired
on vesting
(#)
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Value realized
on vesting
($)(1)
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Leonard Fluxman
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2,247.92
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Stephen B. Lazarus
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899.13
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(1)
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The Class B Common Shares represent a profits interest in Nemo. No value is realized as a result of
vesting of these units.
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Potential Payments Upon Termination or Change in Control
The following summaries describe the potential payments and benefits that OSW Predecessor or its affiliates would provide to its named
executive officers if a termination of employment and/or a change in control had taken place prior to the closing of the transactions contemplated by the Business Combination Agreement. OSW Predecessor entered into new employment agreements with
each of the named executive officers, the terms of which are described in Executive CompensationEmployment Agreements, which agreements supersede the terms of the Employment Agreements effective as of the closing of the
transactions contemplated by the Business Combination Agreement.
Change of Control Benefits
In 2016, Mr. Fusfield entered into two bonus agreements with OneWorldSpa (Bahamas) that provide for cash bonuses payable upon an exit
event (as defined in the agreements), subject to certain conditions, including Mr. Fusfields continued employment through the exit event (except as described below). Upon payment of the bonuses, Mr. Fusfield is deemed to have released
OneWorldSpa (Bahamas) and its affiliates from any and all claims relating to the bonus payments.
The cash bonus payment under one of the
agreements is determined with reference to the total enterprise value (as defined in the agreement) of OneWorldSpa (Bahamas) and vests in full upon an exit event. Upon a termination of his employment without cause (as defined
in the agreement), Mr. Fusfield remains eligible to receive all or a portion of the cash bonus for up to two years following his termination if an exit event occurs during that period.
The other cash bonus payment is equal to 150% of Mr. Fusfields annual cash bonuses from 2016 onward, and vests in 36 equal monthly
installments commencing on January 31, 2017 and fully vests upon an exit event (as defined in the agreement) if Mr. Fusfield remains employed through the exit event. If Mr. Fusfield is terminated other than for cause (as
defined in the agreement), he remains eligible to receive the vested bonus through such date of termination within 60 days following an exit event.
The expected payment under these arrangements in connection with the closing of the Business Combination is approximately $20,000,000 in the
aggregate.
Severance Benefits
Each
named executive officers Employment Agreement provides for certain payments to be made in connection with certain terminations of service, as further described below.
In the event that any of the named executive officers employment is terminated either by their employer without cause (which
includes the employers delivery of a notice of nonrenewal of the employment term), or
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by the applicable executive for good reason (as such terms are defined in their employment agreements), the named executive officers would be entitled to payment of (i) a
severance amount in pro rata monthly payments for a period of 12 months and (ii) a pro rata annual bonus for the year of the applicable named executive officers termination, determined according to actual performance. Under
the named executive officers employment agreements, the Severance Amount is equal to two times (two and one-half times for Mr. Fluxman) the sum (i) one year of base salary in effect
on the date of termination plus (ii) target bonus in effect for the year of termination.
In the event any payments paid to the named
executive officers are subject to an excise tax under Section 4999 of the Code, then the applicable named executive officer will have such payments reduced to the largest amount that would result in no portion of such payments being subject to
the excise taxes imposed by Section 4999 of the Code. Following any termination of employment, the named executive officers are subject to a non-competition covenant and a
non-solicit of employees and customers/suppliers for a period of two years following their termination of employment.
Vesting and Settlement of Outstanding Equity Awards
Each of Messrs. Fluxman and Lazarus are party to an Award Agreement that provides for the grant of Class B Common Shares that entitled
them to share in profits of Nemo upon a sale of the company (as defined in the Award Agreements) and that vest upon the occurrence of time and performance-based criteria. If Messrs. Fluxman or Lazarus employment is terminated (i) due to
death or disability (as defined in the Award Agreement), then 50% of their unvested time-vesting profits interests will vest and 100% of their performance-vesting profits interests will remain outstanding for six months following such
termination, and, to the extent not vested, 50% of the unvested performance-vesting units will remain outstanding following the expiration of the six -month period or (ii) by Nemo or its affiliates without cause or by the executive
for good reason (as such terms are defined in the Award Agreement), then they will receive an additional 12 months vesting on their time-vesting profits interests and their performance-vesting profits interests will remain
outstanding for 12 months following such termination. Subject to the executives continued employment through a sale of the company (as defined in the Award Agreement), the time-vesting profits interests will accelerate
and vest and the performance-vesting profits interests will vest based on the achievement of specific performance criteria.
2019 Equity Incentive
Plan
Our 2019 Equity Incentive Plan was adopted in connection with the consummation of the Business Combination. It is intended to
make available incentives that will assist us to attract, retain, and motivate employees, including officers, consultants and directors. We may provide these incentives through the grant of share options, share appreciation rights, restricted
shares, restricted share units, performance shares and units and other cash-based or share-based awards.
A total of 7,000,000 of our
common shares will be initially authorized and reserved for issuance under the plan.
Appropriate adjustments will be made in the number
of authorized shares and other numerical limits in the plan and in outstanding awards to prevent dilution or enlargement of participants rights in the event of a share split or other change in our capital structure. Shares subject to awards
which expire or are cancelled or forfeited will again become available for issuance under the plan. Awards settled in cash will not reduce the share reserve. Upon payment in shares pursuant to the exercise of a share appreciation right, the number
of shares available for issuance under the plan will be reduced by the gross number of shares for which the award is exercised. If the exercise price of an option is paid by tender to us, or attestation to the ownership, of shares owned by the
participant, or by means of a net exercise, the number of shares available for issuance under the plan will be reduced by the gross number of shares for which the option is exercised. Shares withheld or reacquired by us in satisfaction of tax
withholding obligations pursuant to the exercise or settlement of options or share appreciation
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rights will not again be available for issuance under the plan. Shares withheld or reacquired by us in satisfaction of tax withholding obligations pursuant to the vesting or settlement of full
value awards will again become available for issuance under the plan.
The plan will be generally administered by the Compensation
Committee of our Board. Subject to the provisions of the plan, the Compensation Committee will determine in its discretion the persons to whom and the times at which awards are granted, the sizes of such awards and all of their terms and conditions.
The Compensation Committee will have the authority to construe and interpret the terms of the plan and awards granted under it. The plan provides, subject to certain limitations, for indemnification by us of any director, officer or employee against
all reasonable expenses, including attorneys fees, incurred in connection with any legal action arising from such persons action or failure to act in administering the plan.
Awards may be granted under the plan to our employees, including officers, directors or consultants or those of any present or future parent
or subsidiary corporation or other affiliated entity. All awards will be evidenced by a written agreement between OneSpaWorld and the holder of the award and may include any of the following:
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Share options. We may grant nonstatutory options or incentive share options (as described in
Section 422 of the U.S. Tax Code), each of which gives its holder the right, during a specified term (not exceeding 10 years) and subject to any specified vesting or other conditions, to purchase a number of our common shares at an exercise
price per share determined by the administrator, which may not be less than the fair market value of a share of our common shares on the date of grant.
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Share appreciation rights. A share appreciation right gives its holder the right, during a specified term
(not exceeding 10 years) and subject to any specified vesting or other conditions, to receive the appreciation in the fair market value of our common shares between the date of grant of the award and the date of its exercise. We may pay the
appreciation in shares of our common shares or in cash.
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Restricted shares. The administrator may grant restricted share awards either as a bonus or as a purchase
right at such price as the administrator determines. Restricted shares remain subject to forfeiture until vested, based on such terms and conditions as the administrator specifies. Holders of restricted shares will have the right to vote the shares
and to receive any dividends paid, except that the dividends will be subject to the same vesting conditions as the related shares.
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Restricted share units. Restricted share units represent rights to receive our common shares (or their
value in cash) at a future date without payment of a purchase price, subject to vesting or other conditions specified by the administrator. Holders of restricted share units have no voting rights or rights to receive cash dividends unless and until
shares are issued in settlement of such awards. However, the administrator may grant restricted stock units that entitle their holders to dividend equivalent rights.
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Performance shares and performance units. Performance shares and performance units are awards that will
result in a payment to their holder only if specified performance goals are achieved during a specified performance period. The administrator establishes the applicable performance goals based on one or more measures of business performance
enumerated in the plan. To the extent earned, performance share and unit awards may be settled in cash or in shares. Holders of performance shares or performance units have no voting rights or rights to receive cash dividends unless and until shares
are issued in settlement of such awards. However, the administrator may grant performance shares that entitle their holders to dividend equivalent rights.
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Cash-based awards and other share-based awards. The administrator may grant cash-based awards that specify
a monetary payment or range of payments or other share-based awards that specify a number or range of shares or units that, in either case, are subject to vesting or other conditions specified by the administrator. Settlement of these awards may be
in cash or shares, as determined by the administrator. Their holder will have no voting rights or right to receive cash dividends unless and until shares are issued pursuant to the award. The administrator may grant dividend equivalent rights with
respect to other share-based awards.
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In the event of a change in control as described in the plan, the acquiring or successor
entity may assume or continue all or any awards outstanding under the plan or substitute substantially equivalent awards. Any awards which are not assumed or continued in connection with a change in control or are not exercised or settled prior to
the change in control will terminate effective as of the time of the change in control. The Compensation Committee may provide for the acceleration of vesting of any or all outstanding awards upon such terms and to such extent as it determines,
except that the vesting of all awards held by members of the Board who are not employees will automatically be accelerated in full. The plan also authorizes the Compensation Committee, in its discretion and without the consent of any participant, to
cancel each or any outstanding award denominated in shares upon a change in control in exchange for a payment to the participant with respect to each vested share subject to the cancelled award of an amount equal to the excess of the consideration
to be paid per share in the change in control transaction over the exercise price per share, if any, under the award.
The plan will
continue in effect until it is terminated by the administrator, provided, however, that all awards will be granted, if at all, within 10 years of its effective date. The administrator may amend, suspend or terminate the plan at any time, provided
that without stockholder approval, the plan cannot be amended to increase the number of shares authorized, change the class of persons eligible to receive incentive stock options, or effect any other change that would require stockholder approval
under any applicable law or listing rule.
On March 26, 2019, we granted equity awards pursuant to the 2019 Equity Incentive Plan. In
total, we granted options to purchase 4,547,075 of our common shares. The exercise price of the options is $12.99 per share. The awards vested immediately and became exercisable upon the five-day volume
weighted average price of our common shares reaching $20 per share. The options expire on the six-year anniversary of the date of the award.
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DESCRIPTION OF CAPITAL STOCK
Overview
We were incorporated on
October 5, 2018 as an international business company incorporated under the laws of the Commonwealth of The Bahamas.
We are
registered in the Commonwealth of The Bahamas under number 202175 B. We have our corporate seat in Nassau, Commonwealth of The Bahamas, and our registered office is at Harry B. Sands, Lobosky Management Co. Ltd., Shirley House, 253 Shirley Street,
P.O. Box N-624, Nassau, New Providence, Bahamas.
Unless stated otherwise, the following is a description of the material terms of our
common shares.
Our common shares offered hereby are subject to, and have been created under, Bahamian law. Set forth below is a summary
of relevant information concerning the material provisions of our Articles and applicable Bahamian law.
Share Capital
Authorized and Issued Share Capital
Our Articles authorize the issuance of up to 250,000,000 of our common shares, US$0.0001 par value. As of the date of this document,
100,000,000 common shares were issued and outstanding.
Issuance of Shares
Subject to our Articles and pursuant to a resolution of the annual meeting, the directors may offer, allot, grant options over or otherwise
dispose of the unissued shares of OneSpaWorld at such times and upon such terms and conditions as determined by resolution of the directors. The annual meeting may adopt such resolution at a duly convened and constituted meeting of our shareholders
with a simple majority of votes of shareholders entitled to vote thereon who were present at the meeting and who voted and did not abstain or by written consent of all the shareholders entitled to vote thereon.
Transfer of Shares
Our common
shares and warrants held by persons who become affiliates of us for purposes of Rule 144 under the Securities Act may be resold by them only in transactions permitted by Rule 144, or as otherwise permitted under the Securities Act. Persons who may
be deemed affiliates of us generally include individuals or entities that control, are controlled by or are under common control with, us and may include our directors and executive officers as well as our principal shareholders.
Our Articles provide that shareholders will be prohibited from beneficially owning more than 9.99% of our issued and outstanding common shares
without the consent of the Board. This restriction does not apply to Steiner Leisure.
Form of Shares
Pursuant to the OneSpaWorld Articles of Association, our common shares are registered shares and may not be exchanged for bearer share
certificates.
Repurchase of Shares of OneSpaWorld
We may purchase, redeem or otherwise acquire and hold our common shares, but no purchase, redemption or other acquisition shall be made unless
the directors determined that immediately after the purchase,
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redemption or other acquisitions, we will be able to satisfy our liabilities as they become due in the ordinary course of our business and the realizable value of our assets will not be less than
the sum of our total liabilities, other than deferred taxes, as shown in the books of account.
A determination by the directors is not
required where our common shares are purchased, redeemed or otherwise acquired:
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a)
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pursuant to a shareholders right to have our common shares redeemed or exchanged for money or other
property of OneSpaWorld;
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b)
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in exchange for newly issued our common shares;
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c)
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by virtue of Section 81 of the International Business Companies Act, 2000 (No. 45 of 2000) (the
Act) of the Commonwealth of The Bahamas; or
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d)
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pursuant to an order of the Supreme Court of the Commonwealth of The Bahamas.
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Our common shares that are purchased, redeemed or otherwise acquired by us in accordance with our Articles may be cancelled or held as
treasury shares unless our common shares are purchased, redeemed or otherwise acquired out of capital pursuant to Section 34 of the Act, in which case they shall be cancelled.
Annual Meeting of Shareholders and Voting Rights
Annual Meeting of Shareholders
Annual meetings of shareholders shall be held during each of our fiscal years and convened by a notice, which shall specify the place and time
of the meeting as determined by resolution of the directors. The directors may convene special meetings of the shareholders at such times and in such manner and places within or outside the Commonwealth of The Bahamas, or by means of remote
communication, as the directors consider necessary or desirable. Upon the written request of shareholders holding not less than 50% of the outstanding voting our common shares, the directors shall convene a meeting of shareholders.
At an annual meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. In
addition to any other applicable requirements, to be properly brought before an annual meeting, business must be (a) specified in the notice of meeting given by or at the direction of the directors, (b) brought before the meeting by or at
the direction of the directors or (c) otherwise properly brought before the meeting by a shareholder. Only those matters set forth in the notice of a special meeting may be considered or acted upon at that meeting, unless otherwise required by
law. At every meeting of shareholders, the Chairman of the Board shall preside as chairman of the meeting. If there is no Chairman of the Board or if the Chairman of the Board is not present, the shareholders present shall choose someone of their
number to be the chairman.
Voting Rights and Quorum
A meeting of the shareholders is duly constituted if, at the commencement of the meeting, there are present, in person or by proxy,
shareholders representing not less than 50% of the votes of the shares of class or series of shares entitled to vote on resolutions of shareholders to be considered at the meeting.
If a quorum is present at any meeting, (a) in all matters other than the election of directors, the affirmative vote of the majority of
the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the shareholders and (b) directors shall be elected by a plurality of votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of directors, unless a different vote is required by our Articles or under applicable law, in which case such express provision shall govern and control the decision of such
question. Shareholders may act only at meetings duly called and shareholders may not act by written consent or otherwise outside of such meeting.
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If shareholder approval is required (a) for the adoption of any agreement for merger of
us with or into any other entity or for the consolidation of us with or into any other entity or (b) to authorize any sale, lease, exchange or other transfer of all or substantially all of the assets of us to any person, the affirmative vote of
at least 66 2/3% of the shares entitled to vote thereon is required to approve such transaction; provided, however, that if such transaction is approved in advance by the directors, such transaction may be approved by the affirmative vote of a
majority of the shares entitled to vote thereon.
A shareholder may be represented at a meeting of shareholders by a proxy who may speak
and vote on behalf of the shareholder including otherwise than on a poll and that proxy need not to be a shareholder.
Notices
Notice of the place, date, hour, the record date for determining the shareholders entitled to vote at the meeting (if such date is different
from the record date for shareholders entitled to notice of the meeting), and means of remote communication, if any, of every meeting of shareholders shall be given by us not less than 10 days nor more than 60 days before the meeting to every
shareholder entitled to vote at the meeting as of the record date for determining the shareholders entitled to notice of the meeting.
Upon receipt by our Secretary of a request to convene a meeting by not less than 50% of the outstanding voting shares, the Secretary shall
send notice of such meeting to shareholders entitled to vote within 45 days after the date the request was delivered to the Secretary. If such notice is not given by the Secretary within 45 days, the person or persons requesting the meeting may
specify the time and place of the meeting and give noticed thereof; provided, however, that at least 10 days notice of such meeting is required to be given to the shareholders.
Warrants
Each warrant entitles the
registered holder to purchase one of our common shares at a price of $11.50 per share, subject to adjustment as discussed below, at any time. The warrants will expire five years after the completion of the Business Combination, at 5:00 p.m., New
York City time, or earlier upon redemption.
If the common shares issuable upon exercise of the warrants are not registered under the
Securities Act within 60 business days following the Business Combination, we will be required to permit holders to exercise their warrants on a cashless basis. However, no warrant will be exercisable for cash or on a cashless basis, and we
will not be obligated to issue any common shares to holders seeking to exercise their warrants, unless the issuance of the common shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder,
unless an exemption is available. In the event that the conditions in the immediately preceding sentence are not satisfied with respect to a warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have
no value and expire worthless. In no event will we be required to net cash settle any warrant.
We have agreed that as soon as
practicable, but in no event later than 15 business days, after the closing the Business Combination, we will use our reasonable best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the common
shares issuable upon exercise of the warrants. We will use our reasonable best efforts to cause the same to become effective within 60 business days following the Business Combination and to maintain the effectiveness of such registration statement,
and a current prospectus relating thereto, until the expiration of the warrants in accordance with the provisions of the amended and restated warrant agreement. Notwithstanding the above, if our common shares are at the time of any exercise of a
warrant not listed on a national securities exchange such that it satisfies the definition of a covered security under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of warrants who exercise their warrants
to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement, but we will be required to use our best
efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
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Once the warrants become exercisable, we may call the warrants for redemption:
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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 not less than 30 days prior written notice of redemption (the 30-day redemption period) to
each warrant holder; and
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if, and only if, the reported last sale price of the common shares equals or exceeds $18.00 per share for any 20
trading days within a 30-trading day period ending three business days before we send the notice of redemption to the warrant holders.
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If and when the warrants become redeemable by us, we may not exercise our redemption right if the issuance of the common shares upon exercise
of the warrants is not exempt from registration or qualification under applicable state blue sky laws or we are unable to effect such registration or qualification. We will use our best efforts to register or qualify such common shares under the
blue sky laws of the state of residence in those states in which the warrants were offered by us in this offering.
We have established
the last of the redemption criterion discussed above to prevent a redemption call unless there is at the time of the call a significant premium to the warrant exercise price. If the foregoing conditions are satisfied and we issue a notice of
redemption of the warrants, each warrant holder will be entitled to exercise its warrant prior to the scheduled redemption date. However, the price of the common shares may fall below the $18.00 redemption trigger price as well as the $11.50 warrant
exercise price after the redemption notice is issued.
If we call the warrants for redemption as described above, our management will have
the option to require any holder that wishes to exercise its warrant to do so on a cashless basis. In determining whether to require all holders to exercise their warrants on a cashless basis, our management will consider,
among other factors, our cash position, the number of warrants that are outstanding and the dilutive effect on our shareholders of issuing the maximum number of common shares issuable upon the exercise of our warrants. If our management takes
advantage of this option, all holders of warrants would pay the exercise price by surrendering their warrants for that number of common shares equal to the quotient obtained by dividing (x) the product of the number of common shares underlying the
warrants, multiplied by the difference between the exercise price of the warrants and the fair market value (defined below) by (y) the fair market value. The fair market value shall mean the average reported last sale price
of the common shares for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants. If our management takes advantage of this option, the notice of redemption will
contain the information necessary to calculate the number of common shares to be received upon exercise of the warrants, including the fair market value in such case. Requiring a cashless exercise in this manner will reduce the number of
common shares to be issued and thereby lessen the dilutive effect of a warrant redemption. We believe this feature is an attractive option to us if we do not need the cash from the exercise of the warrants after our initial business combination. If
we call our warrants for redemption and our management does not take advantage of this option, the Selling Shareholders and their permitted transferees would still be entitled to exercise their warrants for cash or on a cashless basis using the same
formula described above that other warrant holders would have been required to use had all warrant holders been required to exercise their warrants on a cashless basis, as described in more detail below.
A holder of a warrant may notify us in writing in the event it elects to be subject to a requirement that such holder will not have the right
to exercise such warrant, to the extent that after giving effect to such exercise, such person (together with such persons affiliates), to the warrant agents actual knowledge, would beneficially own in excess of 4.9% or 9.8% (or such
other amount as a holder may specify) of the common shares outstanding immediately after giving effect to such exercise.
If the number of
outstanding common shares is increased by a share dividend payable in common shares, or by a split-up of common shares or other similar event, then, on the effective date of such share dividend, split-up
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or similar event, the number of common shares issuable on exercise of each warrant will be increased in proportion to such increase in the outstanding common shares. A rights offering to holders
of common shares entitling holders to purchase common shares at a price less than the fair market value will be deemed a share dividend of a number of common shares equal to the product of (i) the number of common shares actually sold in such rights
offering (or issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for common shares) and (ii) one (1) minus the quotient of (x) the price per common share paid in such rights offering
divided by (y) the fair market value. For these purposes (i) if the rights offering is for securities convertible into or exercisable for common shares, in determining the price payable for common shares, there will be taken into account any
consideration received for such rights, as well as any additional amount payable upon exercise or conversion and (ii) fair market value means the volume weighted average price of common shares as reported during the ten (10) trading day period
ending on the trading day prior to the first date on which the common shares trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.
In addition, if we, at any time while the warrants are outstanding and unexpired, pay a dividend or make a distribution in cash, securities or
other assets to the holders of common shares on account of such common shares (or other shares of our share capital into which the warrants are convertible), other than (a) as described above or (b) certain ordinary cash dividends, then the warrant
exercise price will be decreased, effective immediately after the effective date of such event, by the amount of cash and/or the fair market value of any securities or other assets paid on each common share in respect of such event.
If the number of outstanding common shares is decreased by a consolidation, combination, reverse share split or reclassification of common
shares or other similar event, then, on the effective date of such consolidation, combination, reverse share split, reclassification or similar event, the number of common shares issuable on exercise of each warrant will be decreased in proportion
to such decrease in outstanding common shares.
Whenever the number of common shares purchasable upon the exercise of the warrants is
adjusted, as described above, the warrant exercise price will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which will be the number of common shares purchasable upon
the exercise of the warrants immediately prior to such adjustment, and (y) the denominator of which will be the number of common shares so purchasable immediately thereafter.
In case of any reclassification or reorganization of the outstanding common shares (other than those described above or that solely affects
the par value of such common shares), or in the case of any merger or consolidation of us with or into another corporation (other than a consolidation or merger in which we are the continuing corporation and that does not result in any
reclassification or reorganization of our outstanding common shares), or in the case of any sale or conveyance to another corporation or entity of the assets or other property of us as an entirety or substantially as an entirety in connection with
which we are dissolved, the holders of the warrants will thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the warrants and in lieu of the common shares immediately theretofore
purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation,
or upon a dissolution following any such sale or transfer, that the holder of the warrants would have received if such holder had exercised their warrants immediately prior to such event. If less than 70% of the consideration receivable by the
holders of common shares in such a transaction is payable in the form of common stock in the successor entity that is listed for trading on a national securities exchange or is quoted in an established over-the-counter market, or is to be so listed
for trading or quoted immediately following such event, and if the registered holder of the warrant properly exercises the warrant within thirty days following public disclosure of such transaction, the warrant exercise price will be reduced as
specified in the warrant agreement based on the Black-Scholes value (as defined in the warrant agreement) of the warrant in order to determine and realize the option value component of the warrant. This formula is to compensate the warrant holder
for the loss of the option value portion of the warrant due to the requirement that the warrant holder exercise the warrant
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within 30 days of the event. The Black-Scholes model is an accepted pricing model for estimating fair market value where no quoted market price for an instrument is available.
