DEFM14A 1 d88195ddefm14a.htm DEFM14A DEFM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant  ☒                             Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to § 240.14a-12

REPLAY ACQUISITION CORP.

(Name of Registrant as Specified in its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

     

  (2)  

Aggregate number of securities to which transaction applies:

 

     

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

  (4)  

Proposed maximum aggregate value of transaction:

 

     

  (5)  

Total fee paid:

 

     

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


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REPLAY ACQUISITION CORP.

767 Fifth Avenue, 46th Floor

New York, New York 10153

Dear Shareholders of Replay Acquisition Corp.:

On October 12, 2020, Replay Acquisition Corp., a Cayman Islands exempted company (“Replay,” “we,” “our” or “us”); Finance of America Equity Capital LLC, a Delaware limited liability company (“FoA”); Finance of America Companies Inc., a Delaware corporation and wholly owned subsidiary of Replay (“New Pubco”); RPLY Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of New Pubco (“Replay Merger Sub”); RPLY BLKR Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of New Pubco (“Blocker Merger Sub”); Blackstone Tactical Opportunities Fund (Urban Feeder) – NQ L.P., a Delaware limited partnership (“Blocker”); Blackstone Tactical Opportunities Associates – NQ L.L.C., a Delaware limited liability company (“Blocker GP”); BTO Urban Holdings L.L.C., a Delaware limited liability company (“BTO Urban”), Blackstone Family Tactical Opportunities Investment Partnership – NQ – ESC L.P., a Delaware limited partnership (“ESC”), Libman Family Holdings LLC, a Connecticut limited liability company (“Family Holdings”), The Mortgage Opportunity Group LLC, a Connecticut limited liability company (“TMO”), L and TF, LLC, a North Carolina limited liability company (“L&TF”), UFG Management Holdings LLC, a Delaware limited liability company (“Management Holdings”), and Joe Cayre (each of BTO Urban, ESC, Family Holdings, TMO, L&TF, Management Holdings and Joe Cayre, a “Seller” and, collectively, the “Sellers” or the “Continuing Unitholders”); and BTO Urban and Family Holdings, solely in their joint capacity as the representative of the Sellers pursuant to Section 12.18 of the Transaction Agreement (as defined below) (the “Seller Representative”), entered into a Transaction Agreement (the “Transaction Agreement”) pursuant to which Replay agreed to combine with FoA in a series of transactions (collectively, the “Business Combination”) that will result in New Pubco becoming a publicly-traded company on the New York Stock Exchange (the “NYSE”) and controlling FoA in an “UP-C” structure.

Pursuant to the Business Combination, among other things:

(i) Replay will change its jurisdiction of incorporation from the Cayman Islands to the State of Delaware by deregistering as an exempted company in the Cayman Islands and continuing and domesticating as a limited liability company formed under the laws of the State of Delaware (the “Domestication”), whereby (A) each ordinary share, par value $0.0001 per share, of Replay (“Ordinary Shares”) outstanding immediately prior to the Domestication will be converted into a unit representing a limited liability company interest in Replay (each, a “Replay LLC Unit”) and (B) Replay will be governed by a limited liability company agreement (the “Replay LLCA”);

(ii) the Sellers and Blocker GP will sell to Replay limited liability company interests in FoA (“FoA Units”) in exchange for cash;

(iii) Replay Merger Sub will merge with and into Replay (the “Replay Merger”), with Replay surviving the Replay Merger as a direct wholly owned subsidiary of New Pubco and each Replay LLC Unit outstanding immediately prior to the effectiveness of the Replay Merger being converted into the right to receive one share of New Pubco’s Class A common stock, par value $0.0001 per share (“Class A Common Stock”);

(iv) Blocker will be converted from a Delaware limited partnership to a Delaware limited liability company;

(v) Blocker Merger Sub will merge with and into Blocker (the “Blocker Merger”), with Blocker surviving the Blocker Merger as a direct wholly owned subsidiary of New Pubco and each limited liability company interest of Blocker (each, a “Blocker Share”) outstanding immediately prior to the effectiveness of the Blocker Merger being converted into the right to receive a combination of shares of Class A Common Stock and cash;

(vi) Blocker GP will contribute its remaining FoA Units to New Pubco in exchange for shares of Class A Common Stock, after which New Pubco will contribute such FoA Units to Blocker; and

(vii) New Pubco will issue to the Sellers shares of New Pubco’s Class B common stock, par value $0.0001 per share (“Class B Common Stock”), which will have no economic rights but will entitle each holder of at least one


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such share (regardless of the number of shares so held) to a number of votes that is equal to the aggregate number of FoA Units held by such holder on all matters on which stockholders of New Pubco are entitled to vote generally.

As a result of the Business Combination, among other things:

(A) New Pubco will indirectly hold (through Replay and Blocker) FoA Units and will have the sole and exclusive right to appoint the board of managers of FoA;

(B) the Sellers will hold (i) FoA Units that are exchangeable on a one-for-one basis for shares of Class A Common Stock and (ii) shares of Class B Common Stock; and

(C) the holders of Blocker Shares outstanding immediately prior to the effectiveness of the Blocker Merger (the “Blocker Shareholders”) and Blocker GP (together with the Blocker Shareholders, the “Continuing Stockholders”) will, directly or indirectly, hold shares of Class A Common Stock.

Concurrently with the execution of the Transaction Agreement:

(i) Replay entered into subscription agreements with various investors, including an affiliate of Replay Sponsor, LLC, a Delaware limited liability company (the “Sponsor”), pursuant to which such investors agreed to purchase Ordinary Shares (which Ordinary Shares will be converted into Replay LLC Units pursuant to the Domestication and then will be converted into the right to receive shares of Class A Common Stock pursuant to the Replay Merger) (each such subscription agreement, a “Replay PIPE Agreement”); and

(ii) New Pubco entered into subscription agreements with certain funds affiliated with The Blackstone Group Inc. (“Blackstone,” and such funds, the “Blackstone Investors”) and Brian L. Libman and certain entities controlled by him (the “BL Investors” and, together with the Blackstone Investors, the “Principal Stockholders”) pursuant to which the Principal Stockholders agreed to purchase shares of Class A Common Stock (each such subscription agreement, a “New Pubco PIPE Agreement” and, together with the Replay PIPE Agreements, the “PIPE Agreements”).

In connection with the Business Combination, you are cordially invited to attend a general meeting (the “general meeting”) of shareholders of Replay. At the general meeting, Replay shareholders will be asked to consider and vote on:

 

  1.

separate proposals to approve the (a) Domestication, (b) Replay LLCA and (c) Business Combination (collectively, the “Cayman Proposals”);

 

  2.

separate proposals to approve, for the purposes of complying with the applicable listing standards of NYSE, the following issuances of Ordinary Shares, shares of Class A Common Stock and shares of Class B Common Stock in connection with the Transaction Agreement and the PIPE Agreements (collectively, the “Stock Issuance Proposals”):

 

   

Proposal 2(a): each issuance of Ordinary Shares pursuant to each Replay PIPE Agreement;

 

   

Proposal 2(b): each issuance of shares of Class A Common Stock pursuant to each New Pubco PIPE Agreement;

 

   

Proposal 2(c): each issuance of shares of Class A Common Stock pursuant to the Transaction Agreement;

 

   

Proposal 2(d): each issuance of shares of Class B Common Stock pursuant to the Transaction Agreement;

 

   

Proposal 2(e): each issuance of Ordinary Shares pursuant to each Replay PIPE Agreement entered into with an affiliate of the Sponsor;

 

   

Proposal 2(f): each issuance of shares of Class A Common Stock to the Sellers, Blocker and Blocker GP pursuant to the Transaction Agreement; and

 

   

Proposal 2(g): each issuance of shares of Class B Common Stock to the Sellers pursuant to the Transaction Agreement;


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  3.

separate proposals to approve the following material differences between the proposed Amended and Restated Certificate of Incorporation of New Pubco (the “Proposed Charter” and, together with the proposed Amended and Restated Bylaws of New Pubco (the “Proposed Bylaws”), the “Proposed Organizational Documents”) and Replay’s current Amended and Restated Memorandum and Articles of Association (the “Existing Organizational Documents”) (such proposals, collectively, the “Organizational Documents Proposals”):

 

   

Proposal 3(a): to approve the provision in the Proposed Charter changing the authorized share capital from $20,200 divided into 200,000,000 Ordinary Shares of a par value of $0.0001 each and 2,000,000 preferred shares of a par value of $0.0001 each, to authorized capital stock of 6,601,000,000 shares, consisting of 6,000,000,000 shares of Class A Common Stock, $0.0001 par value per share, 1,000,000 shares of Class B Common Stock, $0.0001 par value per share, and 600,000,000 shares of undesignated preferred stock, $0.0001 par value per share (we refer to this as “Organizational Documents Proposal A”);

 

   

Proposal 3(b): to approve the provisions in the Proposed Charter, pursuant to which only the board of directors, the chairman of the board of directors or the chief executive officer, by or at their direction, may call a special meeting of the stockholders generally entitled to vote, or the board of directors or the chairman of the board of directors must, by or at their direction, call such a special meeting at the request of the Principal Stockholders except during any time when the Principal Stockholders beneficially own, in the aggregate, less than 30% of the total voting power of all the then outstanding shares of stock of New Pubco entitled to vote in the election of directors (the “Voting Rights Threshold Period”) (we refer to this as “Organizational Documents Proposal B”); and

 

   

Proposal 3(c): to approve all other changes in connection with the replacement of the Existing Organizational Documents of Replay with the Proposed Organizational Documents of New Pubco, including, among other things, (i) changing from a blank check company seeking a business combination within a certain period (as provided in the Existing Organizational Documents), to a corporation having perpetual existence (as provided in the Proposed Charter), (ii) changing from no provision in the Existing Organizational Documents providing where certain claims must be brought, to requiring certain claims to be brought in the Court of Chancery of the State of Delaware or the federal district courts of the United States (as provided in the Proposed Organizational Documents), and (iii) changing from no provision in the Existing Organizational Documents with respect to corporate opportunities, to renouncing an interest or expectancy in certain corporate opportunities involving non-employee members of New Pubco’s board of directors, the Principal Stockholders and their respective affiliates (as provided in the Proposed Charter) (we refer to this as “Organizational Documents Proposal C”);

 

  4.

a proposal to approve the adoption of the Finance of America Companies Inc. 2021 Omnibus Incentive Plan (the “Incentive Plan,” and such proposal, the “Incentive Plan Proposal”);

 

  5.

a proposal to approve an extension of the date by which Replay must consummate a Business Combination (as defined in the Existing Organizational Documents) to October 8, 2021 (or, if elected by FoA prior to the date this Registration Statement is declared effective under the Securities Act, such other date designated by FoA) to be effected by way of amendment and restatement of the Existing Organizational Documents (the “Extension Proposal”); and

 

  6.

a proposal to approve the adjournment of the general meeting to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of the Cayman Proposals, the Stock Issuance Proposals, the Organizational Documents Proposals, the Incentive Plan Proposal and/or the Extension Proposal (the “Adjournment Proposal” and, together with the Cayman Proposals, the Stock Issuance Proposals, the Organizational Documents Proposals, the Incentive Plan Proposal and the Extension Proposal, the “Proposals”).


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Each of the Proposals is more fully described in this proxy statement/prospectus, which each Replay shareholder is encouraged to review carefully and in its entirety.

In connection with the Transaction Agreement, if the Cayman Proposals are approved, Replay will deregister as an exempted company in the Cayman Islands and continue and domesticate as a limited liability company formed under the laws of the State of Delaware. Upon the effectiveness of the Domestication, each of our currently issued and outstanding Ordinary Shares will automatically convert in connection with the Domestication, on a one-for-one basis, into Replay LLC Units, and upon the effectiveness of the Replay Merger, each such Replay LLC Unit will automatically convert into the right to receive one share of Class A Common Stock.

Replay’s equity securities trade on NYSE. Each of Replay’s units consists of one Ordinary Share and one-half of one warrant and trades under the symbol “RPLA.U.” Replay’s Ordinary Shares and public warrants trade under the symbols “RPLA” and “RPLA.WS,” respectively. Each whole warrant entitles the holder to purchase one Ordinary Share at a price of $11.50 per share, subject to adjustment. The units that have not previously been separated at the election of holders will automatically separate into the component securities upon the closing of the Business Combination (the “Closing”) and, as a result, will no longer trade as a separate security. We intend to apply to list the shares of Class A Common Stock and New Pubco’s warrants (the “New Pubco Warrants”) on NYSE under the symbols “FOA” and “FOA.WS,” respectively.

Pursuant to our Existing Organizational Documents, we are providing the holders of Ordinary Shares originally sold as part of the units issued in our initial public offering, which closed on April 8, 2019 (the “IPO” and such holders, the “Public Shareholders”), with the opportunity to redeem, upon the Closing, all or a portion of the Ordinary Shares 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) in the trust account (the “Trust Account”) that holds the proceeds from the IPO and a portion of the proceeds from a concurrent private placement of warrants to Replay Sponsor, LLC, a Delaware limited liability company (the “Sponsor”). For illustrative purposes, based on the fair value of marketable securities and cash held in the Trust Account as of September 30, 2020 of approximately $293.3 million, the estimated per share redemption price would have been approximately $10.20.

Public shareholders may elect to redeem their shares even if they vote for the Proposals. Notwithstanding the foregoing, a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), will be restricted from seeking redemption rights with respect to more than 15% of the Ordinary Shares included in the units sold in our IPO, which we refer to as the “15% threshold.” Accordingly, all such Ordinary Shares in excess of the 15% threshold beneficially owned by a public shareholder or group will not be redeemed for cash. Holders of Replay’s outstanding public warrants sold in the IPO do not have redemption rights in connection with the Business Combination. Our Sponsor, officers and directors have agreed to waive their redemption rights in connection with the Closing with respect to any Ordinary Shares they may hold, including the Ordinary Shares initially purchased by our Sponsor in a private placement prior to our IPO (the “Founder Shares”), and our Sponsor has agreed not to redeem any public shares owned by it in connection with the Closing. The Founder Shares will be excluded from the pro rata calculation used to determine the per share redemption price. As of the date of this proxy statement/prospectus, our Sponsor, officers and directors collectively own 9,687,500 Ordinary Shares, representing approximately 27.0% of the outstanding Ordinary Shares. Our Sponsor, officers and directors have agreed to vote any Ordinary Shares owned by them in favor of each Proposal.

Replay is providing this proxy statement/prospectus and the accompanying proxy card to its shareholders in connection with the solicitation of proxies to be voted at the general meeting and any adjournments or postponements thereof, if applicable. Your vote is very important. Whether or not you plan to attend the general meeting in person, please submit your proxy card without delay.

We encourage you to read this proxy statement/prospectus carefully and in its entirety. In particular, you should carefully review the matters discussed under the caption “Risk Factors” beginning on page 49 of this proxy statement/prospectus.


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Our board of directors unanimously recommends that Replay shareholders vote “FOR” each of the Proposals. When you consider the recommendation of Replay’s board of directors in favor of each of the Proposals, you should keep in mind that Replay’s directors and officers have interests in the Business Combination that may conflict with your interests as a shareholder. Please see the section entitled “Proposal No. 1—The Cayman Proposals—Proposal 1(c): The Business Combination—Interests of Certain Persons in the Business Combination.”

Approval of each of the Domestication, the Replay LLCA and the Extension Proposal requires that a special resolution be passed in accordance with the Companies Act (as amended) of the Cayman Islands (the “Cayman Islands Companies Act ”), being the affirmative vote of the holders of not less than two-thirds of the Ordinary Shares present and entitled to vote thereon at the general meeting. Approval of the Business Combination and each of the other Proposals requires the affirmative vote of the holders of a majority of the outstanding Ordinary Shares present and entitled to vote thereon at the general meeting.

If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted “FOR” each of the Proposals presented at the general meeting. If you fail to return your proxy card or fail to submit your proxy by telephone or over the Internet, or fail to instruct your bank, broker or other nominee how to vote, and do not attend the general meeting in person, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the general meeting and, if a quorum is present, will have no effect on the Proposals. If you are a shareholder of record and you attend the general meeting and wish to vote in person, you may withdraw your proxy and vote in person.

TO EXERCISE YOUR REDEMPTION RIGHTS, YOU MUST ELECT TO HAVE REPLAY REDEEM YOUR SHARES FOR A PRO RATA PORTION OF THE FUNDS HELD IN THE TRUST ACCOUNT AND TENDER YOUR SHARES TO REPLAY’S TRANSFER AGENT AT LEAST TWO BUSINESS DAYS PRIOR TO THE VOTE AT THE GENERAL MEETING. YOU MAY TENDER YOUR SHARES BY EITHER DELIVERING YOUR SHARE CERTIFICATE TO THE TRANSFER AGENT OR BY DELIVERING YOUR SHARES ELECTRONICALLY USING THE DEPOSITORY TRUST COMPANY’S DWAC (DEPOSIT WITHDRAWAL AT CUSTODIAN) SYSTEM. IF THE BUSINESS COMBINATION IS NOT COMPLETED, THEN THESE SHARES WILL NOT BE REDEEMED FOR CASH. IF YOU HOLD THE SHARES IN STREET NAME, YOU WILL NEED TO INSTRUCT THE ACCOUNT EXECUTIVE AT YOUR BANK OR BROKER TO WITHDRAW THE SHARES FROM YOUR ACCOUNT IN ORDER TO EXERCISE YOUR REDEMPTION RIGHTS.

Thank you for your consideration of these matters.

Sincerely,

 

/s/ Edmond Safra

 

Edmond Safra

Co-Chief Executive Officer

Replay Acquisition Corp.

 

/s/ Gregorio Werthein

 

Gregorio Werthein

Co-Chief Executive Officer

Replay Acquisition Corp.


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Whether or not you plan to attend the general meeting, please submit your proxy by signing, dating and mailing the enclosed proxy card in the pre-addressed postage-paid envelope or by using the telephone or Internet procedures provided to you by your broker or bank. If your shares are held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares or, if you wish to attend the general meeting and vote in person, you must obtain a proxy from your broker or bank.

In connection with the Domestication, in this Registration Statement Replay is offering (i) 28,750,000 Replay LLC Units, which shall automatically be converted into the right to receive an equal number of shares of Class A Common Stock of New Pubco pursuant to the Replay Merger, and (ii) 14,375,000 Warrants of Replay LLC, which shall automatically be converted into an equal number of Warrants of New Pubco pursuant to the Replay Merger. New Pubco is offering 28,750,000 shares of its Class A Common Stock and 14,375,000 New Pubco Warrants in this Registration Statement.

After the completion of the Business Combination, affiliates of the Principal Stockholders will be parties to a stockholders agreement and will beneficially own approximately 68.0% of the combined voting power of New Pubco’s Class A and Class B common stock (assuming no redemptions). As a result, we will be a “controlled company” within the meaning of the NYSE corporate governance standards. See “Management After the Business Combination—Controlled Company Exception” and “Security Ownership of Certain Beneficial Owners and Management.”

Neither the Securities and Exchange Commission nor any state securities commission has passed upon the adequacy or accuracy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus is dated February 12, 2021 and is first being mailed to Replay shareholders on or about February 12, 2021.


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REPLAY ACQUISITION CORP.

767 Fifth Avenue, 46th Floor

New York, New York 10153

NOTICE OF EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS

TO BE HELD ON MARCH 25, 2021

To the Shareholders of Replay Acquisition Corp.:

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of shareholders (the “general meeting”) of Replay Acquisition Corp., a Cayman Islands exempted company (“Replay”), will be held on March 25, 2021, at 10:00 a.m., Eastern time, at the offices of Greenberg Traurig, LLP, located at 1750 Tysons Boulevard, Suite 1000, McLean, Virginia 22102. You are cordially invited to attend the general meeting for the following purposes:

 

  1.

separate proposals to approve the (a) Domestication, (b) Replay LLCA and (c) Business Combination (each as defined below, and collectively, the “Cayman Proposals”) pursuant to the Transaction Agreement, dated as of October 12, 2020 (as the same may be amended from time to time, the “Transaction Agreement”), by and among Replay; Finance of America Equity Capital LLC, a Delaware limited liability company (“FoA”); Finance of America Companies Inc., a Delaware corporation and wholly owned subsidiary of Replay (“New Pubco”); RPLY Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of New Pubco (“Replay Merger Sub”); RPLY BLKR Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of New Pubco (“Blocker Merger Sub”); Blackstone Tactical Opportunities Fund (Urban Feeder) – NQ L.P., a Delaware limited partnership (“Blocker”); Blackstone Tactical Opportunities Associates – NQ L.L.C., a Delaware limited liability company (“Blocker GP”); BTO Urban Holdings L.L.C., a Delaware limited liability company (“BTO Urban”), Blackstone Family Tactical Opportunities Investment Partnership – NQ – ESC L.P., a Delaware limited partnership (“ESC”), Libman Family Holdings LLC, a Connecticut limited liability company (“Family Holdings”), The Mortgage Opportunity Group LLC, a Connecticut limited liability company (“TMO”), L and TF, LLC, a North Carolina limited liability company (“L&TF”), UFG Management Holdings LLC, a Delaware limited liability company (“Management Holdings”), and Joe Cayre (each of BTO Urban, ESC, Family Holdings, TMO, L&TF, Management Holdings and Joe Cayre, a “Seller” and, collectively, the “Sellers” or the “Continuing Unitholders”); and BTO Urban and Family Holdings, solely in their joint capacity as the representative of the Sellers pursuant to Section 12.18 of the Transaction Agreement (the “Seller Representative”), pursuant to which Replay agreed to combine with FoA in a series of transactions (collectively, the “Business Combination”) that will result in New Pubco becoming a publicly-traded company on the New York Stock Exchange (the “NYSE”) and controlling FoA in an “UP-C” structure. Pursuant to the Business Combination, among other things:

 

   

Replay will change its jurisdiction of incorporation from the Cayman Islands to the State of Delaware by deregistering as an exempted company in the Cayman Islands and continuing and domesticating as a limited liability company formed under the laws of the State of Delaware (the “Domestication”), whereby (A) each ordinary share, par value $0.0001 per share, of Replay (“Ordinary Shares”) outstanding immediately prior to the Domestication will be converted into a unit representing a limited liability company interest in Replay (each, a “Replay LLC Unit”) and (B) Replay will be governed by a limited liability company agreement (the “Replay LLCA”);

 

   

the Sellers and Blocker GP will sell to Replay limited liability company interests in FoA (“FoA Units”) in exchange for cash;

 

   

Replay Merger Sub will merge with and into Replay (the “Replay Merger”), with Replay surviving the Replay Merger as a direct wholly owned subsidiary of New Pubco and each Replay LLC Unit outstanding immediately prior to the effectiveness of the Replay Merger being converted into the right to receive one share of New Pubco’s Class A common stock, par value $0.0001 per share (“Class A Common Stock”);


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Blocker will be converted from a Delaware limited partnership to a Delaware limited liability company;

 

   

Blocker Merger Sub will merge with and into Blocker (the “Blocker Merger”), with Blocker surviving the Blocker Merger as a direct wholly owned subsidiary of New Pubco and each limited liability company interest of Blocker (each, a “Blocker Share”) outstanding immediately prior to the effectiveness of the Blocker Merger being converted into the right to receive a combination of shares of Class A Common Stock and cash;

 

   

Blocker GP will contribute its remaining FoA Units to New Pubco in exchange for shares of Class A Common Stock, after which New Pubco will contribute such FoA Units to Blocker; and

 

   

New Pubco will issue to the Sellers shares of New Pubco’s Class B common stock, par value $0.0001 per share (“Class B Common Stock”), which will have no economic rights but will entitle each holder of at least one such share (regardless of the number of shares so held) to a number of votes that is equal to the aggregate number of FoA Units held by such holder on all matters on which stockholders of New Pubco are entitled to vote generally;

 

   

Vote Required for Approval

 

     

The approval of each of the Domestication and the Replay LLCA requires a special resolution under the Cayman Islands Companies Act, being the affirmative vote of the holders of at least two-thirds of the Ordinary Shares who, being present and entitled to vote at the general meeting, vote at the general meeting. The approval of the Business Combination requires the affirmative vote of the holders of a majority of the outstanding Ordinary Shares present and entitled to vote thereon at the general meeting. Abstentions and broker non-votes, while considered present for the purposes of establishing a quorum, will not count as a vote cast at the general meeting;

 

   

The Wording of the Resolutions for the Domestication and the Replay LLCA

 

     

For the Domestication: “It is resolved as a Special Resolution that pursuant to the power contained in Clause 8 of the Replay’s Memorandum of Association and in the manner required by Article 175 of Replay’s Articles of Association, Replay be registered by way of continuation under the laws of the US State of Delaware, pursuant to sections 206 and 207 of the Companies Act (as amended) of the Cayman Islands and Section 18-212 of the Delaware Limited Liability Company Act”;

 

     

For the Replay LLCA: “It is resolved as a Special Resolution that pursuant to the power contained in Clause 8 of the Replay’s Memorandum of Association and in the manner required by Article 175 of Replay’s Articles of Association, the Replay LLCA be approved pursuant to sections 206 and 207 of the Companies Act (as amended) of the Cayman Islands and Section 18-212 of the Delaware Limited Liability Company Act”;

 

  2.

separate proposals to approve, for the purposes of complying with the applicable listing standards of NYSE, the following issuances of Ordinary Shares, shares of Class A Common Stock and shares of Class B Common Stock in connection with the Transaction Agreement and the PIPE Agreements (collectively, the “Stock Issuance Proposals”):

 

   

Proposal 2(a): each issuance of Ordinary Shares pursuant to each Replay PIPE Agreement;

 

   

Proposal 2(b): each issuance of shares of Class A Common Stock pursuant to each New Pubco PIPE Agreement;

 

   

Proposal 2(c): each issuance of shares of Class A Common Stock pursuant to the Transaction Agreement;

 

   

Proposal 2(d): each issuance of shares of Class B Common Stock pursuant to the Transaction Agreement;


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Proposal 2(e): each issuance of Ordinary Shares pursuant to each Replay PIPE Agreement entered into with an affiliate of the Sponsor;

 

   

Proposal 2(f): each issuance of shares of Class A Common Stock to the Sellers, Blocker and Blocker GP pursuant to the Transaction Agreement; and

 

   

Proposal 2(g): each issuance of shares of Class B Common Stock to the Sellers pursuant to the Transaction Agreement;

 

  3.

separate proposals to approve the following material differences between the proposed Amended and Restated Certificate of Incorporation of New Pubco (the “Proposed Charter” and, together with the proposed Amended and Restated Bylaws of New Pubco (the “Proposed Bylaws”), the “Proposed Organizational Documents”) and Replay’s current Amended and Restated Memorandum and Articles of Association (the “Existing Organizational Documents”) (such proposals, collectively, the “Organizational Documents Proposals”):

 

   

Proposal 3(a): to approve the provision in the Proposed Charter changing the authorized share capital from $20,200 divided into 200,000,000 Ordinary Shares of a par value of $0.0001 each and 2,000,000 preferred shares of a par value of $0.0001 each, to authorized capital stock of 6,601,000,000 shares, consisting of 6,000,000,000 shares of Class A Common Stock, $0.0001 par value per share, 1,000,000 shares of Class B Common Stock, $0.0001 par value per share, and 600,000,000 shares of undesignated preferred stock, $0.0001 par value per share (we refer to this as “Organizational Documents Proposal A”);

 

   

Proposal 3(b): to approve the provisions in the Proposed Charter, pursuant to which only the board of directors, the chairman of the board of directors or the chief executive officer, by or at their direction, may call a special meeting of the stockholders generally entitled to vote, or the board of directors or the chairman of the board of directors must, by or at their direction, call such a special meeting at the request of the Principal Stockholders except at any time during any Voting Rights Threshold Period (we refer to this as “Organizational Documents Proposal B”); and

 

   

Proposal 3(c): to approve all other changes in connection with the replacement of the Existing Organizational Documents of Replay with the Proposed Organizational Documents of New Pubco, including, among other things, (i) changing from a blank check company seeking a business combination within a certain period (as provided in the Existing Organizational Documents), to a corporation having perpetual existence (as provided in the Proposed Charter), (ii) changing from no provision in the Existing Organizational Documents providing where certain claims must be brought, to requiring certain claims to be brought in the Court of Chancery of the State of Delaware or the federal district courts of the United States (as provided in the Proposed Organizational Documents), and (iii) changing from no provision in the Existing Organizational Documents with respect to corporate opportunities, to renouncing an interest or expectancy in certain corporate opportunities involving non-employee members of New Pubco’s board of directors, the Principal Stockholders and their respective affiliates (as provided in the Proposed Charter) (we refer to this as “Organizational Documents Proposal C”);

 

  4.

a proposal to approve the adoption of the Finance of America Companies Inc. 2021 Omnibus Incentive Plan (the “Incentive Plan,” and such proposal, the “Incentive Plan Proposal”);

 

  5.

a proposal to approve an extension of the date by which Replay must consummate a Business Combination (as defined in the Existing Organizational Documents) to October 8, 2021 (or, if elected by FoA prior to the date this Registration Statement is declared effective under the Securities Act, such other date designated by FoA) to be effected by way of amendment and restatement of the Existing Organizational Documents (the “Extension Proposal”);

 

   

Vote Required for Approval

 

     

The approval of the Extension Proposal requires a special resolution under Cayman Islands Companies Act, being the affirmative vote of the holders of not less than two-thirds of the Ordinary Shares present and entitled to vote thereon at the general meeting.;


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Wording of the Special Resolution for the Extension Proposal

 

     

“It is resolved by Special Resolution that the existing Memorandum and Articles of Association of Replay be and are hereby replaced in their entirety with a new Memorandum and Articles of Association, a copy of which is annexed hereto”; and

 

  6.

a proposal to approve the adjournment of the general meeting to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of the Cayman Proposals, the Stock Issuance Proposals, the Organizational Documents Proposals, the Incentive Plan Proposal and/or the Extension Proposal (the “Adjournment Proposal” and, together with the Cayman Proposals, the Stock Issuance Proposals, the Organizational Documents Proposals, the Incentive Plan Proposal and the Extension Proposal, the “Proposals”).

Your attention is directed to the proxy statement/prospectus accompanying this notice (including the financial statements and annexes attached thereto) for a more complete description of the proposed Business Combination and related transactions and each of our Proposals. We encourage you to read this proxy statement/prospectus carefully and in its entirety. If you have any questions or need assistance voting your shares, please call Morrow Sodali LLC, at (800) 662-5200; banks and brokers may reach Morrow Sodali LLC at (203) 658-9400.

In light of the ongoing health concerns relating to the coronavirus (“COVID-19”) pandemic and to best protect the health and welfare of Replay’s shareholders and personnel, Replay urges that shareholders do not attend the general meeting in person. Shareholders are nevertheless urged to vote their proxies by completing, signing, dating and returning the enclosed proxy card in the accompanying pre-addressed postage paid envelope.

The general meeting is currently scheduled to be held in person as indicated above. However, we are actively monitoring the COVID-19 pandemic, and if we determine that it is not possible or advisable to hold the general meeting in person, or to hold the meeting on the time or date or at the location indicated above, we will announce alternative arrangements for the meeting as promptly as practicable, which may include switching to a virtual or telephonic meeting format, or changing the time, date or location of the general meeting. Any such change will be announced via press release and the filing of additional proxy materials with the Securities and Exchange Commission.

 

  

By Order of the Board of Directors,

February 12, 2021   

/s/ Edmond Safra

 

Edmond Safra

Co-Chief Executive Officer

Replay Acquisition Corp.

  

/s/ Gregorio Werthein

 

Gregorio Werthein

Co-Chief Executive Officer

Replay Acquisition Corp.