The warrants have been issued in registered form under an amended and restated warrant agreement between Continental Stock Transfer &
Trust Company, as warrant agent, and us. You should review a copy of the amended and restated warrant agreement, which is filed as an exhibit to the registration statement of which this prospectus is a part, for a complete description of the terms
and conditions applicable to the warrants. The amended and restated warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the
approval by the holders of at least 50% of the then outstanding warrants held by holders other than the Selling Shareholders to make any change that adversely affects the interests of the registered holders of warrants other than the Selling
Shareholders.
The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices
of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (or on a cashless basis, if applicable), by certified or official bank
check payable to us, for the number of warrants being exercised. The warrant holders do not have the rights or privileges of holders of common shares and any voting rights until they exercise their warrants and receive common shares. After the
issuance of common shares upon exercise of the warrants, each holder will be entitled to one vote for each common share held of record on all matters to be voted on by shareholders.
Selling Shareholder Warrants
The
warrants held by the Selling Shareholders are not redeemable by us so long as they are held by the Selling Shareholders or their permitted transferees and may be exercised on a cashless basis at any time. If the warrants held by the Selling
Shareholders cease to be held by them or their permitted transferees, such warrants will be redeemable by us and exercisable by the holders on the same basis as the warrants described above.
If the Selling Shareholders elect to exercise their warrants on a cashless basis, they would pay the exercise price by surrendering their
warrants for that number of common shares equal to the quotient obtained by dividing (x) the product of the number of common shares underlying the warrants, multiplied by the difference between the exercise price of the warrants and the fair
market value (defined below) by (y) the fair market value. The fair market value shall mean the average reported last sale price of the common shares for the 10 trading days ending on the third trading day prior to the date on
which the notice of warrant exercise is sent to the warrant agent.
Certain Disclosure Obligations of OneSpaWorld
As of consummation of the Business Combination, we are subject to certain disclosure obligations under Bahamian and U.S. law and the rules of
Nasdaq. The following is a description of the general disclosure obligations of public companies under Bahamian and U.S. law and the rules of Nasdaq as such laws and rules exist as of the date of this document, and should not be viewed as legal
advice for specific circumstances.
Financial Reporting under Bahamian Law
While, under Bahamian law, we would not be required to publicly file our annual reports with any regulator in The Bahamas, we will be required
to file a statement annually with its Registered Agent, which is, in turn, required to file a copy with the Registrar Generals Companies Department, a declaration that it maintains reliable accounting records.
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Periodic Reporting under U.S. Securities Law
Under the Exchange Act, we are required to publicly file with the SEC an annual report on Form 10-K
within 90 days of the end of the fiscal year covered by the report. In addition, we will be required to publicly file with the SEC quarterly reports on Form 10-Q within 45 days of the end of each of the first
three fiscal quarters of each fiscal year. We will also be required to publicly file with the SEC current reports on Form 8-K typically within four business days after the occurrence of specified significant
events, and under Regulation FD, we will be required to simultaneously or promptly make public disclosure of any material nonpublic information shared with securities market professionals or shareholders who are reasonably likely to trade on the
basis of the information.
Nasdaq Rules
For so long as our shares will be listed on Nasdaq, we will be required to meet certain requirements relating to ongoing communication and
disclosure to our shareholders, including a requirement to make any annual report filed with the SEC available on or through our website and to comply with the prompt disclosure requirement of Nasdaq with respect to earnings and dividend
announcements, combination transactions, stock splits, major management changes and any substantive items of an unusual or non-recurrent nature. Issuers listing shares on Nasdaq must also meet certain
corporate governance standards, such as those relating to annual meetings, board independence, the formation and composition of a nominating/corporate governance committee, compensation and audit committees and approval of our shareholders of
certain transactions.
Certain Insider Trading and Market Manipulation Laws
U.S. law contains rules intended to prevent insider trading and market manipulation. The following is a general description of those laws as
such laws exist as of the date of this document, and should not be viewed as legal advice for specific circumstances.
We have adopted an
insider trading policy. This policy provides for, among other things, rules on transactions by members of the Board and our employees in our common shares or in financial instruments the value of which is determined by the value of the shares.
United States
The United States
securities laws generally prohibits any person from trading in a security while in possession of material, non-public information or assisting someone who is engaged in doing the same. The insider trading laws
cover not only those who trade based on material, non-public information, but also those who disclose material nonpublic information to others who might trade on the basis of that information (known as
tipping). A security includes not just equity securities, but any security (e.g., derivatives). Thus, members of the Board, officers and other of our employees may not purchase or sell shares or other of our securities when
he or she is in possession of material, non-public information about us (including our business, prospects or financial condition), nor may they tip any other person by disclosing material, non-public information about us.
Certain Disclosure and Reporting Obligations of Directors, Officers and
Shareholders
As of consummation of the Business Combination, directors, officers, and our shareholders are subject to certain
disclosure and reporting obligations under Bahamian and U.S. law. The following is a description of the general disclosure obligations of directors, officers, and shareholders under Bahamian and U.S. law as such laws exist as of the date of this
document, and should not be viewed as legal advice for specific circumstances.
United States
Our shareholders owning more than 10% of our outstanding common shares will be subject to certain U.S. reporting requirements under the
Exchange Act. Among the reporting requirements are disclosure obligations
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intended to keep investors aware of significant accumulations of shares that may lead to a change of control of an issuer.
Section 16(a) of the Exchange Act will require members of the Board and executive officers, and persons who beneficially own more than
10% of a registered class of our equity securities, to file reports of ownership of, and transactions in, our common shares (including securities exercisable for or convertible into our common shares) with the SEC. Such directors, executive officers
and 10% shareholders will also be required to furnish us with copies of all Section 16 reports they file.
Under Section 16(b)
of the Exchange Act, with certain limited exceptions, any profit realized by a member of the Board, an executive officer or a greater than 10% beneficial owner in any purchase and subsequent sale, or any sale and subsequent purchase, of our common
shares (including securities exercisable for or convertible into our common shares) within a six-month period will be recoverable by us.
Our Transfer Agent and Warrant Agent
The
transfer agent for our common shares is Continental Stock Transfer & Trust Company. Each person investing in our common shares held through The Depository Trust Company must rely on the procedures thereof and on institutions that have
accounts therewith to exercise any rights of a holder of our common shares.
For as long as any our common shares are listed on the Nasdaq
or on any other stock exchange operating in the United States, the laws of the State of New York shall apply to the property law aspects of our common shares (including securities exercisable for or convertible into our common shares) reflected in
the register administered by our transfer agent.
OneSpaWorld will list our common shares in registered form and such common shares,
through the transfer agent, will not be certificated. OneSpaWorld has appointed Continental Stock Transfer & Trust Company as its agent in New York to maintain our shareholders register on behalf of the Board and to act as transfer
agent and registrar for our common shares. Our common shares are traded on the Nasdaq in book-entry form.
The warrant agent for the
warrants is Continental Stock Transfer & Trust Company.
Securities Eligible for Future Sale
Rule 144
Pursuant to Rule 144, a
person who has beneficially owned restricted shares of our common shares or warrants for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time
of, or at any time during the three months preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale and have filed all required reports under Section 13 or
15(d) of the Exchange Act during the 12 months (or such shorter period as we were required to file reports) preceding the sale.
Persons
who have beneficially owned restricted shares of our common shares or warrants for at least six months but who are our affiliates at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions,
by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of:
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1% of the total number of common shares then outstanding; or
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the average weekly reported trading volume of the common shares during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to the sale.
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Sales by our affiliates under Rule 144 are also limited by
manner of sale provisions and notice requirements and to the availability of current public information about us.
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Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies
Rule 144 is not available for the resale of securities initially issued by shell companies (other than business combination related shell
companies) or issuers that have been at any time previously a shell company. However, Rule 144 also includes an important exception to this prohibition if the following conditions are met:
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the issuer of the securities that was formerly a shell company has ceased to be a shell company;
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the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act;
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the issuer of the securities has filed all Exchange Act reports and materials required to be filed, as
applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports on Form 8-K; and
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at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC
reflecting its status as an entity that is not a shell company.
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As a result, shareholders will be able to sell their
our common shares and warrants, as applicable, pursuant to Rule 144 without registration one year after the closing of the business combination.
Registration Rights
Steiner Leisure and
Haymaker Sponsor are entitled to certain customary registration rights pursuant to the Registration Rights Agreement that was entered into at the closing of the Business Combination. We have filed a shelf prospectus registering Steiner
Leisures and Haymaker Sponsors shares. At any time, and from time to time, Steiner Leisure will be entitled to make up to three demands (and Haymaker Sponsor will be entitled to make up to three demands per year) that a resale of our
common shares reasonably expected to exceed $10,000,000 in gross offering price pursuant to such shelf prospectus be made pursuant to an underwritten offering. In addition, Steiner Leisure and Haymaker Sponsor have customary piggyback registration
rights subject to cut-back provisions. We will bear the expenses incurred in connection with the filing of the shelf prospectus. Pursuant to the Registration Rights Agreement, Steiner Leisure and Haymaker
Sponsor have agreed not to transfer any of their shares in us during the seven days before and 90 days after the pricing of any underwritten offering of our common shares, subject to certain exceptions, and Steiner Leisure and Haymaker Sponsor will
enter into a customary lock-up agreement to such effect. Pursuant to the Registration Rights Agreement, Steiner Leisure and Haymaker Sponsor have agreed not to assign or delegate their rights, duties or
obligations under the Registration Rights Agreement for a period of six months following the closing of the Business Combination, subject to certain exceptions.
In addition, the Private Placement Investors have certain registration rights under the Subscription Agreements.
Listing of OneSpaWorld Securities
Our
common shares are listed on Nasdaq under the symbol OSW. Our warrants are not currently quoted on any national securities exchange.
99
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth information regarding the beneficial ownership of our common shares as of May 6, 2019 by:
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each person who is the beneficial owner of more than 5% of our common shares;
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each executive officer or director of OneSpaWorld; and
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all executive officers and directors of the Company as a group post-Business Combination.
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The SEC has defined beneficial ownership of a security to mean the possession, directly or indirectly, of voting power and/or
investment power over such security. A shareholder is also deemed to be, as of any date, the beneficial owner of all securities that such shareholder has the right to acquire within 60 days after that date through (a) the exercise of any
option, warrant or right, (b) the conversion of a security, (c) the power to revoke a trust, discretionary account or similar arrangement, or (d) the automatic termination of a trust, discretionary account or similar arrangement. In
computing the number of our common shares beneficially owned by a person and the percentage ownership of that person, our common shares subject to options or other rights (as set forth above) held by that person that are currently exercisable, or
will become exercisable within 60 days thereafter, are deemed outstanding, while such shares are not deemed outstanding for purposes of computing percentage ownership of any other person.
The beneficial ownership amounts and percentages set forth in the table below do not take into account the issuance of common shares to
Steiner Leisure and Haymaker Sponsor in the future pursuant to the Transaction Agreement upon the occurrence of certain events.
Unless
otherwise indicated, we believe that all persons named in the table below have sole voting and investment power with respect to all common shares beneficially owned by them. To the Companys knowledge, none of our common shares beneficially
owned by any executive officer, director or director nominee have been pledged as security.
Unless otherwise indicated, we believe that
all persons named in the table below have sole voting and investment power with respect to all common shares beneficially owned by them. To the Companys knowledge, none of our common shares beneficially owned by any executive officer, director
or director nominee have been pledged as security.
Beneficial ownership of common shares is based on 61,118,298 of our common shares
issued and outstanding as of May 6, 2019.
100
Unless otherwise indicated, the address of each person named below is c/o OneSpaWorld, 770
South Dixie Highway, Suite 200, Coral Gables, FL 33146.
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Beneficial Owner
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Number of
Common
Shares
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Percentage of
All
OneSpaWorld
Shares
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Executive Officers, Directors:
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Leonard Fluxman
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2,353,780
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3.7
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%
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Steven J. Heyer(1)(2)
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6,579,370
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10.7
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%
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Glenn J. Fusfield
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941,521
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1.5
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%
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Marc Magliacano
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Andrew R. Heyer(1)
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6,408,186
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9.9
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%
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Walter F. McLallen
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Jeffrey E. Stiefler
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Michael J. Dolan
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Stephen W. Powell
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2,500
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*
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Stephen B. Lazarus
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1,080,599
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1.7
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%
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All executive officers and directors as a group (10 individuals)
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10,957,770
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15.9
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%
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Other 5% Shareholders:
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Steiner Leisure(3)
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9,684,650
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15.5
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%
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Haymaker Sponsor, LLC(1)
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6,408,186
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9.9
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%
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Templeton Investment Counsel, LLC(4)
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7,900,025
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12.7
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%
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Neuberger Berman Group LLC and certain of its affiliates(5)
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5,869,500
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9.5
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%
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(1)
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Includes 3,000,000 common shares and 3,408,186 warrants to purchase common shares owned by Haymaker Sponsor.
Steven J. Heyer and Andrew R. Heyer are the managing members of Haymaker Sponsor and jointly have voting and dispositive power of the securities held by such entity. Accordingly, Messrs. Heyer and Heyer may be deemed to have or share beneficial
ownership of such shares.
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(2)
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Includes 171,184 common shares issuable upon exercise of stock options.
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(3)
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Excludes 350,000 common shares held in escrow to support the indemnification obligations of Steiner Leisure
under the Transaction Agreement and includes 1,486,520 warrants to purchase common shares. Steiner Leisure is 99.7% owned by Nemo Parent, Inc., an international business company incorporated under the laws of the Commonwealth of the Bahamas. Nemo
Parent, Inc. is 100% owned by Nemo Investor Aggregator, Limited, a Cayman Islands exempted company. Nemo Investor Aggregator, Limited is governed by a board of directors consisting of seven directors. Each director has one vote, and the approval of
a majority of the directors is required to approve an action of Nemo Investor Aggregator, Limited. Under the so-called rule of three, if voting and dispositive decisions regarding an entitys securities are made by three or more
individuals, and a voting or dispositive decision requires the approval of a majority of those individuals, then none of the individuals is deemed a beneficial owner of the entitys securities. Based upon the foregoing analysis, no director of
Nemo Investor Aggregator, Limited exercises voting or dispositive control over any of the securities held by Steiner Leisure, even those in which he or she directly holds a pecuniary interest. Accordingly, none of them will be deemed to have or
share beneficial ownership of such shares. The address for Steiner Leisure is Suite 104A, Saffrey Square, Nassau, The Bahamas. The address for Nemo Investor Aggregator, Limited is c/o Mourant Ozannes Corporate Services (Cayman) Ltd., 94 Solaris
Avenue, PO Box 1348, Camana Bay, Grand Cayman KY1-1108, Cayman Islands. The address for Nemo Parent, Inc. is c/o Lennox Paton Corporate Services Ltd., 3 Bayside Executive Park, West Bay Street, Nassau, The Bahamas.
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(4)
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Reflects beneficial ownership based solely on a Schedule 13G filed with the Securities and Exchange Commission
on April 9, 2019. Includes 1,085,880 warrants to purchase common shares. Templeton
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101
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Investment Counsel, LLC (TIC, LLC) is an indirect wholly owned subsidiary of Franklin Resources, Inc. (FRI), which is the beneficial owner of these shares for purposes of
Rule 13d-3 under the Exchange Act in its capacity as the investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940 and other accounts. When an investment management contract (including a
sub-advisory agreement) delegates to TIC, LLC investment discretion or voting power over the securities held in the investment advisory accounts that are subject to that agreement, FRI treats TIC, LLC as having sole investment discretion or voting
authority, as the case may be, unless the agreement specifies otherwise. Accordingly, TIC, LLC reports for purposes of Section 13(d) of the Exchange Act that it has sole investment discretion and voting authority over the securities covered by any
such investment management agreement, unless otherwise specifically noted. The voting and investment powers held by TIC, LLC are exercised independently from FRI, the investment management subsidiaries and their other affiliates. Furthermore,
internal policies and procedures of TIC, LLC and FRI establish informational barriers that prevent the flow between TIC, LLC and FRI and its other affiliates of information that relates to the voting and investment powers over the securities owned
by their investment management clients. Consequently, TIC, LLC, on the one hand, and FRI and its other affiliates, on the other hand, report the securities over which they hold investment and voting power separately from each other for purposes of
Section 13 of the Exchange Act. The address of TIC, LLC is 300 S. E. 2nd Street, Fort Lauderdale, Florida 33301.
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(5)
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Includes 869,500 warrants to purchase common shares. Neuberger Berman Group LLC and certain of its affiliates
may be deemed to be the beneficial owners of the securities for purposes of Rule 13d-3 under the Securities Exchange Act of 1934, as amended, because it or certain affiliated persons, including Neuberger Berman Investment Advisers LLC, the adviser
or sub-adviser to the funds holding the securities, and NB Equity Management GP LLC, the General Partner of NB All Cap Alpha Fund L.P., a feeder fund operating in a master-feeder structure and the owner of all or
substantially all the outstanding shares of NB All Cap Alpha Master Fund Ltd., have shared power to retain, dispose of or vote the securities owned by the funds pursuant to the terms of investment management, advisory and/or sub-advisory agreements
with the funds. Neuberger Berman Group LLC or its affiliated persons do not, however, have any economic interest in the securities held by the funds. The address of Neuberger Berman Group LLC, Neuberger Berman Investment Advisers LLC, NB Equity
Management GP LLC is 1290 Avenue of the Americas, New York, NY 10104.
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102
SELLING SHAREHOLDERS
This prospectus relates to the resale from time to time of (a) an aggregate of 44,004,911 common shares, consisting of (i) 36,004,911 common
shares and (ii) 8,000,000 common shares issuable upon the exercise of warrants, and (b) 8,000,000 warrants by the Selling Shareholders. The Selling Shareholders may from time to time offer and sell any or all of the common shares and warrants set
forth below pursuant to this prospectus and any accompanying prospectus supplement. When we refer to the Selling Shareholders in this prospectus, we mean the persons listed in the table below, and the pledgees, donees, transferees,
assignees, successors, designees and others who later come to hold any of the Selling Shareholders interest in the common shares or warrants other than through a public sale.
The following table sets forth, as of the date of this prospectus, the names of the Selling Shareholders, and the aggregate number of common
shares and warrants that the Selling Shareholders may offer pursuant to this prospectus.
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Name of Selling Shareholder
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Before the Offering
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After the Offering
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Number of
Common
Shares
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Number of
Warrants
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Number of
Common
Shares Being
Offered
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Number of
Warrants
Being
Offered
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Number of
Common
Shares
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Percentage
of
Outstanding
Common
Shares
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Number of
Warrants
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Baron Growth Fund(1)
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651,515
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96,515
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651,515
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96,515
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Baron Small Cap Fund(2)
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1,760,850
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260,850
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1,760,850
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260,850
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BEMAP Master Fund Ltd(3)
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1,269,250
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188,000
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1,269,250
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188,000
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Broad Street Principal Investments,
L.L.C.(4)
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798,252
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118,252
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798,252
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118,252
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DIV I BM(5)
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1,173,900
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173,900
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1,173,900
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173,900
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Haymaker Sponsor, LLC(6)
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8,008,186
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3,408,186
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8,008,186
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3,408,186
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Kiski (Cayman) Master Fund Ltd(7)
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|
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1,269,250
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188,000
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1,269,250
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188,000
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LVIP Baron Growth Opportunities
Fund(8)
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67,499
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9,999
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67,499
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9,999
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Monashee Capital Master Fund(9)
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190,750
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28,250
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|
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190,750
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|
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28,250
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Monashee Pure Alpha Capital Master
Fund(10)
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|
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205,500
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30,500
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205,500
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|
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30,500
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Neuberger Berman Group LLC and certain of its affiliates(11)
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5,869,500
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869,500
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|
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5,869,500
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869,500
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Steiner Leisure Limited(12)
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15,034,650
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1,486,520
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15,034,650
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1,486,520
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StoneBridge 2018 AIV, L.P.(13)
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|
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264,390
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39,166
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|
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264,390
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39,166
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StoneBridge 2018 Offshore, L.P(14)
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111,258
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16,482
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111,258
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16,482
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Templeton Investment Counsel, LLC(15)
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7,330,161
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1,085,880
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7,330,161
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1,085,880
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(1)
|
Includes (i) 555,000 common shares and (ii) 96,515 common shares underlying warrants.
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(2)
|
Includes (i) 1,500,000 common shares and (ii) 260,850 common shares underlying warrants.
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(3)
|
Includes (i) 1,081,250 common shares and (ii) 188,000 common shares underlying warrants.
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(4)
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Includes (i) 680,000 common shares and (ii) 118,252 common shares underlying warrants.
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(5)
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Includes (i) 1,000,000 common shares and (ii) 173,900 common shares underlying warrants.
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(6)
|
Includes (i) 3,000,000 common shares, (ii) 3,408,186 common shares underlying warrants and (iii) 1,600,000
common shares that may be issued to Haymaker Sponsor in the future pursuant to the Transaction Agreement upon the occurrence of certain events.
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103
(7)
|
Includes (i) 1,081,250 common shares and (ii) 188,000 common shares underlying warrants.
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(8)
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Includes (i) 57,500 common shares and (ii) 9,999 common shares underlying warrants.
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(9)
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Includes (i) 162,500 common shares and (ii) 28,250 common shares underlying warrants.
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(10)
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Includes (i) 175,000 common shares and (ii) 30,500 common shares underlying warrants.
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(11)
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Includes (i) 5,000,000 common shares and (ii) 869,500 common shares underlying warrants.
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(12)
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Includes (i) 8,198,130 common shares, (ii) 1,486,520 common shares underlying warrants, (iii) 350,000 common
shares held in escrow to support the indemnification obligations of Steiner Leisure under the Transaction Agreement and (iv) 5,000,000 common shares that may be issued to Steiner Leisure in the future pursuant to the Transaction Agreement upon the
occurrence of certain events.
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(13)
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Includes (i) 225,224 common shares and (ii) 39,166 common shares underlying warrants.
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(14)
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Includes (i) 94,776 common shares and (ii) 16,482 common shares underlying warrants.
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(15)
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Includes (i) 197,078 common shares and 34,272 common shares underlying warrants held by Clearwater
International Fund; (ii) 105,487 common shares and 18,344 common shares underlying warrants held by Fort Worth Employees Retirement Fund; (iii) 91,475 common shares and 15,908 common shares underlying warrants held by Lucent Technologies Inc. Master
Pension Trust; (iv) 110,282 common shares and 19,178 common shares underlying warrant held by Montana Board of Investments; (v) 631,062 common shares and 109,742 common shares underlying warrants held by New Mexico State Investment Council; (vi)
814,621 common shares and 141,663 common shares underlying warrants held by The Treasurer of the State of North Carolina; (vii) 344,730 common shares and 59,949 common shares underlying warrants held by JNL/Franklin Templeton International Small Cap
Growth Fund; (viii) 301,352 common shares and 52,405 common shares underlying warrants held by Templeton Global Smaller Companies Fund; (ix) 1,805,715 common shares and 314,014 common shares underlying warrants held by Templeton Global Small
Companies Fund Companies Fund; (x) 632,891 common shares and 110,060 common shares underlying warrants held by Templeton International Smaller Companies Fund; and (xi) 1,209,588 common shares and 210,345 common shares underlying warrants held by
Templeton Institutional Funds - Foreign Smaller Companies Series.
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We cannot advise you as to whether the Selling
Shareholders will in fact sell any or all of such common shares and warrants.
Selling Shareholder information for each additional Selling
Shareholder, if any, will be set forth by prospectus supplement to the extent required prior to the time of any offer or sale of such Selling Shareholders shares pursuant to this prospectus. Any prospectus supplement may add, update,
substitute, or change the information contained in this prospectus, including the identity of each Selling Shareholder and the number of common shares or warrants registered on its behalf. A Selling Shareholder may sell or otherwise transfer all,
some or none of such common shares or warrants in this offering. See Plan of Distribution.
104
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Compensation arrangements with our named executive officers and directors are described elsewhere in this prospectus. Steven J. Heyer and
Andrew R. Heyer are brothers.
Registration Rights Agreement
Steiner Leisure and Haymaker Sponsor are entitled to certain customary registration rights pursuant to the Registration Rights Agreement
effective as of the closing of the Business Combination. We have filed a shelf prospectus registering Steiner Leisures and Haymaker Sponsors shares. At any time, and from time to time, Steiner Leisure will be entitled to make up to three
demands (and Haymaker Sponsor will be entitled to make up to three demands per year) that a resale of our common shares reasonably expected to exceed $10,000,000 in gross offering price pursuant to such shelf prospectus be made pursuant to an
underwritten offering. In addition, Steiner Leisure and Haymaker Sponsor have customary piggyback registration rights subject to cut-back provisions. We will bear the expenses incurred in connection with the
filing of the shelf prospectus. Pursuant to the Registration Rights Agreement, Steiner Leisure and Haymaker Sponsor have agreed not to transfer any of their shares in us during the seven days before and 90 days after the pricing of any underwritten
offering of our common shares, subject to certain exceptions, and Steiner Leisure and Haymaker Sponsor will enter into a customary lock-up agreement to such effect. Pursuant to the Registration Rights
Agreement, Steiner Leisure and Haymaker Sponsor have agreed not to assign or delegate their rights, duties or obligations under the Registration Rights Agreement for a period of six months following the closing of the Business Combination, subject
to certain exceptions.
In addition, the Private Placement Investors have certain registration rights under the Subscription Agreements.
Lock-up Agreement
On March 19, 2019, in connection with the Business Combination, Haymaker Sponsor, Steiner Leisure, our directors and officers, and (solely
for the purpose of certain provisions thereof) Haymaker (the Lock-up Parties), entered into a Lock-up Agreement (the
Lock-up Agreement) with us that, among other things, modifies that certain lock-up agreement, dated as of October 24, 2017, by and among Haymaker,
Haymaker Sponsor, and the directors and officers of Haymaker. Pursuant to the Lock-up Agreement, the Lock-up Parties agreed that they would not, subject to certain
limited exceptions, transfer or sell their our common shares for a period of six months after the consummation of the Business Combination.
Indemnity Agreements
On
March 19, 2019, we entered into indemnity agreements with each of our directors and executive officers. Each indemnity agreement provides for indemnification and advancement by the Company of certain expenses and costs relating to claims, suits
or proceedings arising from service to the Company or, at our request, service to other entities, as officers or directors to the maximum extent permitted by applicable law.
Agreements between OSW Predecessor and certain subsidiaries of Steiner Leisure were entered into in order to maintain business continuity
after the closing of the Business Combination. These agreements took effect at the closing of the Business Combination.
OSW Predecessor
entered into an Amended and Restated Supply Agreement, dated May 25, 2018, with Cosmetics Limited, a direct subsidiary of Steiner Leisure Limited, a shareholder of OneSpaWorld. The agreement provides that Cosmetics Limited will supply products
and professional stock for health and wellness treatments to OSW Predecessor for sale on passenger cruise vessels and through the timetospa.com website. We estimate that payments under this agreement will equal approximately
$23.5 million in the aggregate for the year ended December 31, 2018. The agreement terminates (subject to certain customary early termination rights) on December 31, 2028.
105
OSW Predecessor entered into an International Retailer Agreement, dated May 25, 2018,
with Cosmetics Limited, a direct subsidiary of Steiner Leisure Limited, a shareholder of OneSpaWorld, which became effective at the time of the closing. The agreement provides that Cosmetics Limited will supply products and professional stock for
health and wellness treatments to OSW Predecessor destination resort health and wellness centers in Asia and Aruba. We estimate that we will pay approximately $350,000 under this agreement in exchange for the supply of products and professional
stock for the year ending December 31, 2019. The agreement terminates (subject to certain customary early termination rights) on or around May 25, 2020.
OSW Predecessor entered into an International Retailer Supply Agreement, dated May 25, 2018, with Elemis USA, Inc., a direct subsidiary
of Steiner Leisure Limited, a shareholder of OneSpaWorld, which became effective at the time of the closing. The agreement provides that Elemis USA, Inc. will supply products and professional stock for health and wellness treatments to our
destination resort health and wellness centers in the U.S. and Puerto Rico. We estimate that we will pay approximately $950,000 under this agreement in exchange for the supply of products and professional stock for the year ending December 31,
2019. The agreement terminates (subject to certain customary early termination rights) on or around May 25, 2020.
OSW Predecessor
entered into an Elemis UK Land-Based Resorts Supply Agreement, dated May 25, 2018, with Elemis Limited, an indirect subsidiary of Steiner Leisure Limited, a shareholder of ours, which became effective at the time of the closing. The agreement
provides that Elemis Limited will supply products and professional stock for health and wellness treatments to OSW Predecessor destination resort health and wellness centers in the Bahamas. We estimate that we will pay approximately $350,000 under
this agreement in exchange for the supply of products and professional stock for the year ended December 31, 2019. The agreement terminates (subject to certain customary early termination rights) on or around May 25, 2020.
OSW Predecessor entered into a Management Agreement, dated May 25, 2018 and amended and restated October 25, 2018, with Bliss World
LLC, an indirect subsidiary of Steiner Leisure Limited, a shareholder of us, which became effective at the time of the closing. The agreement provides that OSW Predecessor will manage the operation of nine U.S. health and wellness centers on behalf
of Bliss World LLC in exchange for approximately $1.25 million in the aggregate for the year ended December 31, 2019. Subject to certain customary early termination rights, the agreement terminates, with respect to each health and wellness
center, upon expiration or termination of the respective lease for each such health and wellness center.
OSW Predecessor entered into an
Executive Services Agreement, concurrent with the execution of the Transaction Agreement, with Nemo, the ultimate parent of OneSpaWorld, which became effective at the time of the closing. The agreements provided that after the closing of the
Business Combination, we had to make Leonard Fluxman and Stephen Lazarus available to provide certain transition services to Nemo until December 31, 2019 in exchange for $850,000.
Review, Approval or Ratification of Transactions with Related Persons
Upon the completion of the Business Combination and consistent with Bahamian law and our Articles of Association, we adopted a code of business
conduct and ethics that will prohibit directors and executive officers from engaging in transactions that may result in a conflict of interest with us. The code of business conduct and ethics will include a policy requiring that our Board review any
transaction a director or executive officer proposes to have with us that could give rise to a conflict of interest or the appearance of a conflict of interest, including any transaction that would require disclosure under Item 404(a) of Regulation S-K. In conducting this review, our Board will be obligated to ensure that all such transactions are approved by a majority of our Board not otherwise interested in the transaction and are fair
and reasonable to OneSpaWorld and on terms not less favorable to us than those available from unaffiliated third parties.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material U.S. federal income tax considerations for beneficial owners of our common shares and warrants relating to the
ownership and disposition of our common shares and warrants. This discussion only applies to common shares held as capital assets for U.S. federal income tax purposes, and does not describe all of the tax consequences that may be relevant to
beneficial owners of our common shares in light of their particular circumstances or beneficial owners who are subject to special rules, such as:
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financial institutions or financial services entities;
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government agencies or instrumentalities thereof;
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regulated investment companies and real estate investment trusts;
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expatriates or former residents of the United States;
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persons that acquired our common shares pursuant to an exercise of employee share options, in connection with
employee incentive plans or otherwise as compensation;
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dealers or traders subject to a
mark-to-market method of tax accounting with respect to our common shares;
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persons holding our common shares as part of a straddle, hedge, integrated transaction or similar
transaction;
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U.S. holders (as defined below) whose functional currency is not the U.S. dollar;
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partnerships or other pass-through entities for U.S. federal income tax purposes or investors in such entities;
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holders who are controlled foreign corporations and passive foreign investment companies;
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U.S. holders actually or constructively owning 5% or more of our common shares; or
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This discussion does not consider the tax treatment of entities that are partnerships or other pass-through entities for U.S. federal income
tax purposes or persons who hold our common shares through such entities. If a partnership or other pass-through entity for U.S. federal income tax purposes is the beneficial owner of our common shares, the U.S. federal income tax treatment of
partners of the partnership will generally depend on the status of the partners and the activities of the partner and the partnership. This discussion also does not address or consider the tax treatment of Haymaker sponsor or its direct or indirect
owners or affiliates.
This discussion is based on the U.S. Internal Revenue Coode of 196, as amended (the U.S. Tax
Code), administrative pronouncements, judicial decisions and final, temporary and proposed U.S. Treasury regulations, all as of the date hereof, changes to any of which subsequent to the date of this prospectus may affect the tax
considerations described herein, potentially with retroactive effect. This discussion does not take into account potential or proposed changes in such tax laws which may impact the discussion below and does not address any aspect of U.S. state or
local or non-U.S. taxation, or any U.S. federal taxes other than income taxes. This discussion also does not address the alternative minimum tax or the Medicare contribution tax. You are urged to consult your
tax advisor with respect to the application of U.S. federal tax laws to your particular situation, as well as any tax consequences arising under the laws of any U.S. state or local or non-U.S. jurisdiction.
ALL HOLDERS OF OUR COMMON SHARES SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF OUR
COMMON SHARES TO THEM, INCLUDING THE EFFECTS OF U.S. FEDERAL, STATE, AND LOCAL AND NON-U.S. INCOME AND OTHER TAX LAWS.
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Tax Residence of OneSpaWorld for U.S. Federal Income Tax Purposes
Under current U.S. federal income tax law, a corporation generally will be considered to be resident for U.S. federal income tax purposes in
its place of organization or incorporation. Accordingly, under the generally applicable U.S. federal income tax rules, OneSpaWorld, which is a Bahamas-incorporated entity, would generally be classified as a
non-U.S. corporation. Section 7874 of the U.S. Tax Code and the regulations promulgated thereunder, however, contain specific rules (more fully discussed below) that may cause a non-U.S. corporation to be treated as a U.S. corporation for U.S. federal income tax purposes. If it were determined that OneSpaWorld should be taxed as a U.S. corporation for U.S. federal income tax purposes under
section 7874, certain distributions made by OneSpaWorld to non-U.S. holders of OneSpaWorld common shares would be subject to U.S. withholding tax. The section 7874 rules are complex and require analysis of all
relevant facts, and there is limited guidance as to their application.
Under section 7874, a corporation created or organized outside the
United States (i.e., a non-U.S. corporation) will nevertheless be treated as a U.S. corporation for U.S. federal income tax purposes if (1) the non-U.S. corporation
directly or indirectly acquires substantially all of the assets held directly or indirectly by a U.S. corporation (including through the acquisition of all of the outstanding shares of the U.S. corporation), (2) the non-U.S. corporations expanded affiliated group does not have substantial business activities in the non-U.S. corporations country of organization or incorporation
relative to the expanded affiliated groups worldwide activities (the substantial business activities test), and (3) the shareholders of the acquired U.S. corporation hold at least 80% (by either vote or value) of the
shares of the non-U.S. acquiring corporation after the acquisition by reason of holding shares in the U.S. acquired corporation (the Ownership Test). For this purpose, expanded
affiliated group generally means the foreign acquiring corporation and all subsidiary corporations in which such foreign corporation owns, directly or indirectly, more than 50% of the shares (by vote and value) after the foreign acquiring
corporations acquisition of the assets of the U.S. corporation.
In the Business Combination, OneSpaWorld indirectly acquired all of
Haymakers assets through the acquisition of all of Haymakers outstanding common shares. As a result, the determination of whether OneSpaWorld will be treated as a U.S. corporation for U.S. federal income tax purposes will depend on
whether the substantial business activities test and the Ownership Test have been met.
OneSpaWorld is not expected to satisfy the
substantial business activities test based on its activities in the Bahamas after the completion of the Business Combination. Based on the complex rules for determining share ownership under section 7874 and certain factual assumption, and
representations, after the Business Combination, former Haymaker stockholders are expected to be treated as holding less than 80% (by both vote and value) of OneSpaWorld shares by reason of their former ownership of Haymaker stock, and therefore
OneSpaWorld is not expected to satisfy the Ownership Test. As a result, OneSpaWorld is not expected to be treated as a U.S. corporation for U.S. federal income tax purposes under section 7874. However, the interpretation of regulations relating to
the Ownership Test is subject to uncertainty and there is limited guidance regarding their application. In addition, changes to the rules in section 7874 or the Treasury Regulations promulgated thereunder, or other changes in law, could adversely
affect OneSpaWorlds status as a non-U.S. entity for U.S. federal income tax purposes. Accordingly, there can be no assurance that the IRS will not take a contrary position to those described above or
that a court will not agree with a contrary position of the IRS in the event of litigation.
U.S. Holders
This section applies to you if you are a U.S. holder. A U.S. holder is a beneficial owner of our common shares who or that
is, for U.S. federal income tax purposes:
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an individual who is a citizen or resident of the United States;
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a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized in or
under the laws of the United States, any state thereof or the District of Columbia;
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an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of
its source; or
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a trust if (1) a U.S. court can exercise primary supervision over the administration of such trust and one
or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a U.S. person.
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Passive Foreign Investment Company Rules
Certain adverse U.S. federal income tax consequences could apply to a U.S. holder if OneSpaWorld, or any of its subsidiaries, is treated as a
passive foreign investment company (PFIC) for any taxable year during which the U.S. holder holds our common shares. A non-U.S. corporation, such as OneSpaWorld, will be classified as a PFIC
for U.S. federal income tax purposes for any taxable year in which, after applying certain look-through rules, either (i) 75% or more of its gross income for such year consists of certain types of passive income or (ii) 50% or more of
the value of its assets (determined on the basis of a quarterly average) during such year produce or are held for the production of passive income. Passive income generally includes dividends, interest, royalties, rents, annuities, net gains from
the sale or exchange of property producing such income and net foreign currency gains. For purposes of the PFIC income test and asset test described above, if OneSpaWorld owns, directly or indirectly, 25% or more of the total value of the
outstanding shares of another corporation, OneSpaWorld will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation.
OneSpaWorld and its subsidiaries are not currently expected to be treated as PFICs for U.S. federal income tax purposes for the current
taxable year or for foreseeable future taxable years. This conclusion is a factual determination, however, that must be made annually at the close of each taxable year and, thus, is subject to change. There can be no assurance that OneSpaWorld or
any of its subsidiaries will not be treated as a PFIC for any taxable year.
If OneSpaWorld or any of its subsidiaries were to be treated
as a PFIC, U.S. holders holding our common shares could be subject to certain adverse U.S. federal income tax consequences with respect to gain realized on a taxable disposition of such shares and certain distributions received on such shares.
Certain elections (including a mark-to-market election) may be available to U.S. holders to mitigate some of the adverse tax consequences resulting from PFIC treatment.
U.S. holders should consult their tax advisers regarding the application of the PFIC rules to their investment in OneSpaWorld Shares.
Controlled
Foreign Corporation Rules
If a U.S. person (as defined in section 7701(a)(30) of the U.S. Tax Code) owns directly, indirectly or
constructively (under section 318 of the U.S. Tax Code) at least 10% of the voting power or value of shares of a foreign corporation, such U.S. person is considered a U.S. Shareholder with respect to the foreign corporation. If
U.S. Shareholders, in the aggregate, own more than 50% of the voting power or value of the shares of such corporation, the foreign corporation will be classified as a controlled foreign corporation (CFC). Additionally, as a result
of changes introduced by the Tax Cuts and Jobs Act, even absent U.S. Shareholders with direct or indirect interests in a foreign corporation, a U.S. subsidiary of OneSpaWorld alone may cause certain related foreign corporations to be treated as CFCs
by reason of certain downward attribution rules.
Given that OneSpaWorld is publicly held, the constructive ownership rules
under section 318 of the U.S. Tax Code may make it difficult to determine whether any U.S. person is a U.S. Shareholder as to OneSpaWorld and its non-U.S. subsidiaries and whether OneSpaWorld or any of its non-U.S. subsidiaries is a CFC.
Because the OneSpaWorld group will include one or more U.S.
subsidiaries, OneSpaWorlds non-U.S. subsidiaries could be treated as CFCs (regardless of whether OneSpaWorld is treated as a CFC), depending on
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the structure of the OneSpaWorld group at any given time. If OneSpaWorld, or any non-U.S. subsidiary of OneSpaWorld, is treated as a CFC, any U.S.
Shareholder must report annually and include in its U.S. taxable income its pro rata share of Subpart F income, global intangible low-taxed income and investments in U.S. property held
by CFCs, regardless of whether any distributions are made to such U.S. Shareholder. In addition, gain on the sale of the CFC shares by a U.S. Shareholder (during the period that the corporation is a CFC and thereafter for a five-year period) would
be classified in whole or in part as a dividend, to the extent of certain of the CFCs earnings and profits. An individual that is a U.S. Shareholder with respect to a CFC generally would not be allowed certain tax deductions or foreign tax
credits that would be allowed to a U.S. Shareholder that is a U.S. corporation. Failure to comply with these reporting and tax paying obligations may subject a U.S. Shareholder to significant monetary penalties and may prevent the statute of
limitations with respect to such shareholders U.S. federal income tax return for the year for which reporting was due from starting. OneSpaWorld cannot provide any assurances that it will assist investors in determining whether it or any of
its non-U.S. subsidiaries is treated as a CFC or whether any investor is treated as a U.S. Shareholder with respect to any such CFC or furnish to any U.S. Shareholders information that may be necessary to
comply with the aforementioned reporting and tax paying obligations. A U.S. holder should consult its advisors regarding the potential application of these rules to an investment in our common shares.
Taxation of Distributions
A U.S. holder
generally will be required to include in gross income as dividends the amount of any cash distribution paid on our common shares. A cash distribution on such shares generally will be treated as a dividend for U.S. federal income tax purposes to the
extent the distribution is paid out of OneSpaWorlds current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Such dividends paid by OneSpaWorld will be taxable to a corporate U.S. holder at regular
rates and will not be eligible for the dividends-received deduction generally allowed to domestic corporations in respect of dividends received from other domestic corporations.
Distributions in excess of such earnings and profits generally will be applied against and reduce the U.S. holders basis in its shares
(but not below zero) and any excess, will be treated as gain from the sale or exchange of such shares as described below under U.S. HoldersGain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Our Common Shares
and Warrants.
Dividends will generally be treated as income from foreign sources for U.S. foreign tax credit purposes and will
generally constitute passive category income.
The rules governing the foreign tax credit are complex and the outcome of their application
depends in large part on the U.S. holders individual facts and circumstances. Accordingly, U.S. holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
With respect to non-corporate U.S. holders, under tax laws currently in effect, dividends with respect
to our common shares generally will be taxed as ordinary income.
Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Our Common
Shares and Warrants
Upon a sale or other taxable disposition of our common shares or warrants and subject to the PFIC and CFC rules
discussed above, a U.S. holder generally will recognize capital gain or loss in an amount equal to the difference between the amount realized in such sale (generally, the sum of the amount of cash and the fair market value of any property received
in such disposition) and the U.S. holders adjusted tax basis in such common shares or warrants.
Any such capital gain or loss
generally will be long-term capital gain or loss if the U.S. holders holding period for our common shares or warrants so disposed of exceeds one year. Long-term capital gains recognized by non-corporate
U.S. holders is currently eligible to be taxed at reduced rates. The deductibility of capital losses is subject to limitations.
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Exercise or Lapse of a Warrant
Except as discussed below with respect to the cashless exercise of a warrant, a U.S. holder generally will not recognize gain or loss upon the
acquisition of our common shares on the exercise of a warrant for cash. A U.S. holders tax basis in our common shares received upon exercise of the warrant generally will be an amount equal to the sum of the U.S. holders tax basis in the
warrant exercised therefor and the exercise price. The U.S. holders holding period for the common shares received upon exercise of the warrant will begin on the date following the date of exercise (or possibly the date of exercise) of the
warrant and will not include the period during which the U.S. holder held the warrant. If a warrant is allowed to lapse unexercised, a U.S. holder generally will recognize a capital loss equal to such holders tax basis in the warrant.
The tax consequences of a cashless exercise of a warrant are not clear under current tax law. A cashless exercise may be tax-free, either
because the exercise is not a gain realization event or because the exercise is treated as a recapitalization for U.S. federal income tax purposes. In either tax-free situation, a U.S. holders basis in the common shares received would equal
the holders basis in the warrant exercised therefore. If the cashless exercise were treated as not being a gain realization event, a U.S. holders holding period in the common shares would be treated as commencing on the date following
the date of exercise (or possibly the date of exercise) of the warrants. If the cashless exercise were treated as a recapitalization, the holding period of the common shares would include the holding period of the warrants exercised therefor.
It is also possible that a cashless exercise of a warrant could be treated in part as a taxable exchange in which gain or loss would be
recognized. In such event, a U.S. holder would recognize gain or loss with respect to the portion of the exercised warrants treated as surrendered to pay the exercise price of the warrants (the surrendered warrants). The U.S. holder
would recognize capital gain or loss with respect to the surrendered warrants in an amount generally equal to the difference between (i) the fair market value of the common shares that would have been received with respect to the surrendered
warrants in a regular exercise of the warrants and (ii) the sum of the U.S. holders tax basis in the surrendered warrants and the aggregate cash exercise price of such warrants (if they had been exercised in a regular exercise). In this case,
a U.S. holders tax basis in the common shares received would equal the U.S. holders tax basis in the warrants exercised plus (or minus) the gain (or loss) recognized with respect to the surrendered warrants. A U.S. holders holding
period for the common shares would commence on the date following the date of exercise (or possibly the date of exercise) of the warrants.
Due to the absence of authority on the U.S. federal income tax treatment of a cashless exercise of warrants, there can be no assurance which,
if any, of the alternative tax consequences and holding periods described above would be adopted by the IRS or a court of law. Accordingly, U.S. holders should consult their tax advisors regarding the tax consequences of a cashless exercise of
warrants.
Possible Constructive Distributions
The terms of each warrant provide for an adjustment to the number of common shares for which the warrant may be exercised or to the exercise
price of the warrant in certain events, as discussed in the section of this registration statement captioned Description of Capital StockWarrants. An adjustment which has the effect of preventing dilution generally is not
taxable. A U.S. holder of a warrant would, however, be treated as receiving a constructive distribution from us if, for example, the adjustment increases the holders proportionate interest in our assets or earnings and profits (e.g., through
an increase in the number of our common shares that would be obtained upon exercise of such warrant) as a result of a distribution of cash to the holders of the common shares which is taxable to the U.S. holders of such shares as described under
Taxation of Distributions above. Such constructive distribution would be subject to tax as described under that section in the same manner as if the U.S. holder of such warrant received a cash distribution from us equal to
the fair market value of such increased interest.
Tax Reporting
Individuals and certain domestic entities that are U.S. holders will be required to report information with respect to such U.S. holders
investment in specified foreign financial assets on IRS Form 8938, subject to
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certain exceptions. An interest in OneSpaWorld constitutes a specified foreign financial asset for these purposes. Persons who are required to report specified foreign financial assets and fail
to do so may be subject to substantial penalties. U.S. holders are urged to consult with their tax advisors regarding the foreign financial asset reporting obligations and their application to our common shares.
Non-U.S. Holders
This section applies to you if you are a non-U.S. holder. A
non-U.S. holder is a beneficial owner (other than a partnership or entity treated as a partnership for U.S. federal income tax purposes) of our common shares who or that is not a U.S.
holder, including:
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a non-resident alien individual, other than certain former citizens and
residents of the United States subject to U.S. tax as expatriates;
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a foreign corporation; or
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a foreign estate or trust;
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but generally does not include an individual who is present in the United States for 183 days or more in the taxable year of disposition. If you are such an
individual, you should consult your tax advisor regarding the U.S. federal income tax consequences of the sale or other disposition of our securities.