 


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WHERE YOU CAN FIND MORE INFORMATION

Replay files reports, proxy statements/prospectuses and other information with the SEC as required by the Exchange Act. You can read Replay’s SEC filings, including this proxy statement/prospectus, over the Internet at the SEC’s website at http://www.sec.gov.

If you would like additional copies of this proxy statement/prospectus or if you have questions about the Business Combination or the Proposals to be presented at the general meeting, you should contact us by telephone or in writing:

Replay Acquisition Corp.

767 Fifth Avenue, 46th Floor

New York, New York 10153

Telephone: (212) 891-2700

Attention: Legal and Compliance

E-mail: Info@replayacquisition.com

You may also obtain these documents by requesting them in writing or by telephone from Morrow Sodali LLC at the following address and telephone number:

Morrow Sodali LLC

470 West Avenue

Stamford, CT 06902

Telephone: (800) 662-5200

Banks and brokers can call collect at: (203) 658-9400

Email: RPLA.info@investor.morrowsodali.com

If you are a shareholder of Replay and would like to request documents, please do so by March 11, 2021 to receive them before the Replay general meeting of shareholders. If you request any documents from us, we will mail them to you by first class mail, or another equally prompt means.

All information contained or incorporated by reference in this proxy statement/prospectus relating to Replay has been supplied by Replay, and all such information relating to FoA has been supplied by FoA. Information provided by either Replay or FoA does not constitute any representation, estimate or projection of any other party.

Neither Replay nor FoA has authorized anyone to give any information or make any representation about the Business Combination or their companies that is different from, or in addition to, that contained in this proxy statement/prospectus or in any of the materials that have been incorporated in this proxy statement/prospectus. Therefore, if anyone does give you information of this sort, you should not rely on it. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this proxy statement/prospectus or the solicitation of proxies is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this proxy statement/prospectus does not extend to you. The information contained in this proxy statement/prospectus speaks only as of the date of this proxy statement/prospectus unless the information specifically indicates that another date applies.

 


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TABLE OF CONTENTS

 

ABOUT THIS PROXY STATEMENT/PROSPECTUS

     1  

FREQUENTLY USED TERMS

     2  

QUESTIONS AND ANSWERS ABOUT THE BUSINESS COMBINATION

     7  

SUMMARY OF THE PROXY STATEMENT/PROSPECTUS

     20  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF FOA

     38  

SELECTED HISTORICAL FINANCIAL DATA OF REPLAY

     41  

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION

     43  

COMPARATIVE PER SHARE INFORMATION

     45  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     47  

RISK FACTORS

     49  

UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION

     107  

THE GENERAL MEETING OF REPLAY SHAREHOLDERS

     130  

PROPOSAL NO. 1 – CAYMAN PROPOSALS

     136  

PROPOSAL NO. 2 – THE STOCK ISSUANCE PROPOSALS

     186  

PROPOSAL NO. 3 – THE ORGANIZATIONAL DOCUMENTS PROPOSALS

     188  

PROPOSAL NO. 4 – THE INCENTIVE PLAN PROPOSAL

     194  

PROPOSAL NO. 5 – THE EXTENSION PROPOSAL

     201  

PROPOSAL NO. 6 – THE ADJOURNMENT PROPOSAL

     202  

INFORMATION ABOUT FOA

     203  

FOA MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     228  

CERTAIN FOA RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

     294  

INFORMATION ABOUT REPLAY

     297  

REPLAY MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     308  

CERTAIN REPLAY RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

     315  

MANAGEMENT AFTER THE BUSINESS COMBINATION

     318  

COMPARISON OF CORPORATE GOVERNANCE AND SHAREHOLDER RIGHTS

     339  

DESCRIPTION OF SECURITIES

     344  

SHARES ELIGIBLE FOR FUTURE SALE

     361  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     363  

ADDITIONAL INFORMATION

     368  

INDEX TO FINANCIAL STATEMENTS

     F-1  

ANNEX A: TRANSACTION AGREEMENT

     A-1  

ANNEX B: FORM OF PIPE AGREEMENT

     B-1  

ANNEX C: AMENDED AND RESTATED MEMORANDUM AND ARTICLES OF ASSOCIATION OF REPLAY

     C-1  

ANNEX D: AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NEW PUBCO

     D-1  

ANNEX E: AMENDED AND RESTATED BYLAWS OF NEW PUBCO

     E-1  

 

 

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ABOUT THIS PROXY STATEMENT/PROSPECTUS

This document, which forms part of a registration statement on Form S-4 filed with the U.S. Securities and Exchange Commission (the “SEC”), by Finance of America Companies Inc. and Replay (File No. 333-249897), constitutes a prospectus of Finance of America Companies Inc. under Section 5 of the Securities Act, with respect to the Replay LLC Units, shares of Class A Common Stock and the warrants to purchase shares of Class A Common Stock to be issued in connection with the Domestication and Replay Merger, and the shares of Class A Common Stock issuable upon the exercise of such warrants, if the Business Combination described herein is consummated. This document also constitutes a notice of meeting and a proxy statement under Section 14(a) of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to the general meeting of Replay shareholders at which Replay shareholders will be asked to consider and vote upon a proposal to approve the Business Combination, among other matters.

 

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FREQUENTLY USED TERMS

In this document:

“Adjournment Proposal” means a proposal to adjourn the general meeting of the shareholders of Replay to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the general meeting, there are not sufficient votes to approve one or more proposals presented to shareholders for vote at such general meeting.

“AML Laws” means the anti-money laundering and counter-terrorist financing provisions of the Bank Secrecy Act, including the USA Patriot Act, which require non-bank lenders to monitor for, detect and report suspicious activity to the U.S. Treasury’s Financial Crimes Enforcement Network.

“BL Investors” means Brian L. Libman and certain entities controlled by him.

“Blackstone” means The Blackstone Group Inc.

“Blackstone Investors” means certain funds affiliated with Blackstone.

“Blocker” means Blackstone Tactical Opportunities Fund (Urban Feeder) – NQ L.P., a Delaware limited partnership.

“Blocker GP” means Blackstone Tactical Opportunities Associates – NQ L.L.C., a Delaware limited liability company.

“Blocker Merger” means the merger of Blocker Merger Sub with and into Blocker, with Blocker surviving the merger as a direct wholly owned subsidiary of New Pubco.

“Blocker Merger Sub” means RPLY BLKR Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of New Pubco.

“Blocker Shareholders” means the holders of Blocker Shares outstanding immediately prior to the effectiveness of the Blocker Merger.

“broker non-vote” means the failure of a Replay shareholder, who holds his or her shares in “street name” through a broker or other nominee, to give voting instructions to such broker or other nominee.

“Business Combination” means the transactions contemplated by the Transaction Agreement, pursuant to which Replay will combine with FoA in a series of transactions that will result in New Pubco becoming a publicly-traded company on NYSE and controlling FoA in an “UP-C” structure.

“Cayman Proposals” means the proposals to approve each of the Domestication, the Replay LLCA and the Business Combination.

“CFPB” means the Consumer Financial Protection Bureau.

“Class A Common Stock” means New Pubco’s shares of Class A common stock, par value $0.0001 per share, with each Replay LLC Unit outstanding immediately prior to the effectiveness of the Replay Merger converting into the right to receive one share of.

“Class B Common Stock” means New Pubco’s shares of Class B common stock, par value $0.0001 per share, which will not have economic rights but will entitle each holder to a number of votes that is equal to the aggregate number of FoA Units held by such holder on all matters on which stockholders of New Pubco are entitled to vote generally.

 

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“Closing” means the consummation of the Business Combination.

“Code” means the Internal Revenue Code of 1986, as amended.

“Continuing Stockholders” means, collectively, the Blocker Shareholders and Blocker GP.

“Continuing Unitholders” means, collectively, BTO Urban, ESC, Family Holdings, TMO, L&TF, Management Holdings and Joe Cayre.

“DGCL” means the Delaware General Corporation Law.

“DLLCA” means the Delaware Limited Liability Company Act.

“Dodd-Frank Act” means the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended, together with its implementing regulations.

“Domestication” means Replay’s change of jurisdiction of incorporation from the Cayman Islands to the State of Delaware by deregistering as an exempted company in the Cayman Islands and continuing and domesticating as a limited liability company formed under the laws of the State of Delaware.

“ECOA” means the Equal Credit Opportunity Act, as amended, together with its implementing regulations (Regulation B).

“EFTA” means the Electronic Funds Transfer Act, as amended, and its implementing regulations (Regulation E).

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“FACo” means Finance of America Commercial LLC, an indirect subsidiary of FoA.

“Fair Housing Act” means the Fair Housing Act.

“FAM” means Finance of America Mortgage LLC, an indirect subsidiary of FoA.

“Fannie Mae” means the Federal National Mortgage Association.

“FAR” means Finance of America Reverse LLC, an indirect subsidiary of FoA.

“FCRA” means the Fair Credit Reporting Act, as amended, and its implementing regulations (Regulation V).

“FDCPA” means the Fair Debt Collection Practices Act.

“FHA” means the Federal Housing Administration.

“FHFA” means the Federal Housing Finance Agency.

“FoA” means Finance of America Equity Capital LLC, a Delaware limited liability company.

“FoA Units” means limited liability company interests in FoA that are exchangeable on a one-for-one basis into Class A Common Stock.

 

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“Founder Shares” means the Ordinary Shares initially purchased by the Sponsor in a private placement in connection with the IPO.

“Freddie Mac” means the Federal Home Loan Mortgage Corp.

“GAAP” means United States generally accepted accounting principles.

“Ginnie Mae” means the Government National Mortgage Association.

“GLBA” means the Gramm-Leach-Bliley Act, together with its implementing regulations (Regulation P).

“GSE” means Government-Sponsored Enterprises, such as Fannie Mae and Freddie Mac.

“HECM” means Home Equity Conversion Mortgages.

“HMBS” means Ginnie Mae Home Equity Conversion Mortgage-Backed Securities.

“HMDA” means the Home Mortgage Disclosure Act, together with its implementing regulations (Regulation C).

“HPA” means the Homeowners Protection Act, as amended.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“HUD” means the U.S. Department of Housing and Urban Development.

“initial business combination” means Replay’s initial merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

“Initial Shareholders” means the Sponsor and Replay’s officers and directors.

“Investment Company Act” means the Investment Company Act of 1940, as amended.

“IPO” means Replay’s initial public offering of units, consummated on April 8, 2019.

“JOBS Act” means the Jumpstart Our Business Startups Act of 2012, as amended.

“MBS” means mortgage backed securities.

“MSR” means mortgage servicing rights.

“New Pubco” means Finance of America Companies Inc., a Delaware corporation and wholly owned subsidiary of Replay.

“New Pubco PIPE Agreements” means the subscription agreements entered into by New Pubco with the Principal Stockholders pursuant to which the Principal Stockholders agreed to purchase shares of Class A Common Stock.

“NYSE” means The New York Stock Exchange.

“OFAC” means the rules promulgated by the Office of Foreign Assets Control.

“Ordinary Shares” means Replay’s ordinary shares, par value $0.0001 per share.

 

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“Outside Date” means April 8, 2021; provided, that if Replay shareholders approve the Extension Proposal, “Outside Date” means October 8, 2021 (or, if another date is designated by FoA prior to the date this Registration Statement is declared effective under the Securities Act, such other date).

“PCAOB” means the Public Company Accounting Oversight Board.

“PIPE” means, collectively, the transactions contemplated by the PIPE Agreements.

“PIPE Agreements” means, collectively, the Replay PIPE Agreements and the New Pubco PIPE Agreements.

“Pre-Closing Reorganization” means an internal reorganization involving FoA, certain of its subsidiaries and certain of its and their direct and indirect equityholders, to occur prior to the completion of the Business Combination.

“Principal Stockholders” means, collectively, the Blackstone Investors and the BL Investors.

“Private Placement Warrants” means the warrants to purchase Units purchased in a private placement in connection with the IPO.

“prospectus” means the prospectus included in the Registration Statement on Form S-4 (Registration No. 333-249897) filed with the U.S. Securities and Exchange Commission.

“Public Shares” means Ordinary Shares issued as part of the Units sold in the IPO.

“Public Shareholders” means the holders of Ordinary Shares.

“Public Warrants” means the Warrants included in the Units sold in Replay’s IPO, each of which is exercisable for one Ordinary Share, in accordance with its terms.

“Purchaser-Side Parties” means, collectively, Replay, New Pubco, Replay Merger Sub and Blocker Merger Sub.

“Replay” means Replay Acquisition Corp., a Cayman Islands exempted company.

“Replay LLCA” means the limited liability company agreement that Replay will be governed by pursuant to the Domestication.

“Replay LLC Unit” means the units representing Replay’s limited liability company interests which each Ordinary Share outstanding immediately prior to the Domestication will be converted into.

“Replay Merger” means the merger of Replay Merger Sub with and into Replay, with Replay surviving the merger as a direct wholly owned subsidiary of New Pubco.

“Replay Merger Sub” means RPLY Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of New Pubco.

“Replay PIPE Agreements” means the subscription agreements entered into by Replay and various investors, pursuant to which such investors agreed to purchase Ordinary Shares (which Ordinary Shares will be converted into Replay LLC Units pursuant to the Domestication and then will be converted into the right to receive shares of Class A Common Stock pursuant to the Replay Merger).

 

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“RESPA” means the Real Estate Settlement Procedures Act, as amended, together with its implementing regulations (Regulation X).

“SAFE Act” means the S.A.F.E Mortgage Licensing Act, as amended.

“SCRA” means the Servicemembers’ Civil Relief Act, as amended.

“SEC” means the U.S. Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended.

“Seller Representative” means BTO Urban and Family Holdings, solely in their joint capacity as the representative of the Sellers pursuant to Section 12.18 of the Transaction Agreement.

“Seller-Side Parties” means, collectively, FoA, the Sellers, Blocker and Blocker GP.

“Sellers” means BTO Urban Holdings L.L.C., a Delaware limited liability company, Blackstone Family Tactical Opportunities Investment Partnership – NQ – ESC L.P., a Delaware limited partnership, Libman Family Holdings LLC, a Connecticut limited liability company, The Mortgage Opportunity Group LLC, a Connecticut limited liability company, L and TF, LLC, a North Carolina limited liability company, UFG Management Holdings LLC, a Delaware limited liability company, and Joe Cayre.

“Sponsor” means Replay Sponsor, LLC, a Delaware limited liability company.

“TCPA” means the Telephone Consumer Protection Act, as amended.

“TILA” means the Truth in Lending Act, as amended, together with its implementing regulations (Regulation Z).

“Transaction Agreement” means the Transaction Agreement, dated as of October 12, 2020, as may be amended, by and among Replay, FoA, New Pubco, Replay Merger Sub, Blocker Merger Sub, Blocker, Blocker GP and the Sellers.

“Trust Account” means the trust account that holds a portion of the proceeds of the IPO and the concurrent sale of the Private Placement Warrants.

“UFG” means UFG Holdings LLC, a Delaware limited liability company.

“Units” means one Ordinary Share and one-half of one Warrant.

“USDA” means the U.S. Department of Agriculture.

“VA” means the U.S. Department of Veterans Affairs.

“Warrants” means warrants to purchase Ordinary Shares as contemplated under the Replay Warrant Agreement, with each warrant exercisable for one Ordinary Shares at an exercise price of $11.50.

“Warrant Agreement” means the warrant agreement, dated April 8, 2019, by and between Replay and Continental Stock Transfer & Trust Company, governing Replay’s outstanding Warrants.

 

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QUESTIONS AND ANSWERS ABOUT THE BUSINESS COMBINATION

The following questions and answers briefly address some commonly asked questions about the Proposals to be presented at the general meeting of shareholders, including with respect to the proposed Business Combination. The following questions and answers may not include all the information that is important to Replay shareholders. Shareholders are urged to read carefully this entire proxy statement/prospectus, including the financial statements and annexes attached hereto and the other documents referred to herein.

Questions and Answers About the General Meeting of Replay’s Shareholders and the Related Proposals

 

Q.

Why am I receiving this proxy statement/prospectus?

 

A.

Replay has entered into the Transaction Agreement with FoA and the other parties thereto, pursuant to which Replay agreed to combine with FoA in a series of transactions that will result in New Pubco becoming a publicly-traded company on NYSE and controlling FoA in an “UP-C” structure. A copy of the Transaction Agreement is attached to this proxy statement/prospectus as Annex A.

Among other Proposals, Replay shareholders are being asked to consider and vote upon the Cayman Proposals in order to approve each of the Domestication, the Replay LLCA and the Business Combination.

This proxy statement/prospectus and its annexes contain important information about the proposed Business Combination and the Proposals to be acted upon at the general meeting. You should read this proxy statement/prospectus and its annexes carefully and in their entirety. This document also constitutes a prospectus of New Pubco with respect to the shares of Class A Common Stock and the Warrants to purchase shares of Class A Common Stock issuable in connection with the Domestication and the Replay Merger and the shares of Class A Common Stock issuable upon the exercise of such warrants.

 

Q.

What matters will shareholders consider at the general meeting?

 

A.

At the Replay general meeting, Replay will ask its shareholders to vote in favor of the following Proposals:

The Cayman Proposals: separate proposals to approve the Domestication, the Replay LLCA and the Business Combination.

The Stock Issuance Proposals: separate proposals to approve, for the purposes of complying with the applicable listing standards of NYSE, issuances of Ordinary Shares, shares of Class A Common Stock and shares of Class B Common Stock in connection with the Transaction Agreement and the PIPE Agreements.

The Organizational Documents Proposals: proposals to replace the Existing Organizational Documents, under the Cayman Islands Companies Act, with the Proposed Organizational Documents, under the DGCL.

The Incentive Plan Proposal: a proposal to approve and adopt the Incentive Plan.

The Extension Proposal: a proposal to approve an extension of the date by which Replay must consummate an initial business combination to October 8, 2021 (or, if elected by FoA prior to the date this Registration Statement is declared effective under the Securities Act, such other date designated by FoA).

The Adjournment Proposal: a proposal to adjourn the general meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the general meeting, there are not sufficient votes to approve one or more Proposals presented to shareholders for vote.

 

Q.

Are any of the Proposals conditioned on one another?

 

A.

The Stock Issuance Proposal is conditioned on the approval of the Cayman Proposals and the Organizational Documents Proposals. The Organizational Documents Proposals are conditioned on the approval of the Cayman Proposals. The Incentive Plan Proposal is conditioned on the approval of the Cayman Proposals, the Organizational Documents Proposals and the Stock Issuance Proposal. The Extension Proposal and the Adjournment Proposal do not require the approval of any of the other Proposals to be effective.

 

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It is important for you to note that unless each of the Cayman Proposals, the Stock Issuance Proposals, the Organizational Documents Proposals and the Incentive Plan Proposal are approved, then Replay will not consummate the Business Combination. If Replay does not consummate the Business Combination and fails to complete an initial business combination by April 8, 2021 (as such date may be extended pursuant to the Extension Proposal), Replay will be required to dissolve and liquidate.

 

Q.

What will happen upon the consummation of the Business Combination?

 

A.

Pursuant to the Business Combination, among other things:

(i) Replay will effect the Domestication, whereby (A) each Ordinary Share outstanding immediately prior to the Domestication will be converted into a Replay LLC Unit and (B) Replay will be governed by the Replay LLCA;

(ii) the Sellers and Blocker GP will sell to Replay FoA Units in exchange for cash;

(iii) the Replay Merger will occur, with each Replay LLC Unit outstanding immediately prior to the effectiveness of the Replay Merger being converted into the right to receive one share of Class A Common Stock;

(iv) Blocker will be converted from a Delaware limited partnership to a Delaware limited liability company;

(v) the Blocker Merger will occur, with each Blocker Share outstanding immediately prior to the effectiveness of the Blocker Merger being converted into the right to receive a combination of shares of Class A Common Stock and cash;

(vi) Blocker GP will contribute its remaining FoA Units to New Pubco in exchange for shares of Class A Common Stock, after which New Pubco will contribute such FoA Units to Blocker; and

(vii) New Pubco will issue to the Sellers shares of Class B Common Stock, which will have no economic rights but will entitle each holder of at least one such share (regardless of the number of shares so held) to a number of votes that is equal to the aggregate number of FoA Units held by such holder on all matters on which stockholders of New Pubco are entitled to vote generally.

As a result of the Business Combination, among other things:

(A) New Pubco will indirectly hold (through Replay and Blocker) FoA Units and will have the sole and exclusive right to appoint the board of managers of FoA;

(B) the Sellers will hold (i) FoA Units that are exchangeable on a one-for-one basis for shares of Class A Common Stock and (ii) shares of Class B Common Stock; and

(C) the Continuing Stockholders will, directly or indirectly, hold shares of Class A Common Stock.

Following the entry into the Transaction Agreement, a subsidiary of FoA issued senior notes in an aggregate principal amount of $350 million. In the event that FoA or any of its subsidiaries were to issue additional senior notes such that the aggregate principal amount of the previously issued senior notes, together with the aggregate principal amount of the additional senior notes, would exceed $350 million, then the number of FoA Units sold by the Sellers and Blocker GP will be reduced and the amount of FoA Units Cash Consideration to be received by the Sellers and Blocker GP will be reduced and the ratio of shares of Class A Common Stock and cash received by the Blocker Shareholders would change so that such Blocker Shareholders would receive more Class A Common Stock and less cash. The reduction in cash to the Sellers, Blocker GP and the Blocker Shareholders will be pro rata based on their percentages of FoA Units held following the Pre-Closing Reorganization.

 

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Q.

Why is Replay proposing the Business Combination?

 

A.

Replay was organized for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Replay is not limited to any particular geography, industry or sector.

Replay received $287,500,000 from its IPO (including net proceeds from the exercise by the underwriters of their over-allotment option) and sale of the Private Placement Warrants, which was placed into the Trust Account immediately following the IPO. In accordance with Replay’s Existing Organizational Documents, the funds held in the Trust Account will be released upon the consummation of the Business Combination. See the question entitled “What happens to the funds held in the Trust Account upon consummation of the Business Combination?”

There currently are 35,937,500 Ordinary Shares issued and outstanding. In addition, there currently are 22,125,000 Warrants issued and outstanding, including 7,750,000 Private Placement Warrants that were sold by Replay in a private sale simultaneously with Replay’s IPO. Each whole Warrant entitles the holder thereof to purchase one Ordinary Share at a price of $11.50 per share. The Warrants will become exercisable 30 days after the completion of Replay’s Business Combination, and expire at 5:00 p.m., New York City time, five years after the completion of Replay’s Business Combination or earlier upon redemption or liquidation. The Private Placement Warrants, however, are non-redeemable so long as they are held by their initial purchaser.

Under Replay’s Existing Organizational Documents, Replay must provide all holders of Public Shares with the opportunity to have their Public Shares redeemed upon the consummation of Replay’s initial business combination in conjunction with a shareholder vote.

 

Q.

Who is FoA?

 

A.

FoA is a vertically integrated, diversified lending platform that connects borrowers with investors. FoA operates with the goal of minimizing risk; it offers a diverse set of high-quality consumer loan products and distributes that risk to investors for an up-front cash profit and typically some future performance-based participation. FoA believes it has a differentiated, less volatile strategy than monoline mortgage lenders who focus on originating interest rate sensitive traditional mortgages and retain significant portfolios of mortgage servicing rights with large potential future advancing obligations. In addition to FoA’s profitable lending operations, it provides a variety of services to lenders through its Lender Services segment, which augments its lending profits with an attractive fee-oriented revenue stream.

 

Q.

What equity stake will current Replay shareholders and FoA securityholders have in New Pubco after the Closing?

 

A.

After the Closing, assuming no redemptions by Replay’s Public Shareholders and the exchange of all FoA Units by the Continuing Unitholders, approximately 30% of New Pubco will be beneficially owned by the shareholders of Replay, including the investors in the PIPE Agreements and excluding shares of Class A Common Stock held by the Sponsor following the Business Combination that are subject to vesting and forfeiture, and approximately 70% of New Pubco will be beneficially owned by current FoA securityholders. For additional information, see “Security Ownership of Certain Beneficial Owners and Management.”

 

Q.

Who will be the directors and officers of New Pubco if the Business Combination is consummated?

 

A.

The Transaction Agreement provides that, immediately following the consummation of the Business Combination, the New Pubco Board (as defined herein) will consist of persons designated by FoA, who are currently contemplated to be Brian L. Libman, Patricia L. Cook, Menes Chee, Norma C. Corio, Robert W. Lord, Tyson A. Pratcher and Lance N. West. In connection with the Business Combination, concurrently

 

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  with the Closing, New Pubco and certain pre-Closing equityholders of FoA will enter into a Stockholders Agreement (the “Stockholders Agreement”). Pursuant to the Stockholders Agreement, each of the Principal Stockholders will be entitled to nominate a certain number of directors to the New Pubco Board, based on each such holder’s ownership of the voting securities of New Pubco. The nomination rights of each Principal Stockholder are substantially identical and subject to the same terms, conditions and requirements. The number of directors that each of the Blackstone Investors and the BL Investors will separately be entitled to designate to the New Pubco Board increases and/or decreases on a sliding scale such that, for example, if the Blackstone Investors or the BL Investors, as the case may be, hold more than 40% of the outstanding shares of Class A Common Stock, assuming a full exchange of all FoA Units for the publicly traded Class A Common Stock, such applicable investors will be entitled to designate the lowest whole number of directors that is greater than 40% of the members of the New Pubco Board; if the Blackstone Investors or the BL Investors, as the case may be, hold between 30% and 40% of such outstanding shares, such applicable investors will be entitled to designate the lowest whole number of directors that is greater than 30% of the members of the New Pubco Board; if the Blackstone Investors or the BL Investors, as the case may be, hold between 20% and 30% of such outstanding shares, such applicable investors will be entitled to designate the lowest whole number of directors that is greater than 20% of the members of the New Pubco Board; and if the Blackstone Investors or the BL Investors, as the case may be, hold between 5% and 20% of such outstanding shares, such applicable investors will be entitled to designate the lowest whole number of directors that is greater than 10% of the members of the New Pubco Board). New Pubco’s executive officers will consist of Patricia L. Cook, Graham Fleming, Jeremy Prahm, Anthony W. Villani and Tai A. Thornock. For additional information, see “Management After the Business Combination” and “Certain Agreements Related to the Business Combination—Stockholders Agreement.”

 

Q.

What conditions must be satisfied to complete the Business Combination?

 

A.

There are a number of closing conditions in the Transaction Agreement. For a summary of the conditions that must be satisfied or waived prior to completion of the Business Combination, see the section entitled “The Cayman Proposals—Proposal 1(c): The Business Combination—The Transaction Agreement.”

 

Q.

Why is Replay proposing the Domestication as part of the Cayman Proposals?

 

A.

The Transaction Agreement requires us to consummate the Domestication and approve the Replay LLCA in connection with the Domestication. As permitted by the DLLCA, the Replay LLCA will provide that the Transaction Agreement and related documents, Replay’s execution, delivery and performance of such documents and the consummation of the Replay Merger and the other transactions contemplated by such documents are authorized without further action, vote or approval of the board of managers of Replay, the members of Replay or any other person. The foregoing is discussed in greater detail in the section entitled “The Cayman Proposals—Proposal 1(a): The Domestication—Reasons for the Domestication.”

In connection with the Domestication, we will file a notice of deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and will file a certificate of formation and a certificate of limited liability company domestication with the Secretary of State of the State of Delaware, under which Replay will be domesticated and continue as a Delaware limited liability company subject to the Replay LLCA and the DLLCA. Following the Domestication, pursuant to the Replay Merger, Replay Merger Sub will be merged with and into Replay, with Replay continuing as the surviving entity and a wholly-owned subsidiary of New Pubco. Replay LLC Units will be converted in the Replay Merger into the right to receive shares of Class A Common Stock.

 

Q.

How will the Domestication affect my Public Shares, Public Warrants and Units?

 

A.

Upon the effectiveness of the Domestication, each issued and outstanding (i) Ordinary Share will automatically convert by operation of law into one Replay LLC Unit (i.e., a 1:1 conversion ratio) and (ii) Public Warrant will automatically convert into one Warrant to purchase Replay LLC Units. Upon the

 

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  effectiveness of the Replay Merger, each issued and outstanding (A) Replay LLC Unit will automatically convert into the right to receive one share of Class A Common Stock (i.e., a 1:1 conversion ratio) and (B) Warrant will automatically convert into the right to receive one Warrant to purchase a share of Class A Common Stock. The Units will automatically separate into the component securities upon consummation of the Business Combination and, as a result, will no longer trade as a separate security. Under the terms of the Warrant Agreement, if, upon the separation of Public Warrants from the Units, a holder of Public Warrants would be entitled to receive a fractional Public Warrant, Replay will round down to the nearest whole number the number of Public Warrants to be issued to such holder. Disregarding any decrease in the aggregate number of Public Warrants caused by such “rounding down” process, and assuming no Public Warrants are tendered in the Warrant Offer (as defined herein), the aggregate number of Public Warrants outstanding immediately following the consummation of the Business Combination will be the same as the aggregate number of Public Warrants outstanding prior to the consummation of the Business Combination. We intend to apply to list the shares of Class A Common Stock and the New Pubco Warrants on NYSE under the symbol “FOA” And “FOA.WS,” respectively.

 

Q.

What happens if I sell my Ordinary Shares before the general meeting of shareholders?

 

A.

The record date for the general meeting of shareholders will be earlier than the date that the Business Combination is expected to be completed. If you transfer your Ordinary Shares after the record date, but before the general meeting of shareholders, unless the transferee obtains from you a proxy to vote those shares, you will retain your right to vote at the general meeting of shareholders.

 

Q.

What vote is required to approve the Proposals presented at the general meeting of shareholders?

 

A.

Approval of each of the Domestication, the Replay LLCA and the Extension Proposal requires that a special resolution be passed in accordance with the Cayman Islands Companies Act, being the affirmative vote of the holders of not less than two-thirds of the Ordinary Shares present and entitled to vote thereon at the general meeting. Approval of the Business Combination and each of the other Proposals requires the affirmative vote of the holders of a majority of the outstanding Ordinary Shares present and entitled to vote thereon at the general meeting.

 

Q.

May Replay or Replay’s Sponsor, directors, officers or advisors, or their affiliates, purchase shares in connection with the Business Combination?

 

A.

In connection with the shareholder vote to approve the proposed Business Combination, Replay may privately negotiate transactions to purchase shares prior to the Closing from shareholders who would have otherwise elected to have their shares redeemed in conjunction with a proxy solicitation pursuant to the proxy rules for a per-share pro rata portion of the Trust Account. None of our Sponsor, directors, officers or advisors or their respective affiliates, will make any such purchases when they are in possession of any material non-public information not disclosed to the seller. Such a purchase would include a contractual acknowledgement that such shareholder, although still the record holder of such shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that our Sponsor, directors, officers or advisors, or their affiliates, purchase shares in privately negotiated transactions from Public Shareholders who have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their prior elections to redeem their shares. Any such privately negotiated purchases may be effected at purchase prices that are in excess of the per-share pro rata portion of the Trust Account. The purpose of these purchases would be to increase the amount of cash available to Replay for use in the Business Combination.

 

Q.

How many votes do I have at the general meeting of shareholders?

 

A.

Replay’s shareholders are entitled to one vote at the general meeting for each Ordinary Share held of record as of the record date. As of the close of business on the record date, there were 35,937,500 outstanding

 

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  Ordinary Shares. Holders of Replay’s Warrants, in their capacities as such, will not be entitled to vote on any of the Proposals.

 

Q.

What interests do Replay’s current officers and directors have in the Business Combination?

 

A.

Replay’s directors and executive officers may have interests in the Business Combination that are different from, in addition to or in conflict with, yours. These interests include:

 

   

the beneficial ownership of the Sponsor and certain of Replay’s directors of an aggregate of 7,187,500 Founder Shares, which shares would become worthless if Replay does not complete a business combination within the applicable time period, as Replay’s Initial Shareholders have waived any right to redemption with respect to these shares. Such shares have an aggregate market value of approximately $73 million based on the closing price of Ordinary Shares of $10.19 on NYSE on January 28, 2021, the record date for the general meeting of shareholders;

 

   

Replay’s directors will be reimbursed for any out-of-pocket expenses incurred by them on Replay’s behalf incident to identifying, investigating and consummating a business combination; and

 

   

the continued indemnification and advancement of expenses of current directors and officers of Replay and the continuation of directors’ and officers’ liability insurance after the Business Combination.

These interests may influence Replay’s directors in making their recommendation that you vote in favor of the approval of the Business Combination. You should also read the section entitled “The Cayman Proposals—Proposal 1(c): The Business Combination—Certain Other Interests in the Business Combination.”

 

Q.

What positive and negative factors did Replay’s board of directors consider in connection with the Transaction Agreement?

 

A.

In evaluating the Business Combination, Replay’s board of directors consulted with Replay’s management and financial and legal advisors. In reaching its unanimous decision to approve the Transaction Agreement and the transactions contemplated by the Transaction Agreement, Replay’s board of directors considered a range of factors, including, but not limited to, the following positive factors which generally supported its decision to enter the Transaction Agreement and the transactions contemplated thereby: FoA is highly differentiated within its sector; FoA enjoys cycle resistant earnings driven by product diversity and technology; FoA is led by a strong and experienced management team; FoA is built with an emphasis on the highest ethical standards; FoA is supported by secular tailwinds; FoA is also supported by multiple avenues for growth; FoA is coming to the public markets at an attractive valuation; and the transaction presents strong alignment of interests.

Replay’s board of directors also considered a variety of uncertainties and risks and other potentially negative factors concerning the Business Combination including, but not limited to, the following: FoA’s valuation relative to its peers, as well as appropriate valuation metrics; FoA’s expected performance under a more normalized operating scenario in the coming years, in particular with respect to prevailing interest rates and margins; FoA’s ability to continue acquiring and integrating going forward; the credit profile in products and services offered by FoA; the risk of increased competition from new entrants, including tech-based companies, or existing players, given the highly profitable current operating environment; the risks associated with the assets held on FoA’s balance sheet; the potential impact from changes in the political and regulatory environment, particularly in relation to government-sponsored enterprises; potential disruption to the normal functioning of the securitizations market; the impact of the COVID-19 pandemic on FoA’s business and on its counterparties, liquidity and employees; the interests of Replay’s directors and officers in the Business Combination (see “Proposal 1(c): The Business Combination—Interests of Replay’s Directors and Officers in the Business Combination”); and various other risk factors associated with the business of FoA, as described in the section entitled “Risk Factors” appearing elsewhere in this document. See “Proposal 1(c): The Business Combination—Replay’s Board of Directors’ Reasons for the Approval of the Business Combination.”

 

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Q.

Did Replay’s board of directors obtain a third-party valuation or fairness opinion in determining whether or not to proceed with the Business Combination?

 

A.

Replay’s board of directors did not obtain a third-party valuation or fairness opinion in connection with its determination to approve the Business Combination. Replay’s board of directors believes that based upon the financial skills and background of its directors, it was qualified to conclude that the Business Combination was fair from a financial perspective to its shareholders. The board of directors also determined, without seeking a valuation from a financial advisor, that FoA’s fair market value was at least 80% of Replay’s net assets (net of taxes payable and excluding the amount of any deferred underwriting discounts held in trust). Accordingly, investors will be relying on the judgment of Replay’s board of directors as described above in valuing the FoA business and assuming the risk that the board of directors may not have properly valued such business.

 

Q.

What happens if the Business Combination is not approved?

 

A.

If the Business Combination is not approved and Replay does not consummate an initial business combination by the Outside Date, Replay will be required to wind up its affairs, liquidate the Trust Account and subsequently dissolve.

 

Q.

Do I have redemption rights?

 

A.

If you are a holder of Public Shares, you may redeem your Public Shares (which shares would become Replay LLC Units in the Domestication, which would then convert into the right to receive shares of Class A Common Stock pursuant to the Replay Merger) for cash equal to their pro rata share of the aggregate amount on deposit in the Trust Account, which holds the proceeds of Replay’s IPO, as of two business days prior to the consummation of the Business Combination, including interest (which interest shall be net of taxes payable), upon the consummation of the Business Combination. The per-share amount Replay will distribute to holders who properly redeem their shares will not be reduced by the deferred underwriting commissions Replay will pay to the underwriters of its IPO if the Business Combination is consummated. Holders of the outstanding Public Warrants do not have redemption rights with respect to such Warrants in connection with the Business Combination. The Sponsor has agreed to waive its redemption rights with respect to its Founder Shares and any Public Shares that it may have acquired during or after Replay’s IPO in connection with the completion of Replay’s initial business combination. The Founder Shares will be excluded from the pro rata calculation used to determine the per-share redemption price. For illustrative purposes, based on funds in the Trust Account of approximately $293.3 million on September 30, 2020, the estimated per share redemption price would have been approximately $10.20. This is greater than the $10.00 IPO price of Replay’s Units. Additionally, Public Shares properly tendered for redemption will only be redeemed if the Business Combination is consummated; otherwise, holders of such shares will only be entitled to a pro rata portion of the Trust Account, including interest earned on the funds held in the Trust Account (which interest shall be net of taxes payable), in connection with the liquidation of the Trust Account. All Public Shares are eligible for redemption. However, Replay will not redeem any Public Shares to the extent that such redemption would result in Replay having net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act) of less than $5,000,001. As of September 30, 2020, this would have amounted to approximately $10.20 per Ordinary Share. In addition, under the Existing Organizational Documents, in connection with an initial business combination, a Public Shareholder, together with any affiliate or any other person with whom such shareholder is acting in concert of as a “group” (as defined under Section 13(d)(3) of the Exchange Act), is restricted from seeking redemption rights with respect to more than 15% of the Public Shares. As of September 30, 2020, certain officers of Replay or their affiliates hold an aggregate of 2,500,000 Public Shares. Because these individuals have agreed to waive their redemption rights with respect to their Public Shares, Replay expects that no more than 26,250,000 Public Shares may be redeemed in connection with the Business Combination. Based on the approximately $293.3 million in the Trust Account on September 30, 2020, assuming the gross

 

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  proceeds of the PIPE Agreements is $250.0 million and assuming that Replay has no cash outside of its Trust Account, if at least 14,044,661 Public Shares request redemption in connection with the Business Combination, the Business Combination may not be consummated unless the condition that Replay has at least $400,000,000 of available cash at the Closing is waived by the Seller-Side Parties.

 

Q.

Is there a limit on the number of shares I may redeem?

 

A.

A Public Shareholder, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act) will be restricted from seeking redemption rights with respect to 15% or more of the Public Shares. Accordingly, all shares in excess of 15% of the Public Shares owned by a holder will not be redeemed. On the other hand, a Public Shareholder who holds less than 15% of the Public Shares may redeem all of the Public Shares held by him or her for cash.

 

Q.

Will how I vote affect my ability to exercise redemption rights?

 

A.

No. You may exercise your redemption rights whether you vote your Public Shares for or against any or all of the Proposals or do not vote your shares. As a result, any or all of the Proposals can be approved by shareholders who will redeem their Public Shares and no longer remain shareholders, leaving shareholders who choose not to redeem their Public Shares holding shares in a company with a less liquid trading market, fewer shareholders, less cash and the potential inability to meet the listing standards of NYSE.

 

Q.

How do I exercise my redemption rights?

 

A.

In order to exercise your redemption rights, you must, prior to 5:00 p.m. Eastern time on March 23, 2021 (two business days before the general meeting), (i) submit a written request to Replay’s transfer agent that Replay redeem your Public Shares for cash, and (ii) deliver your Public Shares to Replay’s transfer agent physically or electronically through Depository Trust Company, or DTC. The address of Continental Stock Transfer & Trust Company, Replay’s transfer agent, is listed under the question “Who can help answer my questions?” below. Replay requests that any requests for redemption include the identity as to the beneficial owner making such request.

Any demand for redemption, once made, may be withdrawn at any time until the deadline for exercising redemption requests and thereafter, with Replay’s consent, until the vote is taken with respect to the Business Combination. If you delivered your shares for redemption to Replay’s transfer agent and decide within the required timeframe not to exercise your redemption rights, you may request that Replay’s transfer agent return the shares (physically or electronically). You may make such request by contacting Replay’s transfer agent at the phone number or address listed under the question “Who can help answer my questions?”

 

Q.

What are the U.S. federal income tax consequences of exercising my redemption rights?

 

A.

We expect that U.S. holders (as defined in the section entitled “Certain U.S. Federal Income Tax Considerations”) who exercise their redemption rights to receive cash from the Trust Account in exchange for their Class A Common Stock generally will be required to treat the transaction as a sale of such shares and recognize gain or loss upon the redemption in an amount equal to the difference, if any, between the amount of cash received and the tax basis of the Class A Common Stock redeemed. Such gain or loss should be treated as capital gain or loss if such shares were held as a capital asset on the date of the redemption. A shareholder’s tax basis in his, her or its Class A Common Stock generally will equal the cost of such shares. A shareholder who purchased Units will have to allocate the cost between the Ordinary Shares (which shares would become Replay LLC Units in the Domestication, which would then convert into the right to receive shares of Class A Common Stock pursuant to the Replay Merger) or Warrants comprising the Units based on their relative fair market values at the time of the purchase. However, in certain situations, the cash

 

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  paid to U.S. holders in the redemption may be treated as dividend income for U.S. federal income tax purposes. Additionally, because the Domestication will occur immediately prior to the redemption of U.S. holders that exercise redemption rights, U.S. holders exercising redemption rights will be subject to the potential tax consequences of Section 367 of the Code as a result of the Domestication. For a more complete discussion of the U.S. federal income tax consequences of exercising redemption rights, see the section entitled “Certain U.S. Federal Income Tax Considerations.”

 

Q:

If I hold Warrants, can I exercise redemption rights with respect to my Warrants?

 

A:

No. There are no redemption rights with respect to the Warrants.

 

Q:

Do I have appraisal rights if I object to the Domestication or the proposed Business Combination?

 

A:

No. There are no appraisal rights available to holders of Ordinary Shares in connection with the Domestication or the Business Combination.

 

Q.

What are the U.S. federal income tax consequences of the Domestication?

 

A.

If you are a U.S. holder of Ordinary Shares, you may be subject to U.S. federal income tax as a result of the Domestication. If you are a non-U.S. holder (as defined in the section entitled “Certain U.S. Federal Income Tax Considerations”) of Ordinary Shares or Warrants, you may become subject to withholding tax on any dividends paid on the Class A Common Stock following the Domestication.

If you are a U.S. holder who owns (directly, indirectly, or constructively) Ordinary Shares with a fair market value of $50,000 or more, but less than 10% of the total combined voting power of all classes of our shares entitled to vote (and less than 10% of the total value of all classes of our shares) at the time of the Domestication, you must generally recognize gain (but not loss) with respect to such Ordinary Shares, even if you continue to hold your stock and have not received any cash as a result of the Business Combination or Domestication. As an alternative to recognizing gain, however, such U.S. holder may elect to include in income the “all earnings and profits amount,” as the term is defined in Treasury Regulation Section 1.367(b)-2(d), attributable to its Ordinary Shares. We expect to have earnings and profits through the date of the Domestication.

If a U.S. holder owns (directly, indirectly, or constructively) Ordinary Shares representing 10% or more of the total combined voting power of all classes of our shares entitled to vote or 10% or more of the total value of all classes of our shares at the time of the Domestication, such U.S. holder will be required to include in income the “all earnings and profits amount” attributable to its Ordinary Shares. Complex attribution rules apply in determining whether a U.S. holder owns 10% or more (by vote or value) of our shares for U.S. federal tax purposes.

If you are a U.S. holder who on the date of the Domestication who owns (directly, indirectly, or constructively) Ordinary Shares with a fair market value less than $50,000, you should not be required to recognize any gain or loss in connection with the Domestication, and generally should not be required to include any part of the all earnings and profits amount in income.

If we are a passive foreign investment company (“PFIC”) at any time during a U.S. holder’s holding period of Ordinary Shares, such U.S. holder may be required to recognize gain in connection with the Domestication and be subject to complex rules applicable to a shareholder of a PFIC. We believe that we have been a PFIC since our inception. The determination of whether a non-U.S. corporation is a PFIC is primarily factual and there is little administrative or judicial authority on which to rely to make a determination.

For a more complete discussion of the U.S. federal income tax consequences of the Domestication, see the section entitled “Certain U.S. Federal Income Tax Considerations.”

 

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EACH U.S. HOLDER IS STRONGLY URGED TO CONSULT ITS OWN TAX ADVISOR.

 

Q:

What happens to the funds held in the Trust Account upon consummation of the Business Combination?

 

A:

If the Business Combination is consummated, the funds held in the Trust Account will be released to pay (i) Replay shareholders who properly exercise their redemption rights, (ii) fees and expenses incurred in connection with the Business Combination and (iii) cash consideration pursuant to the Transaction Agreement. Any additional funds available for release from the Trust Account will be used for general corporate purposes of Replay following the Business Combination.

 

Q:

What happens if the Business Combination is not consummated?

 

A:

There are certain circumstances under which the Transaction Agreement may be terminated. See the section entitled “The Cayman Proposals—The Transaction Agreement” for information regarding the parties’ termination rights.

If, as a result of the termination of the Transaction Agreement or otherwise, Replay is unable to complete an initial business combination by the Outside Date, Replay will: (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than 10 business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest (less up to $100,000 of interest to pay dissolution expenses and which interest shall be net of taxes payable), divided by the number of then issued and outstanding Public Shares, which redemption will completely extinguish Public Shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any), subject to applicable law; and (iii) as promptly as reasonably possible following such redemption, subject to the approval of Replay’s remaining shareholders and Replay’s board of directors, wind up our affairs and subsequently dissolve, subject in each case to Replay’s obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. See the sections entitled “Risk Factors—Risks Related to Replay and the Business Combination—If we are not able to complete an initial business combination within the required time period, we will cease all operations except for the purpose of winding up and we will redeem our Public Shares and liquidate, in which case our Warrants will expire worthless” and “—Our shareholders may be held liable for claims by third parties against us to the extent of distributions received by them upon redemption of their shares.” Holders of Founder Shares have waived any right to any liquidation distribution with respect to those shares.

In the event of liquidation, there will be no distribution with respect to outstanding Warrants. Accordingly, the Warrants will expire worthless.

 

Q:

When is the Business Combination expected to be completed?

 

A:

It is currently anticipated that the Business Combination will be consummated in the first half of 2021, provided that all conditions to the consummation of the Business Combination have been satisfied or waived.

For a description of the conditions to the completion of the Business Combination, see the section entitled “Proposal No. 1—The Cayman Proposals—Proposal 1(c): The Business Combination.”

 

Q:

What do I need to do now?

 

A:

You are urged to carefully read and consider the information contained in this proxy statement/prospectus in its entirety, including the financial statements and annexes attached hereto, and to consider how the Business Combination will affect you as a shareholder. You should then vote as soon as possible in accordance with the instructions provided in this proxy statement/prospectus on the enclosed proxy card or, if you hold your shares through a brokerage firm, bank or other nominee, on the voting instruction form provided by the broker, bank or nominee.

 

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Q:

How do I vote?

 

A:

If you were a holder of record of Ordinary Shares on January 28, 2021, the record date for the general meeting, you may vote with respect to the applicable Proposals in person at the general meeting or by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided. If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or other nominee, you should contact your broker, bank or nominee to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the record holder of your shares with instructions on how to vote your shares or, if you wish to attend the general meeting and vote in person, obtain a proxy from your broker, bank or nominee.

In light of the ongoing health concerns relating to the COVID-19 pandemic and to best protect the health and welfare of Replay’s shareholders and personnel, Replay urges that shareholders do not attend the general meeting in person. Shareholders are nevertheless urged to vote their proxies by completing, signing, dating and returning the enclosed proxy card in the accompanying pre-addressed postage paid envelope, or to direct their brokers or other agents on how to vote the shares in their accounts, as applicable.

The general meeting is currently scheduled to be held in person as indicated above. However, we are actively monitoring the COVID-19, situation and if we determine that it is not possible or advisable to hold the general meeting in person, or to hold the meeting on the time or date or at the location indicated above, we will announce alternative arrangements for the meeting as promptly as practicable, which may include switching to a virtual or telephonic meeting format, or changing the time, date or location of the general meeting. Any such change will be announced via press release and the filing of additional proxy materials with the SEC.

 

Q:

What will happen if I abstain from voting or fail to vote at the general meeting?

 

A:

At the general meeting of shareholders, Replay will count a properly executed proxy marked “ABSTAIN” with respect to a particular Proposal as present for purposes of determining whether a quorum is present. A failure to vote or an abstention to vote will have no effect on the outcome of any vote on the Proposals.

 

Q:

What will happen if I sign and return my proxy card without indicating how I wish to vote?

 

A:

Signed and dated proxies received by Replay without an indication of how the shareholder intends to vote on a Proposal will be voted in favor of each Proposal presented to the shareholders.

 

Q.

Do I need to attend the general meeting of shareholders to vote my shares?

 

A.

No. You are invited to attend the general meeting to vote on the Proposals described in this proxy statement/prospectus. However, you do not need to attend the general meeting of shareholders to vote your shares. Instead, you may submit your proxy by signing, dating and returning the applicable enclosed proxy card(s) in the pre-addressed postage-paid envelope. Your vote is important. Replay encourages you to vote as soon as possible after carefully reading this proxy statement/prospectus.

 

Q.

If I am not going to attend the general meeting of shareholders in person, should I return my proxy card instead?

 

A.

Yes. After carefully reading and considering the information contained in this proxy statement/prospectus, please submit your proxy, as applicable, by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided.

 

Q.

If my shares are held in “street name,” will my broker, bank or nominee automatically vote my shares for me?

 

A.

No. If your broker holds your shares in its name and you do not give the broker voting instructions, under the applicable stock exchange rules, your broker may not vote your shares on any of the Proposals. If you do

 

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  not give your broker voting instructions and the broker does not vote your shares, this is referred to as a “broker non-vote.” Broker non-votes will be counted for purposes of determining the presence of a quorum at the general meeting of shareholders, but will not count as a vote cast at the general meeting.

 

Q.

May I change my vote after I have mailed my signed proxy card?

 

A.

Yes. You may change your vote by sending a later-dated, signed proxy card to Replay’s secretary at the address listed below prior to the vote at the general meeting, or attend the general meeting and vote in person. You also may revoke your proxy by sending a notice of revocation to Replay’s secretary at the address listed below, provided such revocation is received prior to the vote at the general meeting. If your shares are held in street name by a broker or other nominee, you must contact the broker or nominee to change your vote.

 

Q.

What should I do if I receive more than one set of voting materials?

 

A.

You may receive more than one set of voting materials, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast your vote with respect to all of your shares.

 

Q.

What is the quorum requirement for the general meeting of shareholders?

 

A.

A quorum will be present at the general meeting if a majority of the Ordinary Shares outstanding and entitled to vote at the meeting is represented in person or by proxy. If within half an hour from the time appointed for the meeting there is an absence of quorum, the meeting shall be adjourned to the same day in the next week, at the same time and place, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting, the shareholder or shareholders present and entitled to vote shall form a quorum.

As of the record date for the general meeting, 17,968,751 Ordinary Shares would be required to achieve a quorum.

Your shares will be counted towards the quorum only if you submit a valid proxy (or your broker, bank or other nominee submits one on your behalf) or if you vote in person at the general meeting of shareholders. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, a majority of the shares represented by shareholders present at the general meeting or by proxy may authorize adjournment of the general meeting to another date.

 

Q.

What happens to Warrants I hold if I vote my Ordinary Shares against approval of the Cayman Proposals and validly exercise my redemption rights?

 

A.

Properly exercising your redemption rights as a Replay shareholder does not result in either a vote “FOR” or “AGAINST” the Cayman Proposals. If the Business Combination is not completed, you will continue to hold your Warrants, and if Replay does not otherwise consummate an initial business combination by the Outside Date, Replay will be required to wind up its affairs and subsequently dissolve, and your Warrants will expire worthless.

 

Q.

Who will solicit and pay the cost of soliciting proxies?

 

A.

Replay will pay the cost of soliciting proxies for the general meeting. Replay has engaged Morrow Sodali LLC to assist in the solicitation of proxies for the general meeting. Replay has agreed to pay Morrow Sodali LLC a fee of $25,000. Replay will reimburse Morrow Sodali LLC for reasonable out-of-pocket expenses

 

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  and will indemnify Morrow Sodali LLC and its affiliates against certain claims, liabilities, losses, damages and expenses. Replay also will reimburse banks, brokers and other custodians, nominees and fiduciaries representing beneficial owners of Ordinary Shares for their expenses in forwarding soliciting materials to beneficial owners of Ordinary Shares and in obtaining voting instructions from those owners. Replay’s directors, officers and employees may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.

 

Q.

Who can help answer my questions?

 

A.

If you have questions about the Proposals, or if you need additional copies of this proxy statement/prospectus, the proxy card or the consent card you should contact Morrow Sodali LLC:

Morrow Sodali LLC

470 West Avenue

Stamford, CT 06902

Telephone: (800) 662-5200

Banks and brokers can call collect at: (203) 658-9400

Email: RPLA.info@investor.morrowsodali.com

You may also contact Replay at:

Replay Acquisition Corp.

767 Fifth Avenue, 46th Floor

New York, New York 10153

Telephone: (212) 891-2700

Attention: Legal and Compliance

E-mail: Info@replayacquisition.com

To obtain timely delivery, Replay’s shareholders and warrantholders must request the materials no later than five business days prior to the general meeting.

You may also obtain additional information about Replay from documents filed with the SEC by following the instructions in the section entitled “Where You Can Find More Information.”

If you intend to seek redemption of your Public Shares, you will need to send a letter demanding redemption and deliver your Public Shares (either physically or electronically) to Replay’s transfer agent prior to 5:00 p.m., Eastern time, on the second business day prior to the general meeting of shareholders. If you have questions regarding the certification of your position or delivery of your Public Shares, please contact:

Continental Stock Transfer & Trust Company

One State Street Plaza, 30th Floor

New York, New York 10004

Attention: Mark Zimkind

E-mail: mzimkind@continentalstock.com

 

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SUMMARY OF THE PROXY STATEMENT/PROSPECTUS

This summary highlights selected information from this proxy statement/prospectus and does not contain all of the information that is important to you. To better understand the Business Combination and the Proposals to be considered at the general meeting, you should read this entire proxy statement/prospectus carefully, including the annexes. See also the section entitled “Where You Can Find Additional Information.”

Parties to the Business Combination

Replay

Replay is a blank check company incorporated as a Cayman Islands exempted company on November 6, 2018 for the purpose of effecting a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses.

The Ordinary Shares, Warrants and Units, which consist of one Ordinary Share and one-half of one Warrant, are traded on NYSE under the ticker symbols “RPLA,” “RPLA.WS” and “RPLA.U,” respectively. Upon the effectiveness of the Domestication, each of our currently issued and outstanding Ordinary Shares and Warrants will automatically convert in connection with the Domestication, on a one-for-one basis, into Replay LLC Units and Warrants to purchase Replay LLC Units, and upon the effectiveness of the Replay Merger, each such Replay LLC Unit and Warrant will automatically convert into the right to receive one share of Class A Common Stock and one Warrant to purchase a share of Class A Common Stock, respectively. We intend to apply to list the Class A Common Stock and Warrants under the symbols “FOA” and “FOA.WS”, respectively, upon the Closing. The Units will automatically separate into the component securities upon consummation of the Business Combination and, as a result, will no longer trade as a separate security.

The mailing address of Replay’s principal executive office is 767 Fifth Avenue, 46th Floor

New York, New York 10153, and its telephone number is (212) 891-2700.

FoA

FoA is a vertically integrated, diversified lending platform that connects borrowers with investors. FoA operates with the goal of minimizing risk; it offers a diverse set of high-quality consumer loan products and distributes that risk to investors for an up-front cash profit and typically some future performance-based participation. FoA believes it has a differentiated, less volatile strategy than monoline mortgage lenders who focus on originating interest rate sensitive traditional mortgages and retain significant portfolios of mortgage servicing rights with large potential future advancing obligations. In addition to FoA’s profitable lending operations, it provides a variety of services to lenders through its Lender Services segment, which augments its lending profits with an attractive fee-oriented revenue stream.

FoA is a Delaware limited liability company. Through its predecessor entities, it has conducted its business since 2013. FoA’s principal executive offices are located at 909 Lake Carolyn Parkway, Suite 1550, Irving, Texas 75039 and its telephone number is (972) 865-8114.

The Business Combination

The Transaction Agreement

On October 12, 2020, Replay, FoA, New Pubco, Replay Merger Sub, Blocker Merger Sub, Blocker, Blocker GP and the Sellers entered into the Transaction Agreement, pursuant to which Replay agreed to combine with FoA in a series of transactions that will result in New Pubco becoming a publicly-traded company on NYSE and controlling FoA in an “UP-C” structure.



 

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Pursuant to the Business Combination, among other things:

(i) Replay will effect the Domestication, whereby (A) each Ordinary Share outstanding immediately prior to the Domestication will be converted into a Replay LLC Unit and (B) Replay will be governed by the Replay LLCA;

(ii) the Sellers and Blocker GP will sell to Replay FoA Units in exchange for cash;

(iii) the Replay Merger will occur, with each Replay LLC Unit outstanding immediately prior to the effectiveness of the Replay Merger being converted into the right to receive one share of Class A Common Stock;

(iv) Blocker will be converted from a Delaware limited partnership to a Delaware limited liability company;

(v) the Blocker Merger will occur, with each Blocker Share outstanding immediately prior to the effectiveness of the Blocker Merger being converted into the right to receive a combination of shares of Class A Common Stock and cash;

(vi) Blocker GP will contribute its remaining FoA Units to New Pubco in exchange for shares of Class A Common Stock, after which New Pubco will contribute such FoA Units to Blocker; and

(vii) New Pubco will issue to the Sellers shares of Class B Common Stock, which will have no economic rights but will entitle each holder of at least one such share (regardless of the number of shares so held) to a number of votes that is equal to the aggregate number of FoA Units held by such holder on all matters on which stockholders of New Pubco are entitled to vote generally.

As a result of the Business Combination, among other things:

(A) New Pubco will indirectly hold (through Replay and Blocker) FoA Units and will have the sole and exclusive right to appoint the board of managers of FoA;

(B) the Sellers will hold (i) FoA Units that are exchangeable on a one-for-one basis for shares of Class A Common Stock and (ii) shares of Class B Common Stock; and

(C) the Continuing Stockholders will, directly or indirectly, hold shares of Class A Common Stock.

Consideration

The aggregate consideration payable or issuable to Blocker GP, the Sellers and the Blocker Shareholders in connection with the Business Combination will consist of, as applicable, (a) the aggregate amount of FoA Units Cash Consideration (as defined herein), (b) the aggregate number of Seller Class B Shares (as defined herein), (c) the aggregate amount of Blocker Merger Consideration (as defined herein), and (d) the additional shares of Class A Common Stock issuable by New Pubco to the Blocker Shareholders and additional FoA Units issuable by FoA to Blocker GP and the Sellers (the securities referred to in this clause (d), collectively, “Earnout Securities”). In addition, in exchange for the FoA Units that Blocker GP will contribute to New Pubco, New Pubco will issue to Blocker GP a number of shares of Class A Common Stock equal to the number of FoA Units so contributed.

Following the Closing, New Pubco and FoA collectively will issue up to an aggregate of 18,000,000 Earnout Securities to the Blocker Shareholders (in the case of issuances by New Pubco) and to Blocker GP and the Sellers (in the case of issuances by FoA) as follows:

 

   

9,000,000 Earnout Securities, in the aggregate, in the event that the average trading price of the Class A Common Stock is $12.50 or greater for any 20 trading days within a period of 30 consecutive trading days prior to the sixth anniversary of the Closing; and



 

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9,000,000 Earnout Securities, in the aggregate, in the event that the average trading price of the Class A Common Stock is $15.00 or greater for any 20 trading days within a period of 30 consecutive trading days prior to the sixth anniversary of the Closing.

Holders of Replay’s Ordinary Shares will not receive any cash consideration in connection with the Business Combination; rather, upon the effectiveness of the Domestication, each of our currently issued and outstanding Ordinary Shares (including Founder Shares) and Warrants will automatically convert in connection with the Domestication, on a one-for-one basis, into Replay LLC Units and Warrants to purchase Replay LLC Units, and upon the effectiveness of the Replay Merger, each such Replay LLC Unit and Warrant will automatically convert into the right to receive one share of Class A Common Stock and one Warrant to purchase a share of Class A Common Stock. In connection with the closing of the Business Combination, the Private Placement Warrants owned by the Sponsor will be cancelled in exchange for 775,000 Ordinary Shares (which will ultimately convert into 775,000 shares of Class A Common Stock), and a portion of the Founder Shares that are converted into Class A Common Stock will be subject to vesting restrictions, each as described below under “—Other Agreements Related to the Transaction Agreement—Sponsor Agreement”.

Set forth below is an illustrative calculation of the Sold FoA Units, the FoA Units Cash Consideration, the Seller Class B Shares, the shares of Class A Common Stock to be received by Blocker GP upon the contribution by Blocker GP to New Pubco of FoA Units (such shares of Class A Common Stock, the “Blocker GP Class A Shares”, and such contribution and issuance, the “Blocker GP Contribution”), and the Blocker Merger Consideration. Such illustrative calculation is based on a number of assumptions, which are set forth in the next paragraph and in footnotes to the below table, and there can be no certainty or assurance that the illustrative calculation will reflect the actual consideration that is received in the Business Combination.

For purposes of the illustrative calculation, it is assumed that: (i) the Pre-Closing Replay Cash is equal to $537,500,000; (ii) there are 191,200,000 Pre-Closing Outstanding FoA Units; (iii) the Sale Percentage is equal to 31.8%; and (iv) there are no redemptions by Replay’s Public Shareholders. Dollar and share/unit amounts are rounded down to the nearest whole dollar or share/unit (as applicable).

 

     BX Sellers(1)      BL Sellers(2)      Other
Sellers(3)
     Blocker GP      Blocker
Shareholders(4)
 

Sold FoA Units

     20,554,263        18,704,763        1,741,314        1,141,578        —    

FoA Units Cash Consideration(5)

   $ 205,542,639      $ 187,047,635      $ 17,413,144      $ 11,415,782        —    

Seller Class B Shares

     2        2        3        —          —    

Blocker GP Class A Shares(6)

     —          —          —          2,424,538        —    

Blocker Merger Consideration(7)

     —          —          —          —         



$75,753,966

16,088,987 shares
of Class A
Common Stock

 

 
 
 

 

(1)

As used in the above table, “BX Sellers” means, collectively, BTO Urban and ESC. All amounts shown are aggregate amounts with respect to the BX Sellers collectively.

(2)

As used in the above table, “BL Sellers” means, collectively, Family Holdings and TMO. All amounts shown are aggregate amounts with respect to the BL Sellers collectively.

(3)

As used in the table above, “Other Sellers” means, collectively, L&TF, Management Holdings and Joe Cayre. All amounts shown are aggregate amounts with respect to the Other Sellers collectively.

(4)

All amounts shown are aggregate amounts with respect to the Blocker Shareholders collectively.

(5)

On a per-FoA Unit basis, the FoA Units Cash Consideration is expected to be equal to approximately $10.00.



 

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(6)

The Blocker GP Contribution will be effected on a one-for-one basis, with Blocker GP receiving an aggregate number of Blocker GP Class A Shares equal to the aggregate number of FoA Units contributed to New Pubco.