Assuming that OneSpaWorld is not treated as a domestic corporation under the rules discussed above under Tax Residence of
OneSpaWorld for U.S. Federal Income Tax Purposes or otherwise, dividends (including constructive dividends) paid or deemed paid to a non-U.S. holder in respect to our common shares generally will not
be subject to U.S. federal income tax, unless the dividends are effectively connected with the non-U.S. holders conduct of a trade or business within the United States (and, if required by an applicable
income tax treaty, are attributable to a permanent establishment or fixed base that such holder maintains in the United States). In addition, a non-U.S. holder generally will not be subject to U.S. federal
income tax on any gain attributable to a sale or other disposition of our common shares or warrants unless such gain is effectively connected with its conduct of a trade or business in the United States (and, if required by an applicable income tax
treaty, is attributable to a permanent establishment or fixed base that such holder maintains in the United States). In addition, special rules may apply to a non-U.S. holder that is an individual who was
present in the United States for 183 days or more in the taxable year of such disposition and certain other requirements are met. If you are such an individual, you should consult your tax advisor regarding the U.S. federal income tax consequences
of the sale or other disposition of our common shares.
Dividends and gains that are effectively connected with the non-U.S. holders conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base in the United States)
generally will be subject to U.S. federal income tax at the same regular U.S. federal income tax rates applicable to a comparable U.S. holder and, in the case of a non-U.S. holder that is a corporation for
U.S. federal income tax purposes, also may be subject to an additional branch profits tax at a 30% rate or a lower applicable tax treaty rate.
The U.S. federal income tax treatment of a Non-U.S. holders exercise of a warrant, or the lapse of a warrant held by a Non-U.S. holder,
generally will correspond to the U.S. federal income tax treatment of the exercise or lapse of a warrant by a U.S. holder, as described under U.S. HoldersExercise or Lapse of a Warrant, above, although to the extent a
cashless exercise results in a taxable exchange, the consequences would be similar to those described in the preceding paragraphs above for a Non-U.S. holders gain on the sale or other disposition of the common shares and warrants.
Reporting and Backup Withholding
Dividend payments with respect to our common shares and proceeds from the sale, exchange or redemption of our common shares or warrants may be
subject to information reporting to the IRS and possible U.S. backup
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withholding. Backup withholding will not apply, however, to a U.S. holder who furnishes a correct taxpayer identification number and makes other required certifications, or who is otherwise
exempt from backup withholding and establishes such exempt status, to the applicable paying agent. A non-U.S. holder generally may eliminate the requirement for information reporting and backup withholding by
providing to the relevant paying agent certification of its foreign status, under penalties of perjury, on a duly-executed applicable IRS Form W-8 or by otherwise establishing an exemption.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holders U.S. federal
income tax liability, if any, and may entitled the holder to a refund, provided that any required information is timely filed with the IRS.
ALL HOLDERS OF OUR COMMON SHARES SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF OUR
COMMON SHARES TO THEM, INCLUDING THE EFFECTS OF U.S. FEDERAL, STATE, AND LOCAL AND NON-U.S. INCOME AND OTHER TAX LAWS.
Material Bahamian Tax Considerations
In
the opinion of Harry B. Sands, Lobosky & Company, Bahamian Counsel to OneSpaWorld, under current Bahamian law, so long as the operations of OneSpaWorld are conducted outside of The Bahamas, OneSpaWorld is not subject to any business licence
fee, income tax, corporation tax, capital gains tax or any other tax on income or distributions or dividends accruing to or derived from us, nor shall any estate, inheritance, succession or gift tax, rate, duty levy or other charge payable in The
Bahamas with respect to any of our shares, debt obligations or other securities or shareholders for a period of three (3) years commencing 31st December 2018. Furthermore, all transactions in respect of the shares, debt obligations or the
securities and all other transactions relating to the business of OneSpaWorld are exempt from the payment of stamp duty up to and including 31st December 2021. Such exemptions from taxation shall not apply (i) to any person who is designated or
deemed to be a resident of The Bahamas for the purpose of the Exchange Control Regulations Act (ECR), or (ii) if a resident of The Bahamas for the purposes of the ECR is the direct or indirect beneficial or
legal owner of any shares issued or to be issued by us or acquires a legal or beneficial interest in any debt or other securities issued or to be issued by us or is otherwise directly or indirectly entitled to receive any dividends or distributions
from OneSpaWorld. The exemption from stamp duty shall not apply in relation to (i) real property situated in The Bahamas which OneSpaWorld or a subsidiary owns or holds a lease over, or (ii) any disposition of real property or
resident business in The Bahamas for the purposes of the ECR that is owned, wholly or in part, by OneSpaWorld or any parent or subsidiary of OneSpaWorld, however remote. At present, OneSpaWorld does not (i) own or lease, directly or
indirectly, real property situated in The Bahamas or (ii) own any resident business in The Bahamas for the purposes of the ECR, other than Mandara Spa (Bahamas) Limited (Mandara), as discussed below.
An indirect subsidiary of OneSpaWorld, Mandara, is a resident business in The Bahamas for the purposes of the ECR. The payment of dividends by
Mandara and remittance of such funds to a parent outside of The Bahamas of, or in excess of, B$500,000.00 or equivalent per annum, is subject to stamp duty at a rate of 5%. The turnover of Mandara is also subject to a business licence tax of between
0.5% and 1.5% of turnover based on the amount of turnover. Mandara is also required to collect and remit to the government of The Bahamas value added tax of 12% on goods sold and services rendered in The Bahamas. Mandara may also be subject to
certain stamp, customs and excise taxes from time to time.
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PLAN OF DISTRIBUTION
The Selling Shareholders, which as used herein includes donees, pledgees, transferees, distributees or other successors-in-interest selling our common shares or warrants or interests in our common shares or warrants received after the date of this prospectus from the Selling Shareholders as a gift, pledge,
partnership distribution or other transfer, may, from time to time, sell, transfer, distribute or otherwise dispose of certain of their common shares or warrants or interests in our common shares or warrants on any stock exchange, market or trading
facility on which the common shares or warrants, as applicable, are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at
varying prices determined at the time of sale, or at negotiated prices.
The Selling Shareholders may use any one or more of the following
methods when disposing of their common shares or warrants or interests therein:
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ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
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one or more underwritten offerings;
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block trades in which the broker-dealer will attempt to sell the common shares or warrants as agent, but may
position and resell a portion of the block as principal to facilitate the transaction;
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purchases by a broker-dealer as principal and resale by the broker-dealer for its accounts;
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an exchange distribution in accordance with the rules of the applicable exchange;
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privately negotiated transactions;
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distributions to their members, partners or shareholders;
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short sales effected after the date of the registration statement of which this prospectus is a part is declared
effective by the SEC;
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through the writing or settlement of options or other hedging transactions, whether through an options exchange
or otherwise;
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in market transactions, including transactions on a national securities exchange or quotations service or over-the-counter market;
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directly to one or more purchasers;
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broker-dealers may agree with the Selling Shareholders to sell a specified number of such common shares or
warrants at a stipulated price per share or warrant; and
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a combination of any such methods of sale.
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The Selling Shareholders may, from time to time, pledge or grant a security interest in some of our common shares or warrants owned by them
and, if a Selling Shareholder defaults in the performance of its secured obligations, the pledgees or secured parties may offer and sell our common shares or warrants, as applicable, from time to time, under this prospectus, or under an amendment or
supplement to this prospectus amending the list of the Selling Shareholders to include the pledgee, transferee or other successors in interest as the Selling Shareholders under this prospectus. The Selling Shareholders also may transfer our common
shares or warrants in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
In connection with the sale of our common shares or warrants or interests therein, the Selling Shareholders may enter into hedging
transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of our common shares or warrants in the course of hedging the positions they assume. The Selling
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Shareholders may also sell our common shares or warrants short and deliver these securities to close out their short positions, or loan or pledge our common shares or warrants to broker-dealers
that in turn may sell these securities. The Selling Shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to
such broker-dealer or other financial institution of common shares or warrants offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect
such transaction).
The aggregate proceeds to the Selling Shareholders from the sale of our common shares or warrants offered by them will
be the purchase price of our common shares or warrants less discounts or commissions, if any. The Selling Shareholders reserve the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed
purchase of our common shares or warrants to be made directly or through agents. We will not receive any of the proceeds from any offering by the Selling Shareholders.
The Selling Shareholders also may in the future resell a portion of our common shares or warrants in open market transactions in reliance upon
Rule 144 under the Securities Act, provided that they meet the criteria and conform to the requirements of that rule, or pursuant to other available exemptions from the registration requirements of the Securities Act.
The Selling Shareholders and any underwriters, broker-dealers or agents that participate in the sale of our common shares or warrants or
interests therein may be underwriters within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of our common shares or warrants may be underwriting
discounts and commissions under the Securities Act. If any Selling Shareholder is an underwriter within the meaning of Section 2(11) of the Securities Act, then the Selling Shareholder will be subject to the prospectus delivery
requirements of the Securities Act. Underwriters and their controlling persons, dealers and agents may be entitled, under agreements entered into with us and the Selling Shareholders, to indemnification against and contribution toward specific civil
liabilities, including liabilities under the Securities Act.
To the extent required, our common shares or warrants to be sold, the
respective purchase prices and public offering prices, the names of any agent, dealer or underwriter, and any applicable discounts, commissions, concessions or other compensation with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.
To facilitate the offering of our common shares and warrants offered by the Selling Shareholders, certain persons participating in the
offering may engage in transactions that stabilize, maintain or otherwise affect the price of our common shares or warrants. This may include over-allotments or short sales, which involve the sale by persons participating in the offering of more
common shares or warrants than were sold to them. In these circumstances, these persons would cover such over-allotments or short positions by making purchases in the open market or by exercising their over-allotment option, if any. In addition,
these persons may stabilize or maintain the price of our common shares or warrants by bidding for or purchasing common shares or warrants in the open market or by imposing penalty bids, whereby selling concessions allowed to dealers participating in
the offering may be reclaimed if common shares or warrants sold by them are repurchased in connection with stabilization transactions. The effect of these transactions may be to stabilize or maintain the market price of our common shares or warrants
at a level above that which might otherwise prevail in the open market. These transactions may be discontinued at any time.
Under the
Registration Rights Agreement, we have agreed to indemnify the Selling Shareholders party thereto against certain liabilities that they may incur in connection with the sale of the securities registered hereunder, including liabilities under the
Securities Act, and to contribute to payments that the Selling Shareholders may be required to make with respect thereto. In addition, we and the Selling Shareholders may
115
agree to indemnify any underwriter, broker-dealer or agent against certain liabilities related to the selling of the securities, including liabilities arising under the Securities Act.
We have agreed to maintain the effectiveness of this registration statement until all such securities have been sold under this registration
statement or Rule 144 under the Securities Act or are no longer outstanding. We have agreed to pay all expenses in connection with this offering, other than underwriting fees, discounts, selling commissions, stock transfer taxes and certain legal
expenses. The Selling Shareholders will pay, on a pro rata basis, any underwriting fees, discounts, selling commissions, stock transfer taxes and certain legal expenses relating to the offering.
Selling Shareholders may use this prospectus in connection with resales of our common shares and warrants. This prospectus and any
accompanying prospectus supplement will identify the Selling Shareholders, the terms of our common shares or warrants and any material relationships between us and the Selling Shareholders. Selling Shareholders may be deemed to be underwriters under
the Securities Act in connection with our common shares or warrants they resell and any profits on the sales may be deemed to be underwriting discounts and commissions under the Securities Act. Unless otherwise set forth in a prospectus supplement,
the Selling Shareholders will receive all the net proceeds from the resale of our common shares or warrants.
A Selling Shareholder that
is an entity may elect to make an in-kind distribution of common shares or warrants to its members, partners or shareholders pursuant to the registration statement of which this prospectus is a part by
delivering a prospectus. To the extent that such members, partners or shareholders are not affiliates of ours, such members, partners or shareholders would thereby receive freely tradable common shares or warrants pursuant to the distribution
through a registration statement.
We are required to pay all fees and expenses incident to the registration of our common shares and
warrants to be offered and sold pursuant to this prospectus, which we expect to be approximately $181,000.
116
LEGAL MATTERS
Kirkland & Ellis LLP, New York, New York will pass upon the validity of the warrants to be offered hereunder. Certain legal matters
relating to the validity of the common shares to be offered hereunder will be passed upon for us by Harry B. Sands, Lobosky & Company, our Bahamian counsel.
EXPERTS
The audited financial statements of Haymaker Acquisition Corp. as of December 31, 2018 and 2017, for the year ended December 31,
2018 and for the period from April 26, 2017 (inception) to December 31, 2017 included in this prospectus have been audited by Marcum LLP, an independent registered public accounting firm as set forth in their report, thereon (which
contains an explanatory paragraph relating to substantial doubt about the ability of Haymaker Acquisition Corp. to continue as a going concern as described in Note 2 to the financial statements), appearing elsewhere in this prospectus, and are
included in reliance on such report given upon such firm, as experts in auditing and accounting.
The combined balance sheets of OSW
Predecessor as of December 31, 2018 and 2017, and the related combined statements of income, comprehensive income, equity (deficit) and cash flows for each of the three years in the period ended December 31, 2018, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE
INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. We have also filed a
registration statement on Form S-1, including exhibits, under the Securities Act of 1933, as amended, with respect
to the common shares offered by this prospectus. This prospectus is part of the registration statement, but does not contain all of the information included in the registration statement or the exhibits. Our SEC filings are available to the
public on the internet at a website maintained by the SEC located at http://www.sec.gov.
117
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
Number
|
|
Audited Combined Financial Statements for OSW Predecessor
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
Combined Balance Sheets as of December 31, 2018 and 2017
|
|
|
F-3
|
|
Combined Statements of Income for the years ended December 31, 2018, 2017 and
2016
|
|
|
F-4
|
|
Combined Statements of Comprehensive Income for the years ended December 31,
2018, 2017 and 2016
|
|
|
F-5
|
|
Combined Statements of Equity (Deficit) for the years ended December
31, 2018, 2017 and 2016
|
|
|
F-6
|
|
Combined Statements of Cash Flows for the years ended December
31, 2018, 2017 and 2016
|
|
|
F-7
|
|
Notes to the Combined Financial Statements
|
|
|
F-9
|
|
Audited Financial Statements for Haymaker Acquisition Corp.
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-26
|
|
Balance Sheets as of December 31, 2018 and 2017
|
|
|
F-27
|
|
Statement of Operations for the year ended December
31, 2018 and for the period from April 26, 2017 (inception) through December 31, 2017
|
|
|
F-28
|
|
Statement of Changes in Stockholders Equity for the year ended December 31,
2018 and for the period from April 26, 2017 (inception) to December 31, 2017
|
|
|
F-29
|
|
Statement of Cash Flows for the year ended December
31, 2018 and the period from April 26, 2017 (inception) to December 31, 2017
|
|
|
F-30
|
|
Notes to Financial Statements
|
|
|
F-31
|
|
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors of Nemo Investor Aggregator, Limited
Opinion on the Financial Statements
We have audited the
accompanying combined balance sheets of OSW Predecessor, which comprises the combined net assets and operations of certain subsidiaries of Nemo Investor Aggregator, Limited, as described in Note 1, (the Company) as of December 31, 2018 and
2017, the related combined statements of income, comprehensive income, equity (deficit) and cash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the combined
financial statements). In our opinion, the combined financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
Basis
for Opinion
These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the
Companys financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the
Companys auditor since 2018.
Miami, Florida
March 25, 2019
F-2
OSW Predecessor
Combined Balance Sheets
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
ASSETS
|
|
2018
|
|
|
2017
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,302
|
|
|
$
|
8,671
|
|
Accounts receivable, net
|
|
|
25,352
|
|
|
|
23,263
|
|
Inventories
|
|
|
32,265
|
|
|
|
25,299
|
|
Prepaid expenses
|
|
|
6,617
|
|
|
|
4,818
|
|
Other current assets
|
|
|
1,424
|
|
|
|
1,037
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
80,960
|
|
|
|
63,088
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
16,239
|
|
|
|
17,372
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
33,864
|
|
|
|
33,864
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Note receivable due from affiliate of Parent
|
|
|
|
|
|
|
6,733
|
|
Intangible assets, net
|
|
|
131,517
|
|
|
|
135,038
|
|
Deferred tax assets
|
|
|
4,265
|
|
|
|
4,461
|
|
Other non-current assets
|
|
|
5,814
|
|
|
|
6,516
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
141,596
|
|
|
|
152,748
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
272,659
|
|
|
$
|
267,072
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,595
|
|
|
$
|
5,864
|
|
Accounts payablerelated parties
|
|
|
6,553
|
|
|
|
10,203
|
|
Accrued expenses
|
|
|
27,211
|
|
|
|
19,513
|
|
Income taxes payable
|
|
|
670
|
|
|
|
1,179
|
|
Other current liabilities
|
|
|
1,210
|
|
|
|
406
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
43,239
|
|
|
|
37,165
|
|
Deferred rent
|
|
|
645
|
|
|
|
443
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
197
|
|
Income tax contingency
|
|
|
3,918
|
|
|
|
3,986
|
|
Long-term debt
|
|
|
352,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
400,242
|
|
|
|
41,791
|
|
|
|
|
|
|
|
|
|
|
EQUITY (DEFICIT):
|
|
|
|
|
|
|
|
|
Net Parent investment
|
|
|
(130,520
|
)
|
|
|
221,041
|
|
Accumulated other comprehensive loss
|
|
|
(649
|
)
|
|
|
(356
|
)
|
|
|
|
|
|
|
|
|
|
Total Parent (deficit) equity
|
|
|
(131,169
|
)
|
|
|
220,685
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest
|
|
|
3,586
|
|
|
|
4,596
|
|
|
|
|
|
|
|
|
|
|
Total (deficit) equity
|
|
|
(127,583
|
)
|
|
|
225,281
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and (deficit) equity
|
|
$
|
272,659
|
|
|
$
|
267,072
|
|
|
|
|
|
|
|
|
|
|
F-3
OSW Predecessor
Combined Statements of Income
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
$
|
410,927
|
|
|
$
|
383,686
|
|
|
$
|
362,698
|
|
Product revenues
|
|
|
129,851
|
|
|
|
122,999
|
|
|
|
113,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
540,778
|
|
|
|
506,685
|
|
|
|
476,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUES AND OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
352,382
|
|
|
|
332,360
|
|
|
|
318,001
|
|
Cost of products
|
|
|
110,793
|
|
|
|
107,990
|
|
|
|
106,259
|
|
Administrative
|
|
|
9,937
|
|
|
|
9,222
|
|
|
|
10,432
|
|
Salary and payroll taxes
|
|
|
15,624
|
|
|
|
15,294
|
|
|
|
14,454
|
|
Amortization of intangible assets
|
|
|
3,521
|
|
|
|
3,521
|
|
|
|
3,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues and operating expenses
|
|
|
492,257
|
|
|
|
468,387
|
|
|
|
452,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
48,521
|
|
|
|
38,298
|
|
|
|
23,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE), NET:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(34,099
|
)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
238
|
|
|
|
408
|
|
|
|
340
|
|
Other income (expense)
|
|
|
171
|
|
|
|
(217
|
)
|
|
|
(178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(33,690
|
)
|
|
|
191
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
14,831
|
|
|
|
38,489
|
|
|
|
23,779
|
|
PROVISION FOR INCOME TAXES
|
|
|
1,088
|
|
|
|
5,263
|
|
|
|
5,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
13,743
|
|
|
|
33,226
|
|
|
|
18,164
|
|
Net income attributable to noncontrolling interest
|
|
|
3,857
|
|
|
|
2,109
|
|
|
|
3,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Parent
|
|
$
|
9,886
|
|
|
$
|
31,117
|
|
|
$
|
14,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-4
OSW Predecessor
Combined Statements of Comprehensive Income
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Net income
|
|
$
|
13,743
|
|
|
$
|
33,226
|
|
|
$
|
18,164
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(293
|
)
|
|
|
369
|
|
|
|
(655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss), net of tax
|
|
|
(293
|
)
|
|
|
369
|
|
|
|
(655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
13,450
|
|
|
|
33,595
|
|
|
|
17,509
|
|
Comprehensive income attributable to noncontrolling interest
|
|
|
3,857
|
|
|
|
2,109
|
|
|
|
3,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Parent
|
|
$
|
9,593
|
|
|
$
|
31,486
|
|
|
$
|
14,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the combined financial statements.
F-5
OSW Predecessor
Combined Statements of Equity (Deficit)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
Net Parent
Investment
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Total
Parent
Equity
(Deficit)
|
|
|
Non-
Controlling
Interest
|
|
|
Total
Equity
(Deficit)
|
|
BALANCE, December 31, 2015
|
|
$
|
247,426
|
|
|
$
|
(70
|
)
|
|
$
|
247,356
|
|
|
$
|
4,991
|
|
|
$
|
252,347
|
|
Net income
|
|
|
14,903
|
|
|
|
|
|
|
|
14,903
|
|
|
|
3,261
|
|
|
|
18,164
|
|
Distributions to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,159
|
)
|
|
|
(1,159
|
)
|
Net distributions to Parent and its affiliates
|
|
|
(23,833
|
)
|
|
|
|
|
|
|
(23,833
|
)
|
|
|
|
|
|
|
(23,833
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
(655
|
)
|
|
|
(655
|
)
|
|
|
|
|
|
|
(655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2016
|
|
|
238,496
|
|
|
|
(725
|
)
|
|
|
237,771
|
|
|
|
7,093
|
|
|
|
244,864
|
|
Net income
|
|
|
31,117
|
|
|
|
|
|
|
|
31,117
|
|
|
|
2,109
|
|
|
|
33,226
|
|
Distributions to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,606
|
)
|
|
|
(4,606
|
)
|
Net distributions to Parent and its affiliates
|
|
|
(48,572
|
)
|
|
|
|
|
|
|
(48,572
|
)
|
|
|
|
|
|
|
(48,572
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
369
|
|
|
|
369
|
|
|
|
|
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2017
|
|
|
221,041
|
|
|
|
(356
|
)
|
|
|
220,685
|
|
|
|
4,596
|
|
|
|
225,281
|
|
Net income
|
|
|
9,886
|
|
|
|
|
|
|
|
9,886
|
|
|
|
3,857
|
|
|
|
13,743
|
|
Distributions to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,867
|
)
|
|
|
(4,867
|
)
|
Net distributions to Parent and its affiliates
|
|
|
(361,447
|
)
|
|
|
|
|
|
|
(361,447
|
)
|
|
|
|
|
|
|
(361,447
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
(293
|
)
|
|
|
(293
|
)
|
|
|
|
|
|
|
(293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2018
|
|
$
|
(130,520
|
)
|
|
$
|
(649
|
)
|
|
$
|
(131,169
|
)
|
|
$
|
3,586
|
|
|
$
|
(127,583
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the combined financial statements.