(7)

On a per-Blocker Share basis, the Blocker Merger Consideration is expected to be equal to approximately $3.21 in cash and 0.68 shares of Class A Common Stock.

Following the entry into the Transaction Agreement, a subsidiary of FoA issued senior notes in an aggregate principal amount of $350 million. In the event that FoA or any of its subsidiaries were to issue additional senior notes such that the aggregate principal amount of the previously issued senior notes, together with the aggregate principal amount of the additional senior notes, would exceed $350 million, then the Equity Value Reduction Amount would equal the amount of such excess, which would result in (1) a reduction in the number of FoA Units sold by the Sellers and Blocker GP, (2) the amount of FoA Units Cash Consideration to be received by the Sellers and Blocker GP and (3) a change in the ratio of shares of Class A Common Stock and cash received by the Blocker Shareholders so that such Blocker Shareholders would receive more Class A Common Stock and less cash. The reduction in cash to the Sellers, Blocker GP and the Blocker Shareholders will be pro rata based on their percentages of FoA Units held following the Pre-Closing Reorganization.

Conduct of Business Covenants

During the period from the date of the Transaction Agreement through the earlier of the Closing and the termination of the Transaction Agreement in accordance with its terms (the “Interim Period”), subject to certain exceptions (including in response to COVID-19), without the prior written consent of Replay (which consent shall not be unreasonably withheld, delayed or conditioned), FoA must use commercially reasonable efforts to (i) conduct its business in the ordinary course of business consistent with past practice in all material respects, (ii) keep intact its business in all material respects and (iii) preserve relationships with material customers and suppliers in all material respects, and will be subject to certain additional customary prohibitions on its conduct of business. Notwithstanding such restrictions, during the Interim Period, FoA and its subsidiaries may declare and pay dividends or other distributions to their equityholders, and may redeem or repurchase equity securities of FoA and its subsidiaries, so long as, after giving effect to such dividends, distributions, redemptions and repurchases but before giving effect to the payment of any transaction expenses of FoA or Replay, the cash held by FoA and its subsidiaries as of the last day of the month in which the Closing is expected to occur would reasonably be expected to be equal to at least $250.0 million.

During the Interim Period, Replay must operate in the ordinary course of business as a blank check company and not engage in any operations or practices other than in connection with its status as a blank check company or the Business Combination, and will be subject to certain additional customary prohibitions on the conduct of its business.

Reasonable Best Efforts; Regulatory Approvals

During the Interim Period, each of the parties must use its reasonable best efforts to take all necessary actions to consummate the Business Combination as promptly as practicable, including providing any notices to any Person required in connection with the consummation of the Business Combination and obtaining any licenses, consents, waivers, approvals, authorizations, qualifications and governmental orders necessary to consummate the Business Combination, including approvals from government-sponsored enterprises and state mortgage regulators.

Exclusivity

During the Interim Period, each of Replay and FoA shall not, and shall cause its affiliates and representatives not to, solicit, initiate, continue, engage in or facilitate discussions or negotiations with, or enter into any agreement with, or encourage, respond, provide any information to or commence due diligence with respect to, any person (other than the applicable parties to the Transaction Agreement (and their respective



 

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representatives) as contemplated by the Transaction Agreement) concerning, relating to or which is intended or could reasonably be likely to give rise to or result in, any offer, inquiry, proposal or indication of interest, written or oral, relating to any merger, asset acquisition, stock purchase, reorganization or similar business combination.

Warrant Offer

At the sole election of FoA, during the period prior to the Closing, Replay shall commence a tender offer (the “Warrant Offer”) for the outstanding Public Warrants, with the price per Public Warrant, the aggregate amount of Warrants subject to the Warrant Offer, and the other terms and conditions of the Warrant Offer to be determined by FoA in its sole discretion. FoA may consider any and all factors it deems relevant in deciding whether to elect for Replay to commence the Warrant Offer, including the market price of the Public Warrants, the number of Public Warrants that are outstanding and the amount of any dividend that FoA may elect to make to its equityholders the extent permitted by the Transaction Agreement and its effect, if any, on the expected pro forma ownership upon the consummation of the Business Combination. In the event FoA elects to have Replay commence the Warrant Offer, Replay will use its reasonable best efforts to launch the Warrant Offer as soon as practicable, and the Warrant Offer will be consummated concurrently with the Closing, with any payment for the Public Warrants in connection with the Warrant Offer to be made from the cash of the combined companies after the release of funds from Trust Account.

Pre-Closing Governance Covenants

Among other customary pre-Closing governance covenants, New Pubco must elect or otherwise cause the entire board of directors of New Pubco (the “New Pubco Board”), effective upon the Closing, to be comprised of persons designated by FoA (provided, that the New Pubco Board as so constituted must comply with applicable rules concerning director independence required by the SEC and the rules and listing standards of NYSE).

Representations and Warranties

The Transaction Agreement contains customary representations and warranties that each of the parties have made to each other relating to, among other matters, their respective businesses, their ability to enter into the Transaction Agreement and their outstanding capitalization and, in the case of Replay, its public filings. The representations and warranties in the Transaction Agreement and in any certificate, statement or instrument delivered pursuant to the Transaction Agreement will terminate effective as of, and will not survive, the Closing.

Conditions to the Closing of the Business Combination

The respective obligations of the parties to consummate the Business Combination are subject to the satisfaction of the following conditions: (i) Replay’s shareholders having approved, among other things, the transactions contemplated by the Transaction Agreement; (ii) the absence of any governmental order that would prohibit the Business Combination; (iii) the termination or expiration of all required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (iv) all applicable required governmental consents, notices and approvals to or from any governmental entities having been made or obtained; (v) Replay having at least $5,000,001 of net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act) remaining after the Closing; and (vi) the registration statement having been declared effective by the SEC and no stop order suspending the effectiveness of the registration statement having been issued and not withdrawn and no proceedings for that purpose having been initiated or threatened and not withdrawn by the SEC or any other governmental entity.

The respective obligations of the Purchaser-Side Parties to consummate the Business Combination are subject to the satisfaction or waiver of the following conditions: (i) the representations and warranties of FoA and



 

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the other Seller-Side Parties being true and correct, subject to the materiality standards set forth in the Transaction Agreement; (ii) FoA and each other Seller-Side Party having performed in all material respects all of its covenants and agreements required to be performed on or prior to the Closing Date (the conditions in clauses (i) and (ii) being the “Seller-Side Party Rep & Covenant Conditions”); (iii) Replay having received a certificate of each Seller-Side Party certifying to the satisfaction of the Seller-Side Party Rep & Covenant Conditions applicable to such Seller-Side Party; and (iv) the Pre-Closing Reorganization (including any permitted modifications thereto) having been completed.

The respective obligations of the Seller-Side Parties to consummate the Business Combination are subject to the satisfaction or waiver of the following conditions: (i) the representations and warranties of Replay and the other Purchaser-Side Parties being true and correct, subject to the materiality standards set forth in the Transaction Agreement; (ii) Replay and each other Purchaser-Side Party having performed in all material respects all of its covenants and agreements required to be performed on or prior to the Closing Date (the conditions in clauses (i) and (ii) being the “Purchaser-Side Party Rep & Covenant Conditions”); (iii) the Seller Representative having received a certificate of each Purchaser-Side Party certifying to the satisfaction of the Purchaser-Side Party Rep & Covenant Conditions applicable to such Purchaser-Side Party; (iv) the gross amount of the cash paid by the PIPE Investors to Replay pursuant to the PIPE Agreements plus the amount of cash held by Replay inside or outside of the Trust Account, less the amount of cash to be paid from the Trust Account to Redeeming Shareholders (the “Pre-Closing Replay Cash”), being equal to or greater than $400,000,000 (excluding payment of any deferred underwriting fees and certain permitted transaction expenses of each of FoA and Replay); (v) Replay having delivered to the Seller Representative executed copies of certain ancillary agreements; (vi) the New Pubco Board being constituted with the persons designated by FoA (subject to a majority of the New Pubco Board being independent as required by the SEC and NYSE); (vii) all aspects of the Domestication having been completed; (viii) Replay having complied in all respects with its pre-closing governance covenants; (ix) the pre-Closing transactions contemplated by the Sponsor Agreement (as defined below) having been completed; and (x) to the extent elected by FoA, Replay having commenced prior to the Closing, and having consummated concurrently with the Closing, the Warrant Offer.

If the conditions precedent to the consummation of the Business Combination have been satisfied or waived on or prior to April 1, 2021 (other than, and subject to the satisfaction or waiver of, those conditions that by their nature are to be satisfied at the closing of the Business Combination), the parties intend to consummate the Business Combination on April 1, 2021.

Termination of the Transaction Agreement

The Transaction Agreement may be terminated prior to the Closing, whether before or after approval of the Transaction Agreement by the shareholders of Replay, as follows:

 

   

by the mutual written consent of the Seller Representative and Replay;

 

   

by either the Seller Representative or Replay, if: (i) the Closing does not occur prior to the Outside Date; provided, however, that neither the Seller Representative nor Replay may so terminate if a Seller-Side Party (in the case of a purported termination by the Seller Representative) or a Purchaser-Side Party (in the case of a purported termination by Replay), at the time of such purported termination, has breached any of its obligations under the Transaction Agreement in any material respect and such breach causes, or results in, either (A) the failure to satisfy the conditions to the obligations of the non-terminating party to consummate the Business Combination prior to the Outside Date, or (B) the failure of the Closing to have occurred prior to the Outside Date;



 

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by either the Seller Representative or Replay, if there shall be in effect a final, nonappealable Governmental Order of a Governmental Entity having competent jurisdiction over FoA’s business (other than any portion thereof that is not material) prohibiting the consummation of the Business Combination; provided, however, that the right to so terminate will not be available to the party seeking to terminate if a Seller-Side Party (in the case of a purported termination by the Seller Representative) or a Purchaser-Side Party (in the case of a purported termination by Replay) has breached any of its representations, warranties, covenants or other agreements under the Transaction Agreement and such breach or breaches would result in a failure of a condition to the obligations of the non-terminating party to consummate the Business Combination;

 

   

by Replay, if: (i) none of the Purchaser-Side Parties has breached any of their respective representations, warranties, covenants or other agreements in the Transaction Agreement in any material respect and (ii) a Seller-Side Party has breached any of its representations, warranties, covenants or other agreements in the Transaction Agreement in any material respect and such breach or breaches would render any of the Seller-Side Party Rep & Covenant Conditions not to be satisfied, and such breach is either (A) not capable of being cured prior to the Outside Date or (B) if curable, is not cured within the earlier of (x) 20 business days after the giving of written notice by Replay to the Seller Representative and (y) two business days prior to the Outside Date;

 

   

by the Seller Representative, if (i) none of the Seller-Side Parties has breached any of their respective representations, warranties, covenants or other agreements in any material respect and (ii) a Purchaser-Side Party has breached any of its representations, warranties, covenants or other agreements in the Transaction Agreement in any material respect and such breach or breaches would render any of the Purchaser-Side Party Rep & Covenant Conditions not to be satisfied, and such breach is either (A) not capable of being cured prior to the Outside Date or (B) if curable, is not cured within the earlier of (x) 20 business days after the giving of written notice by the Seller Representative to Replay and (y) two business days prior to the Outside Date; or

 

   

by Replay, if FoA has not delivered certain historical audited financial statements of FoA to Replay by January 31, 2021.

Upon termination of the Transaction Agreement, the Transaction Agreement will become void and have no further effect (other than certain customary provisions that will survive a termination), without any liability to the parties thereto (other than liability for any willful breach of the Transaction Agreement by a party occurring prior to the termination of the Transaction Agreement).

Fees and Expenses

No sooner than five or later than two business days prior to the Closing Date (as defined herein), (i) FoA must provide to Replay a written report setting forth (A) the fees and disbursements of outside counsel to FoA, (B) the fees and expenses of accountants to FoA, (C) the fees and disbursements of bona fide third-party investment bankers to FoA and (D) any premiums, fees, disbursements or expenses incurred in connection with any tail insurance policy for the directors’ and officers’ liability insurance of FoA, in each case, incurred in connection with the Business Combination and not-yet-paid prior to the Closing (collectively, the “Outstanding FoA Expenses”) and (ii) Replay must provide to FoA a written report setting forth (A) the fees and disbursements of outside counsel to Replay, (B) the fees and expenses of accountants to Replay, (C) the fees and expenses of certain consultants and other advisors to Replay, (D) the fees and disbursements of bona fide third-party investment bankers to Replay and (E) any premiums, fees, disbursements or expenses incurred in connection with any tail insurance policy for the directors’ and officers’ liability insurance of Replay, in each case, incurred in connection with the Business Combination and not-yet-paid prior to the Closing (collectively, the “Outstanding Replay Expenses”). On the Closing Date, FoA will pay or cause to be paid, from the combined cash accounts of FoA and Replay after the release of funds from the Trust Account, all such Outstanding FoA Expenses and Outstanding Replay Expenses.



 

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Replacement of the Existing Organizational Documents

Pursuant to the Transaction Agreement, at the effective time of the Business Combination, Replay’s Existing Organizational Documents will be replaced with New Pubco’s Proposed Organizational Documents to:

 

   

change the authorized share capital from $20,200 divided into 200,000,000 Ordinary Shares of a par value of $0.0001 each and 2,000,000 preferred shares of a par value of $0.0001 each, to authorized capital stock of 6,601,000,000 shares, consisting of 6,000,000,000 shares of Class A Common Stock, $0.0001 par value per share, 1,000,000 shares of Class B Common Stock, $0.0001 par value per share, and 600,000,000 shares of undesignated preferred stock, $0.0001 par value per share;

 

   

allow (i) the board of directors, (ii) the chairman of the board of directors or (iii) the chief executive officer, by or at their direction, or at the request of the Principal Stockholders except at any time during any Voting Rights Threshold Period, to call a special meeting of stockholders generally entitled to vote; and

 

   

effect all other changes in connection with the replacement of the Existing Organizational Documents of Replay with the Proposed Organizational Documents of New Pubco, including, among other things, (i) changing from a blank check company seeking a business combination within a certain period (as provided in the Existing Organizational Documents), to a corporation having perpetual existence (as provided in the Proposed Charter), (ii) changing from no provision in the Existing Organizational Documents providing where certain claims must be brought, to requiring certain claims to be brought in the Court of Chancery of the State of Delaware or the federal district courts of the United States (as provided in the Proposed Organizational Documents), and (iii) changing from no provision in the Existing Organizational Documents with respect to corporate opportunities, to renouncing an interest or expectancy in certain corporate opportunities involving non-employee members of New Pubco’s board of directors, the Principal Stockholders and their respective affiliates (as provided in the Proposed Charter).

For more information, see the section entitled “Proposal No. 3—The Organizational Documents Proposal.”

Other Agreements Related to the Transaction Agreement

Sponsor Agreement

Contemporaneously with the execution of the Transaction Agreement, the Initial Shareholders entered into an amendment and restatement of the existing Sponsor Agreement (as amended and restated, the “Sponsor Agreement”) with New Pubco, Replay and FoA, pursuant to which, among other things, (i) immediately prior to the Domestication, all of the Private Placement Warrants owned by the Sponsor will be exchanged for 775,000 Ordinary Shares in the aggregate (the “Warrant Exchange”) and (ii) excluding the Founder Shares held by Daniel Marx, Mariano Bosch or Russell Colaco (unless transferred to any other Initial Shareholder or permitted transferee thereof), 40% of the Founder Shares held by the Sponsor will be vested and wholly owned by the Sponsor as of the Closing and 60% of the Founder Shares held by the Sponsor will be subject to vesting and forfeiture in accordance with certain terms and conditions.

Pursuant to the Sponsor Agreement, the Initial Shareholders have agreed to (i) vote or cause to be voted at the general meeting all of their Founder Shares and all other equity securities that they hold in Replay in favor of each proposal in connection with the Business Combination and the Transaction Agreement and any other matters reasonably necessary for consummation of the Business Combination, (ii) use reasonable best efforts to cause to be done all reasonably necessary, proper or advisable actions to consummate the Business Transaction, (iii) waive all redemption rights and certain other rights in connection with the Business Transaction and (iv) be bound by the same exclusivity obligations that bind the Purchaser-Side Parties in the Transaction Agreement.

The Sponsor Agreement also provides for (i) a one-year post-Closing lock-up period applicable to the transfer of an Initial Shareholder’s New Pubco securities, other than any securities of Replay issued in Replay’s



 

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IPO or purchased on the open market, pursuant to the PIPE Agreements or acquired through the Warrant Exchange (collectively, the “Excluded Securities”), and (ii) a 180-day post-Closing lock-up period applicable to the transfer of an Initial Shareholder’s Excluded Securities, other than any Excluded Securities purchased in connection with the PIPE Agreements or on the open market after the date of the Sponsor Agreement, except, in each case, to certain customary permitted transferees. For more information, see the section entitled “Certain Agreements Related to the Business Combination—Sponsor Agreement.”

Stockholders Agreement

In connection with the Business Combination, concurrently with the Closing, New Pubco and certain pre-Closing equityholders of FoA will enter into the Stockholders Agreement. Pursuant to the Stockholders Agreement, each of the Principal Stockholders will be entitled to nominate a certain number of directors to the New Pubco Board, based on each such holder’s ownership of the voting securities of New Pubco. The nomination rights of each Principal Stockholder are substantially identical and subject to the same terms, conditions and requirements. The number of directors that each of the Blackstone Investors and the BL Investors will separately be entitled to designate to the New Pubco Board increases and/or decreases on a sliding scale such that, for example, if the Blackstone Investors or the BL Investors, as the case may be, hold more than 40% of the outstanding shares of Class A Common Stock, assuming a full exchange of all FoA Units for the publicly traded Class A Common Stock, such applicable investors will be entitled to designate the lowest whole number of directors that is greater than 40% of the members of the New Pubco Board; if the Blackstone Investors or the BL Investors, as the case may be, hold between 30% and 40% of such outstanding shares, such applicable investors will be entitled to designate the lowest whole number of directors that is greater than 30% of the members of the New Pubco Board; if the Blackstone Investors or the BL Investors, as the case may be, hold between 20% and 30% of such outstanding shares, such applicable investors will be entitled to designate the lowest whole number of directors that is greater than 20% of the members of the New Pubco Board; and if the Blackstone Investors or the BL Investors, as the case may be, hold between 5% and 20% of such outstanding shares, such applicable investors will be entitled to designate the lowest whole number of directors that is greater than 10% of the members of the New Pubco Board).

Furthermore, pursuant to the Stockholders Agreement and subject to certain exceptions as set forth therein, for a period of 180 days following the Closing, each Principal Stockholder will not, and will cause any other holder of record of any of such Principal Stockholder’s New Pubco securities, not to, transfer any of such Principal Stockholder’s New Pubco securities, other than any such securities purchased pursuant to the PIPE Agreements or on the open market. For more information, see the section entitled “Certain Agreements Related to the Business Combination—Stockholders Agreement.”

Unless earlier terminated by agreement of the Principal Stockholders and the New Pubco Board, the Stockholders Agreement will terminate as to each Principal Stockholder at such time as such Principal Stockholder and its affiliates collectively hold less than 5% of the outstanding shares of Class A Common Stock, assuming a full exchange of all FoA Units for the publicly traded Class A Common Stock.

Registration Rights Agreement

In connection with the Business Combination, concurrently with the Closing, New Pubco and the Principal Stockholders will enter into a Registration Rights Agreement (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, upon the demand of any Principal Stockholder, New Pubco will be required to facilitate a non-shelf registered offering of the New Pubco shares requested by such Principal Stockholder to be included in such offering. Any demanded non-shelf registered offering may, at New Pubco’s option, include New Pubco Shares to be sold by New Pubco for its own account and will also include registrable shares to be sold by holders that exercise their related piggyback rights in accordance with the Registration Rights



 

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Agreement. Within 90 days after receipt of a demand for such registration, New Pubco will be required to use its reasonable best efforts to file a registration statement relating to such demand. In certain circumstances, Principal Stockholders will be entitled to piggyback registration rights in connection with the demand of a non-shelf registered offering. In addition, the Registration Rights Agreement will entitle the Principal Stockholders to demand and be included in a shelf registration when New Pubco is eligible to sell its New Pubco Shares in a secondary offering on a delayed or continuous basis in accordance with Rule 415 of the Securities Act. For more information, see the section entitled “Certain Agreements Related to the Business Combination—Registration Rights Agreement.”

Amended and Restated Limited Liability Company Agreement

In connection with the Business Combination, immediately prior to the Closing, FoA will adopt an Amended and Restated Limited Liability Company Agreement (the “A&R LLC Agreement”). In connection with the adoption of the A&R LLC Agreement, all equity interests of FoA as of immediately prior to the Closing will be reclassified into a single class of unitized equity interests designated as FoA Units.

Pursuant to the A&R LLC Agreement, New Pubco will have the sole right to appoint a board of managers of FoA. The board of managers will have the right to determine when distributions will be made to the members of FoA and the amount of any such distributions. If the board of managers authorizes a distribution, such distribution will be made to the holders of FoA Units pro rata in accordance with the percentages of their respective FoA Units held. The A&R LLC Agreement will provide for tax distributions to the holders of FoA Units if the board of managers determines that a holder, by reason of holding FoA Units, incurs an income tax liability. For more information, see the section entitled “Certain Agreements Related to the Business Combination—Amended and Restated Limited Liability Company Agreement.”

Exchange Agreement

In connection with the Business Combination, concurrently with the Closing, New Pubco, FoA and the Continuing Unitholders will enter into an Exchange Agreement (the “Exchange Agreement”). The Exchange Agreement will set forth the terms and conditions upon which holders of FoA Units may exchange their FoA Units for shares of Class A Common Stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. Each holder of FoA Units (other than New Pubco and its subsidiaries), and certain permitted transferees thereof, may on a quarterly basis (subject to the terms of the Exchange Agreement) exchange their FoA Units for shares of Class A Common Stock. In addition, subject to certain requirements, the Blackstone Investors and the BL Investors will generally be permitted to exchange FoA Units for shares of Class A Common Stock from and after the Closing provided that the number of FoA Units surrendered in such exchanges during any 30-calendar day period represent, in the aggregate, greater than 2% of total interests in partnership capital or profits. Any Class A Common Stock received by the Blackstone Investors or the BL Investors in any such exchange during the applicable restricted periods would be subject to the lock-up agreements entered into in connection with the Business Combination. New Pubco may impose restrictions on exchange that it determines to be necessary or advisable so that New Pubco is not treated as a “publicly traded partnership” for U.S. federal income tax purposes. As a holder exchanges FoA Units for shares of Class A Common Stock, the voting power afforded to such holder of FoA Units by their shares of Class B Common Stock is automatically and correspondingly reduced and the number of FoA Units held by New Pubco is correspondingly increased as it acquires the exchanged FoA Units. For example, if a holder of Class B Common Stock holds 1,000 FoA Units as of the record date for determining stockholders of New Pubco that are entitled to vote on a particular matter, such holder will be entitled by virtue of such holder’s Class B Common Stock to 1,000 votes on such matter. If, however, such holder were to hold 500 FoA Units as of the relevant record date, such holder would be entitled by virtue of such holder’s Class B Common Stock to 500 votes on such matter.



 

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Tax Receivable Agreements

In connection with the Business Combination, concurrently with the Closing, New Pubco will enter into a Tax Receivable Agreement with certain funds affiliated with Blackstone (the “Blackstone Tax Receivable Agreement”) and a Tax Receivable Agreement with certain other members of FoA (the “FoA Tax Receivable Agreement,” and collectively with the Blackstone Tax Receivable Agreement, the “Tax Receivable Agreements”). The Tax Receivable Agreements generally provide for the payment by New Pubco to certain funds affiliated with Blackstone and certain other members of FoA prior to the Business Combination (collectively, the “TRA Parties”) of 85% of the cash tax benefits, if any, that New Pubco is deemed to realize (calculated using certain simplifying assumptions) as a result of (i) tax basis adjustments as a result of sales and exchanges of units in connection with or following the Business Combination and certain distributions with respect to units, (ii) New Pubco’s utilization of certain tax attributes attributable to Blocker or the Blocker Shareholders, and (iii) certain other tax benefits related to entering into the Tax Receivable Agreements, including tax benefits attributable to making payments under the Tax Receivable Agreements. New Pubco will generally retain the benefit of the remaining 15% of these cash tax benefits. Estimating the amount of payments that may be made under the Tax Receivable Agreements is by its nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors. The anticipated tax basis adjustments, as well as the amount and timing of any payments under the Tax Receivable Agreements, will vary depending upon a number of factors, including the timing of exchanges, the price of shares of New Pubco’s Class A Common Stock at the time of the exchange, the extent to which such exchanges are taxable, the amount of tax attributes, changes in tax rates and the amount and timing of New Pubco’s income. For more information, see the section entitled “Certain Agreements Related to the Business Combination—Tax Receivable Agreements.”

PIPE Agreements

Concurrently with the execution of the Transaction Agreement, (i) Replay entered into the Replay PIPE Agreements with various investors, including an affiliate of the Sponsor, pursuant to which such investors agreed to purchase Ordinary Shares (which Ordinary Shares will be converted into Replay LLC Units pursuant to the Domestication and then will be converted into the right to receive shares of Class A Common Stock pursuant to the Replay Merger), and (ii) New Pubco entered into the New Pubco PIPE Agreements with the Principal Stockholders (together with the investors party to the Replay PIPE Agreements, the “PIPE Investors”), pursuant to which the Principal Stockholders agreed to purchase shares of Class A Common Stock (together with the Ordinary Shares being purchased pursuant to the Replay PIPE Agreements, the “PIPE Shares”). In the aggregate, the PIPE Investors have committed to purchase $250.0 million of PIPE Shares, at a purchase price of $10.00 per PIPE Share, including $10.0 million of PIPE Shares to be purchased by an affiliate of the Sponsor. Certain offering related expenses are payable by New Pubco, including customary fees payable to the placement agents, Morgan Stanley & Co. LLC, Goldman Sachs & Co., LLC and Credit Suisse Securities (USA) LLC and capital markets advisors, including Blackstone Securities Partners L.P. All of the PIPE Agreements are in the same form as each other, except that Replay is not a party to the New Pubco PIPE Agreements (and certain conforming changes were made to the New Pubco PIPE Agreements to reflect that Replay is not a party thereto). The closing of the sale of the PIPE Shares pursuant to the PIPE Agreements is contingent upon, among other customary closing conditions, the substantially concurrent consummation of the Business Combination. The purpose of the sale of the PIPE Shares is to raise additional capital for use in connection with the Business Combination and to meet the minimum cash requirements provided in the Transaction Agreement. For more information, see the section entitled “Certain Agreements Related to the Business Combination—PIPE Agreements.”

Interests of Certain Persons in the Business Combination

In considering the recommendation of our board of directors to vote in favor of the Business Combination, shareholders should be aware that, aside from their interests as shareholders, our Sponsor and our directors and



 

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officers have interests in the Business Combination that are different from, or in addition to, those of other shareholders generally. Our directors were aware of and considered these interests, among other matters, in evaluating the Business Combination, and in recommending to shareholders that they approve the Business Combination. Shareholders should take these interests into account in deciding whether to approve the Business Combination. These interests include, among other things:

 

   

the beneficial ownership of Replay’s Sponsor and certain of Replay’s directors of an aggregate of 7,187,500 Founder Shares, which shares would become worthless if Replay does not complete a business combination within the applicable time period, as Replay’s Initial Shareholders have waived any right to redemption with respect to these shares. Such shares have an aggregate market value of approximately $73 million based on the closing price of Ordinary Shares of $10.19 on NYSE on January 28, 2021, the record date for the general meeting of shareholders;

 

   

Replay’s directors will be reimbursed for any out-of-pocket expenses incurred by them on Replay’s behalf incident to identifying, investigating and consummating a business combination; and

 

   

the continued indemnification and advancement of expenses of current directors and officers of Replay and the continuation of directors’ and officers’ liability insurance after the Business Combination.

Reasons for Approval of the Business Combination

After careful consideration, our board of directors recommends that Replay shareholders vote “FOR” each Proposal being submitted to a vote of the Replay shareholders at the Replay general meeting.

For a description of Replay’s reasons for the approval of the Business Combination and the recommendation of our board of directors, see the section entitled “Proposal No. 1—The Cayman Proposals—Proposal 1(c): The Business Combination—Our Board of Directors’ Reasons for the Approval of the Business Combination.”

Redemption Rights

Under our Existing Organizational Documents, holders of our Ordinary Shares may elect to have their shares redeemed for cash at the applicable redemption price per share equal to the quotient obtained by dividing (a) the aggregate amount on deposit in the Trust Account as of two business days prior to the consummation of the Business Combination, including interest (which interest shall be net of taxes payable), by (b) the total number of Ordinary Shares included as part of the Units issued in the IPO. However, Replay will not redeem any Public Shares to the extent that such redemption would result in Replay having net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act) of less than $5,000,001. As of September 30, 2020, this would have amounted to approximately $10.20 per Ordinary Share. Under the Existing Organizational Documents, in connection with an initial business combination, a Public Shareholder, together with any affiliate or any other person with whom such shareholder is acting in concert of as a “group” (as defined under Section 13(d)(3) of the Exchange Act), is restricted from seeking redemption rights with respect to more than 15% of the Public Shares.

If a holder exercises its redemption rights, then such holder will be exchanging its Ordinary Shares for cash and will no longer own Ordinary Shares and will not participate in the future growth of Replay, if any. Such a holder will be entitled to receive cash for its Public Shares only if it properly demands redemption and delivers its shares (either physically or electronically) to Replay’s transfer agent in accordance with the procedures described herein. See the section entitled “The General Meeting of Replay Shareholders—Redemption Rights” for the procedures to be followed if you wish to redeem your shares for cash.



 

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Ownership After the Closing

After the Closing, assuming no redemptions by Replay’s Public Shareholders and the exchange of all FoA Units by the Continuing Unitholders, approximately 30% of New Pubco will be beneficially owned by the shareholders of Replay, including the investors in the PIPE Agreements and excluding shares of Class A Common Stock held by the Sponsor following the Business Combination that are subject to vesting and forfeiture, and approximately 70% of New Pubco will be beneficially owned by current FoA securityholders. For additional information, see “Security Ownership of Certain Beneficial Owners and Management.”

Organizational Structure

Prior to the Business Combination

The following diagram illustrates the ownership structure of Replay prior to the Business Combination. The economic and voting interests shown in the diagram do not account for Private Placement Warrants (which will be exchanged for Ordinary Shares in the Warrant Exchange) or Public Warrants (which will remain outstanding following the Business Combination and may be exercised at a later date).

 

LOGO

Following the Business Combination

New Pubco’s organizational structure following the completion of the Business Combination is commonly referred to as an umbrella partnership-C (or UP-C) corporation structure. This organizational structure will allow the Continuing Unitholders to retain their equity ownership in FoA, an entity that will, as of immediately prior to the Business Combination, be classified as a partnership for U.S. federal income tax purposes, in the form of FoA Units. The Continuing Unitholders will have the right to exchange their FoA Units for shares of the Class A common stock of New Pubco on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications.

Upon consummation of the Business Combination, New Pubco will be a holding corporation the principal asset of which will be a controlling interest in FoA. The business, property and affairs of FoA will be managed by a board of managers, as appointed by New Pubco in its sole discretion. As a result, New Pubco will control the business and affairs of FoA and its subsidiaries. The Business Combination, whereby New Pubco will begin to consolidate FoA in its consolidated financial statements, may be accounted for as a business combination using the acquisition method of accounting. Accordingly, the assets and liabilities of FoA would be recorded at



 

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their fair values at the date of the consummation of the Business Combination, with any excess of the purchase price over the estimated fair value recorded as goodwill. The application of business combination accounting requires the use of significant estimates and assumptions.