F-6
OSW Predecessor
Combined Statements of Cash Flows
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
13,743
|
|
|
$
|
33,226
|
|
|
$
|
18,164
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
10,055
|
|
|
|
9,829
|
|
|
|
12,884
|
|
Amortization of deferred financing costs
|
|
|
1,243
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
18
|
|
|
|
18
|
|
|
|
18
|
|
Allocation of Parent corporate overhead
|
|
|
11,731
|
|
|
|
11,666
|
|
|
|
11,250
|
|
Deferred income taxes
|
|
|
(1
|
)
|
|
|
3,350
|
|
|
|
(472
|
)
|
|
|
|
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,107
|
)
|
|
|
(2,446
|
)
|
|
|
(1,178
|
)
|
Inventories
|
|
|
(6,966
|
)
|
|
|
8,163
|
|
|
|
(2,969
|
)
|
Prepaid expenses
|
|
|
(1,798
|
)
|
|
|
(160
|
)
|
|
|
(364
|
)
|
Other current assets
|
|
|
(340
|
)
|
|
|
100
|
|
|
|
(57
|
)
|
Note receivable due from affiliate of Parent
|
|
|
(238
|
)
|
|
|
(408
|
)
|
|
|
(340
|
)
|
Other non-current assets
|
|
|
652
|
|
|
|
(5,354
|
)
|
|
|
(936
|
)
|
Accounts payable
|
|
|
1,730
|
|
|
|
2,435
|
|
|
|
(639
|
)
|
Accounts payable related parties
|
|
|
(3,650
|
)
|
|
|
9,260
|
|
|
|
33,059
|
|
Accrued expenses
|
|
|
7,698
|
|
|
|
(718
|
)
|
|
|
2,138
|
|
Other current liabilities
|
|
|
499
|
|
|
|
(135
|
)
|
|
|
(68
|
)
|
Income taxes payable
|
|
|
(84
|
)
|
|
|
1,063
|
|
|
|
2,449
|
|
Income tax contingency
|
|
|
|
|
|
|
|
|
|
|
3,500
|
|
Deferred rent
|
|
|
202
|
|
|
|
229
|
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
32,387
|
|
|
|
70,118
|
|
|
|
76,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(4,983
|
)
|
|
|
(2,683
|
)
|
|
|
(3,081
|
)
|
Note receivable due from affiliate of Parent
|
|
|
|
|
|
|
|
|
|
|
(5,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(4,983
|
)
|
|
|
(2,683
|
)
|
|
|
(8,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net distributions to Parent and its affiliates
|
|
|
(15,690
|
)
|
|
|
(60,893
|
)
|
|
|
(70,348
|
)
|
Distributions to noncontrolling interest
|
|
|
(4,867
|
)
|
|
|
(4,606
|
)
|
|
|
(1,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(20,557
|
)
|
|
|
(65,499
|
)
|
|
|
(71,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(216
|
)
|
|
|
124
|
|
|
|
(480
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
6,631
|
|
|
|
2,060
|
|
|
|
(3,863
|
)
|
Cash and cash equivalents, Beginning of period
|
|
|
8,671
|
|
|
|
6,611
|
|
|
|
10,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, End of period
|
|
$
|
15,302
|
|
|
$
|
8,671
|
|
|
$
|
6,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the combined financial statements.
F-7
OSW Predecessor
Combined Statements of Cash Flows
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
1,038
|
|
|
$
|
364
|
|
|
$
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
30,344
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Vendor-financed purchase of fixed assets
|
|
$
|
306
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets transferred from Parent
|
|
$
|
125
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of Parent corporate overhead
|
|
$
|
11,731
|
|
|
$
|
11,666
|
|
|
$
|
11,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assignment and assumption of Parent long-term debt
|
|
$
|
351,197
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note receivable from affiliate of Parent forgiven by Parent
|
|
$
|
6,841
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of income tax payable for separate return
method
|
|
$
|
1,174
|
|
|
$
|
1,033
|
|
|
$
|
1,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payablerelated parties forgiven by Parent
|
|
$
|
|
|
|
$
|
|
|
|
$
|
32,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the combined financial statements.
F-8
OSW PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2018
1. Organization
OSW Predecessor (the Company) is comprised of the net assets and operations of (i) the following wholly-owned subsidiaries of Steiner
Leisure Limited (Steiner Leisure or Parent): OneSpaWorld LLC, Steiner Spa Asia Limited, Steiner Spa Limited, and Steiner Marks Limited, (ii) the following respective indirect subsidiaries of Steiner Leisure: Mandara
PSLV, LLC, Mandara Spa (Hawaii), LLC, Florida Luxury Spa Group, LLC, Steiner Transocean U.S., Inc., Steiner Spa Resorts (Nevada), Inc., Steiner Spa Resorts (Connecticut), Inc., Steiner Resort Spas (California), Inc., Steiner Resort Spas (North
Carolina), Inc., OSW SoHo LLC, OSW Distribution LLC, Steiner Training Limited, STO Italy S.r.l., One Spa World LLC, Mandara Spa Services LLC, OneSpaWorld Limited, OneSpaWorld (Bahamas) Limited (formerly known as Steiner Transocean Limited),
OneSpaWorld Medispa LLC, OneSpaWorld Medispa Limited, OneSpaWorld Medispa (Bahamas) Limited, Mandara Spa (Cruise I), LLC, Mandara Spa (Cruise II), LLC, Steiner Transocean (II) Limited, The Onboard Spa by Steiner (Shanghai) Co., Ltd., Mandara
Spa LLC, Mandara Spa Puerto Rico, Inc., Mandara Spa (Guam), L.L.C., Mandara Spa (Bahamas) Limited, Mandara Spa Aruba N.V., Mandara Spa Polynesia Sarl, Mandara Spa (Saipan), Inc., Mandara Spa Asia Limited, PT Mandara Spa Indonesia, Spa Services Asia
Limited, Mandara Spa Palau, Mandara Spa (Malaysia) Sdn. Bhd., Mandara Spa Ventures International Sdn. Bhd., Spa Partners (South Asia) Limited, Mandara Spa (Maldives) PVT LTD, and Mandara Spa (Fiji) Limited, (iii) Medispa Limited, a
majority-owned subsidiary of Steiner Leisure, and (iv) the timetospa website owned by Elemis USA, Inc. (formerly known as Steiner Beauty Products, Inc.).
The Company is a global provider and innovator in the fields of beauty and wellness. In facilities on cruise ships and in land-based spas, the Company
strives to create a relaxing and therapeutic environment where guests can receive beauty and body treatments of the highest quality. The Companys services include traditional and alternative massage, body and skin treatment options,
fitness, acupuncture, and medi-spa treatments. The Company also sells premium quality beauty products at its facilities and through its timetospa.com website. The predominant business, based on
revenues, is sales of products and services on cruise ships and at land-based spas, followed by sales of products through the timetospa.com website.
On
March 19, 2019, OneSpaWorld Holdings Limited (OSWHL) consummated the business combination (the Business Combination) pursuant to that certain Business Combination Agreement, dated as of November 1, 2018 (as amended
on January 7, 2019, by Amendment No. 1 to Business Combination Agreement), by and among Steiner Leisure, Steiner U.S. Holdings, Inc., Nemo (UK) Holdco, Ltd., Steiner UK Limited, Steiner Management Services LLC, Haymaker Acquisition Corp
(Haymaker), OSWHL, Dory US Merger Sub, LLC, Dory Acquisition Sub, Limited, Dory Intermediate LLC, and Dory Acquisition Sub, Inc.. Prior to the consummation of the Business Combination OSWHL was a wholly-owned subsidiary of Steiner
Leisure. At the closing of the Business Combination, OSWHL became the ultimate parent company of Haymaker and the Company.
2. Summary of
Significant Accounting Policies
a) Principles of Combination and Basis of Presentation
The Companys combined financial statements include the accounts of the wholly-owned and indirect subsidiaries of the Parent listed in Note 1 and include
the accounts of a company partially owned by OneSpaWorld Medispa (Bahamas) Limited, in which OneSpaWorld (Bahamas) Limited (100% owner of OneSpaWorld Medispa (Bahamas) Limited) has a controlling interest. Refer to Note 6 for more information on
the noncontrolling interest. The combined financial statements also include the accounts and results of operations associated with the timetospa.com website owned by Elemis USA, Inc. The Companys combined financial statements do not represent
the financial position and results of operations of a legal entity but rather a
F-9
combination of entities under common control of the Parent that have been carved out of the Parents consolidated financial statements and reflect significant assumptions and
allocations. All significant intercompany transactions and balances have been eliminated in combination.
The accompanying combined financial statements
and the notes to the combined financial statements may not be indicative of what they would have been had the Company actually been a separate stand-alone entity, nor are they necessarily indicative of the Companys future results of
operations, financial position and cash flows.
The accompanying combined financial statements include the assets, liabilities, revenues and expenses
specifically related to the Companys operations. The Company receives services and support from various functions performed by the Parent and costs associated with these functions have been allocated to the Company. These allocations are
necessary to reflect all of the costs of doing business and include costs related to certain Parent corporate functions, including, but not limited to, senior management, legal, human resources, finance, IT and other shared services that have been
allocated to the Company based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata basis determined by an estimate of the percentage of time Parent employees devoted to the Company, as compared to total time
available or by the headcount of employees at the Parents corporate headquarters that are fully dedicated to the Companys entities in relation to the total employee headcount. These allocated costs are reflected in salary and payroll
taxes and administrative expenses in the combined statements of income. Management considers these allocations to be a reasonable reflection of the utilization of services by or benefit provided to the Company. However, the allocations may not be
indicative of the actual expenses that would have been incurred had the Company operated as an independent, stand-alone entity.
Parent equity (deficit)
represents the Parent controlling interest in the recorded net assets of the Company, specifically, the cumulative net investment by the Parent in the Company and cumulative operating results through the date presented. The net effect of the
settlement of transactions between the Company, the Parent, and other affiliates of the Parent are reflected in the combined statements of equity (deficit) as net distributions to Parent and its affiliates, in the combined statements of cash flows
as a financing activity, and in the combined balance sheets as net Parent investment.
Cash is managed centrally through bank accounts controlled and
maintained by the Parent and its affiliates.
Transfers of cash to and from the Parents and its affiliates are reflected in net Parent investment in
the combined balance sheets. Cash balances legally owned by the Company are included in the combined balance sheets. The Company has historically funded its operations with cash flow from operations, except with respect to certain expenses and
operating costs that had been paid by the Parent on behalf of the Company, and, when needed, with borrowings under its credit facility. The Parent has paid on behalf of the Company expenses associated with the allocation of Parent corporate overhead
and costs associated with the purchase of products from related parties and forgiven by Parent. Historical operating cash flows exclude the Companys expenses and operating costs paid by the Parent on behalf of the Company. Consequently, the
Companys combined historical cash flows may not be indicative of cash flows had the Company actually been a separate stand-alone entity or future cash flows of the Company.
For the year ended December 31, 2018, the Company was assigned and assumed long-term debt of the Parent. Refer to Note 5 for more information on
long-term debt.
Management believes the assumptions and allocations underlying the accompanying combined financial statements and notes to the combined
financial statements are reasonable, appropriate and consistently applied for the periods presented. Management believes the accompanying combined financial statements reflect all costs of doing business.
The accompanying combined financial statements have been prepared in conformity with accounting principles generally accepted in the United States
(GAAP).
F-10
b) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents.
The Company maintains its cash and cash equivalents with reputable major financial institutions. Deposits with these banks exceed the Federal Deposit Insurance Corporation insurance limits or similar limits in foreign jurisdictions. While the
Company monitors daily the cash balances in its operating accounts and adjusts the balances as appropriate, these balances could be impacted if one or more of the financial institutions with which the Company deposits funds fails or is subject to
other adverse conditions in the financial or credit markets. To date, the Company has experienced no loss or lack of access to invested cash or cash equivalents; however, it can provide no assurance that access to invested cash and cash equivalents
will not be impacted by adverse conditions in the financial and credit markets.
c) Revenue Recognition
The Company recognizes revenues earned as services are provided and as products are sold. All taxable revenue transactions are presented on a net-of-tax basis. Revenue from gift certificate sales is recognized upon gift certificate redemption and upon recognition of breakage (non-redemption of a gift certificate after a specified period of time). The Company does not charge administrative fees on unused gift cards, and the Companys gift cards do not have an expiration date. Based
on historical redemption rates, a relatively stable percentage of gift certificates will never be redeemed. The Company uses the redemption recognition method for recognizing breakage related to certain gift certificates for which it has sufficient
historical information. Under the redemption recognition method, revenue is recorded in proportion to, and over the time period gift cards are actually redeemed. Breakage is recognized only if the Company determines that it does not have a legal
obligation to remit the value of unredeemed gift certificates to government agencies under the unclaimed property laws in the relevant jurisdictions. The Company determines the gift certificate breakage rate based upon historical redemption
patterns. At least three years of historical data, which is updated annually, is used to estimate redemption patterns.
d) Cost of
Revenues
Cost of services consists primarily of the cost of product consumed in the rendering of a service, an allocable portion of wages paid to
shipboard employees, an allocable portion of payments to cruise lines (which are derived as a percentage of service revenues or a minimum annual rent or a combination of both), an allocable portion of staff-related shipboard expenses, costs related
to recruitment and training of shipboard employees, wages paid directly to destination resort employees, payments to destination resort venue owners, and health and wellness facility depreciation.
Cost of products consists primarily of the cost of products sold through the Companys various methods of distribution, an allocable portion of wages
paid to shipboard employees, an allocable portion of payments to cruise lines (which are derived as a percentage of product revenues or a minimum annual rent or a combination of both), and an allocable portion of staff-related shipboard expenses.
e) Inventories
Inventories,
consisting principally of beauty products, are stated at the lower of cost, as determined on a first-in, first-out basis, or market. All inventory balances are comprised
of finished goods used in beauty and health and wellness services or held for resale. The majority of inventory is purchased from related parties. Refer to Note 10 for more information on transactions with related parties.
f) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. Expenditures for maintenance and repairs, which do not add to the
value of the related assets or materially extend their original
F-11
lives, are expensed as incurred. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are
amortized in a straight-line basis over the shorter of the terms of the respective leases and the estimated useful lives of the respective assets.
g) Long-Lived Assets
The Company
reviews long-lived assets for impairment whenever events or changes in circumstances indicate, based on estimated future cash flows, that the carrying amount of these assets may not be fully recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset (asset group) to future undiscounted cash flows expected to be generated by the asset (asset group). An asset group is the lowest level of assets and liabilities for which identifiable
cash flows are largely independent of the cash flows of other assets and liabilities. When estimating future cash flows, the Company considers:
|
|
|
only the future cash flows that are directly associated with and that are expected to arise as a direct result of
the use and eventual disposition of the asset group;
|
|
|
|
potential events and changes in circumstance affecting key estimates and assumptions; and
|
|
|
|
the existing service potential of the asset (asset group) at the date tested.
|
If an asset (asset group) is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset
(asset group) exceeds its fair value. When determining the fair value of the asset (asset group), the Company considers the highest and best use of the assets from a market-participant perspective. The fair value measurement is generally determined
through the use of independent third-party appraisals or an expected present value technique, both of which may include a discounted cash flow approach, which reflects assumptions of what market participants would utilize to price the asset (asset
group).
Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Assets to be abandoned, or from which
no further benefit is expected, are written down to zero at the time that the determination is made, and the assets are removed entirely from service.
h) Shipping and Handling
Shipping
and handling costs associated with inbound freight are capitalized to inventories and relieved through cost of sales as inventories are sold. Shipping and handling costs associated with the delivery of products are included in administrative
expenses. The shipping and handling costs included in administrative expenses in the accompanying combined statements of income for the years ended December 31, 2018, 2017 and 2016 were $0.4 million, $0.5 million and
$0.8 million, respectively.
i) Advertising
Substantially, all of the Companys advertising costs are charged to expense as incurred, except costs that result in tangible assets, such as brochures,
which are recorded as prepaid expenses and charged to expense as consumed. Advertising expenses included in cost of revenues and operating expenses in the accompanying combined statements of income for the years ended December 31, 2018,
2017 and 2016 were $3.7 million, $2.9 million and $2.6 million, respectively. Advertising costs included in prepaid expenses in the accompanying combined balance sheets as of December 31, 2018 and 2017 were $0.8 million and
$0.6 million, respectively.
j) Income Taxes
The Companys United States (U.S.) entities, other than those that are domiciled in U.S. territories, file their U.S. tax return as part of a
consolidated tax filing group, while the Companys entities that are domiciled in U.S. territories file specific returns. In addition, the Companys foreign entities file income tax returns in their
F-12
respective countries of incorporation, where required. For the purposes of these financial statements, the Company is accounting for income taxes under the separate return method of accounting.
This method requires the allocation of current and deferred taxes to the Company as if it were a separate taxpayer. Under this method, the resulting portion of current income taxes payable that is not actually owed to the tax authorities is written-off through equity. Accordingly, income taxes payable in the combined balance sheets, as of December 31, 2018 and 2017 reflects current income tax amounts actually owed to the tax authorities, as of
those dates, as well as the accrual for uncertain tax positions. The write-off of current income taxes payable not actually owed to the tax authorities is included in net Parent investment in the accompanying
combined balance sheets as of December 31, 2018 and 2017. Deferred income taxes are recognized based upon the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Deferred income tax provisions and benefits are based on the changes to the asset or liability from period to period. A valuation allowance is
provided on deferred tax assets if it is determined that it is more likely than not that the deferred tax assets will not be realized. The majority of the Companys income is generated outside of the U.S.
The Company believes a large percentage of its shipboard services income is foreign-source income, not effectively connected to a business it conducts
in the U.S. and, therefore, not subject to U.S. income taxation.
The Company recognizes interest and penalties within the provision for income taxes in
the combined statements of income. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued, therefore, will be reduced and reflected as a reduction of the overall income tax provision.
The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to
evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.
The second step is to measure the tax benefit as the largest amount of benefit, determined on a cumulative probability basis, which is more than 50% likely of being realized upon ultimate settlement.
k) Foreign Currency Transactions
For currency exchange rate purposes, assets and liabilities of the Companys foreign subsidiaries are translated at the rate of exchange in effect at the
balance sheet date. Equity and other items are translated at historical rates, and income and expenses are translated at the average rates of exchange prevailing during the year. The related translation adjustments are reflected in the accumulated
other comprehensive loss caption of the Companys combined balance sheets. Foreign currency gains and losses resulting from transactions, including intercompany transactions, are included in results of operations. The transaction gains
(losses) included in the administrative expenses caption of the combined statements of income for the years ended December 31, 2018, 2017 and 2016 were ($0.4) million, $0.7 million and ($0.2) million, respectively.
l) Fair Value Measurements
Fair
value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the
measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy.
The three levels of inputs used
to measure fair value are as follows:
|
|
|
Level 1Value is based on quoted prices in active markets for identical assets and liabilities.
|
|
|
|
Level 2Value is based on observable inputs other than quoted prices included in Level 1. This includes
dealer and broker quotations, bid prices, quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable market data.
|
F-13
|
|
|
Level 3Value is based on unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities. This includes discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
|
The Company has no assets or liabilities that are recorded at fair value on a recurring basis. The Company did not have any assets or liabilities measured at
fair value on a nonrecurring basis during the years ended December 31, 2018, 2017 and 2016.
Cash and cash equivalents are reflected in the
accompanying combined balances at cost, which approximated fair value, estimated using Level 1 inputs, as they are maintained with various high-quality financial institutions and having original maturities of three months or less. The
carrying value of the note receivable due from affiliate of the Parent (see Note 10) approximates fair value through inputs inherent to the originating value of the loan, such as interest rate and ongoing credit risk (estimated using Level 3
inputs).
The fair value of outstanding long-term debt is estimated at $372.2 million at December 31, 2018 using a discounted cash flow analysis
based on current market interest rates for debt issuances with similar remaining years-to-maturity and adjusted for credit risk, which represents a Level 3
measurement.
m) Subsequent Events
The Company has evaluated all subsequent events for potential recognition and disclosure through March 25, 2019, the date the combined financial
statements were available to be issued.
On March 1, 2019, the outstanding balance of the Companys long-term debt was repaid by the Parent on
behalf of the Company without the Parent making any cash contribution to the Company. The forgiveness of debt was accounted for by the Company as a financing transaction and a non-cash capital contribution and
a non-cash reduction of debt.
n) Goodwill
Goodwill represents the excess of cost over the fair value of identifiable net assets acquired. The impairment is the amount, if any, by which the implied fair
value of goodwill and other indefinite-lived tangible assets are less than the carrying or book value. Annually, each October 1, the Company performs the required annual impairment test for each reporting unit.
The Company has two operating segments: (1) Maritime and (2) Destination Resorts. The Maritime and Destination Resorts operating segments each have
associated goodwill, and each has been determined to be a reporting unit.
There was no impairment for the years ended December 31, 2018, 2017 and
2016.
o) Intangible Assets
Intangible assets include the cost of a trade name, contracts with cruise lines and leases with hotels and resorts.
The Company amortizes intangible assets with definite lives on a straight-line basis over their estimated useful lives. Amortization expense related to
intangible assets for each of the years ended December 31, 2018, 2017 and 2016 was $3.5 million. Amortization expense is estimated to be $3.5 million in each of the next five years beginning in 2019.
Contracts with cruise lines are generally renewed every five years. The Company has the intent and ability to renew such contracts over the estimated useful
lives of the assets. Costs incurred to renew contracts are capitalized and amortized to cost of revenues and operating expenses over the term of the contract.
F-14
Lease agreements with hotels and resorts in which the Company operates are generally renewed every ten
years. The Company had the intent and ability to renew such contracts.
At October 1, 2018 and 2017, the Company performed the required annual
impairment test for the intangible asset with an indefinite life and determined that there was no impairment.
The balance of other intangible assets is
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Intangible assets with indefinite lives (trade-name)
|
|
$
|
5,000
|
|
|
$
|
5,000
|
|
Intangible assets with definite lives, net
|
|
|
126,517
|
|
|
|
130,038
|
|
|
|
|
|
|
|
|
|
|
Total intangibles assets, net
|
|
$
|
131,517
|
|
|
$
|
135,038
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018, the cost, accumulated amortization, and net balance of the definite-lived intangible assets were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
Balance
|
|
|
Weighted
Average
Remaining
Useful Life
(Yrs.)
|
|
Contracts
|
|
$
|
130,000
|
|
|
$
|
(10,210
|
)
|
|
$
|
119,790
|
|
|
|
36
|
|
Lease agreements
|
|
|
7,300
|
|
|
|
(573
|
)
|
|
|
6,727
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
137,300
|
|
|
$
|
(10,783
|
)
|
|
$
|
126,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017, the cost, accumulated amortization, and net balance of the definite-lived intangible assets were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Weighted
Average
Remaining
Useful Life
(Yrs.)
|
|
Contracts
|
|
$
|
130,000
|
|
|
$
|
(6,877
|
)
|
|
$
|
123,123
|
|
|
|
37
|
|
Lease agreements
|
|
|
7,300
|
|
|
|
(385
|
)
|
|
|
6,915
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
137,300
|
|
|
$
|
(7,262
|
)
|
|
$
|
130,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
p) Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates include the assessment of the recovery of long-lived assets, goodwill, and other
intangible assets; the determination of deferred income taxes, including valuation allowances; the useful lives of definite-lived intangible assets and property and equipment; and allocations of Parent costs.
q) Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and
accounts receivable. The Company maintains cash and cash
F-15
equivalents with high quality financial institutions. As of December 31, 2018, and 2017, the Company had three cruise companies that represented greater than 10% of accounts receivable. The
Company does not normally require collateral or other security to support normal credit sales. The Company controls credit risk through credit approvals, credit limits, and monitoring procedures.
Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts. The Company records an allowance for doubtful
accounts with respect to accounts receivable using historical collection experience, and generally, an account receivable balance is written off once it is determined to be uncollectible. The Company reviews the historical collection experience and
considers other facts and circumstances and adjusts the calculation to record an allowance for doubtful accounts as appropriate. If the Companys current collection trends were to differ significantly from historic collection experience, the
Company would make a corresponding adjustment to the allowance. The allowance for doubtful accounts was $0.5 million as of December 31, 2018 and 2017. Bad debt expense is included within administrative operating expenses in the
accompanying combined statements of income and is not significant for the years ended December 31, 2018, 2017 and 2016.
r)
Recent Accounting Pronouncements
With the exception of those discussed below, there have been no recent accounting pronouncements or changes in
accounting pronouncements during the year ended December 31, 2018 that are of significance, or potential significance, to the Company based on its current operations. The following summary of recent accounting pronouncements is not intended to
be an exhaustive description of the respective pronouncement.
In May 2014, the FASB issued ASU 2014-09. The core
principle of the guidance in ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. The guidance in this ASU supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry specific guidance throughout the Industry Topics of
the ASC. Additionally, ASU 2014-09 supersedes some cost guidance included in Subtopic 605-35, Revenue RecognitionConstruction-Type and Production-Type Contracts.