As a result of the application of business combination accounting, the historical consolidated financial statements of FoA presented in this proxy statement/prospectus are not necessarily indicative of FoA’s future results of operations, financial position and cash flows. For example, increased tangible and intangible assets resulting from adjusting the basis of tangible and intangible assets to their fair value would result in increased depreciation and amortization expense in the periods following the consummation of the Business Combination. See “Risk Factors—Risks Related to Replay and the Business Combination—As a result of the application of business combination accounting in connection with the Business Combination, the historical consolidated financial statements of FoA presented in this proxy statement/prospectus are not necessarily indicative of New Pubco’s future results of operations, financial position and cash flows, and in the future New Pubco may need to recognize impairment charges related to goodwill, identified intangible assets and fixed assets that are adjusted to fair value.”

The Continuing Unitholders will hold all of the issued and outstanding shares of New Pubco’s Class B Common Stock. The shares of Class B Common Stock will have no economic rights but will entitle each holder, without regard to the number of shares of Class B Common Stock held by such holder, to a number of votes that is equal to the aggregate number of FoA Units held by such holder on all matters on which stockholders of New Pubco are entitled to vote generally. The voting power afforded to holders of FoA Units by their shares of Class B Common Stock is automatically and correspondingly reduced as they sell FoA Units to New Pubco for cash as part of the Business Combination or subsequently exchange FoA Units for shares of Class A Common Stock of New Pubco pursuant to the Exchange Agreement. For example, if a holder of Class B Common Stock holds 1,000 FoA Units as of the record date for determining stockholders of New Pubco that are entitled to vote on a particular matter, such holder will be entitled by virtue of such holder’s Class B Common Stock to 1,000 votes on such matter. If, however, such holder were to hold 500 FoA Units as of the relevant record date, such holder would be entitled by virtue of such holder’s Class B Common Stock to 500 votes on such matter. If at any time the ratio at which FoA Units are exchangeable for shares of our Class A Common Stock changes from one-for-one as described under “Certain Agreements Related to the Business Combination—Exchange Agreement,” the number of votes to which holders of shares of Class B Common Stock are entitled will be adjusted accordingly. Holders of shares of Class B Common Stock will vote together with holders of our Class A Common Stock as a single class on all matters on which stockholders are entitled to vote generally, except as otherwise required by law.



 

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The following simplified diagram illustrates the current ownership structure of FoA. This chart is provided for illustrative purposes only and does not represent all legal entities of FoA and its subsidiaries.

 

LOGO

 

(1)

Finance of America Holdings LLC holds a 75% ownership interest in and is the managing member of Finance of America Commercial Holdings LLC. Buy to Rent Holdings L.P. (“B2R”) holds the remaining 25% ownership interest. Under the Amended and Restated Limited Liability Company Agreement of Finance of America Commercial Holdings LLC (the “FACo Holdings Agreement”), B2R is entitled to priority distributions of income until certain return hurdles have been achieved. More specifically, Finance of America Holdings LLC is not entitled to participate in distributions from Finance of America Commercial Holdings LLC until B2R has received $202.0 million (the “Hurdle Amount”).

The FACo Holdings Agreement provides that Finance of America Holdings LLC may purchase all of the outstanding Class B Units from B2R upon the occurrence of certain financing or sale transactions, including the Business Combination. In connection with the closing of the Business Combination, FoA expects to cause Finance of America Holdings LLC to exercise its right under the FACo Holdings Agreement to purchase all of the Class B Units held by B2R for a purchase price of $202.0 million in satisfaction of the Hurdle Amount.

After purchasing the Class B Units, Finance of America Commercial Holdings LLC will be an indirect wholly-owned subsidiary of New Pubco. The result of this transaction is reflected in the diagram below that illustrates the ownership structure of New Pubco immediately following the Business Combination.



 

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The following simplified diagram illustrates the ownership structure of New Pubco immediately following the Business Combination. The voting and economic interests shown in the diagram assume no redemptions by Replay’s Public Shareholders and do not account for Public Warrants that will remain outstanding following the Business Combination and may be exercised at a later date. This chart is provided for illustrative purposes only and does not represent all legal entities of New Pubco and its subsidiaries.

 

LOGO

 

(1) 

Following the Business Combination, each of the Continuing Unitholders will hold one share of Class B Common Stock. The Class B Common Stock will provide each of the Continuing Unitholders with a number of votes that is equal to the aggregate number of FoA Units held by such Continuing Unitholder. For additional information, see “Description of Securities—Authorized and Outstanding Stock—Voting Power” and “Security Ownership of Certain Beneficial Owners and Management.”

(2) 

Consists of 4,300,000 shares of Class A Common Stock to be purchased by the Principal Stockholders, 1,000,000 shares of Class A Common Stock to be purchased by affiliates of the Sponsor and 19,700,000 shares of Class A Common Stock to be purchased by other Subscribers.

(3)

Following the Business Combination, New Pubco will hold FoA Units indirectly through Replay and Blocker, which will be wholly owned subsidiaries of New Pubco.    

(4) 

The 4,258,500 shares of Class A Common Stock held by the Sponsor following the Business Combination that are subject to vesting and forfeiture will not be entitled to receive any dividends or other distributions, or to have any other economic rights until such shares are vested, and such shares will not be entitled to receive back dividends or other distributions or any other form of economic “catch-up” once they become



 

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  vested. Additionally, for so long as they remain unvested, such shares must be voted proportionately with all other shares of Class A Common Stock and Class B Common Stock on all matters put to a vote of holders of New Pubco voting stock (i.e., holders of unvested Founder Shares will have no discretion in how such shares are voted). New Pubco will hold an equivalent number of unvested non-participating FoA Units corresponding to such unvested shares. See “Certain Agreements Related to the Business Combination—Sponsor Agreement.”

Investment Risks

An investment in New Pubco following the Closing involves substantial risks and uncertainties. Some of the more significant challenges and risks include, among other things, the following:

 

   

The COVID-19 pandemic poses unique challenges to FoA’s business and the effects of the pandemic could adversely impact FoA’s ability to originate and service mortgages, manage our portfolio of assets and provide lender services and could also adversely impact FoA’s counterparties, liquidity and employees.

 

   

FoA’s business is significantly impacted by interest rates. Changes in prevailing interest rates or U.S. monetary policies that affect interest rates may have a detrimental effect on FoA’s business.

 

   

If FoA is unable to obtain sufficient capital to meet the financing requirements of its business, or if FoA fails to comply with its debt agreements, its business, financing activities, financial condition and results of operations will be adversely affected.

 

   

FAR’s status as an approved non-supervised FHA mortgagee and an approved Ginnie Mae issuer, and FAM’s status as an approved seller-servicer for Fannie Mae and Freddie Mac, an approved Ginnie Mae issuer and an approved non-supervised FHA and VA mortgagee, are subject to compliance with each of their respective guidelines and other conditions they may impose, and the failure to meet such guidelines and conditions could have a material adverse effect on FoA’s overall business and FoA’s financial position, results of operations and cash flows.

 

   

FoA’s loan origination and servicing revenues are highly dependent on macroeconomic and U.S. residential real estate market conditions.

 

   

FoA operates in heavily regulated industries, and FoA’s mortgage loan origination and servicing activities (including lender services) expose it to risks of noncompliance with an increasing and inconsistent body of complex laws and regulations at the U.S. federal, state and local levels.

 

   

FoA is subject to legal proceedings, federal or state governmental examinations and enforcement investigations from time to time. Some of these matters are highly complex and slow to develop, and results are difficult to predict or estimate.

 

   

FoA uses estimates in measuring or determining the fair value of the majority of its assets and liabilities. If FoA’s estimates prove to be incorrect, it may be required to write down the value of these assets or write up the value of these liabilities, which could adversely affect FoA’s business, financial condition and results of operations.

 

   

FoA’s business could suffer if it fails to attract, or retain, highly skilled employees, and changes in FoA’s executive management team may be disruptive to its business.

 

   

Unlike competitors that are national banks, FoA’s lending subsidiaries are subject to state licensing and operational requirements that result in substantial compliance costs.

 

   

Compliance with federal, state and local laws and regulations that govern employment practices and working conditions may be particularly burdensome to FoA due to the distributed nature of its workforce.

 

   

The engagement of FoA’s Lender Services business by its loan originator businesses may give appearance of a conflict of interest.



 

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FoA’s failure to implement and maintain effective internal control over financial reporting could require it to restate financial statements and cause investors to lose confidence in its reported financial information.

 

   

FoA may fail to identify or adequately assess the magnitude of certain liabilities, shortcomings or other circumstances prior to acquiring or investing in a company or business, including potential exposure to regulatory sanctions or liabilities resulting from an acquisition target’s previous activities, internal controls and security environment.

 

   

A security breach or a cyber-attack could adversely affect our results of operations and financial condition.

 

   

Technology disruptions or failures, including a failure in FoA’s operational or security systems or infrastructure, or those of third parties with whom FoA does business, could disrupt FoA’s business, cause legal or reputational harm and adversely impact FoA’s results of operations and financial condition.

 

   

Upon the listing of New Pubco’s Class A Common Stock on the NYSE, New Pubco will be a “controlled company” within the meaning of NYSE rules and, as a result, will qualify for exemptions from certain corporate governance requirements. The stockholders of New Pubco will not have the same protections afforded to stockholders of companies that are subject to such requirements.

 

   

The Principal Stockholders will control New Pubco following the Business Combination and their interests may conflict with New Pubco’s or yours in the future.



 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF FOA

The following table sets forth summary historical consolidated financial information of FoA and its consolidated subsidiaries for the periods and as of the dates indicated. We derived the consolidated historical financial information as of and for the nine months ended September 30, 2020 and 2019 from our unaudited consolidated financial statements appearing elsewhere in this proxy statement/prospectus. We derived the consolidated historical financial information as of December 31, 2019 and 2018 and for the fiscal years ended December 31, 2019, 2018 and 2017 from our audited consolidated financial statements appearing elsewhere in this proxy statement/prospectus. We derived the consolidated historical financial information as of December 31, 2017 and for the fiscal years ended December 31, 2016 and 2015 from our unaudited consolidated financial statements not appearing in this proxy statement/prospectus. The unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in our opinion, have included all adjustments, which include only normal recurring adjustments, necessary to present fairly in all material respects our financial position and results of operations. The results for any interim period are not necessarily indicative of the results that may be expected for the full year.



 

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You should not assume the results of operations for past periods indicate results for any future period. You should read the summary historical financial information set forth below in conjunction with “Risk Factors,” “FoA Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited consolidated financial statements and the related notes thereto.

 

    For the nine months
ended September 30,
    For the year
ended December 31,
 
    2020     2019     2019     2018     2017     2016     2015  
    (unaudited)     ($ in thousands)
(audited)
    (unaudited)  

REVENUES

             

Gain on sale of mortgage loans, net and other income related to the origination of mortgage loans held for sale, net

  $ 836,901     $ 342,514     $ 464,308     $ 400,302     $ 484,846     $ 520,022     $ 190,498  

Net fair value gains on mortgage loans and related obligations

    221,638       236,892       329,526       310,864       181,042       104,548       97,238  

Fee income

    263,488       140,522       201,628       151,602       142,834       81,459       33,725  

Net interest expense:

             

Interest income

    29,615       27,073       37,323       35,334       35,421       38,320       13,500  

Interest expense

    (93,165     (103,072     (138,731     (108,840     (65,672     (36,824     (18,930
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest expense

    (63,550     (75,999     (101,408     (73,506     (30,251     1,496       (5,430
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL REVENUES

    1,258,477       643,929       894,054       789,262       778,471       707,525       316,031  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES

             

Salaries, benefits and related expenses

    615,034       378,420       529,250       485,463       510,873       501,841       200,840  

Occupancy, equipment rentals and other office related expenses

    22,795       24,187       32,811       37,957       32,354       25,874       12,219  

General and administrative expenses

    273,584       178,801       254,414       218,311       180,365       153,090       89,447  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    911,413       581,408       816,475       741,731       723,592       680,805       302,506  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income before income taxes

    347,064       62,521       77,579       47,531       54,879       26,720       13,525  

Provision for income taxes

    1,574       1,206       949       286       53       39       0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    345,490       61,315       76,630       47,245       54,826       26,681       13,525  

Contingently Redeemable Noncontrolling Interest (“CRNCI”)

    (22,959     16,518       21,707       15,244       2,030       0       0  

Noncontrolling Interest

    1,076       540       511       (61     121       32       0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to FOA Equity Capital LLC

    367,373       44,257       54,412       32,062       52,675       26,649       13,525  

Impact of foreign currency translation adjustment

    37       8       47       (44     (20     (42     8  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO FOA EQUITY CAPITAL LLC

  $ 367,410     $ 44,265     $ 54,459     $ 32,018     $ 52,655     $ 26,607     $ 13,533  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


 

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    September 30,
2020
    December 31,
2019
    December 31,
2018
    December 31,
2017
    December 31,
2016
    December 31,
2015
 
                ($ in thousands)              
    (unaudited)     (audited)     (unaudited)  

ASSETS

           

Cash and cash equivalents

  $ 205,444     $ 118,083     $ 91,875     $ 95,730     $ 102,516     $ 55,454  

Restricted cash

    308,311       264,581       147,349       32,511       11,559       6,118  

Reverse mortgage loans held for investment, subject to HMBS obligations, at fair value

    9,811,263       9,480,504       9,615,846       9,882,200       9,486,669       8,778,510  

Mortgage loans held for investment, subject to nonrecourse debt, at fair value

    5,180,911       3,511,212       1,560,867       335,674       0       0  

Mortgage loans held for investment, at fair value

    984,475       1,414,073       1,230,233       226,683       156,954       347,594  

Mortgage loans held for sale, at fair value

    1,893,555       1,251,574       726,500       1,895,411       1,370,124       842,353  

Debt securities, at fair value

    13,368       114,701       8,168       0       0       0  

Mortgage servicing rights, at fair value

    100,539       2,600       3,376       17,747       34,793       51,014  

Derivative assets

    114,563       15,553       11,257       11,774       17,614       10,159  

Fixed assets and leasehold improvements, net

    25,784       26,686       30,485       20,263       8,990       5,620  

Goodwill

    121,754       121,137       119,275       116,518       54,579       42,617  

Intangible assets, net

    16,855       18,743       21,319       22,955       16,828       7,492  

Due from related parties

    1,170       2,814       1,323       998       4,175       512  

Other assets

    244,023       241,840       158,235       287,850       110,655       76,787  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL ASSETS

  $ 19,022,015     $ 16,584,101     $ 13,726,108     $ 12,946,314     $ 11,375,456     $ 10,224,230  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES, CRNCI AND MEMBERS’ EQUITY

           

HMBS related obligations, at fair value

  $ 9,662,342     $ 9,320,209     $ 9,438,791     $ 9,738,249     $ 9,393,190     $ 8,710,639  

Nonrecourse debt, at fair value

    5,064,323       3,490,196       1,592,592       384,515       0       0  

Other financing lines of credit

    2,924,269       2,749,413       1,789,867       1,885,487       1,366,882       1,040,690  

Payables and accrued liabilities

    356,929       326,176       283,425       362,355       250,882       138,694  

Notes payable

    145       27,313       27,817       30,797       22,271       26,186  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    18,008,008       15,913,307       13,132,492       12,401,403       11,033,225       9,916,209  

CRNCI

    165,022       187,981       166,274       151,030       0       0  

MEMBERS’ EQUITY

           

FOA Equity Capital LLC members’ equity

    848,774       482,719       427,392       393,826       342,158       308,013  

Accumulated other comprehensive loss

    (14     (51     (98     (54     (34     8  

Noncontrolling interest

    225       145       48       109       107       0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total members’ equity

    848,985       482,813       427,342       393,881       342,231       308,021  

TOTAL LIABILITIES, CRNCI AND MEMBERS’ EQUITY

  $ 19,022,015     $ 16,584,101     $ 13,726,108     $ 12,946,314     $ 11,375,456     $ 10,224,230  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


 

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SELECTED HISTORICAL FINANCIAL DATA OF REPLAY

The following table shows selected historical financial information of Replay for the periods and as of the dates indicated. The selected historical financial information of Replay was derived from the audited and unaudited historical financial statements of Replay included elsewhere in this proxy statement/prospectus. The following table should be read in conjunction with “Replay Management’s Discussion and Analysis of Financial Condition and Results of Operations of Replay” and our historical financial statements and the notes and schedules related thereto, included elsewhere in this proxy statement/prospectus.



 

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Statement of Operations Data:

   For the nine months ended
September 30,
(Unaudited)
    For the Year
Ended
December 31,
    For the
period from
November 6,
2018
(inception)
through
December 31,
 
   2020     2019     2019     2018  

General and administrative expenses

   $ 1,321,473     $ 245,980     $ 327,399     $ 2,694  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (1,321,473     (245,980     (327,399     (2,694

Gain on marketable securities, dividends and interest held in Trust Account

     1,201,382       3,322,448       4,554,158       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (120,091   $ 3,076,468     $ 4,226,759     $ (2,694
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted weighted average shares outstanding of Public Shares

     28,750,000       28,750,000       28,750,000       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted net income per share, Public Share

   $ 0.04     $ 0.12     $ 0.16       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted weighted average shares outstanding of Founder Shares

     7,187,500       7,187,500       7,187,500       7,187,500  
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted net loss per share, Founder Share

   $ (0.18   $ (0.03   $ (0.05   $ (0.00
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     As of
September 30,
2020
     As of December 31,
2019
 
Balance Sheet Data:    (Unaudited)         

Total assets

   $ 294,276,941      $ 293,706,691  

Total liabilities

     9,973,296        9,282,955  

Commitments and contingencies

     

Ordinary shares, $0.0001 par value; 27,930,364 and 27,942,373 shares subject to possible redemption at $10.00 per share at September 30, 2020 and December 31, 2019, respectively

     279,303,640        279,423,730  

Shareholders’ Equity:

     

Preferred shares, $0.0001 par value; 2,000,000 shares authorized; none issued and outstanding

     —          —    

Ordinary shares, $0.0001 par value; 200,000,000 shares authorized; 8,007,136 and 7,995,127 shares issued and outstanding (excluding 27,930,364 and 27,942,373 shares subject to possible redemption) at September 30, 2020, and December 31, 2019, respectively

     801        800  

Additional paid-in capital

     895,230      775,141  

Retained earnings

     4,103,974        4,224,065  
  

 

 

    

 

 

 

Total shareholders’ equity

     5,000,005        5,000,006  
  

 

 

    

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 294,276,941      $ 293,706,691  
  

 

 

    

 

 

 


 

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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION

The unaudited pro forma condensed combined consolidated balance sheet as of September 30, 2020 combines the unaudited condensed balance sheet of Replay as of September 30, 2020 with the unaudited consolidated balance sheet of FoA as of September 30, 2020, giving effect to the Business Combination as if it had been consummated on that date.

The unaudited pro forma condensed combined consolidated statement of operations for the nine months ended September 30, 2020 combines the unaudited condensed statement of operations of Replay for the nine months ended September 30, 2020 with the unaudited consolidated statement of operations of FoA for the nine months ended September 30, 2020. The unaudited pro forma condensed combined consolidated statement of operations for the year ended December 31, 2019 combines the audited statement of operations of Replay for the year ended December 31, 2019 with the audited consolidated statement of operations of FoA for the year ended December 31, 2019. The unaudited pro forma condensed combined consolidated statement of operations for the nine months ended September 30, 2020 and the year ended December 31, 2019 give effect to the Business Combination as if it had been consummated on January 1, 2019.

The unaudited pro forma condensed combined consolidated financial information was derived from and should be read in conjunction with the following historical financial statements and the accompanying notes, which are included elsewhere in this proxy statement/prospectus:

 

   

The historical unaudited condensed financial statements of Replay as of and for the nine months ended September 30, 2020 and the historical audited financial statements of Replay as of and for the year ended December 31, 2019; and

 

   

The historical unaudited consolidated financial statements of FoA as of and for the nine months ended September 30, 2020 and the historical audited consolidated financial statements of the FoA as of and for the year ended December 31, 2019.

The foregoing historical financial statements have been prepared in accordance with GAAP.

The unaudited pro forma condensed combined consolidated financial information should also be read together with “Replay Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “ FoA Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other financial information included elsewhere in this proxy statement/prospectus.

The historical financial information has been adjusted to give pro forma effect to events that are (i) related and/or directly attributable to the Business Combination, (ii) factually supportable, and (iii) with respect to the pro forma statement of operations, are expected to have a continuing impact on the results of the combined entity. The adjustments in the unaudited pro forma condensed combined consolidated financial information have been identified and presented to provide relevant information necessary for an accurate understanding of the combined entity upon consummation of the Business Combination.

The unaudited pro forma condensed combined consolidated financial information is for illustrative purposes only. The financial results may have been different had the companies always been combined. You should not rely on the unaudited pro forma condensed combined consolidated 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 entity will experience.

The unaudited pro forma condensed combined consolidated financial statements are presented in two scenarios: (1) assuming No Redemptions, and (2) assuming Maximum Redemptions. The No Redemptions



 

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scenario assumes that no Replay shareholders elect to redeem their Ordinary Shares for a pro rata portion of cash in the Trust Account, and thus the full amount held in the Trust Account as of the balance sheet date is available for the Business Combination. The Maximum Redemptions scenario assumes that Replay shareholders redeem the maximum number of their Ordinary Shares for a pro rata portion of cash in the Trust Account that would still allow Replay to satisfy a condition precedent in the Transaction Agreement that Replay have at least $400 million of available cash at the closing (excluding payment of any deferred underwriting fees and certain permitted transaction expenses of each of FoA and Replay). In both scenarios, the amount of cash available is sufficient to (a) pay the cash consideration to existing FoA owners and (b) pay transaction expenses.

 

    SELECTED UNAUDITED PRO FORMA  
    CONDENSED COMBINED CONSOLIDATED FINANCIAL
INFORMATION
 
    (a)
Replay Acquisition
Corp.
    (b)
Finance of
America Equity
Capital, LLC
    Pro Forma
Combined
(Assuming No
Redemptions)
   
Pro Forma
Combined
(Assuming
Maximum
Redemptions)
 
    (in thousands except per share amounts)  

Statement of Operations Data—Nine Months Ended September 30, 2020

       

Revenues

  $ 1,201     $ 1,258,477     $ 1,235,944     $ 1,235,944  

Operating expenses

    1,321       911,413       951,515       953,447  

Net income before income taxes

    (120     347,064       284,429       282,497  

Net income attributable to New Pubco

    (120     367,373       90,360       76,215  

Net income per share - basic

      $ 1.15     $ 1.14  

Net income per share - diluted

      $ 1.09     $ 1.09  

Statement of Operations Data—Year Ended December 31, 2019

       

Revenues

    4,554       894,054       863,992       863,992  

Operating expenses

    327       816,475       924,455       917,279  

Net income before income taxes

    4,227       77,579       (60,463     (53,287

Net income attributable to New Pubco

    4,227       54,412       (4,121     (4,305

Net income per share - basic

      $ (0.05   $ (0.06

Net loss per share - diluted

      $ (0.25   $ (0.22

Balance Sheet Data—As of September 30, 2020

       

Total assets

    294,277       19,022,015       20,802,511       20,741,672  

Total liabilities

    9,973       18,008,008       18,615,331       18,597,236  

Total shareholders’ equity

    5,000       848,985       2,187,180       2,144,436  

 

(a)

Represents the Replay historical unaudited condensed statements of operations for the nine months ended September 30, 2020, the audited statements of operations for the year ended December 31, 2019, and the historical unaudited condensed balance sheet as of September 30, 2020.

(b)

Represents the FoA historical unaudited consolidated statements of operations for the nine months ended September 30, 2020, the audited consolidated statements of operations year ended December 31, 2019, and the unaudited consolidated statement of financial condition as of September 30, 2020.



 

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COMPARATIVE PER SHARE INFORMATION

The following table sets forth historical comparative per share information of New Pubco, on a stand-alone basis, and the unaudited pro forma condensed combined per share information after giving effect to the Business Combination, assuming No Redemptions and Maximum Redemptions, respectively.

The historical information should be read in conjunction with “FoA Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Replay Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other financial information included elsewhere in this proxy statement/prospectus. The unaudited pro forma condensed combined per share information is derived from, and should be read in conjunction with, the information contained in the section of this proxy statement/prospectus entitled “Selected Unaudited Pro Forma Condensed Combined Consolidated Financial Information.”

The unaudited pro forma combined share information does not purport to represent what the actual results of operations of the Company would have been had the Business Combination been completed or to project New Pubco’s results of operations that may be achieved after the Business Combination. The unaudited pro forma shareholders’ equity per share information below does not purport to represent what the value of FoA Equity and Replay would have been had the Business Combination been completed nor the shareholders’ equity per share for any future date or period.

The following table sets forth:

 

   

Historical per share information of Replay for the nine months ended September 30, 2020 and year ended December 31, 2019; and

 

   

Unaudited pro forma per share information of the combined company for the nine months ended September 30, 2020 and the year ended December 31, 2019 after giving effect to the Business Combination, assuming the redemption scenarios as follows:

 

   

Assuming No Redemptions: The No Redemptions scenario assumes that no Replay shareholders elect to redeem their Ordinary Shares for a pro rata portion of cash in the Trust Account, and thus the full amount held in the Trust Account as of the balance sheet date is available for the Business Combination; and

 

   

Assuming Maximum Redemptions: The Maximum Redemptions scenario assumes that Replay shareholders redeem the maximum number of their Ordinary Shares for a pro rata portion of cash in the Trust Account that would still allow Replay to satisfy a condition precedent in the Transaction Agreement that Replay have at least $400 million of available cash at the closing (excluding payment of any deferred underwriting fees and certain permitted transaction expenses of each of FoA and Replay). In both scenarios, the amount of cash available is sufficient to (a) pay the cash consideration to existing FoA owners and (b) pay transaction expenses.

The historical information should be read in conjunction with “Selected Historical Consolidated Financial Data of FOA,” “Selected Historical Financial Data of Replay,” “FOA Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Replay Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this proxy statement/prospectus and the historical financial statements and related notes of each of Replay and FoA contained elsewhere in this proxy statement/prospectus. The unaudited pro forma combined share information is derived from, and should be read in conjunction with, the unaudited pro forma condensed combined financial information and related notes included elsewhere in this proxy statement/ prospectus. The unaudited pro forma combined net income per share information below does not purport to represent what the actual results of operations of the Company would have been had the Business Combination been completed or to project the Company’s results of operations that may be achieved after the Business Combination. The unaudited pro forma book value per share information below

 

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does not purport to represent what the book value of the Company would have been had the Business Combination been completed nor the book value per share for any future date or period.

 

     Replay
Acquisition
Corp.
    Finance of
America
Equity
Capital, LLC
     Pro Forma
Combined
(Assuming No
Redemptions)
    Pro Forma
Combined
(Assuming
Maximum
Redemptions)
 
     (in thousands except per share amounts)  

Nine Months Ended September 30, 2020

         

Net income (loss)

   $ (120   $ 345,490      $ 249,467     $ 252,554  

Total Shareholders’ Equity at September 30, 2020

   $ 5,000     $ 848,985      $ 2,187,180     $ 2,144,436  

Public Shares

         

Basic and diluted weighted average shares outstanding of Public Shares

     28,750,000         

Basic and diluted net income per share, Public Shares

   $ 0.04         

Shareholders’ basic and diluted equity per share

   $ 0.00         

Founder Shares

         

Basic and diluted weighted average shares outstanding of Founder Shares

     7,187,500         

Basic and diluted net loss per share, Founder Shares

   $ (0.18       

Shareholders’ basic and diluted equity per share

   $ 0.00         

New Pubco Shares

         

Basic weighted average shares outstanding of New Pubco

          82,292,953       70,766,240  

Basic net income per share, New Pubco

        $ 1.15     $ 1.14  

Shareholders’ basic equity per share

        $ 0.03     $ 0.03  

Diluted weighted average shares outstanding of New Pubco

          191,200,000       191,200,000  

Diluted net income per share, New Pubco

        $ 1.09     $ 1.09  

Shareholders’ diluted equity per share

        $ 0.01     $ 0.01  

Year Ended December 31, 2019

         

Net income (loss)

   $ 4,227     $ 76,630      $ (64,204   $ (56,600

Public Shares

         

Basic and diluted weighted average shares outstanding of Public Shares

     28,750,000         

Basic and diluted net income per share, Public Shares

   $ 0.16         

Founder Shares

         

Basic and diluted weighted average shares outstanding of Founder Shares

     7,187,500         

Basic and diluted net loss per share, Founder Shares

   $ (0.05       

New Pubco Shares

         

Basic weighted average shares outstanding of New Pubco

          79,256,039       67,464,802  

Basic net income per share, New Pubco

        $ (0.05   $ (0.06

Diluted weighted average shares outstanding of New Pubco

          191,200,000       191,200,000  

Diluted net loss per share, New Pubco

        $ (0.25   $ (0.22

 

(1)

Shareholder equity per share = (Total Shareholders’ Equity / shares outstanding).

(2)

Given FoA’s historical equity structure, the calculation of historical FoA per share data has been omitted.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this proxy statement/prospectus may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “appear,” “approximate,” “believe,” “continue,” “could,” “estimate,” “expect,” “foresee,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “would” and similar expressions (or the negative version of such words or expressions) may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this proxy statement/prospectus may include, for example, statements about:

 

   

our ability to consummate the Business Combination;

 

   

the expected benefits of the Business Combination;

 

   

New Pubco’s financial performance following the Business Combination;

 

   

changes in FoA’s strategy, future operations, financial position, estimated revenues and losses, projected costs, margins, cash flows, prospects and plans;

 

   

the impact of health epidemics, including the COVID-19 pandemic, on FoA’s business and the actions FoA may take in response thereto;

 

   

expansion plans and opportunities; and

 

   

the outcome of any known and unknown litigation and regulatory proceedings.

These forward-looking statements are based on information available as of the date of this proxy statement/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, and 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.

You should not place undue reliance on these forward-looking statements in deciding how to vote your proxy or instruct how your vote should be cast on the Proposals set forth in this proxy statement/prospectus. 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. Some factors that could cause actual results to differ include:

 

   

the occurrence of any event, change or other circumstances that could delay the Business Combination or give rise to the termination of the Transaction Agreement;

 

   

the outcome of any legal proceedings that may be instituted against Replay following announcement of the proposed Business Combination and transactions contemplated thereby;

 

   

the inability to complete the Business Combination due to the failure to obtain approval of the shareholders of Replay or to satisfy other conditions to the Closing in the Transaction Agreement;

 

   

the ability to obtain or maintain the listing of Class A Common Stock on NYSE following the Business Combination;

 

   

the risk that the proposed Business Combination disrupts current plans and operations of FoA as a result of the announcement and consummation of the transactions described herein;

 

   

our ability to recognize the anticipated benefits of the Business Combination, which may be affected by, among other things, competition and the ability of FoA to grow and manage growth profitably following the Business Combination;

 

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costs related to the Business Combination;

 

   

changes in applicable laws or regulations;

 

   

the effect of the COVID-19 pandemic on FoA’s business;

 

   

the possibility that Replay or FoA may be adversely affected by other economic, business, and/or competitive factors;

 

   

the inability to obtain or maintain the listing of New Pubco’s shares of Class A Common Stock on the NYSE following the Business Combination; and

 

   

other risks and uncertainties described in this proxy statement/prospectus, including those under the section entitled “Risk Factors.”

 

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RISK FACTORS

The following risk factors apply to the business and operations of FoA and will also apply to our business and operations following the completion of the Business Combination. These risk factors are not exhaustive, and investors are encouraged to perform their own investigation with respect to the business, financial condition and prospects of FoA and our business, financial condition and prospects following the completion of the Business Combination. You should carefully consider the following risk factors in addition to the other information included in this proxy statement/prospectus, including matters addressed in the section entitled “Cautionary Note Regarding Forward-Looking Statements.” We may face additional risks and uncertainties that are not presently known to us, or that we currently deem immaterial, which may also impair our business or financial condition. The following discussion should be read in conjunction with our and FoA’s financial statements and notes to the financial statements included herein. For the purposes of the following risk factors, “FoA” refers to Finance of America Equity Capital LLC and its subsidiaries, collectively.

Risks Related to the Business of FoA

Unless the context otherwise requires, all references in this section to “we,” “us,” “our” or the “Company” refer to FoA and its subsidiaries prior to the consummation of the Business Combination.

Risks Related to COVID-19

The COVID-19 pandemic poses unique challenges to our business and the effects of the pandemic could adversely impact our ability to originate and service mortgages, manage our portfolio of assets and provide lender services and could also adversely impact our counterparties, liquidity and employees.

On March 13, 2020, the World Health Organization declared SARS-CoV-2, and the related disease it causes in humans (“COVID-19”) a pandemic. This outbreak of COVID-19 has led and is likely to continue to lead to disruptions in the global securities markets and capital markets and the economies of all nations where COVID-19 has arisen and may in the future arise, and is resulting in adverse impacts on the global economy in general. The economic impact of COVID-19 has led to extreme volatility in the stock market and capital markets. In March 2020, the Federal Reserve took emergency action to further cut its benchmark rate down to a range of between 0% and 0.25%, to inject additional funds into the short-term lending markets and to implement quantitative easing and other measures to support financial institutions, other businesses and the credit markets. In addition, beginning in March 2020, the Federal Reserve in conjunction with the Treasury Department announced an extensive series of measures to provide liquidity and support the economy. Although it cannot be predicted, additional action by the Federal Reserve as well as other federal and state agencies is possible in the near future.

The long-term impacts of the social, economic and financial disruptions caused by the COVID-19 pandemic are unknown. While the U.S. Federal Reserve, the U.S. government and other governments have implemented unprecedented financial support or relief measures in response to concerns surrounding the economic effects of the COVID-19 pandemic, the likelihood of such measures calming the volatility in the financial markets or preventing a long-term national or global economic downturn cannot be predicted.

The federal government has enacted a series of laws, including the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), providing for economic relief to states, businesses and individuals affected by COVID-19. Some of these laws create burdens on employers for compliance with respect to their employees. Failure to comply with these laws could create liability on the part of the Company.

Additionally, in 2020, the U.S. federal government, as well as many state and local governments adopted a number of emergency measures and recommendations in response to the COVID-19 outbreak, including imposing travel bans, “shelter in place” restrictions, curfews, banning large gatherings, closing non-essential

 

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businesses, and generally promoting social distancing (including in the workplace, which has resulted in a significant increase in employees working remotely). Although certain states and localities have begun easing some of these measures and providing recommendations regarding recommencing economic activity, there have been recent upticks in cases in many locations across the world, resulting in new or renewed restrictions. It cannot be predicted whether there will be increased outbreaks in the future, or whether such outbreaks would result in new restrictions. The COVID-19 outbreak (and any future outbreaks of COVID-19) and resulting emergency measures has led (and may continue to lead) to significant disruptions in the global supply chain, global capital markets, and the economy of the United States. Concern about the potential effects of the COVID-19 outbreak and the effectiveness of measures being put in place by governmental bodies and reserve banks at various levels as well as by private enterprises (such as workplaces and schools) to contain or mitigate its spread has adversely affected economic conditions and capital markets globally.

Our Company and many of our counterparties have transitioned all or a substantial portion of their operations to remote working environments (as a result of state or local requirements or otherwise in response to COVID-19). Our work-from-home environment is anticipated to continue into 2021. While the Company has not seen reduced productivity from this transition to work from home, there can be no assurance that such transition of material business operations will not have an adverse effect on our Company in the long term. Specifically, recruiting, vetting and training employees is more difficult in a work-from-home environment. The ongoing nature of the COVID-19 outbreak could also adversely impact the continued service and availability of skilled personnel, including our executive officers and other members of our management team, employees at our origination and servicing businesses and the servicers and subservicers that we engage and other third-party vendors. To the extent our service partners and vendors, management or other personnel, are impacted in significant numbers by the outbreak and are not available to conduct work, our business and operating results could be negatively impacted. The extent of the spread of COVID-19, as well as the effects on the world and local economies, including the credit and capital markets, is not quantifiable as of the date of this proxy statement/prospectus.

We are subject to guidelines issued by the FHFA, HUD and/or the GSEs in connection with management and servicing of mortgage loans insured by such agency or sold through a GSE sponsored securitization or on a whole loan basis to the related GSE. HUD has taken several actions in response to the COVID-19 pandemic to provide temporary relief and protections for homeowners facing financial hardship due to the COVID-19.

 

   

On March 18, 2020, HUD announced that all foreclosures and evictions were suspended until the end of 60 days from the date of the related HUD Mortgagee Letter announcing such restrictions. As of January 21, 2021, the HUD moratorium has been further extended to March 31, 2021.

 

   

On April 1, 2020, HUD issued Mortgagee Letter 2020-06, implementing a forbearance period of 6-12 months for traditional borrowers affected by COVID-19, and an extension period for HECMs affected by the COVID-19 Presidentially-Declared National Emergency, in accordance with the CARES Act. Pursuant to the letter, upon a borrower’s request, the mortgagee must delay submitting a request to call a loan due and payable for up to 6 months, and may delay submitting such request for up to 12 months, with HUD approval. The mortgagee also must waive all late charges, fees, and penalties for as long as the borrower is in an extension period. For loans that have become automatically due and payable, entered into a deferral period, or became due and payable with HUD approval, the mortgagee also may take an automatic extension for any deadline relating to foreclosure and claim submission for a period of up to 6 months (or up to 12 months with HUD approval).

 

   

Further, on July 8, 2020 the FHA announced that, effective immediately, mortgage servicers would be able to use an expanded menu of loss mitigation tools to help homeowners with FHA-insured single family forward mortgages who are financially impacted by the COVID-19 pandemic bring their mortgages current at the end of their COVID-19 forbearance.

 

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The GSEs have also taken several actions in connection with COVID-19.

 

   

On March 18, 2020, the FHFA directed Fannie Mae and Freddie Mac to suspend foreclosures and evictions for GSE-backed single-family mortgages for at least sixty days due to COVID-19, and to provide payment forbearance for up to twelve months to borrowers impacted by COVID-19, while servicers must fund payments on securitized debt for up to four months. On January 18, 2021, the FHFA announced that the moratorium on foreclosures and evictions was being further extended until at least February 28, 2021.

 

   

Both Fannie Mae and Freddie Mac have issued multiple announcements regarding underwriting of and servicing of loans in reaction to the COVID-19 pandemic.

We believe that we have effective systems in place for identifying and implementing changes in agency policies and procedures. However, any changes to the rules applying to origination and servicing of both forward and reverse mortgages insured by HUD and the origination and servicing of loans sold to or backed by Fannie Mae and Freddie Mac may increase the risk to our Company of originating and servicing these loans, which make up a majority of our Company’s loan production. The forbearance requirements and the moratoria on foreclosures may delay foreclosure and recovery timelines, potentially increasing expense and reducing income to our Company. See “—Risks Related to our Lending Businesses—FAR’s status as an approved non-supervised FHA mortgagee and an approved Ginnie Mae issuer, and FAM’s status as an approved seller-servicer for Fannie Mae and Freddie Mac, an approved Ginnie Mae issuer and an approved non-supervised FHA and VA mortgagee, are subject to compliance with each of their respective guidelines and other conditions they may impose, and the failure to meet such guidelines and conditions could have a material adverse effect on our overall business and our financial position, results of operations and cash flows.”

It is unclear how many borrowers have been adversely affected by the COVID-19 pandemic. It is expected that many borrowers will be (or continue to be) adversely affected by the COVID-19 pandemic. As a result, borrowers may not and/or may be unable to meet their payment obligations under the mortgage loans, which may result in shortfalls in distributions of interest and/or and losses on the loans. Shortfalls and losses will be particularly pronounced to the extent that the related mortgaged properties are located in geographic areas with significant numbers of COVID-19 cases or relatively restrictive COVID-19 countermeasures. Some borrowers may seek forbearance arrangements at some point in the near future (if they have not already made such request). It is possible that a significant number of borrowers will not make timely payments on their mortgage loans at some point during the continuance of the COVID-19 pandemic. In response, we may implement a range of actions with respect to affected borrowers and the related mortgage loans to forbear or extend or otherwise modify the loan terms consistent with our customary servicing practices. Approximately 1.49% of our serviced forward mortgage loans by units (0.84% of our serviced forward mortgage loans by UPB) are in forbearance as of September 30, 2020.

In response to the COVID-19 pandemic and related business closures, numerous states and other jurisdictions have imposed moratoria on foreclosures and evictions as well. Our Company intends to comply (and to cause its subservicers to comply) with any such foreclosure and eviction restrictions or moratoriums, if applicable, as well as any related guidelines imposed by applicable law or regulatory authorities or otherwise in accordance with accepted servicing practices, and may, in the future, choose to offer other loss mitigation options to avoid such borrowers going into foreclosure. Any of these types of laws, regulations, rules, moratoria or proceedings could result in substantial delays in, or prevention of, the foreclosure process, and may lead to increased reimbursable servicing expenses, reduced proceeds from further depressed home prices and additional defaults. The moratoria on evictions extends to landlords in leased properties as well; these may adversely impact performance of our mortgages on investor-owned residential properties, since the underlying tenants may cease to make rental payments and cannot be evicted. In this event, our borrower would face reduced cash flows and be more likely to default.

There can be no assurance that any measures undertaken by the federal government, or by state or local governments, will be effective to mitigate the impact of the COVID-19 outbreak. There is little certainty as to when the COVID-19 outbreak will abate, or when and to what extent the United States economy will fully

 

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recover from the disruption caused by the COVID-19 outbreak. If the COVID-19 pandemic significantly worsens, we or our counterparties may experience further disruptions, such as impacts on access to capital and funding sources, temporary closure of offices, suspension of services and/or unusually high volume of borrower defaults, which may materially and adversely affect our business, financial condition, results of operations or ability to perform under the transaction documents. The duration of any such business disruptions and related financial or commercial impact cannot be reasonably estimated at this time, but may materially affect such parties’ ability to operate their respective business and result in additional costs.

Risks Related to Our Business and Industry

Our business is significantly impacted by interest rates. Changes in prevailing interest rates or U.S. monetary policies that affect interest rates may have a detrimental effect on our business.

Our financial performance is directly affected by changes in prevailing interest rates. Our financial performance may decrease or be subject to substantial volatility because of changes in prevailing interest rates. Due to the unprecedented events surrounding the COVID-19 pandemic along with the associated severe market dislocation, there is an increased degree of uncertainty and unpredictability concerning current interest rates, future interest rates and potential negative interest rates.

With regard to the portion of our business that focuses on refinancing existing mortgages, the refinance market generally experiences more significant fluctuations than the purchase market as a result of interest rate changes. Long-term residential mortgage interest rates have been at or near record lows for an extended period, but they may increase in the future. As interest rates rise, refinancing generally becomes a smaller portion of the market as fewer consumers are interested in refinancing their mortgages. With regard to our purchase mortgage loan business, higher interest rates may also reduce demand for purchase mortgages as home ownership becomes more expensive. This could adversely affect our revenues or require us to increase marketing expenditures in an attempt to increase or maintain our volume of mortgages. Currently, with sustained low interest rates, refinancing transactions are expected to decline over time, as many clients and potential clients have already taken advantage of the low interest rates. Additionally, an increase in interest rates may over time cause a decrease in the price that the primary issuance market would pay for a given HMBS or other securitization and could result in a decrease in gain on the securitization earned.

Changes in interest rates are also a key driver of the performance of our servicing business, particularly because the value of our MSR portfolio is highly sensitive to changes in interest rates. Historically, the value of MSRs has increased when interest rates rise as higher interest rates lead to decreased prepayment rates, and has decreased when interest rates decline as lower interest rates lead to increased prepayment rates. As a result, decreases in interest rates could have a detrimental effect on the valuation of our MSRs.

Borrowings under our warehouse facilities and other financing lines of credit are generally at variable rates of interest, which also expose us to interest rate risk. If interest rates increase, our debt service obligations on certain of our variable-rate indebtedness will increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. We generally use interest rate swaps or other derivative instruments that involve the exchange of floating for fixed-rate interest payments to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all of our variable-rate indebtedness, and any such swaps may not fully mitigate our interest rate risk, may prove disadvantageous or may create additional risks. See “—Risks Related to Our Lending Businesses—Our hedging strategies may not be successful in mitigating our risks associated with changes in interest rates.”

In addition, our business is materially affected by the monetary policies of the U.S. government and its agencies. For instance, Fannie Mae and Freddie Mac announced in August 2020 that they would be charging

 

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lenders a 0.5% fee on certain refinancing beginning in September, though the FHFA subsequently announced that the fee would not be introduced until December 2020. We are also particularly affected by the policies of the U.S. Federal Reserve, which influence interest rates and impact the size of the loan origination market. In response to the COVID-19 pandemic in 2020, the U.S. Federal Reserve announced programs to increase its purchase of certain MBS products mortgage-backed securities to sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses. The duration of these U.S. Federal Reserve programs is unknown at this time; a reversal of this policy could have a negative impact on the liquidity of MBS in the future.

Our geographic concentration could materially and adversely affect us if the economic conditions in our current markets should decline or we could face losses in concentrated areas due to natural disasters.

Based on data from CoreLogic, the California mortgage market represents approximately 20% of the entire market in the United States. For the nine months ended September 30, 2020, 46% of our originations in mortgage, reverse, and commercial loans (by UPB) were secured by properties in the state of California. As a result of this geographic concentration, our results of operations are largely dependent on economic conditions in this area. Decreases in real estate values could adversely affect the value of property used as collateral for loans to our borrowers and adverse changes in the economy caused by inflation, recession, unemployment, state or local real estate laws and regulations or other factors beyond our control may also continue to have a negative side effect on the ability of borrowers to make timely mortgage or other loan payments, which would have an adverse impact on earnings. Consequently, deterioration in economic conditions in California could have a material adverse impact on the quality of our loan portfolio, which could result in increased delinquencies, decreased interest income results as well as an adverse impact on loan loss experience with probable increased allowance for loan losses. Such deterioration also could disproportionately impact the demand for our products and services as compared to other lenders with more geographically diversified operations, and, accordingly, further negatively affect results of operations.

In addition, properties located in California may be more susceptible to certain natural disasters, such as wildfires and mudslides, and certain natural disasters not covered by standard hazard insurance, such as earthquakes. Even for properties located in an earthquake prone area, we and other lenders in the market area may not require earthquake insurance as a condition of making a loan. If there is a major earthquake, fire, mudslide, or other natural disaster, we face the risk that many of our borrowers may experience uninsured property losses, or sustained job interruption and/or loss which may materially impair their ability to meet the terms of their loan obligations. Any such natural disasters could materially increase our costs of servicing and also disrupt our ability to make loans in such region. See “—Our business is subject to the risks of earthquakes, fires, floods and other natural catastrophic events and to interruption by man-made issues such as strikes and civil unrest.”

We use estimates in measuring or determining the fair value of the majority of our assets and liabilities. If our estimates prove to be incorrect, we may be required to write down the value of these assets or write up the value of these liabilities, which could adversely affect our business, financial condition and results of operations.

We use internal financial models that utilize, wherever possible, market participant data to value certain of our assets and liabilities, including our mortgage loans held for investment, MSRs and HMBS related obligations for purposes of financial reporting. We also use models to estimate the change in value of loans held for investments due to market or model input assumptions as an addback to calculate Adjusted EBITDA. These models are complex and use asset-specific collateral data and market inputs for interest and discount rates. In addition, the models are complex because of the high number of variables that drive cash flows in each of the respective assets and related liabilities.

Our ability to measure and report our financial position and operating results is influenced by the need to estimate the impact or outcome of future events based on information available at the time of our financial

 

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statements. Further, some of our loans and financial assets held for investment do not trade in an active market with readily observable prices and therefore, their fair value is determined using valuation models that calculate the present value of estimated net future cash flows, using estimates of draws or advances, prepayment speeds, home price appreciation, forward interest rates, loss rates, discount rates, cost to service, float earnings, contractual servicing fee income and ancillary income and late fees.

Fair value determinations require many assumptions and complex analyses, especially to the extent there are not active markets for identical assets. Even if the general accuracy of our valuation models is validated, valuations are highly dependent upon the reasonableness of our assumptions and the predictability of the relationships that drive the results of the models. In particular, models are less dependable when the economic environment is outside of historical experience, as was the case from 2008-2010 or during the present COVID-19 pandemic.

If the assumptions we use in our models prove to be inaccurate, if market conditions change or if errors are found in our models, we may be required to write down the value of such assets or the value of certain of our assets may decrease, which could adversely affect our business, financial condition and results of operations. The fair value of the assets and liabilities related to our securitizations rely on forward rates of interest. Further, the durations of assets and liabilities may not match, resulting in sensitivities to specific portions of the forward curve for interest rates. If these assumptions prove to be wrong or the market for interest rates changes, we may be required to write down the net value of our securitizations.

We continue to monitor the markets and make necessary adjustments to our models and apply appropriate management judgment in the interpretation and adjustment of the results produced by our models. This process takes into account updated information while maintaining controlled processes for model updates, including model development, testing, independent validation and implementation. As a result of the time and resources, including technical and staffing resources, that are required to perform these processes effectively, it may not be possible to replace existing models quickly enough to ensure that they will always properly account for the impacts of recent information and actions.

Our business could suffer if we fail to attract, or retain, highly skilled employees, and changes in our executive management team may be disruptive to our business.

Our future success will depend on our ability to identify, hire, develop, motivate and retain highly qualified and skilled personnel for all areas of our organization. Trained and experienced personnel in the mortgage industry are in high demand and may be in short supply. Companies with which we compete may be able to offer more attractive terms of employment. In addition, we invest significant time and expense in training our employees, which increases their value to competitors who may seek to recruit them. We may not be able to attract, develop and maintain the skilled workforce necessary to operate our businesses, and labor expenses may increase as a result of a shortage in the supply of qualified personnel.

Additionally, the experience of our executive management team is a valuable asset to us. Our executive management team has significant experience in the financial services industry and would be difficult to replace. Disruptions in management continuity could result in operational or administrative inefficiencies and added costs, which could adversely impact our business, financial condition and results of operations, and may make recruiting for future management positions more difficult or costly. We cannot assure you that we will be able to attract and retain key personnel or members of our executive management team, which may impede our ability to implement our current strategy or take advantage of strategic acquisitions or other growth opportunities that may be presented to us, which could materially affect our business, financial condition and results of operations. Additionally, to the extent our personnel and members of our executive management team are impacted in significant numbers by the outbreak of pandemic or epidemic disease, such as the COVID-19 pandemic, our business and operating results may be negatively impacted.

 

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Our failure to implement and maintain effective internal control over financial reporting could require us to restate financial statements and cause investors to lose confidence in our reported financial information.

We are not subject to the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and therefore our management and independent certified public accounting firm have not performed an evaluation of our internal control over financial reporting in accordance with the provisions of Sarbanes-Oxley. As a public company following the Business Combination, we will be subject to the reporting requirements of the Exchange Act, Sarbanes-Oxley, and the rules and regulations of the applicable listing standards of the New York Stock Exchange (“NYSE”). We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on our personnel, systems and resources. Sarbanes-Oxley requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting.

We are continuing to improve our internal control over financial reporting. In order to develop, maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related and audit-related costs and significant management oversight. Our internal controls, including any new controls that we develop, may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business, results of operations and financial condition and could cause a decline in the trading price of our securities.

We may fail to identify or adequately assess the magnitude of certain liabilities, shortcomings or other circumstances prior to acquiring or investing in a company or business, including potential exposure to regulatory sanctions or liabilities resulting from an acquisition target’s previous activities, internal controls and security environment.

The risks associated with acquisitions include, among others:

 

   

failing to identify or adequately assess the magnitude of certain liabilities, shortcomings or other circumstances prior to acquiring or investing in a company, including potential exposure to regulatory sanctions or liabilities resulting from an acquisition target’s previous activities, internal controls and information security environment;

 

   

significant costs and expenses, including those related to retention payments, equity compensation, severance pay, intangible asset amortization and asset impairment charges, assumed litigation and other liabilities, and legal, accounting and financial advisory fees;

 

   

unanticipated issues in integrating information, management style, controls and procedures, servicing practices, communications and other systems including information technology systems;

 

   

unanticipated incompatibility of purchasing, logistics, marketing and administration methods;

 

   

failing to retain key employees or clients;

 

   

inaccuracy of valuation and/or operating assumptions supporting our purchase price; and

 

   

representation and warranty liability relating to a target’s previous lending activities.

Before making acquisitions, we conduct due diligence that we deem reasonable and appropriate based on the known facts and circumstances applicable to each acquisition, and we negotiate purchase agreements which we believe adequately protect us from undisclosed—and frequently, disclosed—existing liabilities. Nevertheless, we cannot be certain that the due diligence investigation that we carry out with respect to any acquisition opportunity will reveal or highlight all relevant facts that may be necessary or helpful in evaluating the target. As a result, we may fail to identify or adequately assess the magnitude of certain liabilities, shortcomings or other

 

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circumstances prior to acquiring, investing in or partnering with a company, including potential exposure to regulatory sanctions or liabilities resulting from an acquisition target’s previous activities, internal controls and security environment. For example, in December 2018, FAM agreed to pay $14.5 million to fully resolve allegations that its predecessor violated the False Claims Act by knowingly originating and underwriting deficient mortgage loans insured by HUD. All loans at issue were originated prior to our acquisition of FAM, and the seller indemnified us and paid the full settlement amount. Additionally, in March 2020, FAR signed a Settlement Agreement with the U.S. Department of Justice (“DOJ”) and HUD’s Office of Inspector General agreeing to pay $2.47 million to fully resolve allegations relating to loans originated by our predecessor company in 2007-2009. While this matter is subject to an indemnification claim against the seller, it illustrates that unanticipated liabilities associated with acquisitions or the inability to successfully collect on our indemnification claims could have a material adverse effect on our business.

Our capital investments in technology may not achieve anticipated returns.

Our business is becoming increasingly reliant on technology investments, and the returns on these investments are not always predictable. We are currently making, and will continue to make, significant technology investments to support our service offerings and to implement improvements to our customer-facing technology and information processes in order to more efficiently operate our business and remain competitive and relevant to our customers. These technology initiatives might not provide the anticipated benefits or may provide them on a delayed schedule or at a higher cost. Selecting the wrong technology, failing to adequately support development and implementation, or failing to adequately oversee third party service providers, could result in damage to our competitive position and adversely impact our business, financial condition and results of operations.

A security breach or a cyber-attack could adversely affect our results of operations and financial condition.

We collect and store certain personal and financial information from customers, employees, and other third parties. Security breaches or cyber-attacks involving our systems or facilities, or the systems or facilities of our service providers, could expose us to a risk of loss of personally identifiable information of customers, employees and third parties or other confidential, proprietary or competitively sensitive information, which could potentially have an adverse impact on our future business with current and potential customers, results of operations and financial condition.

We rely on encryption and other information security technologies licensed from third parties to provide security controls necessary to help in securing online transmission of confidential information pertaining to customers, employees and other aspects of our business. A failure in our information security technologies may result in a compromise or breach of the technology that we use to protect sensitive data. A party who is able to circumvent our security measures by methods such as hacking, fraud, trickery or other forms of deception could access sensitive personal and financial information or cause interruption in our operations. We may be required to expend capital and other resources to protect against such security breaches or cyber-attacks or to remediate problems caused by such breaches or attacks. Our security measures are designed to protect against security breaches and cyber-attacks, but our failure to prevent such security breaches and cyber-attacks could subject us to liability, decrease our profitability and damage our reputation. Even if a failure of, or interruption in, our systems or facilities is resolved timely or an attempted cyber incident or other security breach is successfully avoided or thwarted, it may require us to expend substantial resources or to take actions that could adversely affect customer satisfaction or behavior and expose us to reputational harm.

We could also be subjected to cyber-attacks that could result in slow performance and loss or temporary unavailability of our information systems. Information security risks have increased because of new technologies, the use of the internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions, and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists, and others. We may not be able to anticipate or implement effective

 

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preventative measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources.

The occurrence of any of these events could adversely affect our business, results of operations and financial condition.

Technology disruptions or failures, including a failure in our operational or security systems or infrastructure, or those of third parties with whom we do business, could disrupt our business, cause legal or reputational harm and adversely impact our results of operations and financial condition.

We are dependent on the secure, efficient, and uninterrupted operation of our technology infrastructure, including computer systems, related software applications and data centers, as well as those of certain third parties and affiliates. Our websites and computer/telecommunication networks must accommodate a high volume of traffic and deliver frequently updated information, the accuracy and timeliness of which is critical to our business. Our technology must be able to facilitate a loan application experience that equals or exceeds the experience provided by our competitors. We have or may in the future experience service disruptions and failures caused by system or software failure, fire, power loss, telecommunications failures, team member misconduct, human error, computer hackers, computer viruses and disabling devices, malicious or destructive code, denial of service or information, as well as natural disasters, terrorism, war, health pandemics and other similar events, and our disaster recovery planning may not be sufficient for all situations. This is especially applicable in the current response to the COVID-19 pandemic and the shift we have experienced in having most of our employees work from their homes for the time being, as our employees access our secure networks through their home networks. The implementation of technology changes and upgrades to maintain current and integrate new technology systems may also cause service interruptions. Any such disruption could interrupt or delay our ability to provide services to our clients and loan applicants, and could also impair the ability of third parties to provide critical services to us.

Our business is subject to the risks of earthquakes, fires, floods and other natural catastrophic events and to interruption by man-made issues such as strikes and civil unrest.

Our systems and operations are vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, strikes, health pandemics and similar events. Disease outbreaks have occurred in the past, and any prolonged occurrence of infectious disease or other adverse public health developments could have a material adverse effect on the macro economy and/or our business operations. We believe that our risks in this area are somewhat mitigated due to the lack of concentration of our employees or business in one building or metro area; however, this geographic diversity may make us more vulnerable to disruptions in technology. See “—Technology disruptions or failures, including a failure in our operational or security systems or infrastructure, or those of third parties with whom we do business, could disrupt our business, cause legal or reputational harm and adversely impact our results of operations and financial condition.” In addition, strikes and other geopolitical unrest could cause disruptions in our business and lead to interruptions, delays or loss of critical data. We may not have sufficient protection or recovery plans in certain circumstances, and our business interruption insurance may be insufficient to compensate us for losses that may occur.

These types of catastrophic events may also affect loan origination which have been locked and loans which we are holding for sale or investment. Such events could also affect our loan servicing costs, increase our recoverable and our non-recoverable servicing advances, increase servicing defaults and negatively affect the value of our MSRs. We may also incur losses when a borrower passes away prior to completing repairs following a natural disaster, because we are required to reduce our claim to FHA by the unrepaired damage amount. Mortgagee properties securing loans which we make are required to be covered by hazard insurance customary to the area in which the property is located. In certain areas, such as California, earthquake insurance is not required by HUD or other lenders generally. There could also be circumstances where insurance premiums have not been timely paid, or the insurance coverage otherwise fails. In these events, we could suffer losses. For loans which

 

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have been sold, we would be exposed to such losses generally only if we have breached a representation or warranty under the related purchase and sale agreement. However, in cases where we have retained some credit risk, we could suffer losses. In addition, catastrophic events often lead to increased delinquencies, which create additional risk for us. For example, FAR has suffered losses and faced increased costs following a series of natural disasters in Puerto Rico, including Hurricane Maria in 2017. See “—A significant increase in delinquencies on the mortgage loans we originate could have a material impact on our revenues, expenses and liquidity and on the valuation of our MSR portfolio.”

Climate change increases the risk/severity of weather-related natural disasters which can lead to more frequent and higher losses, lack of affordable insurance for borrowers, uninsured flood losses (the National Flood Insurance Program caps at $250,000), and longer timelines to liquidate or assign loans to HUD.

Our risk management efforts may not be effective.

We could incur substantial losses and our business operations could be disrupted if we are unable to

effectively identify, manage, monitor, and mitigate financial risks, such as credit risk, interest rate risk, prepayment risk, liquidity risk, and other market-related risks, as well as operational and legal risks related to our business, assets, and liabilities. We are also subject to various laws, regulations and rules that are not industry specific, including employment laws related to employee hiring, termination, and pay practices, health and safety laws, environmental laws and other federal, state and local laws, regulations and rules in the jurisdictions in which we operate. Our risk management policies, procedures, and techniques may not be sufficient to identify all of the risks to which we are exposed, mitigate the risks we have identified, or identify additional risks to which we may become subject in the future. Expansion of our business activities may also result in our being exposed to risks to which we have not previously been exposed or may increase our exposure to certain types of risks, and we may not effectively identify, manage, monitor, and mitigate these risks as our business activities change or increase.

Risks Related to Our Lending Businesses

If we are unable to obtain sufficient capital to meet the financing requirements of our business, or if we fail to comply with our debt agreements, our business, financing activities, financial condition and results of operations will be adversely affected.

We require significant leverage in order to fund mortgage originations, make servicing advances and finance our investments. Accordingly, our ability to fund our mortgage originations, to make servicing advances and to continue investments depends on our ability to secure financing on acceptable terms and to renew and/or replace existing financings as they expire. These financings may not be available on acceptable terms or at all. If we are unable to obtain these financings, we may need to raise the funds we require in the capital markets or through other means, any of which may increase our cost of funds.

As of September 30, 2020, we have entered into 33 warehouse lines of credit, MSR lines of credit, and other secured lines of credit, with an aggregate of $5,165 million in borrowing capacity. See “FoA Management’s Discussion and Analysis of Financial Condition and Results of Operations—Summary of Certain Indebtedness.” These financing facilities typically contain, and we expect that other financing facilities that we may enter into in the future will typically contain, covenants that, among other things, require us to satisfy minimum tangible or adjusted tangible net worth, maximum leverage ratio of total liabilities (which may include off-balance sheet liabilities) or indebtedness to tangible or adjusted tangible net worth, minimum liquidity or minimum liquid assets and minimum net income or pre-tax net income. As a result of market disruptions and fair value accounting adjustments taken in March 2020 resulting from the COVID-19 pandemic, our commercial loan origination subsidiary was in violation of its first and second quarter 2020 profitability covenants with two of its warehouse lenders. We received waivers of these covenants violations from both lenders as well as amendments to profitability covenants for the remaining two quarters of 2020 but there is no assurance that lenders would

 

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provide waivers for any future covenant violations. We were not in compliance with the April 2020 $145 million commercial warehouse facility’s profitability covenant for the quarter ended September 30, 2020, and we have received a waiver from the lender in connection therewith effective as of September 30, 2020. As of September 30, 2020, we were in compliance with all other financial covenants. If we fail to meet or satisfy any of these covenants, we would be in default under these agreements and our lenders could elect to declare all amounts outstanding under the agreements to be immediately due and payable, enforce their respective security interests under such agreements and restrict our ability to make additional borrowings. In addition, our financing agreements may contain other events of default and cross-default provisions, so that if a default occurs under any one agreement, the lenders under certain other agreements could also declare a default. Our financings also have mark-to-market risk pursuant to which our lending counterparties have the right to value the related collateral. In the event the market value of the collateral decreases (typically as determined by the related lender) and a borrowing base deficiency exists, the related lender can require us to prepay the debt or require us to post additional margin as collateral at any time during the term of the related agreement. There can be no assurance that we will be in compliance with our covenants or other requirements under our financing facilities in the future.