In periods subsequent to the initial issuance of this ASU, the FASB has issued additional ASUs
clarifying items within Topic 606, as follows:
|
|
|
In March 2016, the FASB issued ASU 2016-08, Revenue from
Contracts with Customers (Topic 606): Principal versus Agent Considerations (ASU 2016-08). The amendments in ASU 2016-08 serve to clarify the
implementation guidance on principal versus agent considerations.
|
|
|
|
In April 2016, the FASB issued ASU 2016-10, Revenue from
Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (ASU 2016-10). The purpose of ASU 2016-10 is to clarify two
aspects of Topic 606: identifying performance obligations and the licensing implementation guidance (while retaining the related principles for those areas).
|
|
|
|
In May 2016, the FASB issued ASU 2016-12, Revenue from
Contracts with Customers (Topic 606) (ASU 2016-12). The purpose of ASU 2016-12 is to address certain issues identified to improve Topic 606 by
enhancing guidance on assessing collectability, presentation of sales taxes and other similar taxes collected from customers, non-cash consideration and completed contracts and contract modifications at
transition.
|
The FASB issued updates ASU 2016-08, ASU
2016-10 and ASU 2016-12 to provide guidance to improve the operability and understandability of the implementation guidance included in ASU 2014-09. ASU 2016-08, ASU 2016-10 and ASU 2016-12 have the same effective date and
transition requirements of ASU 2015-14, which defers the effective date and transition of ASU 2014-09 annual reporting periods beginning after
F-16
December 15, 2018, and interim periods within annual periods beginning after December 15, 2019, with early adoption permitted. The Company plans to adopt this standard, other related
revenue standard clarifications and technical guidance effective for the annual period ending December 31, 2019 and quarterly periods beginning January 1, 2020. The Company has elected the modified retrospective transition approach. Under
this method, the standard will be applied only to the most current period presented and the cumulative effect of applying the standard will be recognized at the date of initial application. The Company is progressing through its implementation plan
and is continuing to evaluate the impact of the standard on its processes, accounting systems, controls and financial disclosures. The Company is not able to determine at this time if the adoption of this guidance will have a material impact on the
Companys combined financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic
842) (ASU 2016-02) to increase transparency and comparability among organizations by recognizing rights and obligations resulting from leases as lease assets and lease liabilities on the
balance sheet and disclosing key information about leasing arrangements. The update requires lessees to recognize for all leases with a term of 12 months or more at the commencement date: (a) a lease liability or a lessees obligation to
make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset or a lessees right to use or control the use of a
specified asset for the lease term. Under the update, lessor accounting remains largely unchanged. The update requires a modified retrospective transition approach for leases existing at or entered into after the beginning of the earliest
comparative period presented in the financial statements and do not require any transition accounting for leases that expire before the earliest comparative period presented. The update is effective retrospectively for annual periods beginning after
December 15, 2019, and interim periods beginning after December 15, 2020, with early adoption permitted. The Company is not able to determine at this time if the adoption of this guidance will have a material impact on the Companys
combined financial statements.
In March 2016, the FASB issued ASU 2016-04, Recognition of Breakage for
Certain Prepaid Stored-Value Products (a consensus of the FASB Emerging Issues Task Force). ASU 2016-04 requires entities that sell certain prepaid stored-value products redeemable for goods, services or
cash at third-party merchants to derecognize liabilities related to those products for breakage (i.e., the value that is ultimately not redeemed by the consumer). This guidance is effective for annual periods beginning after December 15, 2018.
Early adoption is permitted. Entities can use either a full retrospective approach, meaning they would apply the guidance to all periods presented, or a modified retrospective approach, meaning they would apply it only to the most current period
presented with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the methods and impact of adopting this new guidance on its combined financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial InstrumentsCredit Losses (Topic 326). This
ASU amends the Boards guidance on the impairment of financial instruments. The ASU adds to GAAP an impairment model (known as the current expected credit losses model) that is based on an expected losses model rather than an incurred
losses model. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The ASU is also intended to reduce the complexity of GAAP by decreasing the number of impairment models that entities use to account
for debt instruments. The update is effective for fiscal years beginning after December 15, 2020. The Company is currently assessing the future impact the adoption of this guidance will have on its combined financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of
cash flows under existing guidance. The update is effective for annual periods beginning after December 15, 2018. The amendments should be applied using a retrospective transition method to each period presented. The Company does not anticipate
the adoption of this guidance will have a material impact on its combined financial statements.
F-17
In October 2016, the FASB issued ASU 2016-16, Income Taxes
(Topic 740): Intra-Entity Transfers of Assets Other Than Inventory: (ASU 2016-16) This ASU was issued as part of the Boards initiative to reduce complexity in accounting standards. This
ASU eliminates an exception in ASC 740, which prohibits the immediate recognition of income tax consequences of intra-entity asset transfers other than inventory. Under ASU 2016-16, entities will be required
to recognize the immediate current and deferred income tax effects of intra-entity asset transfers, which often involve a subsidiary of a company transferring intellectual property to another subsidiary. The new guidance will be effective for annual
periods beginning after December 15, 2018. This ASUs amendments should be applied on a modified retrospective basis, recognizing the effects in retained earnings as of the beginning of the year of adoption. The Company does not anticipate
the adoption of this guidance will have a material impact on its combined financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This ASU requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash
flows. The update is effective for annual periods beginning after December 15, 2018. The Company does not anticipate the adoption of this guidance will have a material impact on its combined financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a
Business. This ASU assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses by clarifying the definition of a business. The definition of a business affects many areas
of accounting including acquisition, disposals, goodwill and consolidation. The update is effective for annual periods beginning after December 31, 2018. The amendments in this update should be applied prospectively on or after the effective
date. The Company does not anticipate the adoption of this guidance will have a material impact on the Companys combined financial statements.
In
January 2017, the FASB issued ASU 2017-04, Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU
2017-04). This ASU simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Previously, in computing the implied fair value of goodwill under Step 2, an
entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a
business combination. Instead, under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity
should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The new
guidance is effective for an entitys annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and early adoption is permitted for interim or annual goodwill impairment tests performed on testing
dates after January 1, 2017. The Company is currently assessing the future impact the adoption of this guidance will have on its combined financial statements.
F-18
3. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life
|
|
|
December 31,
|
|
|
|
In Years
|
|
|
2018
|
|
|
2017
|
|
Furniture and fixtures
|
|
|
5 7
|
|
|
$
|
4,735
|
|
|
$
|
3,991
|
|
Computers and equipment
|
|
|
3 8
|
|
|
|
7,127
|
|
|
|
5,404
|
|
Leasehold improvements
|
|
|
Term of lease
|
|
|
|
24,665
|
|
|
|
21,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,527
|
|
|
|
31,285
|
|
Less: Accumulated depreciation and amortization
|
|
|
|
|
|
|
(20,288
|
)
|
|
|
(13,913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$16,239
|
|
|
$17,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense for the years ended December 31, 2018, 2017 and 2016 were $6.5 million,
$6.3 million and $7.5 million, respectively.
4. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Operative commissions
|
|
$
|
4,663
|
|
|
$
|
4,607
|
|
Minimum cruise line commissions
|
|
|
5,648
|
|
|
|
4,230
|
|
Payroll and bonuses
|
|
|
5,037
|
|
|
|
2,768
|
|
Interest
|
|
|
2,513
|
|
|
|
|
|
Other
|
|
|
9,350
|
|
|
|
7,908
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,211
|
|
|
$
|
19,513
|
|
|
|
|
|
|
|
|
|
|
5. Long-term Debt
On
January 11, 2018, the Company entered into an assignment and assumption of third-party debt (the Term Credit Agreement) of $356.2 million from the Parent with a maturity date on December 9, 2021. Long-term debt is
presented net of related unamortized deferred financing costs of $3.7 million on the combined balance sheet as of December 31, 2018. The Company amortizes debt issuance costs as interest expense over the term of the related debt using the
effective interest method in the accompanying combined statements of income. Interest costs incurred were $34.1 million, inclusive of amortization of deferred financing costs of $1.3 million, for the year ended December 31, 2018. In
connection with the Term Credit Agreement, the Company entered into pledge and security agreements with the applicable lenders as collateral agent, pledging substantially all of its assets as collateral.
The Company can elect to apply a base rate or LIBOR rate of interest on the Term Credit Agreement. Interest shall be paid, with respect to any base rate loan,
the first day of each month and with respect to any LIBOR rate loan, on the last day of each interest period with respect thereto and for any LIBOR rate loan with an interest period of three months, at the end of each three-month period during such
interest period.
The Term Credit Agreement contains customary affirmative, negative and financial covenants, including limitations on dividends and
funded debt. The Company is in compliance with these covenants.
As of December 31, 2018, the interest rate on the Term Credit Agreement was based on
(at the Parents election) either LIBOR plus a predetermined margin that ranged from 7.00% to 7.50%, or the base rate as defined in the
F-19
Term Credit Agreement plus a predetermined margin that ranged from 6.00% to 6.50%, in each case based on the Parents consolidated total leverage ratio. As of December 31, 2018, the
Parent elected the LIBOR rate and the applicable margin was 7.25% per annum.
6. Noncontrolling Interest
The Company has a 60% controlling interest and a third party has a 40% noncontrolling interest of Medispa Limited, a Bahamian entity that is a subsidiary of
the Company. The operations of MediSpa Limited relate to the delivery of non-invasive aesthetic services, provision of related services, and the sale of related products onboard passenger cruise ships and at
hotel and resort spas outside the tax jurisdiction of the U.S. As of December 31, 2018 and 2017, the noncontrolling interest was $3.6 million and $4.6 million, respectively.
7. Income Taxes
Income before provision for income taxes
consists of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
U.S.
|
|
$
|
2,871
|
|
|
$
|
3,047
|
|
|
$
|
2,967
|
|
Foreign
|
|
|
11,960
|
|
|
|
35,442
|
|
|
|
20,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,831
|
|
|
$
|
38,489
|
|
|
$
|
23,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
U.S. Federal
|
|
$
|
461
|
|
|
$
|
3,919
|
|
|
$
|
1,161
|
|
U.S. State
|
|
|
159
|
|
|
|
267
|
|
|
|
309
|
|
Foreign
|
|
|
468
|
|
|
|
1,077
|
|
|
|
4,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,088
|
|
|
$
|
5,263
|
|
|
$
|
5,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
1,089
|
|
|
$
|
1,913
|
|
|
$
|
6,087
|
|
Deferred
|
|
|
(1
|
)
|
|
|
3,350
|
|
|
|
(472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,088
|
|
|
$
|
5,263
|
|
|
$
|
5,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the difference between the expected (benefit) provision for income taxes using the U.S. federal tax rate
and our actual provision is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Provision using statutory
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal tax rate
|
|
$
|
3,114
|
|
|
$
|
13,471
|
|
|
$
|
8,323
|
|
Foreign rate differential
|
|
|
(1,730
|
)
|
|
|
(11,222
|
)
|
|
|
(6,449
|
)
|
Rate change on deferred
|
|
|
|
|
|
|
2,652
|
|
|
|
|
|
State taxes
|
|
|
126
|
|
|
|
277
|
|
|
|
286
|
|
Non-taxable income
|
|
|
(439
|
)
|
|
|
(396
|
)
|
|
|
(220
|
)
|
Permanent differences
|
|
|
141
|
|
|
|
71
|
|
|
|
178
|
|
Uncertain tax position
|
|
|
(68
|
)
|
|
|
487
|
|
|
|
3,500
|
|
Other
|
|
|
(56
|
)
|
|
|
(77
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,088
|
|
|
$
|
5,263
|
|
|
$
|
5,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
The difference between the expected provision for income taxes using the 21% U.S. federal income tax rate
for 2018 and a 35% U.S. federal income tax rate for 2017 and 2016, and the Companys actual provision is primarily attributable to foreign rate differential including income earned in jurisdictions not subject to income taxes, and, for the year
ended December 31, 2017, the effect of the change in the U.S. corporate income tax rate on the Companys net U.S. deferred tax assets.
A
reconciliation of the beginning and ending amounts of uncertain tax positions, excluding interest and penalties, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Beginning balance
|
|
$
|
1,781
|
|
|
$
|
1,559
|
|
|
$
|
|
|
Gross (decreases) increasesprior period tax position
|
|
|
(84
|
)
|
|
|
222
|
|
|
|
1,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,697
|
|
|
$
|
1,781
|
|
|
$
|
1,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018, 2017 and 2016, the Company accrued $3.9 million, $4.0 million and $3.5 million,
respectively, for uncertain tax positions, including interest and penalties that, if recognized, would affect the effective income tax rate.
The Company
classifies interest and penalties on uncertain tax positions as a component of provision for income taxes in the combined statements of income. Accrued interest and penalties related to uncertain tax positions are $2.2 million as of
December 31, 2018 and 2017 and are included in income tax contingency in the accompanying combined balance sheets. Deferred income taxes consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Unicap and inventory reserves
|
|
$
|
41
|
|
|
$
|
26
|
|
Allowance for doubtful accounts
|
|
|
8
|
|
|
|
8
|
|
Depreciation and amortization
|
|
|
3,731
|
|
|
|
4,095
|
|
Other reserves and accruals
|
|
|
277
|
|
|
|
224
|
|
Gift certificates
|
|
|
208
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets
|
|
|
4,265
|
|
|
|
4,461
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Unrealized foreign exchange
|
|
|
|
|
|
|
(197
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
$
|
4,265
|
|
|
$
|
4,264
|
|
|
|
|
|
|
|
|
|
|
Certain U.S. entities of the Company have available net U.S. federal operating loss carry forwards (NOLs) as a
result of the fact that the Parents U.S. consolidated tax filing group, which includes the Companys U.S. entities, has historically generated taxable losses. However, no deferred tax assets were recorded related to NOLs based on the
separate return method of accounting. Approximately $17.5 million of the estimated $18.2 million of total NOLs is subject to Section 382 limitation. Under U.S. tax law, NOLs generated during tax years ending on or before
December 31, 2017 can be carried back for two taxable years and carried forward for 20 taxable years, while NOLs generated during tax years after December 31, 2017 cannot be carried back and can be carried forward indefinitely. The
Companys NOLs will begin to expire in 2022 and subsequent years.
As the Company accounts for income taxes under the separate return method, the
combined statements of equity for the years ended December 31, 2018, 2017 and 2016 include $1.2 million, $1.0 million and $1.9 million, respectively, of current income taxes payable that were included in net Parent investment, as
such income taxes are not actually owed to the tax authorities. The Company is subject to routine audits by U.S. federal, state, local,
F-21
and foreign tax authorities. These audits include questioning the timing and the amount of deductions and the allocation of income among various tax jurisdictions. The tax years 2014-2018 remain
subject to examination by taxing authorities throughout the world in major jurisdictions, such as the U.S. and Italy.
In November 2016, the Company was
notified by a foreign tax authority of a disagreement over how the withholding tax exemption was applied on dividend distributions. On February 17, 2017, the Company received a formal assessment related to this matter. The Company is disputing
the assessment and believes that adequate accrual has been established for this matter. The Company has included $(0.1) million and $0.5 million of unrecognized tax benefit in the provision for income taxes for the years ended December 31,
2018 and 2017, respectively, which comprises the impact of foreign exchange movements on the income tax contingency accrual.
U.S. Tax
Reform
On December 22, 2017, the U.S. enacted significant changes to tax law following the passage and signing of The Tax Cuts and Jobs Act
(TCJA). The Company has completed the analysis of the tax accounting implications of the TCJA during the year ended December 31, 2018 in accordance with the terms of SEC Staff Bulletin 118. The Company did not record any adjustments
in the year ended December 31, 2018 to provisional amounts that were material to its combined financial statements.
8. Commitment and
Contingencies
Cruise Line Agreements
A
large portion of the Companys revenues are generated on cruise ships. The Company has entered into agreements of varying terms with the cruise lines under which services and products are paid for by cruise passengers. These agreements provide
for the Company to pay the cruise line commissions for use of their shipboard facilities, as well as fees for staff shipboard meals and accommodations. These commissions are based on a percentage of revenue, a minimum annual amount, or a combination
of both. Some of the minimum commissions are calculated as a flat dollar amount while others are based upon minimum passenger per diems for passengers actually embarked on each cruise of the respective vessel. Staff shipboard meals and
accommodations are charged by the cruise lines on a per staff per day basis. The Company recognizes all expenses related to cruise line commissions, minimum guarantees, and staff shipboard meals and accommodations, generally, as they are incurred
and includes such expenses in cost of revenues and operating expenses in the accompanying combined statements of income. For cruises in process at period end, an accrual is made to record such expenses in a manner that approximates a pro-rata basis. In addition, staff-related expenses such as shipboard employee commissions are recognized in the same manner.
Pursuant to agreements that provide for minimum commissions, the Company guaranteed the following amounts as of December 31, 2018 (in thousands):
|
|
|
|
|
Year
|
|
Amount
|
|
2019
|
|
$
|
122,677
|
|
2020
|
|
|
8,000
|
|
2021
|
|
|
|
|
|
|
|
|
|
|
|
$
|
130,677
|
|
|
|
|
|
|
Revenues from passengers of each of the following cruise line companies accounted for more than ten percent of the
Companys total revenues in 2018, 2017, and 2016, respectively: Carnival (including Carnival, Carnival Australia, Costa, Cunard, Holland America, P&O, Princess and Seabourn cruise lines): 48.5%, 48.6% and 48.1%, and Royal Caribbean
(including Royal Caribbean, Pullmantur, Celebrity and Azamara cruise lines): 21.0%, 20.8% and 20.2%, and Norwegian Cruise Line 13.8%, 13.0% and 13.2%.
F-22
Operating Leases
The Company leases office and warehouse space, as well as office equipment and automobiles, under operating leases. The Company also makes certain payments to
the owners of the venues where destination resort health and wellness centers are located. Destination resort health and wellness centers generally require rent based on a percentage of revenues. In addition, as part of the rental arrangements for
some of the destination resort health and wellness centers, the Company is required to pay a minimum annual rental regardless of whether such amount would be required to be paid under the percentage rent arrangement. Substantially all of these
arrangements include renewal options ranging from three to five years. Rental expense incurred under operating leases for the years ended December 31, 2018, 2017 and 2016 were $9.5 million, $8.8 million and $9.5 million,
respectively. Minimum annual commitments under operating leases at December 31, 2018 are as follows (in thousands):
|
|
|
|
|
Year
|
|
Amount
|
|
2019
|
|
$
|
3,443
|
|
2020
|
|
|
2,772
|
|
2021
|
|
|
2,569
|
|
2022
|
|
|
2,365
|
|
2023
|
|
|
2,032
|
|
Thereafter
|
|
|
10,263
|
|
|
|
|
|
|
|
|
$
|
23,444
|
|
|
|
|
|
|
9. Pledge and Security Agreements
In December 2015, in connection with credit facilities of the Parent, which provide for $650 million in borrowings and mature in 2020 and 2021, of which
$356.2 million was assigned and assumed on January 11, 2018, as discussed in Note 5, the Company, along with other affiliates of the Parent, entered into pledge and security agreements with the applicable lender as collateral agent
pledging substantially all of their assets as collateral.
10. Transactions with Related Parties
The Company purchases beauty products from wholly-owned subsidiaries of the Parent for resale to its customers. In 2017, the Company entered into a supply
agreement with a wholly-owned subsidiary of the Parent company, which established the prices at which beauty products will be purchased by the Company from the supplier for a term of ten years. This supply agreement was subsequently amended and
restated in 2018. Purchases of beauty products from related parties and cost of revenues are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Purchases
|
|
$
|
25,491
|
|
|
$
|
20,943
|
|
|
$
|
35,390
|
|
Cost of revenues
|
|
$
|
22,995
|
|
|
$
|
28,903
|
|
|
$
|
36,114
|
|
Inventories on hand related to these purchases and accounts payable owed to the supplier entities related to the purchases is
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Inventory
|
|
$
|
17,268
|
|
|
$
|
14,772
|
|
Accounts payablerelated parties
|
|
$
|
6,553
|
|
|
$
|
10,203
|
|
For the year ended December 31, 2016, $33.0 million of the then outstanding accounts payable to supplier entities
related to these purchases were forgiven by the Parent. Such accounts payablerelated parties forgiven
F-23
by the Parent were considered contributions of capital from the Parent in the combined financial statements of the Company.
The Company entered into a loan agreement with a wholly-owned subsidiary of the Parent (the Borrower), for 5.0 million on
February 25, 2016. The note receivable is due in full by January 3, 2021 and bears an annual interest rate of 7.50%. The note receivable is accounted for on an amortized cost basis, and interest is recognized using the effective
interest rate method. On July 27, 2018, the Parent settled the outstanding principal amount and all accrued interest under this loan agreement. This note receivable from affiliate of Parent and related unpaid accrued interest forgiven by
Parent totaling approximately $6.8 million were considered contributions of capital from the Parent in the combined financial statements of the Company. As of December 31, 2017, the outstanding balance of the note receivable from an
affiliate of the Parent was 5.0 million, or $6.0 million. Interest income earned on the loan was $0.2 million, $0.3 million and $0.3 million for the years ended December 31, 2018, 2017 and 2016, respectively,
which is included in the combined statements of income.
The Company receives services and support from various functions performed by the
Parent. These expenses relate to allocations of Parent corporate overhead. Included in Salary and Payroll taxes in the combined statements of income for the years ended December 31, 2018, 2017 and 2016 were $9.1 million,
$9.2 million and $8.5 million, respectively. Included in Administrative expenses in the combined statements of income the years ended December 31, 2018, 2017 and 2016 were $2.6 million, $2.5 million and $2.8 million,
respectively.
11. Profit Sharing Plans
Eligible
employees participate in the Companys profit sharing retirement plan and a profit sharing plan of the Parent, which are qualified under Section 401(k) of the Internal Revenue Code. With respect to the Parents profit sharing
retirement plan, the Companys Parent makes discretionary annual matching contributions in cash based on a percentage of eligible employee compensation deferrals. The contribution to the plans, included in Salary and Payroll taxes in the
combined statements of income, for each of the the years ended December 31, 2018, 2017 and 2016 was $0.3 million.
12. Segment and Geographic
Information
The Company operates facilities on cruise ships and in destination resort health and wellness centers, which provide health and wellness
services and sell beauty products onboard cruise ships and destination resort health and wellness centers. The Companys Maritime and Destination Resorts operating segments are aggregated into a single reportable segment based upon similar
economic characteristics, products, services, customers and delivery methods. Additionally, the Companys operating segments represent components of the Company for which separate financial information is available that is utilized on a regular
basis by the chief executive officer, who is the Companys chief operating decision maker (CODM), in determining how to allocate the Companys resources and evaluate performance.
The basis for determining the geographic information below is based on the countries in which the Company operates. The Company is not able to identify
the country of origin for the customers to which revenues from cruise ship operations relate. Geographic information is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
27,166
|
|
|
$
|
30,851
|
|
|
$
|
33,278
|
|
Not connected to a country
|
|
|
491,244
|
|
|
|
455,782
|
|
|
|
421,489
|
|
Other
|
|
|
22,368
|
|
|
|
20,052
|
|
|
|
21,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
540,778
|
|
|
$
|
506,685
|
|
|
$
|
476,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
6,838
|
|
|
$
|
4,896
|
|
Not connected to a country
|
|
|
2,188
|
|
|
|
2,558
|
|
Other
|
|
|
7,213
|
|
|
|
9,918
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,239
|
|
|
$
|
17,372
|
|
|
|
|
|
|
|
|
|
|
F-25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Haymaker
Acquisition Corp.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Haymaker Acquisition Corp. (the Company) as of December 31, 2018 and 2017, the related
statements of operations, stockholders equity and cash flows for the year ended December 31, 2018 and for the period from April 26, 2017 (inception) through December 31, 2017, and the related notes (collectively referred to as
the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash
flows for the year ended December 31, 2018 and the period from April 26, 2017 (inception) through December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Explanatory ParagraphGoing Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has incurred significant losses and needs to raise additional funds to meet its
obligations and sustain its operations. These conditions raise substantial doubt about the Companys ability to continue as a going concern. Managements plans in regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in
accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/S/ Marcum LLP
Marcum LLP
We have served as the
Companys auditor since 2017.
New York, NY
March 6, 2019
F-26
HAYMAKER ACQUISITION CORP.