We are generally required to renew a significant portion of our debt financing arrangements each year, which exposes us to refinancing and interest rate risks. Furthermore, our counterparties are not required to renew or extend our repurchase agreements or other financing agreements upon the expiration of their stated terms. Our ability to refinance existing debt (including refinancing existing securitization debt) and borrow additional funds is affected by a variety of factors including:

 

   

the available liquidity in the credit markets;

 

   

prevailing interest rates;

 

   

an event of default, a negative ratings action by a rating agency and limitations imposed on us under the agreements governing our current debt that contain restrictive covenants and borrowing conditions that may limit our ability to raise additional debt;

 

   

the strength of the lenders from which we borrow and the amount of borrowing such lenders will or may legally permit to our various businesses taken a whole; and

 

   

limitations on borrowings imposed by the amount of eligible collateral pledged, which may be less than the borrowing capacity of the facility.

In the event that any of our loan funding facilities is terminated or is not renewed, or if the principal amount that may be drawn under our funding agreements that provide for immediate funding at closing were to significantly decrease, we may be unable to find replacement financing on commercially favorable terms, or at all. This could have a material adverse effect on our business, liquidity, financial condition, cash flows and results of operations. Further, if we are unable to refinance or obtain additional funds for borrowing (including through the securitization markets), our ability to maintain or grow our business could be limited.

If we are unable to obtain sufficient capital on acceptable terms for any of the foregoing reasons, this could adversely affect our business, financing activities, financial condition and results of operations.

A disruption in the secondary home loan market, including the MBS market, could have a detrimental effect on our business.

Demand in the secondary market and our ability to complete the sale or securitization of our home loans depends on a number of factors, many of which are beyond our control, including general economic conditions, general conditions in the banking system, the willingness of lenders to provide financing for home loans, the willingness of investors to purchase home loans and MBS, and changes in regulatory requirements. Disruptions in the general MBS market may occur, including, but not limited to in response to the COVID-19 pandemic. Any

 

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significant disruption or period of illiquidity in the general MBS market could directly affect our liquidity because no existing alternative secondary market would likely be able to accommodate on a timely basis the volume of loans that we typically sell in any given period. Accordingly, if the MBS market experiences a period of illiquidity, we might be prevented from selling the loans that we produce into the secondary market in a timely manner or at favorable prices, which could be detrimental to our business, including, but not limited to, increasing our cost of funds due to extended dwell time on our warehouse lines, and a negative impact on our liquidity due to write-downs on the value of the loans held on our balance sheet, and the application of large haircuts due to longer dwell times.

FAR’s status as an approved non-supervised FHA mortgagee and an approved Ginnie Mae issuer, and FAM’s status as an approved seller-servicer for Fannie Mae and Freddie Mac, an approved Ginnie Mae issuer and an approved non-supervised FHA and VA mortgagee, are subject to compliance with each of their respective guidelines and other conditions they may impose, and the failure to meet such guidelines and conditions could have a material adverse effect on our overall business and our financial position, results of operations and cash flows.

FAR’s status as an approved non-supervised FHA mortgagee and an approved Ginnie Mae issuer and FAM’s status as an approved seller-servicer for Fannie Mae and Freddie Mac, an approved and an approved non-supervised FHA and VA mortgagee, are subject to compliance with each agency’s respective regulations, guides, handbooks, mortgagee letters and all participants’ memoranda. As a Ginnie Mae issuer, FAR must meet certain minimum capital requirements, including, but not limited to: (i) Ginnie Mae’s requirement that non-depository institutions hold equity capital in the amount of at least 6% of total assets, which technical non-compliance was the result of a change in accounting for HMBS transactions, and (ii) Fannie Mae’s minimum acceptable capital requirement of a 6% minimum tangible capital ratio. Any loss of FAR’s status as a non-supervised FHA mortgagee or an approved Ginnie Mae issuer, of FAM’s status as an approved seller-servicer for Fannie Mae and Freddie Mac, an approved and an approved non-supervised FHA and VA mortgagee, could have a material adverse effect on our overall business and our financial position, results of operations and cash flows.

We are required to follow specific guidelines and eligibility standards that impact the way we service and originate GSE and U.S. government agency loans, including guidelines and standards with respect to:

 

   

credit standards for mortgage loans;

 

   

our staffing levels and other servicing practices;

 

   

the servicing and ancillary fees that we may charge;

 

   

our modification standards and procedures;

 

   

the amount of reimbursable and non-reimbursable advances that we may make; and

 

   

the types of loan products that are eligible for sale or securitization.

These guidelines provide the GSEs and other government agencies with the ability to provide monetary incentives for loan servicers that perform according to their standards for origination and servicing, and to assess penalties for those that do not. At the direction of the FHFA, Fannie Mae and Freddie Mac have aligned their guidelines for servicing delinquent mortgages, which could result in monetary incentives for servicers that perform well and to assess compensatory penalties against servicers in connection with the failure to meet specified timelines relating to delinquent loans and foreclosure proceedings, and other breaches of servicing obligations. We generally cannot negotiate these terms with the agencies, and they are subject to change at any time without our specific consent. A significant change in these guidelines that decreases the fees we charge or requires us to expend additional resources to provide mortgage services could decrease our revenues or increase our costs.

 

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In addition, changes in the nature or extent of the guarantees provided by Fannie Mae, Freddie Mac, Ginnie Mae, the USDA or the VA, or the insurance provided by the FHA, or coverage provided by private mortgage insurers, could also have broad adverse market implications. Any future increases in guarantee fees by the agencies, the VA or USDA, or increases in the premiums we are required to pay to the FHA or private mortgage insurers for mortgage insurance, could increase mortgage origination costs and insurance premiums for our clients. These industry changes could negatively affect demand for our mortgage services and consequently our origination volume, which could be detrimental to our business. We cannot predict whether the impact of any proposals to move Fannie Mae and Freddie Mac out of conservatorship would require them to increase their fees. For example, on August 12, 2020, Freddie Mac announced that as a result of risk management and loss forecasting precipitated by COVID-19 related economic and market uncertainty, they were introducing a new Market Condition Credit Fee in Price, effective for mortgages with settlement dates on or after September 1, 2020. This 50 basis point Market Condition Credit Fee in Price (the “Credit Fee”) will be assessed for cash-out and no cash-out refinance mortgages except for Construction Conversion Mortgages. On August 27, 2020, Freddie Mae announced that it was delaying the implementation of the Credit Fee until settlements occurring on or after December 1, 2020. On August 12, 2020, Fannie Mae announced that in light of market and economic uncertainty resulting in higher risk and costs incurred by Fannie Mae, they are implementing a new loan-level price adjustment (“LLPA”) equal to 50 basis points for most whole loans purchased on or after September 1, 2020, and loans delivered into MBS pools with issue dates on or after September 1, 2020. On August 27, 2020, Fannie Mae delayed the implementation of the LLPA to loans delivered on or after December 1, 2020. Implementation of the LLPA and the Credit Fee will increase the price of GSE loans, and could result in decreased borrower demand for GSE loans.

Our loan origination and servicing revenues are highly dependent on macroeconomic and U.S. residential real estate market conditions.

Our success depends largely on the health of the U.S. residential real estate industry, which is seasonal, cyclical, and affected by changes in general economic conditions beyond our control. Economic factors such as increased interest rates, slow economic growth or recessionary conditions, the pace of home price appreciation or the lack of it, changes in household debt levels, and increased unemployment or stagnant or declining wages affect our clients’ ability to purchase homes or to refinance. National or global events affect macroeconomic conditions. Weak or significant deterioration in economic conditions reduce the amount of disposable income consumers have, which in turn reduces consumer spending and the willingness of qualified potential clients to take out loans. Such economic factors affect loan origination volume. Excessive home building or historically high foreclosure rates resulting in an oversupply of housing in a particular area may depress to value of homes, potentially increasing the risk of loss on defaulted mortgage loans.

Recently, financial markets have experienced significant volatility as a result of the effects of the COVID-19 pandemic. In the second quarter of 2020, many state and local jurisdictions enacted measures requiring closure of businesses and other economically restrictive efforts to combat the COVID-19 pandemic. The federal government initially responded by adopting a series of measures designed to protect the economy; however, many of the earlier benefits have been exhausted. The full impact of the COVID-19 on the economy may not be realized for months, or even years. There may be a significant increase in the rate and number of mortgage payment delinquencies, and house sales, home prices, and multifamily fundamentals may be adversely affected, leading to an overall material adverse decrease on our mortgage origination activities. See “—The COVID-19 pandemic poses unique challenges to our business and the effects of the pandemic could adversely impact our ability to originate mortgages, manage our portfolio of assets and provide lender services; our servicing operations; counterparties; liquidity and employees.”

Furthermore, several state and local governments in the United States are experiencing, and may continue to experience, budgetary strain, which will be exacerbated by the impact of COVID-19. One or more states or significant local governments could default on their debt or seek relief from their debt under the U.S. bankruptcy code or by agreement with their creditors. Any or all of the circumstances described above may lead to further volatility in or disruption of the credit markets at any time and adversely affect our financial condition.

 

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Any uncertainty or deterioration in market conditions, including changes caused by COVID-19, that leads to a decrease in loan originations will result in lower revenue on loans sold into the secondary market. Lower loan origination volumes generally place downward pressure on margins, thus compounding the effect of the deteriorating market conditions. Such events could be detrimental to our business. Moreover, any deterioration in market conditions that leads to an increase in loan delinquencies will result in lower revenue for loans we service for the GSEs and Ginnie Mae because we collect servicing fees from them only for performing loans, and may delay collection of servicing fees from some securitizations. Additionally, it is not clear if we will be able to collect such ancillary fees for delinquencies relating to the COVID-19 pandemic as the federal and state legislation and regulations responding to the COVID-19 pandemic continue to evolve.

Additionally, origination of purchase money loans is seasonal. Historically, our purchase money loan origination activity is larger in the second and third quarters of the year, as home buyers tend to purchase their homes during the spring and summer in order to move to a new home before the start of the school year. As a result, our loan origination revenues vary from quarter to quarter.

Increased delinquencies may also increase the cost of servicing the loans and may result in a negative MSR if the cost of servicing the loans exceeds the servicing fees. The decreased cash flow from lower servicing fees could decrease the estimated value of our MSRs, resulting in recognition of losses when we write down those values. In addition, an increase in delinquencies lowers the interest income we receive on cash held in collection and other accounts and increases our obligation to advance certain principal, interest, tax and insurance obligations owed by the delinquent mortgage loan borrower

Any of the circumstances described above, alone or in combination, may lead to volatility in or disruption of the credit markets at any time and may have a detrimental effect on our business.

We face competition that could adversely affect us and we may not be able to maintain or grow the volumes in our loan origination businesses.

We compete with many third-party businesses in originating forward, reverse and commercial mortgages and providing certain lender services. Some of our competitors may have more name recognition and greater financial and other resources than we have, including better access to capital. Competitors who originate mortgage loans to retain for investment may have greater flexibility in approving loans.

In our traditional mortgage business, we operate at a competitive disadvantage to federally chartered depository institutions because they enjoy federal preemption. As a result, they conduct their business under relatively uniform U.S. federal rules and standards and are not subject licensing and certain consumer protection laws of the states in which they do business. Unlike our federally chartered competitors, we are generally subject to all state and local laws applicable to lenders in each jurisdiction in which we originate and service loans. Depository institutions also enjoy regular access to very inexpensive capital. To compete effectively, we must maintain a high level of operational, technological and managerial expertise, as well as access to capital at a competitive cost.

We cannot assure you that we will remain competitive with other originators in the future, a number of whom also compete with us in obtaining financing. In addition, other competitors with similar objectives to our own may be organized in the future and may compete with us in one or more of our business lines. These competitors may be significantly larger than us, may have access to greater capital and other resources or may have other advantages. Furthermore, some competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations.

 

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Our hedging strategies may not be successful in mitigating our risks associated with changes in interest rates.

Our profitability is directly affected by changes in interest rates. The market value of closed loans held for sale and interest rate locks generally change along with interest rates. The value of such assets moves opposite of interest rate changes. For example, as interest rates rise, the value of existing mortgage assets falls.

We employ various economic hedging strategies to mitigate the interest rate and the anticipated loan financing probability or “pull-through risk” inherent in such mortgage assets. Our use of these hedge instruments may expose us to counterparty risk as they are not traded on regulated exchanges or guaranteed by an exchange or its clearinghouse and, consequently, there may not be the same level of protections with respect to margin requirements and positions and other requirements designed to protect both us and our counterparties. Furthermore, the enforceability of agreements underlying hedging transactions may depend on compliance with applicable statutory, commodity and other regulatory requirements and, depending on the domicile of the counterparty, applicable international requirements. Consequently, if a counterparty fails to perform under a derivative agreement we could incur a significant loss.

Our hedge instruments are accounted for as free-standing derivatives and are included on our consolidated balance sheet at fair market value. Our operating results could be negatively affected because the losses on the hedge instruments we enter into may not be offset by a change in the fair value of the related hedged transaction.

Our hedging strategies also require us to provide cash margin to our hedging counterparties from time to time. The Financial Industry Regulatory Authority, Inc. requires us to provide daily cash margin to (or receive daily cash margin from, depending on the daily value of related MBS) our hedging counterparties from time to time. The collection of daily margin between us and our hedging counterparties could, under certain MBS market conditions, adversely affect our short-term liquidity and cash-on-hand. Additionally, our hedge instruments may expose us to counterparty risk—the possibility that a loss may occur from the failure of another party to perform in accordance with the terms of the contract, which loss exceeds the value of existing collateral, if any.

A portion of our assets consist of MSRs, which may fluctuate in value. Although we do not currently, we may in the future hedge a portion of the risks associated with such fluctuations. There can be no assurance such hedges would adequately protect us from a decline in the value of the MSRs we own, or that a hedging strategy utilized by us with respect to our MSRs would be well-designed or properly executed to adequately address such fluctuations. A decline in the value of MSRs may have a detrimental effect on our business.

Our hedging activities in the future may include entering into interest rate lock commitments, forward loan sale commitments, best efforts commitments, forward MBS commitments, interest rate swaps, future contracts and/or other tools and strategies. These hedging decisions will be determined in light of the facts and circumstances existing at the time and may differ from our current hedging strategy. These hedging strategies may be less effective than our current hedging strategies in mitigating the risks described above, which could be detrimental to our business and financial condition.

We have third-party secondary marketing risks and counterparty risks (including mortgage loan brokers) which could have a material adverse effect on our business, liquidity, financial condition and results of operation.

Secondary Marketing Risks: We provide representations and warranties to purchasers and insurers of the loans and in connection with our securitization transactions, as well as indemnification for losses resulting from breaches of representations and warranties. In the event of a breach, we may be required to repurchase a mortgage loan or indemnify the purchaser, and any subsequent loss on the mortgage loan may be borne by us. While our contracts vary, they generally contain broad representations and warranties, including but not limited to representations regarding loan quality and underwriting (including compliant appraisals, calculations of income and indebtedness, and occupancy of the mortgaged property); securing of adequate mortgage and title

 

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insurance within a certain period after closing; and compliance with regulatory requirements. We may also be required to repurchase loans if the borrower fails to make certain loan payments due to the purchaser, typically for the first 1-3 payments due to purchaser. These obligations are affected by factors both internal and external in nature, including, the volume of loan sales and securitizations, to whom the loans are sold and the terms of our purchase and sale agreements, the parties to whom our purchasers sell the loans subsequently and the terms of those agreements, actual losses on loans which have breached representations and warranties, our success rate at curing deficiencies or appealing repurchase demands, our ability to recover any losses from third parties, the overall economic condition in the housing market, the economic condition of borrowers, the political environment at investor agencies and the overall U.S. and world economies. Many of the factors are beyond our control and may lead to judgments that are susceptible to change. See “—A significant increase in delinquencies on the mortgage loans we originate could have a material impact on our revenues, expenses and liquidity and on the valuation of our MSR portfolio.”

When engaging in securitization transactions, we also prepare marketing and disclosure documentation, including term sheets, offering documents, and prospectuses, that include disclosures regarding the securitization transactions and the assets being securitized. If our marketing and disclosure documentation are alleged or found to contain material inaccuracies or omissions, we may be liable under federal and state securities laws (or under other laws) for damages to third parties that invest in these securitization transactions, including in circumstances where we relied on a third party in preparing accurate disclosures, or we may incur other expenses and costs in connection with disputing these allegations or settling claims. We have also engaged in selling or contributing loans to third parties who, in turn, have securitized those loans. In these circumstances, we have in the past and may in the future also prepare marketing and disclosure documentation, including documentation that is included in term sheets, offering documents, and prospectuses relating to those securitization transactions. We could be liable under federal and state securities laws (or under other laws) or contractually for damages to third parties that invest in these securitization transactions, including liability for disclosures prepared by third parties or with respect to loans that we did not sell or contribute to the securitization.

Additionally, we typically retain various third-party service providers when we engage in securitization transactions, including underwriters or initial purchasers, trustees, administrative and paying agents, and custodians, among others. We frequently contractually agree to indemnify these service providers against various claims and losses they may suffer in connection with the provision of services to us and/or the securitization trust. To the extent any of these service providers are liable for damages to third parties that have invested in these securitization transactions, we may incur costs and expenses as a result of these indemnities.

Third Party Loan Broker Risk: The brokers through whom we originate have parallel and separate legal obligations to which they are subject. While these laws may not explicitly hold the originating lenders responsible for the legal violations of such brokers, U.S. federal and state agencies could impose such liability. The DOJ, through its use of a disparate impact theory under the FHA, is actively holding home loan lenders responsible for the pricing practices of brokers, alleging that the lender is directly responsible for the total fees and charges paid by the borrower even if the lender neither dictated what the broker could charge nor kept the money for its own account. In addition, under TILA, and the TILA-RESPA Integrated Disclosure rule (“TRID”), we may be held responsible for improper disclosures made to clients by brokers. We may be subject to claims for fines or other penalties based upon the conduct of the independent home loan brokers with which we do business.

Counterparty Credit Risks: We are exposed to counterparty credit risk in the event of non-performance by counterparties to various agreements, including our lenders, servicers and hedge counterparties. Although certain warehouse and other financing facilities lines are committed, we may experience a disruption in operations due to a lender withholding a funding of a borrowing requested on the respective financing facility.

Any of the above could adversely affect our business, liquidity, financial condition and results of operations.

 

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We have risks related to our Subservicers which could have a material adverse effect on our business, liquidity, financial condition and results of operation.

Each of our lending businesses acts as named servicer with respect to MSRs that we retain or acquire or otherwise for loans that we are required to service (including as an issuer of Ginnie Mae securities) and in each such case, the related business contracts with various third parties (collectively, the “Subservicers”) for the subservicing of the loans. In addition, we engage Subservicers to service loans which we hold on our balance sheet. These subservicing relationships present a number of risks to us. FAR has contracted with Compu-Link Corporation (d/b/a Celink), a Michigan corporation (“Celink”), as a subservicer to perform reverse mortgage servicing functions on our behalf. FAM has contracted with Loan Care, LLC, a Virginia limited liability company, and ServiceMac, LLC (the “Traditional Servicers”) as subservicers to perform traditional mortgage servicing functions on our behalf. Loan Care, LLC currently services the majority of our traditional servicing book, but we anticipate using both of them in the future. FACo has contracted with Servis One, Inc. d/b/a BSI Financial Services, Specialized Loan Servicing LLC and Fay Servicing, LLC, each, a Delaware limited liability company (the “Commercial Servicers”), as subservicers to perform commercial mortgage servicing functions. We agree to indemnify our Subservicers for any losses resulting from their subservicing of the mortgage loans in accordance with the related subservicing agreement (so long as such loss does result from a breach of the related Subservicer under the related subservicing agreement). To the extent that we do not have a right to reimburse ourselves for the same amounts under our servicing agreements or if there are insufficient collections in respect of the mortgage loans for such reimbursements, we may face losses in our servicing business.

We rely on Celink to subservice all of our reverse mortgage portfolio, including the HECM portfolio. Failure by Celink to meet the requirements of the Ginnie Mae servicing guidelines can result in the assessment of fines and loss of reimbursement of loan related advances, expenses, interest and servicing fees. Moreover, if Celink is not vigilant in encouraging borrowers to make their real estate tax and property insurance premium payments, the borrowers may be less likely to make these payments, which could result in a higher frequency of default for failure to make these payments. If Celink misses HUD and Ginnie Mae timelines for liquidating non-performing assets, loss severities may be higher than originally anticipated, and we may be subject to penalties by HUD and Ginnie Mae, including curtailment of interest. If fines or any amounts lost are not recovered from Celink, such events frequently lead to the eventual realization of a loss by us.

In our reverse mortgage business, we believe the number of viable subservicers with the requisite Ginnie Mae authority and experience is limited. Unless more subservicers enter this space, the quality of subservicing practices may deteriorate, and we could have limited options in the event of subservicer failure. The failure of a subservicer to effectively service the HECM and proprietary jumbo reverse mortgage loans we own or the loans underlying the Agency HMBS and non-Agency HMBS we issue and hold in our portfolio or sell to third parties could have a material and adverse effect on our business and our financial condition.

Failure by the Traditional Servicers to meet stipulations of the Fannie Mae and Freddie Mac servicing guidelines, when applicable, including forbearance requirements issued as a result of COVID-19, can result in the assessment of fines and loss of reimbursement of loan related advances, expenses, interest and servicing fees. The Traditional Servicers have obligations to promptly apply payments received from borrowers, to properly manage and reconcile tax and insurance escrow accounts, and to comply with obligations to pay taxes and insurance in a timely manner for escrowed accounts. If the Traditional Servicers are not vigilant in encouraging borrowers to make their monthly payments or to keep their hazard insurance premiums or property taxes current, the borrowers may be less likely to make these payments, which could result in a higher frequency of default. If the Traditional Servicers take longer to mitigate losses or liquidate non-performing assets, loss severities may be higher than originally anticipated. If fines or any amounts lost are not recovered from Traditional Servicers, such events frequently lead to the eventual realization of a loss by us.

Failure by the Commercial Servicers to meet stipulations of the servicing and securitization agreements can result in the loss of reimbursement of loan related advances, expenses, interest and servicing fees.

 

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If any of our Subservicers fails to perform its duties pursuant to its related subservicing agreement, our business acting as the named servicer (or for balance sheet loans, the owner of the loan) will be required to perform the servicing functions previously performed by such subservicer or cause another subservicer to perform such duties, to the extent required pursuant to the related servicing agreement. The process of transitioning the functions performed by our Subservicer to a successor subservicer could result in delays in collections and other functions performed by our Subservicer and expose our business to breach of contract and indemnity claims relating to its servicing obligations. Such delays may also adversely affect the value of the residual interests that we own in our securitizations and loans. If any of our Subservicers experiences financial difficulties, including as a result of a bankruptcy, it may not be able to perform its subservicing duties under the related subservicing agreement. There can be no assurance that each of our Subservicers will remain solvent or that such Subservicer will not file for bankruptcy at any time. Any such financial difficulties, insolvency or bankruptcy could have a negative impact on our business.

The recovery process against a Subservicer can be prolonged and is subject to our meeting minimum loss deductibles under the indemnification provisions in our agreements with the Subservicer. The time may be extended as the Subservicer has the right to review underlying loss events and our request for indemnification. The amounts ultimately recovered from the Subservicers may differ from our estimated recoveries recorded based on the Subservicers’ interpretation of responsibility for loss, which could lead to our realization of additional losses. We are also subject to counterparty risk for collection of amounts which may be owed to us by a Subservicer. For example, Reverse Mortgage Solutions (“RMS”), who previously serviced a significant amount of loans for FAR, filed for Chapter 11 bankruptcy protection on February 11, 2019. RMS subsequently rejected its subservicing agreement with FAR. FAR has filed a claim in the RMS bankruptcy for losses and potential future losses resulting from RMS’ failure to service loans in accordance with the terms of the subservicing agreement, and while a recovery is anticipated, it will be far less than the estimated current and future losses.

Our Subservicers may also be required to be licensed under applicable state law, and they are subject to various federal and state laws and regulations, including regulation by the CFPB. (See “Legal and Regulatory Risks—We operate in heavily regulated industries, and our mortgage loan origination and servicing activities (including lender services) expose us to risks of noncompliance with an increasing and inconsistent body of complex laws and regulations at the U.S. federal, state and local levels.”) Failure of the Subservicers to comply with applicable laws and regulations may expose them to fines, responsibility for refunds to borrowers, loss of licenses needed to conduct their business, and third party litigation, all of which may adversely impact the Subservicers’ ability to perform their responsibilities under the related subservicing agreement. Such occurrences may also impact their financial condition and ability to provide indemnification as agreed in our subservicing agreement. In addition, regulators or third parties may take the position that we were responsible for the subservicers’ actions or failures to act; in that event, we might be exposed to the same risks as the subservicers.

Reputational harm, including as a result of our actual or alleged conduct or public opinion, could adversely affect our business, results of operations, and financial condition.

Reputational risk is inherent in our business. Negative public opinion can result from our actual or alleged conduct in any number of activities, including loan origination, loan servicing, debt collection practices, corporate governance and other activities. Negative public opinion can also result from actions taken by government regulators and community organizations in response to our activities, from consumer complaints, including in the CFPB complaints database, from litigation filed against us, and from media coverage, whether accurate or not.

The reverse mortgage origination business as a whole had reputational issues arising after 2007, when home values were decreasing nationwide, and the only products available to consumers were HECM products. Prior to 2015, HECM products were not underwritten to confirm the ability of borrowers to pay taxes and insurance; while the proceeds provided initial cash benefits to the borrowers, if they ultimately were unable or unwilling to pay property taxes and insurance, foreclosures for default would result, and eventually the reverse mortgage

 

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borrowers—who by definition, were 62 or older—would be evicted. In addition, for various reasons, borrowers would sometimes not have their spouses on the reverse mortgage, with the result that when the borrower died, the non-borrowing spouse would be facing a due-and-payable balance which they often were not able to refinance. Because absent an event of default, reverse mortgages only become due and payable upon the death of the borrower, and the estate or heirs may not be engaged in the post-termination resolution of the reverse mortgage, reverse mortgages end with foreclosure more often than forward mortgages. Those public filings are aggregated and come under scrutiny by agenda-driven groups who may not understand that the borrower is not being evicted and simply believe they have spotted a pattern of foreclosure for this type of loan. These issues led to adverse publicity in the reverse mortgage industry. The issuance of specific regulations and guidance requiring that borrowers be clearly informed regarding their obligations to pay taxes and insurance during the application process and the requirement of “financial assessment” by HUD starting in 2015 have greatly decreased the risks of default due to failure to pay taxes and insurance. HUD also provided clear guidance regarding both underwriting and servicing of loans involving non-borrower spouses, significantly decreasing the risks of those situations. FAR’s policy is to follow all applicable marketing guidance and regulations. FAR requires pre-application HUD counseling for non-agency reverse mortgages, and also underwrites these loans for the borrower’s willingness and ability to pay property taxes and hazard insurance premiums. In addition, for non-agency reverse mortgages, FAR has more latitude to employ a variety of loss mitigation solutions to avoid foreclosure when the borrower is still living in the home. Nevertheless, there may be situations where foreclosure is the only resolution to the loan. Foreclosures where the reverse mortgage borrower is still living in the home—or even when the borrower is no longer occupying the home—may lead to increased reputational risk. In addition, negative publicity due to actions by other reverse mortgage lenders could cause regulatory focus on our business as well.

We have historically sold our forward loans as whole loans, servicing released, or sold our mortgage servicing rights in a separate sale or co-issue at the time the loan is sold. As a result of COVID-19 and the resulting effect on the market for MSR, we started to retain forward servicing in March 2020. Going forward, we plan to sell the MSRs but retain the subservicing obligations. We may also retain servicing on our retail originations. We plan to service the loans in our name, using a subservicer for many of the tasks associated with servicing. If there are significant delinquencies in the forward mortgage portfolio which we service, there are likely to be increased numbers of loans upon which we will be required to foreclose. Larger numbers of foreclosures will increase reputational risk in the forward mortgage area.

Large-scale natural or man-made disasters may lead to further reputational risk in the servicing area. Mortgage properties are generally required to be covered by hazard insurance in an amount sufficient to cover repairs to or replacement of the residence. However, when a large scale disaster occurs, such as Hurricanes Harvey and Maria in 2017, the demand for inspectors, appraisers, contractors and building supplies may exceed availability, insurers and mortgage servicers may be overwhelmed with inquiries, mail service and other communications channels may be disrupted, borrowers may suffer loss of employment and unexpected expenses which cause them to default on payments and/or renders them unable to pay deductibles required under the insurance policies, and widespread casualties may also affect the ability of borrowers or others who are needed to effect the process of repair or reconstruction or to execute documents. Loan originations may also be disrupted, as lenders are required to reinspect properties which may have been affected by the disaster prior to funding. In these situations, borrowers and others in the community may believe that servicers and originators are penalizing them for being the victims of the initial disaster and making it harder for them to recover, potentially causing reputational damage to the us.

Moreover, the proliferation of social media websites as well as the personal use of social media by our employees and others, including personal blogs and social network profiles, also may increase the risk that negative, inappropriate or unauthorized information may be posted or released publicly that could harm our reputation or have other negative consequences, including as a result of our employees interacting with our customers in an unauthorized manner in various social media outlets.

 

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In addition, our ability to attract and retain clients is highly dependent upon the external perceptions of our level of service, trustworthiness, business practices, financial condition and other subjective qualities. Negative perceptions or publicity regarding these matters—even if related to seemingly isolated incidents, or even if related to practices not specific to the origination or servicing of loans, such as debt collection—could erode trust and confidence and damage our reputation among existing and potential clients. In turn, this could decrease the demand for our products, increase regulatory scrutiny and detrimentally effect our business, financial condition and results of operations.

Our decentralized forward mortgage origination branches operate under multiple brand names, which may put us at a competitive disadvantage compared with nationally branded competitors.

Our decentralized forward mortgage origination branches operate under multiple brand names. Many of these branches have been operating locally under their branch name for many years, and they have built brand recognition on a local basis. However, a number of our forward mortgage origination competitors have invested considerable resources to build nationally recognized brands. Our competitors that operate under a national brand may have a competitive advantage due to name recognition. If we are unable to maintain and/or increase our name recognition under our multiple brand names in the forward mortgage origination market, we may experience adverse effects to our customer retention and market share.

A significant increase in delinquencies on the mortgage loans we originate could have a material impact on our revenues, expenses and liquidity and on the valuation of our MSR portfolio.

An increase in delinquency rates could adversely affect our business, financial condition and results of operations.

 

   

Revenue. An increase in delinquencies will result in lower revenue for loans we service for GSEs and Ginnie Mae through Subservicers because we only collect servicing fees from GSEs and Ginnie Mae for performing loans. In addition, an increase in delinquencies reduces cash held in collections and other accounts and lowers the interest income that we receive.

 

   

Expenses. An increase in delinquencies will result in a higher cost to service such loans due to the increased time and effort required to collect payments from delinquent borrowers and an increase in interest expense as a result of an increase in our advancing obligations.

 

   

Liquidity. An increase in delinquencies could also negatively impact our liquidity because of an increase in both (i) principal and interest and (ii) servicing advances, resulting in an increase in borrowings under advance facilities and/or insufficient financing capacity to fund increases in advances. These advances also increase our expenses, as we are responsible for the interest on our borrowings under the advance facilities. See “—We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances.”

 

   

Valuation of MSRs. We value our MSRs based on, among other things, our projections of the cash flows from the related pool of mortgage loans. Our expectation of delinquencies is a significant assumption underlying those cash flow projections. If delinquencies were significantly greater than expected, the estimated fair value of our MSRs could be diminished. If the estimated fair value of MSRs is reduced, we would record a loss which would adversely impact our ability to satisfy minimum net worth covenants and borrowing conditions in our debt agreements which could have a negative impact on our financial results.