BALANCE SHEETS
DECEMBER 31, 2018 and 2017
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
221,384
|
|
|
$
|
1,123,821
|
|
Prepaid expenses
|
|
|
93,479
|
|
|
|
109,000
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
314,863
|
|
|
|
1,232,821
|
|
Cash and marketable securities held in Trust Account
|
|
|
336,670,506
|
|
|
|
330,565,672
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
336,985,369
|
|
|
$
|
331,798,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
121,176
|
|
|
$
|
32,104
|
|
Accrued transaction costs
|
|
|
3,683,688
|
|
|
|
|
|
Accrued income tax payable
|
|
|
1,012,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,817,121
|
|
|
|
32,104
|
|
Deferred tax lability
|
|
|
94,241
|
|
|
|
89,409
|
|
Deferred underwriter compensation
|
|
|
12,150,000
|
|
|
|
12,150,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
17,061,362
|
|
|
|
12,271,513
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Common stock subject to possible redemption, 30,961,528 and 31,398,875 shares at redemption value
as of December 31, 2018 and 2017, respectively
|
|
|
314,924,006
|
|
|
|
314,526,979
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and
outstanding
|
|
|
|
|
|
|
|
|
Class A common stock, $0.0001 par value; 200,000,000 shares authorized; 2,038,472 and
1,601,125 shares issued and outstanding as of December 31, 2018 and 2017, respectively (excluding 30,961,528 and 31,398,875 shares subject to redemption as of December 31, 2018 and 2017, respectively)
|
|
|
204
|
|
|
|
160
|
|
Class B convertible common stock, $0.0001 par value; 20,000,000 shares authorized; 8,250,000
shares issued and outstanding
|
|
|
825
|
|
|
|
825
|
|
Additional paid-in capital
|
|
|
4,265,597
|
|
|
|
4,662,669
|
|
Accumulated earnings
|
|
|
733,375
|
|
|
|
336,347
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
5,000,001
|
|
|
|
5,000,001
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
336,985,369
|
|
|
$
|
331,798,493
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements
F-27
HAYMAKER ACQUISITION CORP.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2018 AND THE PERIOD FROM APRIL 26, 2017 (INCEPTION)
THROUGH DECEMBER 31, 2017
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
Operating and formation costs
|
|
$
|
4,690,718
|
|
|
$
|
139,916
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(4,690,718
|
)
|
|
|
(139,916
|
)
|
|
|
|
Other income:
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
5,656,070
|
|
|
|
1,234
|
|
Unrealized gain on securities held in Trust Account
|
|
|
448,765
|
|
|
|
564,438
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
6,104,835
|
|
|
|
565,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
1,414,116
|
|
|
|
425,756
|
|
Provision for Income Taxes
|
|
|
(1,017,089
|
)
|
|
|
(89,409
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
397,028
|
|
|
$
|
336,347
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted(1)
|
|
|
9,911,510
|
|
|
|
8,084,124
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common
share(2)
|
|
$
|
(0.44
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes an aggregate of up to 30,961,528 and 31,398,875 shares subject to redemption as of December 31,
2018 and 2017, respectively.
|
(2)
|
Net loss per common sharebasic and diluted excludes interest income attributable to common stock subject
to redemption of $4,773,466 and $538,237 for the year ended December 31, 2018 and 2071, respectively. (See Note 2.)
|
The accompanying notes are an integral part of the financial statements.
F-28
HAYMAKER ACQUISITION CORP.
STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
YEAR ENDED DECEMBER 31, 2018 AND THE PERIOD FROM APRIL 26, 2017 (INCEPTION)
THROUGH DECEMBER 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
|
Class B
Common Stock
|
|
|
Additional
Paid in
Capital
|
|
|
Accumulated
Earnings
(Deficit)
|
|
|
Total
Stockholders
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
BalanceApril 26 2017 (inception)
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Common stock issued to initial stockholders (Founder Shares)
|
|
|
|
|
|
|
|
|
|
|
8,625,000
|
|
|
|
863
|
|
|
|
24,137
|
|
|
|
|
|
|
|
25,000
|
|
Cancellation of Founder Shares
|
|
|
|
|
|
|
|
|
|
|
(375,000
|
)
|
|
|
(38
|
)
|
|
|
38
|
|
|
|
|
|
|
|
|
|
Sale of 33,000,000 Units, net of underwriters discount and offering costs
|
|
|
33,000,000
|
|
|
|
3,300
|
|
|
|
|
|
|
|
|
|
|
|
311,162,333
|
|
|
|
|
|
|
|
311,165,633
|
|
Sale of 8,000,000 Private Placement Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000,000
|
|
|
|
|
|
|
|
8,000,000
|
|
Common stock subject to redemption
|
|
|
(31,398,875
|
)
|
|
|
(3,140
|
)
|
|
|
|
|
|
|
|
|
|
|
(314,523,839
|
)
|
|
|
|
|
|
|
(314,526,979
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
336,347
|
|
|
|
336,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BalanceDecember 31, 2017
|
|
|
1,601,125
|
|
|
|
160
|
|
|
|
8,250,000
|
|
|
|
825
|
|
|
$
|
4,662,669
|
|
|
$
|
336,347
|
|
|
$
|
5,000,001
|
|
Common stock subject to redemption
|
|
|
437,347
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
(397,072
|
)
|
|
|
|
|
|
|
(397,028
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
397,028
|
|
|
|
397,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BalanceDecember 31, 2018
|
|
|
2,038,472
|
|
|
|
204
|
|
|
|
8,250,000
|
|
|
|
825
|
|
|
$
|
4,265,597
|
|
|
$
|
733,375
|
|
|
$
|
5,000,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
F-29
HAYMAKER ACQUISITION CORP.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2018 AND THE PERIOD FROM APRIL 26, 2017 (INCEPTION)
THROUGH DECEMBER 31, 2017
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
397,028
|
|
|
$
|
336,347
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Interest earned on marketable securities held in Trust Account
|
|
|
(5,656,070
|
)
|
|
|
(1,234
|
)
|
Unrealized gain on marketable securities held in Trust Account
|
|
|
(448,765
|
)
|
|
|
(564,438
|
)
|
Deferred tax liability
|
|
|
4,832
|
|
|
|
89,409
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
15,521
|
|
|
|
(109,000
|
)
|
Accounts payable and accrued expenses
|
|
|
4,785,017
|
|
|
|
32,104
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(902,437
|
)
|
|
|
(216,812
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Investment of cash in Trust Account
|
|
|
|
|
|
|
(330,000,000
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(330,000,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock to initial stockholders
|
|
|
|
|
|
|
25,000
|
|
Proceeds from sale of Units, net of underwriting discounts paid
|
|
|
|
|
|
|
324,000,000
|
|
Proceeds from sale of Private Placement Warrants
|
|
|
|
|
|
|
8,000,000
|
|
Proceeds from promissory notesrelated parties
|
|
|
|
|
|
|
250,700
|
|
Repayment of promissory notesrelated parties
|
|
|
|
|
|
|
(250,700
|
)
|
Payment of offering costs
|
|
|
|
|
|
|
(684,367
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
|
|
331,340,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash
|
|
|
(902,437
|
)
|
|
|
1,123,821
|
|
CashBeginning
|
|
|
1,123,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CashEnding
|
|
$
|
221,384
|
|
|
$
|
1,123,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
Deferred underwriting fees
|
|
$
|
|
|
|
$
|
12,150,000
|
|
|
|
|
|
|
|
|
|
|
Initial classification of common stock subject to redemption
|
|
$
|
|
|
|
$
|
314,188,940
|
|
|
|
|
|
|
|
|
|
|
Change in value of common stock subject to redemption
|
|
$
|
397,028
|
|
|
$
|
338,039
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
F-30
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Organization and General
Haymaker Acquisition Corp. (the Company) is a newly organized blank check company incorporated in Delaware on April 26, 2017.
The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the Initial Business Combination). The
Company intends to acquire and operate a business in the consumer and consumer-related products and services industries. However, the Company is not limited to these industries and may pursue a business combination opportunity in any business or
industry it chooses and may pursue a company with operations or opportunities outside of the United States.
On November 1, 2018, the
Company entered into the Transaction Agreement with OSW Holdings and the other parties thereto. The Company amended the Transaction Agreement on January 7, 2019. Pursuant to the Transaction Agreement, among other things, OSW Holdings will,
directly or indirectly, acquire the company and OneSpaWorld. OneSpaWorld is a pre-eminent global operator of health and wellness centers onboard cruise ships and a leading operator of health and wellness
centers at destination resorts worldwide. Its highly-trained and experienced staff offer guests a comprehensive suite of premium health, fitness, beauty and wellness services and products. OSW Holdings is expected to be listed on The Nasdaq Stock
Market under the symbol OSW. This transaction will be funded through a combination of cash, stock and debt financing. Completion of the proposed transaction, which is expected in the first quarter of 2019, is subject to customary and
other closing conditions, including approval from our stockholders.
On November 13, 2018, OSW Holdings filed with the Securities and
Exchange Commission (the Commission) a registration statement on Form S-4 (as amended on December 28, 2018, January 22, 2019, February 8, 2019 and February 14, 2019, the
Form S-4) in connection with the proposed business combination with OSW. The Form S-4 was declared effective by the SEC on February 14, 2019.
For additional information regarding the Transaction Agreement, the proposed business combination and OSW, including the risks and
uncertainties regarding the business combination and OSWs business, see the Definitive Proxy Statement on Schedule 14A relating to the business combination filed with the SEC on February 14, 2019 (the Proxy Statement).
Other than as specifically discussed, this Report does not give effect to the Transaction.
At December 31, 2018, the Company had not commenced any operations. All activity for the period from April 26, 2017 (date of
inception) through December 31, 2018 related to the Companys formation, the initial public offering (Initial Public Offering) and the search for a target business, which is described below. The Company will not generate any
operating revenues until after completion of its Initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income on cash and cash
equivalents from the proceeds derived from the Initial Public Offering.
The registration statement for the Companys Initial Public
Offering was declared effective on October 24, 2017. On October 27, 2017, the Company consummated the Initial Public Offering of 30,000,000 units (Units and, with respect to the Class A common stock included in the
Units being offered, the Public Shares), generating gross proceeds of $300,000,000, which is described in Note 3.
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 8,000,000 warrants at a price of $1.00 per
warrant (Placement Warrants) in a private placement to Haymaker Sponsor, LLC (the Sponsor) generating gross proceeds of $8,000,000, which is described in Note 4.
F-31
Following the closing of the Initial Public Offering on October 27, 2017, an amount of
$300,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the Placement Warrants was placed in a trust account (Trust Account) which may be invested in U.S. government securities,
within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the Investment Company Act), with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a
money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the consummation of the Initial
Business Combination or (ii) the distribution of the Trust Account, as described below, except that interest earned on the Trust Account can be released to the Company to pay its tax obligations.
The Company also granted the underwriters a 45-day option to purchase up to 4,500,000 additional Units
to cover over-allotments at the Initial Public Offering price. On November 1, 2017, the underwriters exercised the option in part and purchased 3,000,000 Units at an offering price of $10.00 per Unit, generating gross proceeds of $30,000,000.
Following the closing, this additional $30,000,000 of net proceeds was placed in the Trust Account, resulting in $330,000,000 held in the Trust Account as of November 1, 2017.
The Companys certificate of incorporation provides that, other than the withdrawal of interest to pay taxes, if any, none of the funds
held in the Trust Account will be released until the earlier of: (i) the completion of the Initial Business Combination; (ii) the redemption of any shares of Class A common stock included in the Units being sold in the Initial Public
Offering that have been properly tendered in connection with a stockholder vote to amend the Companys certificate of incorporation to modify the substance or timing of its obligation to redeem 100% of such shares of Class A common stock
if it does not complete the Initial Business Combination within 24 months from the closing of the Initial Public Offering; and (iii) the redemption of 100% of the shares of Class A common stock included in the Units being sold in the
Initial Public Offering if the Company is unable to complete an Initial Business Combination within 24 months from the closing of the Initial Public Offering (subject to the requirements of law). The proceeds deposited in the Trust Account
could become subject to the claims of the Companys creditors, if any, which could have priority over the claims of the Companys public stockholders.
In addition, the 8,625,000 shares of Class B common stock of the Company (the Founder Shares) held by the Companys
initial stockholders (prior to the exercise of the over-allotment) included an aggregate of up to 1,125,000 Founder Shares subject to forfeiture by the Sponsor to the extent that the underwriters over-allotment option was not exercised in
full, so that the initial stockholders would collectively own 20.0% of issued and outstanding shares of the Company. Since the underwriters exercised the over-allotment option in part and purchased 3,000,000 of the total possible 4,500,000 Units,
the Sponsor forfeited 375,000 Founder Shares on November 3, 2017 in order to maintain ownership of 20.0% of issued and outstanding shares of the Company. The Founder Shares forfeited by the Sponsor were cancelled by the Company.
Transaction costs amounted to $18,834,367, consisting of $6,000,000 of underwriting fees, $12,150,000 of deferred underwriting fees (including
the over-allotment exercise) and $684,367 of Initial Public Offering costs. In addition, $1,596,997 of cash was held outside of the Trust Account and was available for working capital purposes.
The Companys management has broad discretion with respect to the specific application of the net proceeds of the Initial Public
Offering, although substantially all of the net proceeds of the Initial Public Offering are intended to be generally applied toward consummating an Initial Business Combination. The Initial Business Combination must occur 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. Furthermore, there is no assurance that the Company will be able to successfully effect an Initial Business Combination.
F-32
The Company, after signing a definitive agreement for an Initial Business Combination, will
either (i) seek stockholder approval of the Initial Business Combination at a meeting called for such purpose in connection with which stockholders may seek to redeem their shares, regardless of whether they vote for or against the Initial
Business Combination, for cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the Initial Business Combination, including interest but less taxes
payable, or (ii) provide stockholders with the opportunity to sell their Public Shares to the Company by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount in cash equal to their pro rata share of the
aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the Initial Business Combination, including interest but less taxes payable. The decision as to whether the Company will seek stockholder
approval of the Initial Business Combination or will allow stockholders to sell their Public Shares in a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors such as the timing of the
transaction and whether the terms of the transaction would otherwise require the Company to seek stockholder approval, unless a vote is required by law or under NASDAQ rules. If the Company seeks stockholder approval, it will complete its Initial
Business Combination only if a majority of the outstanding shares of common stock voted are voted in favor of the Initial Business Combination. However, in no event will the Company redeem its Public Shares in an amount that would cause its net
tangible assets to be less than $5,000,001 upon consummation of the Initial Business Combination. In such case, the Company would not proceed with the redemption of its Public Shares and the related Initial Business Combination, and instead may
search for an alternate Initial Business Combination.
Notwithstanding the foregoing redemption rights, if the Company seeks stockholder
approval of the Initial Business Combination and the Company does not conduct redemptions in connection with the Initial Business Combination pursuant to the tender offer rules, the Companys amended and restated certificate of incorporation
provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a group (as defined under Section 13 of the Exchange Act), will be
restricted from redeeming its shares with respect to more than an aggregate of 20% of the shares sold in the Initial Public Offering. Such restriction will also be applicable to the Companys affiliates. The Company believes the restriction
described above will discourage stockholders from accumulating large blocks of shares, and subsequent attempts by such holders to use their ability to redeem their shares as a means to force the Company or its management to purchase their shares at
a significant premium to the then-current market price or on other undesirable terms. Absent this provision, a public stockholder holding more than an aggregate of 20% of the shares sold in the Initial Public Offering could threaten to exercise its
redemption rights against the Initial Business Combination if such holders shares are not purchased by the Company or its management at a premium to the then-current market price or on other undesirable terms. By limiting the Companys
stockholders ability to redeem to no more than 20% of the shares sold in the Initial Public Offering, the Company believes it will limit the ability of a small group of stockholders to unreasonably attempt to block the Companys ability
to complete its Initial Business Combination, particularly in connection with the Initial Business Combination with a target that requires as a closing condition that the Company have a minimum net worth or a certain amount of cash. However, the
Company would not be restricting its stockholders ability to vote all of their shares (including all shares held by those stockholders that hold more than 20% of the shares sold in the Initial Public Offering) for or against the Initial
Business Combination.
If the Company holds a stockholder vote or there is a tender offer for shares in connection with an Initial
Business Combination, a public stockholder will have the right to redeem its shares for an amount in cash equal to its pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of
the Initial Business Combination, including interest but less taxes payable. As a result, such shares of Class A common stock will be recorded at redemption amount and classified as temporary equity upon the completion of the Initial Public
Offering, in accordance with Accounting Standards Codification (ASC) 480, Distinguishing Liabilities from Equity.
Pursuant to the Companys amended and restated certificate of incorporation, if the Company is unable to complete the Initial Business
Combination within 24 months from the closing of the Initial Public Offering, the
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Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, subject to lawfully
available funds therefor, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds
held in the Trust Account and not previously released to us to pay the Companys franchise and income taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption
will completely extinguish public stockholders rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such
redemption, subject to the approval of the Companys remaining stockholders and the Companys board of directors, dissolve and liquidate, subject in each case to the Companys obligations under Delaware law to provide for claims of
creditors and the requirements of other applicable law. The Sponsor and the Companys officers and directors have entered into a letter agreement with the Company, pursuant to which they agreed to waive their rights to liquidating
distributions from the Trust Account with respect to any Founder Shares held by them if the Company fails to complete the Initial Business Combination within 24 months of the closing of the Initial Public Offering. However, if the Sponsor or
any of the Companys directors, officers or affiliates acquire shares of Class A common stock in or after the Initial Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect to such shares if
the Company fails to complete the Initial Business Combination within the prescribed time period.
The Companys sponsor has agreed
that it will be liable to the Company if and to the extent any claims by a vendor for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into a letter of intent, confidentiality or
similar agreement or business combination agreement, reduce the amount of funds in the Trust Account to below (i) $10.00 per Public Share or (ii) such lesser amount per Public Share held in the Trust Account as of the date of the liquidation of
the Trust Account due to reductions in the value of the trust assets, in each case net of the interest which may be withdrawn to pay taxes. This liability will not apply with respect to any claims by a third party who executed a waiver of any and
all rights to seek access to the Trust Account and except as to any claims under the Companys indemnity of the underwriters of this offering against certain liabilities, including liabilities under the Securities Act. Moreover, in the event
that an executed waiver is deemed to be unenforceable against a third party, then the Companys sponsor will not be responsible to the extent of any liability for such third party claims. The Company has not independently verified whether its
sponsor has sufficient funds to satisfy its indemnity obligations and believes that its sponsors only assets are securities of our company. The Company has not asked its sponsor to reserve for such indemnification obligations. None of the
Companys officers or directors will indemnify the Company for claims by third parties including, without limitation, claims by vendors and prospective target businesses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are presented in conformity with accounting principles generally accepted in the United States of America
(GAAP) and pursuant to the rules and regulations of the SEC.
Liquidity and Going Concern
As of December 31, 2018, the Company had a balance of cash and cash equivalents of $221,384.
The Company intends to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the
Trust Account (less taxes payable and deferred underwriting commissions) to complete its Initial Business Combination.
The accompanying
financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant losses and may require additional funds to meet its obligations and sustain its operations.
F-34
The Company cannot provide any assurance that additional financing will be available to it
on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Companys ability to continue as a going concern. These financial statements do not include any adjustments relating to the recovery of the recorded
assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
Emerging Growth Company
The Company is an emerging growth company, as defined in Section 2(a) of the Securities Act of 1933, as amended, (the
Securities Act), as modified by the Jumpstart Our Business Startups Act of 2012 (the JOBS Act), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies
that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial
accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or
revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies
but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies,
the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Companys financial statements with another public company, which
is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Making estimates requires management to
exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its
estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from the Companys estimates.
Cash equivalents
The Company considers all short-term investments with an original maturity of three months or less, when purchased, to be cash equivalents. The
Company did not have any cash equivalents as of December 31, 2018 and 2017.
Cash and Marketable Securities held in Trust
Account
At December 31, 2018 and 2017, the assets held in the Trust Account were held in cash and U.S. Treasury Bills.
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Common stock subject to possible redemption
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification
(ASC) Topic 480 Distinguishing Liabilities from Equity. Common stock subject to mandatory redemption (if any) is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock
(including common stock 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 Companys control) is classified as temporary equity.
At all other times, common stock is classified as stockholders equity. The Companys common stock features certain redemption rights that are considered to be outside of the Companys control and subject to occurrence of uncertain
future events. Accordingly, at December 31, 2018 and 2017, common stock subject to possible redemption is presented as temporary equity at redemption value, outside of the stockholders equity section of the Companys balance sheet.
Offering Costs
Offering costs consist of legal, accounting, underwriting fees and other costs incurred through the balance sheet date that are directly
related to the Initial Public Offering. Offering costs amounting to $18,834,367 were charged to stockholders equity upon the completion of the Initial Public Offering (including the over-allotment exercise).
Income Taxes
The
Company complies with the accounting and reporting requirements of Accounting Standards Codification (ASC) Topic 740 Income Taxes, which requires an asset and liability approach to financial accounting and reporting for
income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and
rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax
positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company
recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31, 2018. 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 may be subject to potential examination by federal, state and city taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various
tax jurisdictions and compliance with federal, state and city tax laws. The Companys management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
On December 22, 2017 the U.S.Tax Cuts and Jobs Act of 2017 (Tax Reform) was signed into law. As a result of
Tax Reform, the U.S. statutory tax rate was lowered from 35% to 21% effective January 1, 2018, among other changes. ASC Topic 740 requires companies to recognize the effect of tax law changes in the period of enactment; therefore, the
Company was required to revalue its deferred tax assets and liabilities at December 31, 2017 at the new rate. The SEC issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of GAAP in situations when a
registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain tax effects of Tax Reform. At December 31, 2018, we have now completed our
accounting for all of the enactment-date income tax effects of the Act.
F-36
Net Income (Loss) Per Common Share
Net income (loss) per common share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number
of common shares outstanding during the period, less common shares that were subject to forfeiture, plus, to the extent dilutive, the incremental number of shares of common stock to settle warrants, as calculated using the treasury stock method. At
December 31, 2018 and 2017, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into common stock and then share in the earnings of the Company. As a result, diluted loss per
common share is the same as basic loss per common share for the period.
Reconciliation of Net Income (Loss) per Common Share
The Companys net income is adjusted for the portion of income that is attributable to common stock subject to redemption, as
these shares only participate in the income of the Trust Account and not the losses of the Company. Accordingly, basic and diluted loss per common share is calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
For the
Year ended
December 31,
2018
|
|
|
For the
Period from
April 26,
2017
(inception)
through
December 31,
2017
|
|
Net income
|
|
$
|
397,028
|
|
|
$
|
336,347
|
|
Less: Income attributable to common stock subject to redemption
|
|
|
(4,773,466
|
)
|
|
|
(538,237
|
)
|
|
|
|
|
|
|
|
|
|
Adjusted net loss
|
|
|
(4,376,438
|
)
|
|
|
(201,890
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
9,911,510
|
|
|
|
8,084,124
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.44
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial
institution, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Fair Value of Financial Instruments
The fair value of the Companys assets and liabilities, which qualify as financial instruments under the FASB ASC 820, Fair Value
Measurements and Disclosures, approximates the carrying amounts represented in the balance sheet.
Recent Accounting
Pronouncements
The Companys management does not believe that any recently issued, but not yet effective, accounting
pronouncements, if currently adopted, would have a material effect on the Companys financial statements.
3. INITIAL PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company sold 33,000,000 Units at a price of $10.00 per Unit, which includes the partial exercise
by the underwriters over-allotment option to purchase 3,000,000 Units at
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$10.00 per Unit. Each Unit consists of one share of Class A common stock and one-half of one redeemable warrant (Redeemable Warrant). Each
whole Redeemable Warrant is exercisable to purchase one share of Class A common stock and only whole warrants are exercisable. The Redeemable Warrants will become exercisable on the later of 30 days after the completion of the Initial Business
Combination or 12 months from the closing of the Initial Public Offering. Each whole Redeemable Warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50 (see Note 7).
4. PRIVATE PLACEMENT
Simultaneously with
the Initial Public Offering, the Sponsor purchased an aggregate of 8,000,000 Placement Warrants at a price of $1.00 per warrant, for an aggregate purchase price of $8,000,000. Each Placement Warrant entitles the holder to purchase one share of
Class A common stock at an exercise price of $11.50. The Placement Warrants will become exercisable 30 days after the completion of the Initial Business Combination. The proceeds from the Placement Warrants were added to the proceeds from the
Initial Public Offering held in the Trust Account. If the Company does not complete the Initial Business Combination within 24 months from the closing of the Initial Public Offering, the proceeds from the sale of the Placement Warrants held in the
Trust Account will be used to fund the redemption of the Companys Public Shares (subject to the requirements of applicable law) and the Placement Warrants will expire worthless. There will be no redemption rights or liquidating distributions
from the Trust Account with respect to the Private Placement Warrants.
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 common stock issuable upon the exercise of the Private Placement Warrants are not transferable, assignable or salable until 30 days
after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants are exercisable on a cashless basis and are non-redeemable so long as they
are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the
Company and exercisable by such holders on the same basis as the Public Warrants.
5. RELATED PARTY TRANSACTIONS
Founder Shares
On May 16, 2017, the
Company issued an aggregate of 8,625,000 shares of Class B common stock to the Sponsor (Founder Shares) for an aggregate purchase price of $25,000. The Founder Shares will automatically convert into Class A common stock upon
the consummation of the Initial Business Combination on a one-for-one basis, subject to adjustments as described in Note 7. The 8,625,000 Founder Shares included an
aggregate of up to 1,125,000 shares subject to forfeiture by the Initial Stockholders to the extent that the underwriters over-allotment was not exercised in full or in part, so that the Initial Stockholders would own, on an as-converted basis, 20% of the Companys issued and outstanding shares after the Initial Public Offering. Since the underwriters exercised the over-allotment option in part and purchased 3,000,000 of the total
possible 4,500,000 Units, the Initial Stockholders forfeited 375,000 Founder Shares on November 3, 2017 in order to maintain ownership of 20.0% of issued and outstanding shares of the Company. The Founder Shares forfeited by the Initial
Stockholders were cancelled by the Company.
The Initial Stockholders have agreed not to transfer, assign or sell any of their Founder
Shares until the earlier to occur of: (A) one year after the completion of the Initial Business Combination or (B) subsequent to the Initial Business Combination, (x) if the last sale price of the Class A common stock equals or
exceeds $12.00 per share (as adjusted for stock splits, stock dividends, 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, or (y) the date on which the Company completes a liquidation, merger, stock exchange or other similar transaction that results in all of the Companys stockholders having the right to exchange their
shares of common stock for cash, securities or other property.
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Administrative Services Agreement
The Company entered into an agreement whereby, commencing on October 27, 2017 through the earlier of the consummation of the Initial
Business Combination or the Companys liquidation, the Company will pay the Sponsor a monthly fee of $10,000 for office space, utilities and administrative support. For the year ended December 31, 2018, the Company incurred $120,000 in
fees for these services, with $2,258 in accrued expenses as of December 31, 2018. For the period from April 26, 2017 (inception) through December 31, 2017, the Company incurred $52,199 in fees for these services, with $2,295 in
accrued expenses as of December 31, 2017.
Related Party Loans
On June 5, 2017, the Sponsor agreed to loan the Company an aggregate of up to $300,000 to cover expenses related to the Initial Public
Offering pursuant to a promissory note (the Note). This loan was non-interest bearing and payable on the earlier of December 31, 2017 or the completion of the Initial Public Offering. At the
time of the Initial Public Offering, the Company had $250,700 borrowed under the Note. On October 30, 2017, the Company repaid the full amount borrowed under the Sponsor Note.
In order to finance transaction costs in connection with the Initial Business Combination, the Sponsor, the Companys officers and
directors or their affiliates may, but are not obligated to, loan the Company funds from time to time or at any time, as may be required (Working Capital Loans). Each Working Capital Loan would be evidenced by a promissory note. The
Working Capital Loans would either be paid upon consummation of the Initial Business Combination, without interest, or, at the holders discretion, up to $1,500,000 of the Working Capital Loans may be converted into warrants that would be
identical to Placement Warrants, including as to exercise price, exercisability and exercise period.
6. COMMITMENTS
Registration Rights
The holders of the
Founder Shares, Placement Warrants and warrants that may be issued upon conversion of working capital loans (and any shares of Class A common stock issuable upon the exercise of the Placement Warrants and warrants that may be issued upon
conversion of working capital loans and upon conversion of the Founder Shares) are entitled to registration rights pursuant to a registration rights agreement that was signed on October 24, 2017, requiring the Company to register such
securities for resale (in the case of the Founder Shares, only after conversion to the Companys Class A common stock). The holders of the majority of these securities are entitled to make up to three demands, excluding short form demands,
that the Company registers such securities. In addition, the holders have certain piggy-back registration rights with respect to registration statements filed subsequent to the Companys completion of the Initial Business
Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The holders of the Founder Shares, Placement Warrants and warrants that may be issued upon conversion of working
capital loans will not be able to sell these securities until termination of the applicable lock-up period, which occurs (i) in the case of the Founder Shares, on the earlier of (A) one year after
the completion of the Initial Business Combination or (B) subsequent to the Initial Business Combination, (x) if the last sale price of the Companys Class A common stock equals or exceeds $12.00 per share (as adjusted for stock
splits, stock dividends, 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, or
(y) the date on which the Company completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the Companys stockholders having the right to exchange their shares of common
stock for cash, securities or other property and (ii) in the case of the Placement Warrants and the respective Class A common stock underlying such warrants, 30 days after the completion of the Initial Business Combination. The Company
will bear the expenses incurred in connection with the filing of any such registration statements.
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Underwriters Agreement
The underwriters were paid a cash underwriting discount of two percent (2.0%) of the gross proceeds of the Initial Public Offering, or
$6,000,000. In addition, the underwriters have earned an additional 3.5% of the gross proceeds of the Initial Public Offering, or $10,500,000 (Deferred Underwriting Commission) that will be paid upon consummation of the Companys
Initial Business Combination. In conjunction with the exercise of the over-allotment purchase of 3,000,000 Units on November 1, 2017, the underwriters earned an additional 5.5% of the gross proceeds of the over-allotment exercise or $1,650,000
that will be paid upon consummation of the Companys Initial Business Combination. The underwriters agreement provides that the deferred underwriting discount will be waived by the underwriter if the Company does not complete its Initial
Business Combination.
7. STOCKHOLDERS EQUITY
Preferred StockThe Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share
with such designation, rights and preferences as may be determined from time to time by the Companys Board of Directors. At October 27, 2017, there were no shares of preferred stock issued or outstanding. Immediately after the
consummation of the Initial Public Offering, there will be no shares of preferred stock issued and outstanding.
Class A Common StockThe Company is authorized to issue 200,000,000 shares of Class A
common stock with a par value of $0.0001 per share. Holders of the Companys Class A common stock are entitled to one vote for each share. At December 31, 2018 and 2017, there were 33,000,000 shares (which includes 30,961,528 shares
subject to possible redemption) of Class A common stock issued and outstanding.
Class B
Common StockThe Company is authorized to issue 20,000,000 shares of Class common stock with a par value of $0.0001 per share. Initially, the Companys Sponsor owned an aggregate of 8,625,000 shares of the Companys
Class B common stock (up to 1,125,000 shares of which were subject to forfeiture depending on the extent to which the underwriters over-allotment option was exercised). Since the underwriters exercised the over-allotment option in part
and purchased 3,000,000 of the total possible 4,500,000 Units, the Sponsor forfeited 375,000 Founder Shares on November 3, 2017 in order to maintain ownership of 20.0% of issued and outstanding shares of the Company. The Founder Shares
forfeited by the Sponsor were cancelled by the Company. As of December 31, 2018 and 2017, the Companys Sponsor owned an aggregate of 8,250,000 shares of the Companys Class B common stock.
The shares of Class B common stock will automatically convert into shares of Class A common stock at the time of the Companys
Initial Business Combination, or earlier at the option of the holder, on a one-for-one basis, subject to adjustment as described herein. In the case that additional
shares of Class A common stock, or equity-linked securities, are issued or deemed issued in excess of the amounts offered in this prospectus and related to the closing of the Initial Business Combination, the ratio at which shares of
Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such
issuance or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as-converted
basis, 20% of the sum of the total number of all shares of common stock outstanding upon completion of the Initial Public Offering plus all shares of Class A common stock and equity-linked securities issued or deemed issued in connection
with the Initial Business Combination (excluding any shares or equity-linked securities issued, or to be issued, to any seller in the Initial Business Combination and any private placement-equivalent warrants issued to the Companys Sponsor or
its affiliates upon conversion of loans made to us)
Holders of Class A common stock and Class B common stock will vote together
as a single class on all matters submitted to a vote of stockholders except as required by law.
F-40
Warrants
Redeemable Warrants
Each whole
Redeemable Warrant is exercisable to purchase one share of Class A common stock and only whole warrants are exercisable. The Redeemable Warrants will become exercisable on the later of 30 days after the completion of the Initial Business
Combination or 12 months from the closing of the Initial Public Offering. Each whole Redeemable Warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50.
Pursuant to the warrant agreement, a warrant holder may exercise its warrants only for a whole number of shares of Class A common stock.
This means that only a whole warrant may be exercised at any given time by a warrant holder. No fractional warrants will be issued upon separation of the units and only whole warrants will trade. Accordingly, unless you purchase at least two units,
you will not be able to receive or trade a whole warrant. The warrants will expire five years after the completion of the Initial Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
If the shares issuable upon exercise of the warrants are not registered under the Securities Act within 60 business days following the
Initial Business Combination, the Company will be required to permit holders to exercise their warrants on a cashless basis. However, no warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any
shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, unless an exemption is available. In the event
that the conditions in the immediately preceding sentence are not satisfied with respect to a warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In no event will
the Company be required to net cash settle any warrant. In the event that a registration statement is not effective for the exercised warrants, the purchaser of a unit containing such warrant will have paid the full purchase price for the unit
solely for the share of Class A common stock underlying such unit.
The Company has agreed that as soon as practicable, but in no
event later than 15 business days, after the closing of the Initial Business Combination, the Company will use its reasonable best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the shares of
Class A common stock issuable upon exercise of the warrants. The Company will use its reasonable best efforts to cause the same to become effective within 60 business days following its Initial Business Combination and to maintain the
effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the warrants in accordance with the provisions of the warrant agreement. Notwithstanding the above, if the Companys Class A
common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a covered security under Section 18(b)(1) of the Securities Act, the Company may, at its
option, require holders of public warrants who exercise their warrants to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required
to file or maintain in effect a registration statement, but the Company will be required to use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Once the warrants become exercisable, the Company may call the warrants for redemption:
|
|
|
in whole and not in part;
|
|
|
|
at a price of $0.01 per warrant;
|
|
|
|
upon not less than 30 days prior written notice of redemption (the
30-day redemption period) to each warrant holder; and
|
|
|
|
if, and only if, the reported last sale price of the Class A common stock equals or exceeds $18.00 per share
for any 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the warrant holders.
|
F-41
Placement Warrants
The Sponsor purchased an aggregate of 8,000,000 Placement Warrants at a price of $1.00 per whole warrant in a private placement that occurred
simultaneously with the closing of the Initial Public Offering. Each whole Placement Warrant is exercisable for one whole share of the Companys Class A common stock at a price of $11.50 per share. The purchase price of the Placement
Warrants was added to the proceeds from the Initial Public Offering and held in the Trust Account. If the Initial Business Combination is not completed within 24 months from the closing of the Initial Public Offering, the proceeds from the sale
of the Placement Warrants held in the Trust Account will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Placement Warrants will expire worthless. The Placement Warrants will be non-redeemable and exercisable on a cashless basis so long as they are held by the Sponsor or its permitted transferees.
The Placement Warrants (including the Class A common stock issuable upon exercise of the Placement Warrants) will not be transferable,
assignable or saleable until 30 days after the completion of the Initial Business Combination and they will not be redeemable so long as they are held by the Companys Sponsor or its permitted transferees. Otherwise, the Placement Warrants have
terms and provisions that are identical to those of the Redeemable Warrants, including as to exercise price, exercisability and exercise period. If the Placement Warrants are held by holders other than the Sponsor or its permitted transferees, the
Placement Warrants will be redeemable by the Company and exercisable by the holders on the same basis the Redeemable Warrants.
If holders
of the Placement Warrants elect to exercise them on a cashless basis, they would pay the exercise price by surrendering their warrants for that number of shares of Class A common stock equal to the quotient obtained by dividing (x) the
product of the number of shares of Class A common stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the fair market value (defined below) by (y) the fair market value.
The fair market value shall mean the average reported last sale price of the Class A common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of warrant exercise is sent to the
warrant agent. The reason that the Company has agreed that these warrants will be exercisable on a cashless basis so long as they are held by the Sponsor, or its permitted transferees is because it is not known at this time whether they will be
affiliated with us following the Initial Business Combination. If they remain affiliated with the Company, their ability to sell the Companys securities in the open market will be significantly limited. The Company expects to have policies in
place that prohibit insiders from selling the Companys securities except during specific periods of time. Even during such periods of time when insiders will be permitted to sell the Companys securities, an insider cannot trade in the
Companys securities if he or she is in possession of material non-public information. Accordingly, unlike public stockholders who could sell the shares of Class A common stock issuable upon exercise
of the warrants freely in the open market, the insiders could be significantly restricted from doing so. As a result, the Company believes that allowing the holders to exercise such warrants on a cashless basis is appropriate.
The Companys Sponsor has agreed not to transfer, assign or sell any of the Placement Warrants (including the Class A common stock
issuable upon exercise of any of these warrants) until the date that is 30 days after the date the Company completes its Initial Business Combination.
8. INCOME TAX
The Companys net
deferred tax liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Deferred tax asset (liability)
|
|
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
|
|
|
$
|
29,123
|
|
Unrealized gains on marketable securities
|
|
|
(94,241
|
)
|
|
|
(118,532
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax liability
|
|
$
|
(94,241
|
)
|
|
$
|
(89,409
|
)
|
|
|
|
|
|
|
|
|
|
F-42
The income tax provision consists of the following:
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|
|
|
|
|
|
|
|
|
|
For the
year ended
December 31,
2018
|
|
|
For the
period from
April 26,
2017
(inception)
through
December 31,
2017
|
|
Federal
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
1,012,257
|
|
|
$
|
|
|
Deferred
|
|
|
4,832
|
|
|
|
89,409
|
|
State
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
|
|
|
$
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
1,017,089
|
|
|
$
|
89,409
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the federal income tax rate to the Companys effective tax rate at December 31,
2018 and 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
Statutory federal income tax rate
|
|
|
21.0
|
%
|
|
|
34.0
|
%
|
State taxes, net of federal tax benefit
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Merger costs
|
|
|
57.2
|
%
|
|
|
0.0
|
%
|
Deferred tax rate change
|
|
|
0.0
|
%
|
|
|
(13.0
|
)%
|
Other
|
|
|
(6.3
|
)%
|
|
|
(13.0
|
)%
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
71.9
|
%
|
|
|
21.0
|
%
|
|
|
|
|
|
|
|
|
|
The Company files income tax returns in the U.S. federal jurisdiction and in various state and local
jurisdictions and is subject to examination by the various taxing authorities. The Company considers New York to be a significant state tax jurisdiction. Our income tax returns are open for audit for tax years 2017 and forward.
9. FAIR VALUE MEASUREMENTS
The Company
follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial
assets and liabilities that are re-measured and reported at fair value at least annually.
The fair
value of the Companys financial assets and liabilities reflects managements estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in
an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent
sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable
inputs and unobservable inputs used in order to value the assets and liabilities:
|
|
|
Level 1:
|
|
Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide
pricing information on an ongoing basis.
|
F-43
|
|
|
Level 2:
|
|
Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are
not active.
|
|
|
Level 3:
|
|
Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
|
The following table presents information about the Companys assets that are measured at fair value on a
recurring basis at December 31, 2018 and 2017, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Level
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and marketable securities held in Trust Account
|
|
|
1
|
|
|
$
|
336,670,506
|
|
|
$
|
330,565,672
|
|
10. BUSINESS COMBINATION
On November 1, 2018, we entered into the Transaction Agreement with OSW Holdings and the other parties thereto. We amended the Transaction
Agreement on January 7, 2019. Pursuant to the Transaction Agreement, among other things, OSW Holdings will, directly or indirectly, acquire our company and OneSpaWorld. OneSpaWorld is a pre-eminent global
operator of health and wellness centers onboard cruise ships and a leading operator of health and wellness centers at destination resorts worldwide. Its highly-trained and experienced staff offer guests a comprehensive suite of premium health,
fitness, beauty and wellness services and products. OSW Holdings is expected to be listed on The Nasdaq Stock Market under the symbol OSW. This transaction will be funded through a combination of cash, stock and debt financing.
Completion of the proposed transaction, which is expected in the first quarter of 2019, is subject to customary and other closing conditions, including approval from our stockholders.
Transaction Agreement
Subject to the
terms and conditions of the Transaction Agreement (including certain adjustments pursuant to and in accordance with the terms of the Transaction Agreement and the ancillary agreements), the business combination will result in the following for the
Company:
|
|
|
each share of the Companys Class A common stock will be converted into the right to receive one fully
paid and non-assessable common share, par value U.S. $0.0001 per share, of OSW Holdings (each, an OSW Holdings Share);
|
|
|
|
each of the warrants included in the units issued in the Companys initial public offering will be restated
and become exercisable for one OSW Holdings Share, on the same terms and conditions as those applicable to the existing warrant (each, an OSW Holdings Public Warrant);
|
|
|
|
the 8.25 million shares of the Companys Class B common stock held by Haymaker Sponsor, LLC (the
Sponsor will be converted into 6,650,000 OSW Holdings Shares (3,650,000, subject to certain adjustments, of which will be transferred and forfeited to OSW Holdings) and the right to receive 1,600,000 OSW Holdings Shares upon the
occurrence of certain events;
|
|
|
|
each of the Placement Warrants will be restated and become exercisable for one OSW Holdings Share, on the same
terms and conditions as those applicable to the Placement Warrants (the OSW Holdings Private Warrants); and
|
|
|
|
the sponsor will forfeit 3,650,000 OSW Holdings Shares and 4,707,734 OSW Holdings Private Warrants.
|
F-44
Certain of the Companys stockholders (who hold Class A shares and are not subject
to the insider agreement not to redeem any shares) may exercise their right to redeem all or a portion of their shares of Class A common stock pursuant to the Companys certificate of incorporation.
Subject to the terms and conditions of the Transaction Agreement (including certain adjustments pursuant to and in accordance with the terms
of the Transaction Agreement and the ancillary agreements), the selling equity holders of OSW (the Sellers) will receive: (i) 14,821,863 OSW Holdings Shares (valued at $148,218,630 based on a $10.00 share price), (ii) 1,602,440 OSW
Holdings Private Warrants, (iii) $637,096,370 in cash, and (iv) the right to receive up to an additional 5,000,000 OSW Holdings Shares upon the occurrence of certain events. The cash consideration payable to the Sellers at the closing of the
business combination will be increased (and the OSW Holdings Share consideration payable to the seller will be correspondingly decreased) if the sum of the interest on the amounts in the trust account, as of immediately prior to the closing of the
business combination (without giving effect to any redemptions), plus $400,000, is greater than the aggregate amount of redemptions of the Companys Class A common stock in excess of $50,000,000.
Subject to the terms and conditions of the Transaction Agreement, no more than five business days following (i) the first day the OSW
Holdings Shares five-day volume weighted average price is greater than or equal to $20.00, (ii) a change of control of OSW Holdings where the OSW Holdings Shares are sold for at least $20.00 per share,
or (iii) the 10-year anniversary of the closing of the business combination, OSW Holdings will issue 5,000,000 OSW Holdings Shares to Steiner Leisure Limited and 1,600,000 OSW Holdings Shares to our
sponsor (both subject to adjustment as set forth in the Transaction Agreement) (such shares, the Deferred Shares). To the extent that the transaction expenses are less than $35,000,000, a portion of the Deferred Shares will instead be
issued at the closing of the business combination to Steiner Leisure Limited and the Sponsor.
Financing
Along with the funds held in the trust account, OSW Holdings has secured commitments for a $122,500,000 private placement of OSW Holdings
Shares and OSW Holdings Private Warrants from investors. The proposed transaction also includes committed debt financing. Based on commitment letters the Company obtained from certain lenders on behalf of OSW Holdings, a subsidiary of OSW Holdings
will enter into (i) (x) a first lien term loan facility of up to $245,000,000 (including $50,000,000 which may be utilized to partially fund the business combination in the event of redemption) that matures in seven years and (y) a first
lien revolving loan facility of up to $22,500,000 that matures in five years, and (ii) a second lien term loan facility of up to $25,000,000 that matures in eight years. Loans outstanding under the first lien term loan facility and the first
lien revolving loan facility will accrue interest at a rate per annum equal to LIBOR plus a margin ranging from 4.25% to 3.75% depending on the achievement of certain leverage ratios and undrawn amounts under the first lien revolving loan facility
accrue a commitment fee at a rate per annum of 0.50% on the average daily undrawn portion of the commitments thereunder, with one step down to 0.325% upon achievement of a certain leverage ratio. Loans outstanding under the second lien term loan
facility will accrue interest at a rate per annum equal to LIBOR plus 7.50%. Principal payments on the first lien term loan facility equal to 0.25% of the original principal amount will be due quarterly, and the second lien term loan facility is not
subject to amortization
Certain Related Agreements
Concurrent with the execution of the Transaction Agreement, OSW Holdings, the Company and the seller representative entered into a Director
Designation Agreement (the DDA), pursuant to which, among other things, the seller representative will have the right to appoint one member of the board of directors of OSW Holdings and one member of the compensation committee of OSW
Holdings for so long as the seller representative and certain of its affiliates, in the aggregate, beneficially own 5.00% or more of the issued and outstanding OSW Holdings Shares. Immediately following the closing of the business combination, Marc
Magliacano will serve as a Class B director of the board of directors of OSW Holdings and as a member of the compensation committee of OSW Holdings pursuant to the seller representatives rights under the DDA.
F-45
In addition and concurrent with the execution of the Transaction Agreement, the Sponsor, the
Company, OSW Holdings and the seller representative entered into a Sponsor Support Agreement, pursuant to which the Sponsor will surrender certain of its equity interests in OSW Holdings (as contemplated by the Transaction Agreement and described
above) and agree to certain covenants and agreements related to the transactions contemplated by the Transaction Agreement, particularly with respect to taking supportive actions to consummate the business combination. At the same time, the seller
representative, the Company, and the Sponsor also entered into a Waiver Agreement, pursuant to which each holder of Class B common stock irrevocably waived its rights under Section 4.3(b)(ii) of the Companys certificate of
incorporation to receive additional Class A common stock upon conversion of the Class B common stock held by such person in connection with the business combination as a result of the new issuance of OSW Holdings Shares or any other
anti-dilution (or similar) protections in respect of the Class B common stock.
11. SUBSEQUENT EVENTS
The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the financial statements
were issued. Other than as described in these financial statements, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
On November 1, 2018, we entered into the Transaction Agreement with OSW Holdings and the other parties thereto. We amended the
Transaction Agreement on January 7, 2019. For more information see Note 10.
On November 13, 2018, OSW Holdings filed with the
Securities and Exchange Commission (the Commission) a registration statement on Form S-4 (as amended on December 28, 2018, January 22, 2019, February 8, 2019 and February 14,
2019, the Form S-4) in connection with our proposed business combination with OSW. The Form S-4 was declared effective by the SEC on February 14, 2019.
For additional information regarding the Transaction Agreement, the proposed business combination and OSW, including the risks and
uncertainties regarding the business combination and OSWs business, see the Definitive Proxy Statement on Schedule 14A relating to the business combination we filed with the SEC on February 14, 2019 (the Proxy Statement).
F-46
OneSpaWorld (PK) (USOTC:OSWWF)
過去 株価チャート
から 5 2024 まで 6 2024
OneSpaWorld (PK) (USOTC:OSWWF)
過去 株価チャート
から 6 2023 まで 6 2024