 

   

Increased Risk of Repurchase or Indemnification Demands: Delinquencies and losses incurred by subsequent purchasers will typically result in an enhanced file review by the party who suffered the loss—which may be our counterparty, a securitization trust, or an agency—in an effort to mitigate their losses by finding justification for demand repurchase or indemnification against us. While claims based upon breaches of representations and warranties are generally subject to a statute of limitation,

 

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indemnification claims do not accrue until the loss has occurred. This has the effect of lengthening indefinitely the time in which a subsequent owner can raise such claims. As a result, FAM and FAR have received indemnification claims in the past few years which are the result of loans made by predecessor entities prior to 2009. Some of these claims have extended to include loans made and sold by entities which have never been affiliated with FAM and FAR, but may have either sold business assets to predecessor entities of FAM and FAR, or whose management was subsequently employed by the predecessor entities to FAM and FAR. These have included, for example, demands by the Lehman Brothers Holdings’ Inc. bankruptcy estate (“LBHI”), based upon LBHI’s settlements with Fannie Mae and Freddie Mac and with RMBS Trustees. JPMorgan Chase & Co. has sent a similar demand for indemnification for a settlement it entered with RMBS Trustees and monoline insurance carriers. While for these specific cases we should be indemnified by the sellers of the predecessor entities, these demands demonstrate the long tail of representation and warranty issues when a loan (or a pool of loans) results in an aggregate loss to the ultimate holder, resulting in a chain of indemnification claims. There have been some actions taken by Fannie Mae and Freddie Mac to alleviate originator concerns that loans which perform for many years and then default can result in such claims; however, significant risk remains in this area.

 

   

Credit Risk. While we generally limit our credit risk on loans, we may have two situations where we do have exposure. One is loans held for sale or investment. We may elect to hold new types of loans on our balance sheet for a period in order to earn income and extract data about how such loans perform before offering them into the mark. For example, we began originating non-agency reverse mortgages in November 2014, but did not sell them to third parties until 2016. In 2020, we acquired $70 million in loans from FarmOp Capital LLC, and currently hold those on our balance sheet. We typically sell new loan originations within 30 days of closing; however, there are times when we are delayed due to documentation issues, market disruptions like that caused by COVID-19, or for other reasons. If these loans become delinquent or go into default while they are on our balance sheet, we may experience losses.

In addition to whole loans which are on our balance sheet, we also hold residual strips from our securitizations. In effect, we are absorbing the first losses from these portfolios. Increased delinquencies will reduce the value and ultimately the cash flow from these residual interests.

We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances.

During any period in which a borrower is not making payments on a loan we service for a third party, we are required under most of our servicing agreements to advance our own funds to meet contractual principal and interest remittance requirements, pay property taxes and insurance premiums, legal expenses and other protective advances. We also advance funds to maintain, repair and market real estate properties. For our mortgage loans, as home values change, we may have to reconsider certain of the assumptions underlying our decisions to make advances, and in certain situations our contractual obligations may require us to make certain advances for which we may not be reimbursed. In addition, in the event a loan serviced by us defaults or becomes delinquent, or to the extent a mortgagee under such loan is allowed to enter into a forbearance by applicable law or regulation, the repayment to us of any advance related to such events may be delayed until the loan is repaid or refinanced or liquidation occurs. A delay in our ability to collect an advance may adversely affect our liquidity, and our inability to be reimbursed for an advance could be detrimental to our business. As our servicing portfolio continues to age, defaults could increase, which may increase our costs of servicing and could be detrimental to our business. Market disruptions such as the COVID-19 pandemic, relief such as the CARES Act and similar state laws including foreclosure and eviction moratoria, and the GSEs temporary period of forbearance for clients unable to pay on certain mortgage loans, may also increase the number of defaults, delinquencies or forbearances related to the loans we service, increasing the advances we make for such loans. With specific regard to the COVID-19 pandemic, any regulatory or GSE-specific relief on servicing advance obligations provided to

 

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mortgage loan servicers has so far been limited to GSE-eligible mortgage loans and does not extend to any non-GSE mortgage loan products such as jumbo mortgage loans. Approximately 1.49% of our serviced forward mortgage loans by units (0.84% of our serviced forward mortgage loans by UPB) are in forbearance as of September 30, 2020.

The VA guarantee on delinquent VA guaranteed loans may not make us whole on losses or advances we may have made on the loan. If the VA determines the amount of the guarantee payment will be less than the cost of acquiring the property, it may elect to pay the VA guarantee and leave the property securing the loan with us (a “VA no-bid”). If we cannot sell the property for a sufficient amount to cover amounts outstanding on the loan we will suffer a loss which could, on an aggregate basis and if the percentage of VA no-bids increases, have a detrimental impact on our business and financial condition.

In addition, for certain traditional loans sold to Ginnie Mae, we, as the servicer, have the unilateral right to repurchase any individual loan in a Ginnie Mae securitization pool if that loan meets defined criteria, including being delinquent greater than 90 days. Once we have the unilateral right to repurchase the delinquent loan, we have effectively regained control over the loan and we must recognize the loan on our balance sheet and recognize a corresponding financial liability. For HECMs (HUD-insured reverse mortgage loans), we also have an obligation to buy loans out of the Ginnie Mae pools when the unpaid principal balance reaches 98% of the maximum claim amount. Any significant increase in required servicing advances or delinquent loan repurchases could have a significant adverse impact on our cash flows, even if they are reimbursable, and could also have a detrimental effect on our business and financial condition.

The replacement of LIBOR with an alternative reference rate may have a detrimental effect on our business.

The interest rate on the adjustable rate loans we originate and service has historically been based on the London Inter-Bank Offered Rate (“LIBOR”). In July 2017, the U.K. Financial Conduct Authority announced that it intends to stop collecting LIBOR rates from banks after 2021. The announcement indicates that LIBOR will not continue to exist on the current basis. In September 2020, Ginnie Mae announced that it will stop accepting the delivery of LIBOR-based adjustable rate forward mortgage loans or HECMs for securitizations starting on January 1, 2021 but the announcement did not mention a potential replacement index for LIBOR. In December 2020, Ginnie Mae extended the deadline for securitization of new LIBOR-based HECMs and stated it would stop accepting deliveries of new LIBOR-based adjustable rate HECMs for its HMBS securitizations issued on or after March 1, 2021. It is expected that U.S.-dollar LIBOR will be replaced with the Secured Overnight Financing Rate (“SOFR”), a new index calculated by reference to short-term repurchase agreements for U.S. Treasury securities. Because there have been a few issuances utilizing SOFR or the Sterling Over Night Index Average, an alternative reference rate that is based on transactions, it is unknown whether any of these alternative reference rates will attain market acceptance as replacements for LIBOR. There is currently no definitive successor reference rate to LIBOR and various industry and governmental organizations are still working to develop workable transition mechanisms. As part of this industry transition, we will be required to migrate any current adjustable rate loans we service to any such successor reference rate. Until a successor rate is determined, we cannot complete the transition away from LIBOR for the adjustable rate loans we service. As such, we are unable to predict the effect of any changes to LIBOR, the establishment and success of any alternative reference rates, or any other reforms to LIBOR or any replacement of LIBOR that may be enacted in the United States or elsewhere. Such changes, reforms or replacements relating to LIBOR could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, derivatives or other financial instruments or extensions of credit held by us. LIBOR-related changes could affect our overall results of operations and financial condition and may result in increased cost of funds under our financing arrangements. In addition, it is possible but not certain that the transition away from LIBOR will be delayed due to COVID-19 or what form any delay may take. It is also unclear what the duration and severity of COVID-19 will be, and whether this will impact LIBOR transition planning. COVID-19 may also slow regulators’ and others’ efforts to develop and implement alternative reference rates, which could make LIBOR transition planning more difficult, particularly if the cessation of LIBOR is not delayed but alternatives do not develop.

 

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Our counterparties may terminate subservicing contracts under which we conduct servicing activities.

The majority of the mortgage loans we service are serviced on behalf of Fannie Mae, Freddie Mac and Ginnie Mae. These entities establish the base service fee to compensate us for servicing loans as well as the assessment of fines and penalties that may be imposed upon us for failing to meet servicing standards.

As is standard in the industry, under the terms of our master servicing agreements with the GSEs, the GSEs have the right to terminate us as servicer of the loans we service on their behalf at any time and also have the right to cause us to transfer the MSRs to a third party. In addition, failure to comply with servicing standards could result in termination of our agreements with the GSEs with little or no notice and without any compensation. If Fannie Mae, Freddie Mac or Ginnie Mae were to terminate us as a servicer, or increase our costs related to such servicing by way of additional fees, fines or penalties, such changes could have a material adverse effect on the revenue we derive from servicing activity, as well as the value of the related MSRs. These agreements, and other servicing agreements under which we service mortgage loans for non-GSE loan purchasers, also require that we service in accordance with GSE servicing guidelines and contain financial covenants. Under our subservicing contracts, the primary servicers for which we conduct subservicing activities have the right to terminate our subservicing rights with or without cause, with little notice and little to no compensation. If we were to have our servicing or subservicing rights terminated on a material portion of our servicing portfolio, this could adversely affect our business.

Challenges to the MERS System could materially and adversely affect our business, results of operations and financial condition.

MERSCORP, Inc. is a privately held company that maintains an electronic registry, referred to as the MERS System, which tracks servicing rights and ownership of home loans in the United States. Mortgage Electronic Registration Systems, Inc. (“MERS”), a wholly owned subsidiary of MERSCORP, Inc., can serve as a nominee for the owner of a home loan and in that role initiate foreclosures or become the mortgagee of record for the loan in local land records. We have in the past and may continue to use MERS as a nominee. The MERS System is widely used by participants in the mortgage finance industry.

Several legal challenges in the courts and by governmental authorities have been made disputing MERS’s legal standing to initiate foreclosures or act as nominee for lenders in mortgages and deeds of trust recorded in local land records. These challenges have focused public attention on MERS and on how home loans are recorded in local land records. Although most legal decisions have accepted MERS as mortgagee, these challenges could result in delays and additional costs in commencing, prosecuting and completing foreclosure proceedings, conducting foreclosure sales of mortgaged properties and submitting proofs of claim in client bankruptcy cases.

Risks Related to our Lender Services Businesses

The engagement of our Lender Services business by our loan originator businesses may give appearance of a conflict of interest.

Our Lender Services segment provides services to our lender business lines which could create, appear to create or be alleged to create conflicts of interest. By obtaining services from an affiliate, there is risk of possible claims of collusion, that such services are not provided by our Lender Services segment upon market terms, or that the service provider is being “controlled” by the lender. We have adopted policies, procedures and practices that are designed to identify and mitigate any such perceived conflicts of interest. For example, our Lender Services businesses are led by an experienced executive who does not report to any of the heads of the lending businesses; and the lending businesses are not required to use Lender Services (and often do not). However, there can be no assurance that such measures will be effective in eliminating all conflicts of interest or that third parties will refrain from making such inferences. Appropriately identifying and dealing with conflicts of interest is complex and difficult, and our reputation, which is one of our most important assets, could be damaged and the

 

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willingness of counterparties to enter into transactions with us may be affected if we fail, or appear to fail, to identify, disclose and deal appropriately with conflicts of interest. In addition, potential or perceived conflicts could give rise to litigation or regulatory enforcement actions.

Third party customers of our Lender Services Businesses may be concerned about conflicts of interest within our Lender Services Businesses, due to their affiliation with the Company.

Our third-party customers for the Lender Services Businesses are generally banks, savings and loans, credit unions, and independent mortgage or non-mortgage lenders. They may be concerned that information obtained by Lender Services in providing services to them is being shared with our lending businesses and used to compete with them. We are careful to preserve the confidentiality and integrity of information which our Lender Services businesses obtain in the process of providing services to our clients, and do not share this information with anyone, including our lending businesses, and we often include this representation in our contracts with lending institutions we serve. However, the perception that such sharing could occur may limit the ability of Lender Services to obtain new business.

Our Lender Services business has operations in the Philippines that could be adversely affected by changes in political or economic stability or by government policies.

Our Lender Services business operates a foreign branch in the Philippines, which is subject to relatively higher degrees of political and social instability than the United States and may lack the infrastructure to withstand political unrest or natural disasters. The political or regulatory climate in the United States, or elsewhere, also could change so that it would not be lawful or practical for us to use international operations in the manner in which we currently use them. If we had to curtail or cease operations in the Philippines and transfer some or all of these operations to another geographic area, we would incur significant transition costs as well as higher future overhead costs that could materially and adversely affect our results of operations. In many foreign countries, particularly in those with developing economies, it may be common to engage in business practices that are prohibited by laws and regulations applicable to us, such as The Foreign Corrupt Practices Act of 1977, as amended (“FCPA”). Any violations of the FCPA or local anti-corruption laws by us, our subsidiaries or our local agents could have an adverse effect on our business and reputation and result in substantial financial penalties or other sanctions.

There is no guarantee that demand for the services offered by our Lender Services business will grow.

There is no guarantee that demand for the services offered by our Lender Services business will grow. The historical growth rate of our Lender Services business may not be an indication of future growth rates for such business generally. Although our lending businesses originate a large volume of loans, we may be unable to capture the related lending services business for these loans. For example, we may not be able to offer our title services for some originated our originated loans because we may be licensed as required in the state where the property is located. Additionally, borrowers are able to select their title company and may choose a third-party provider over us. We also face competition for our Lender Services business from third parties. If we cannot expand our services to meet the demands of this market, our revenue may decline, we may fail to grow our Lender Services business, and we may incur operating losses as a result.

Legal and Regulatory Risks

We operate in heavily regulated industries, and our mortgage loan origination and servicing activities (including lender services) expose us to risks of noncompliance with an increasing and inconsistent body of complex laws and regulations at the U.S. federal, state and local levels.

Due to the heavily regulated nature of the mortgage industry, we are required to comply with a wide array of U.S. federal, state and local laws and regulations that regulate, among other things, the manner in which we

 

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conduct our loan origination and servicing businesses and the fees that we may charge, and the collection, use, retention, protection, disclosure, transfer and other processing of personal information. Governmental authorities and various U.S., federal and state agencies have broad oversight and supervisory authority over our business. From time to time, we may also receive requests (including requests in the form of subpoenas and civil investigative demands) from federal, state and local agencies for records, documents and information relating to our servicing and lending activities. The GSEs (and their conservator, the FHFA), Ginnie Mae, the United States Treasury Department, various investors, non-Agency securitization trustees and others also subject us to periodic reviews and audits. These laws, regulations and oversight can significantly affect the way that we do business, can restrict the scope of our existing businesses, limit our ability to expand our product offerings or to pursue acquisitions, or can make our costs to service or originate loans higher, which could impact our financial results. Failure to comply with applicable laws and regulatory requirements may result in, among other things, revocation of or inability to renew required licenses or registrations, loss of approval status, termination of contracts without compensation, administrative enforcement actions and fines, private lawsuits, including those styled as class actions, cease and desist orders and civil and criminal liability.

We must comply with a number of federal, state and local consumer protection laws including, among others, TILA, the FDCPA, RESPA, the ECOA, the FCRA, the Fair Housing Act, the TCPA, the GLBA, the EFTA, the SCRA, the HPA, the HMDA, the SAFE Act, the Federal Trade Commission Act, the Dodd-Frank Act, U.S. federal and state laws prohibiting unfair, deceptive, or abusive acts or practices and state foreclosure laws. Antidiscrimination statutes, such as the Fair Housing Act and the ECOA, prohibit creditors from discriminating against loan applicants and borrowers based on certain characteristics, such as race, religion and national origin. Various federal regulatory agencies and departments, including the DOJ and CFPB, take the position that these laws apply not only to intentional discrimination, but also to neutral practices that have a disparate impact on a group that shares a characteristic that a creditor may not consider in making credit decisions (i.e., creditor or servicing practices that have a disproportionate negative effect on a protected class of individuals). These statutes apply to loan origination, marketing, the amount and nature of fees that may be charged for transactions and incentives, such as rebates, use of credit reports, safeguarding of non-public, personally identifiable information about our clients, foreclosure and claims handling, investment of and interest payments on escrow balances and escrow payment features, and required disclosures and notices to clients. We are also subject to the regulatory, supervisory and examination authority of the CFPB, which has oversight of federal and state non-depository lending and servicing institutions, including residential mortgage originators and loan servicers. The CFPB has rulemaking authority with respect to many of the federal consumer protection laws applicable to mortgage lenders and servicers, including TILA, RESPA, HMDA, ECOA, FCRA, GLBA and the FDCPA.

One such law, RESPA, among other provisions, prohibits the payment of fees or other things of value in exchange for referrals of real estate settlement services, which would include residential mortgage loans. RESPA expressly permits the payment of reasonable value for non-referral services and facilities actually performed and provided. When a lender seeks to rely on this exception to the anti-kickback requirements it must be prepared to demonstrate that the services or facilities for which compensation is paid are separate and distinct from any referral and the amount paid is reasonable. If the amount paid exceeds the reasonable value, the excess could be attributable to the referral. The Company, like many originating lenders, uses “marketing services agreements” and “desk rental agreements” with sources of potential loan referrals, like real estate agencies and home builders. A “marketing services agreement” is an agreement under which a lender compensates a service provider for performing actual marketing services directed to the general public. A “desk rental agreement” is the lease of office space, furniture and equipment, use of common areas, and other services, like utilities, internet, shared receptionist, and janitorial services. From a RESPA perspective, the analysis focuses on whether the general marketing services or lease of facilities are separate and distinct from any referrals that may occur, whether the services or facilities actually are being performed or provided and whether the amounts paid by the lender do not exceed the fair market value for such services and facilities. The Company uses a third-party to provide independent valuation services and has an internal monitoring function to ensure the actual performance of services and provision of the leased facilities. While the Company believes that these arrangements comply with RESPA, there is no assurance that the CFPB or other governmental entity with authority to enforce RESPA or a court will share this view.

 

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The scope of the laws and regulations and the intensity of the supervision to which our business is subject have increased over time, in response to the financial crisis in 2008 and other factors such as technological and market changes. Regulatory enforcement and fines have also increased across the banking and financial services sector. We expect that our business will remain subject to extensive regulation and supervision. These regulatory changes could result in an increase in our regulatory compliance burden and associated costs and place restrictions on our origination and servicing operations. In July 2020, it was announced that the Financial Stability Oversight Council will begin an activities-based review of the secondary mortgage market. The FHFA has expressed support for this review. This review could result in increased regulation of secondary mortgage market activities, which could have an adverse effect on our business. Our business may in the future be subject to further enhanced governmental scrutiny and/or increased regulation, including resulting from changes in U.S. executive administration or Congressional leadership.

Regulatory authorities and private plaintiffs may allege that we failed to comply with applicable laws, rules and regulations where we believe we have complied. These allegations may relate to past conduct and/or past business operations, such as the prior activity of acquired entities. Even unproven allegations that our activities have not complied or do not comply with all applicable laws and regulations may have a material adverse effect on our business, financial condition and results of operations. Our failure to comply with applicable U.S. federal, state and local consumer protection and data privacy laws could lead to:

 

   

loss of our licenses and approvals to engage in our servicing and lending businesses;

 

   

damage to our reputation in the industry;

 

   

governmental investigations and enforcement actions;

 

   

administrative fines and penalties and litigation;

 

   

civil and criminal liability, including class action lawsuits;

 

   

diminished ability to sell loans that we originate or purchase, requirements to sell such loans at a discount compared to other loans or repurchase or address indemnification claims from purchasers of such loans, including the GSEs;

 

   

inability to raise capital; and

 

   

inability to execute on our business strategy, including our growth plans.

These U.S. federal, state and local laws and regulations are amended from time to time, and new laws and regulations may go into effect. While we have processes and systems in place to identify and interpret such laws and regulations and to implement them, we may not identify every application of law, regulation or ordinance, interpret them accurately, or train our employees effectively with respect to these laws and regulations. The complexity of the legal requirements increases our exposure to the risks of noncompliance, which could be detrimental to our business. In addition, our failure to comply with these laws, regulations and rules may result in reduced payments by clients, modification of the original terms of loans, permanent forgiveness of debt, delays in the foreclosure process, increased servicing advances, litigation, enforcement actions, and repurchase and indemnification obligations. A failure to adequately supervise service providers and vendors, including outside foreclosure counsel, may also have these negative results.

The laws and regulations applicable to us are subject to administrative or judicial interpretation, but some laws and regulations may not yet have been interpreted or may be clarified infrequently. Ambiguities in applicable laws and regulations may leave uncertainty with respect to permitted or restricted conduct and may make compliance with laws, and risk assessment decisions with respect to compliance with laws difficult and uncertain. In addition, ambiguities make it difficult, in certain circumstances, to determine if, and how, compliance violations may be cured. The adoption by industry participants of different interpretations of these statutes and regulations has added uncertainty and complexity to compliance. We may fail to comply with applicable statutes and regulations even if acting in good faith due to a lack of clarity regarding the interpretation of such statutes and regulations, which may lead to regulatory investigations, governmental enforcement actions or private causes of action with respect to our compliance.

 

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To resolve issues raised in examinations or other governmental actions, we may be required to take various corrective actions, including changing certain business practices, making refunds or taking other actions that could be financially or competitively detrimental to us. We expect to continue to incur costs to comply with governmental regulations. In addition, certain legislative actions and judicial decisions can give rise to the initiation of lawsuits against us for activities we conducted in the past. Furthermore, provisions in our mortgage loan and other loan product documentation, including but not limited to the mortgage and promissory notes we use in loan originations, could be construed as unenforceable by a court. We have been, and expect to continue to be, subject to regulatory enforcement actions and private causes of action from time to time with respect to our compliance with applicable laws and regulations.

The recent influx of new laws, regulations, and other directives adopted in response to the recent COVID-19 pandemic exemplifies the ever-changing and increasingly complex regulatory landscape we operate in. While some regulatory reactions to the COVID-19 pandemic relaxed certain compliance obligations, the forbearance requirements imposed on mortgages servicers in the CARES Act added new regulatory responsibilities. The GSEs and the FHFA, Ginnie Mae, HUD, various investors and others have also issued guidance relating to the COVID-19 pandemic. Future regulatory scrutiny and enforcement resulting from the COVID-19 pandemic is unknown.

As a licensed title and settlement services provider, we are currently subject to a variety of, and may in the future become subject to, additional, federal, state, and local laws that are continuously changing, including laws related to: the real estate, brokerage, title, and mortgage industries; mobile-and internet-based businesses; and data security, advertising, privacy and consumer protection laws. These laws can be costly to comply with, require significant management attention, and could subject us to claims, government enforcement actions, civil and criminal liability, or other remedies, including revocation of licenses and suspension of business operations.

Although we have systems and procedures directed to comply with these legal and regulatory requirements, we cannot assure you that more restrictive laws and regulations will not be adopted in the future, or that governmental bodies or courts will not interpret existing laws or regulations in a more restrictive manner, which could render our current business practices non-compliant or which could make compliance more difficult or expensive. Any of these, or other, changes in laws or regulations could have a detrimental effect on our business, financial condition and results of operations.

We are subject to legal proceedings, federal or state governmental examinations and enforcement investigations from time to time. Some of these matters are highly complex and slow to develop, and results are difficult to predict or estimate.

Legal Proceedings: We are currently and routinely involved in legal proceedings concerning matters that arise in the ordinary course of our business. There is no assurance that the number of legal proceedings will not increase in the future, including certified class or mass actions. These actions and proceedings are generally based on alleged violations of consumer protection, employment, foreclosure, contract, tort, fraud and other laws. Notably, we are subject to the California Labor Code pursuant to which several plaintiffs have filed representative actions (the “PAGA Litigation”) under the California Private Attorney General Act seeking statutory penalties for alleged violations related to calculation of overtime pay, errors in wage statements, and meal and rest break violations, among other things. Additionally, along with others in our industry, we are subject to repurchase and indemnification claims and may continue to receive claims in the future, regarding, among other things, alleged breaches of representations and warranties relating to the sale of mortgage loans, the placement of mortgage loans into securitization trusts or the servicing of mortgage loans securitizations. We are also subject to legal actions or proceedings resulting from actions alleged to have occurred prior to our acquisition of a company or a business. For example, we are subject to indemnification claims brought by LBHI relating to the alleged breaches of representations and warranties in several mortgage loan purchase agreements between entities who are (or are alleged to be) our predecessors in interest, and a predecessor in interest to LBHI. When the claims occurred as a result of actions taken before the Company purchased the related business, we

 

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generally have indemnification claims against the sellers; however, if they do not or cannot pay, we may suffer losses. Certain pending or threatened legal proceedings (including the PAGA Litigation) may include claims for substantial compensatory, punitive and/or, statutory damages or claims for an indeterminate amount of damages. Litigation and other proceedings may require that we pay settlement costs, legal fees, damages, including punitive damages, penalties or other charges, or be subject to injunctive relief affecting our business practices, any or all of which could adversely affect our financial results. Legal proceedings brought under federal or state consumer protection statutes may result in a separate fine for each violation of the statute, which, particularly in the case of class action lawsuits, could result in damages substantially in excess of the amounts we earned from the underlying activities and that could have a material adverse effect on our liquidity, financial position and results of operations.

Regulatory Matters: Our business is subject to extensive examinations, investigations and reviews by various federal, state and local governmental, regulatory and enforcement agencies. We have historically had, continue to have, and may in the future have a number of open investigations, subpoenas, examinations and inquiries by these agencies related to our origination practices, violations of the FHA’s requirements, our financial reporting and other aspects of our businesses. These matters may include investigations by, among others, the DOJ, HUD and various state agencies, which can result in the payment of fines and penalties, changes to business practices and the entry of consent decrees or settlements. For example, we have received and expect to continue to receive inquiries from regulators seeking information on our COVID-19 response and its impact on our business, employees, and customers. The costs of responding to inquiries, examinations and investigations can be substantial.

Responding to examinations, investigations and reviews by various federal, state and local governmental, regulatory and enforcement agencies requires us to devote substantial legal and regulatory resources, resulting in higher costs and lower net cash flows. Adverse results in any of these matters could further increase our operating expenses and reduce our revenues, require us to change business practices, limit our ability to grow and otherwise materially and adversely affect our business, reputation, financial condition or results of operation. To the extent that an examination or other regulatory engagement reveals a failure by us to comply with applicable law, regulation or licensing requirement this could lead to (i) loss of our licenses and approvals to engage in our businesses, (ii) damage to our reputation in the industry and loss of client relationships, (iii) governmental investigations and enforcement actions, (iv) administrative fines and penalties and litigation, (v) civil and criminal liability, including class action lawsuits, and actions to recover incentive and other payments made by governmental entities, (vi) enhanced compliance requirements, (vii) breaches of covenants and representations under our servicing, debt or other agreements, (viii) inability to raise capital and (ix) inability to execute on our business strategy. Any of these occurrences could further increase our operating expenses and reduce our revenues, require us to change business practices and procedures and limit our ability to grow or otherwise materially and adversely affect our business, reputation, financial condition or results of operation.

Moreover, regulatory changes resulting from the Dodd-Frank Act, other regulatory changes such as the CFPB’s examination and enforcement authority and the “whistleblower” provisions of the Dodd-Frank Act and guidance on whistleblowing programs issued by the New York State Department of Financial Services could increase the number of legal and regulatory enforcement proceedings against us. The CFPB has broad enforcement powers and has been active in investigations and enforcement actions and, when necessary, has issued civil money penalties to parties the CFPB determines has violated the laws and regulations it enforces. In addition, while we take numerous steps to prevent and detect employee misconduct, such as fraud, employee misconduct cannot always be deterred or prevented and could subject us to additional liability.

We establish reserves for pending or threatened legal proceedings when it is probable that a liability has been incurred and the amount of such loss can be reasonably estimated. Legal proceedings are inherently uncertain, and our estimates of loss are based on judgments and information available at that time. Our estimates may change from time to time for various reasons, including factual or legal developments in these matters.

 

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There cannot be any assurance that the ultimate resolution of our litigation and regulatory matters will not involve losses, which may be material, in excess of our recorded accruals or estimates of reasonably probable losses.

Unlike competitors that are national banks, our lending subsidiaries are subject to state licensing and operational requirements that result in substantial compliance costs.

Because we are not a depository institution, we do not benefit from a federal exemption to state mortgage banking, loan servicing or debt collection licensing and regulatory requirements. We must comply with state licensing requirements and varying compliance requirements in all 50 states and the District of Columbia, and we are sensitive to regulatory changes that may increase our costs through stricter licensing laws, disclosure laws or increased fees or that may impose conditions to licensing that we or our personnel are unable to meet. In addition, if we enter new markets, we may be required to comply with new laws, regulations and licensing requirements. Further, we are subject to periodic examinations by state regulators, which can result in refunds to borrowers of certain fees earned by us, and we may be required to pay substantial penalties imposed by state regulators due to compliance errors. In the past we have been subject to inquiries from, and in certain instances have entered into settlement agreements with, state regulators that had the power to revoke our license or make our continued licensure subject to compliance with a consent order. For example, in 2019, we entered into a settlement agreement with the California Department of Business Oversight relating to findings in supervisory examinations concerning per diem interest charges and escrow trust reconciliations. As part of the settlement, we agreed to pay a penalty and to undertake certain remedial actions and procedures. Future state legislation and changes in existing regulation may significantly increase our compliance costs or reduce the amount of ancillary revenues, including late fees that we may charge to borrowers. This could make our business cost-prohibitive in the affected state or states and could materially affect our business.

State licensing requirements may also apply to our subservicers in the states in which they operate. Applicable state mortgage- or loan-related laws may also impose requirements as to the form and content of contracts and other documentation, licensing of our employees and employee hiring background checks, licensing of independent contractors with which we contract, restrictions on certain practices, disclosure and record-keeping requirements and enforcement of borrowers’ rights. Licensed entities are required to renew their licenses, typically on an annual basis, and to do so they must satisfy the license requirements of each jurisdiction, which generally include financial requirements such as providing audited financial statements or satisfying minimum net worth requirements and non-financial requirements such as satisfactorily completing examinations as to the licensee’s compliance with applicable laws and regulations.

Most state licensing laws require that before a “change of control” can occur, including in connection with a merger, acquisition or initial public offering, applicable state banking departments must approve the change. Most of these “change of control” statutes require that, if there is an acquisition, merger or initial public offering, the acquiring company or companies being merged or going public must notify the state regulatory agency and receive agency approval before the acquisition, merger or initial public offering is finalized.

We and our licensed subservicers are subject to periodic examination by state regulatory authorities and we may be subject to various reporting and other requirements to maintain licenses, and there is no assurance that we may satisfy these requirements. Failure by us or our subservicers to maintain or obtain licenses may restrict our investment options and could harm our business, and we may be required by state regulators to pay substantial penalties or issue borrower refunds or restitution due to compliance errors.

We believe that we and our subservicers maintain all material licenses and permits required for our current operations and are in substantial compliance with all applicable federal, state and local laws, rules, regulations and ordinances. However, we and our subservicers may not be able to maintain all requisite licenses and permits, and the failure to satisfy those and other regulatory requirements could result in a default under our servicing or other agreements and have a material adverse effect on our operations. The states that currently do not provide extensive regulation of our businesses may later choose to do so, and if such states so act, we may not be able to

 

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obtain or maintain all requisite licenses and permits. The failure to satisfy those and other regulatory requirements could result in a default under our servicing agreements and have a material adverse effect on our operations. Furthermore, the adoption of additional, or the revision of existing, rules and regulations could adversely affect our business, financial condition and results of operations.

Our business is highly dependent on Fannie Mae, Freddie Mac and certain U.S. government agencies, and any changes in these entities or their current roles could be detrimental to our business.

We originate loans eligible for sale to Fannie Mae, Freddie Mac and government insured or guaranteed loans, such as FHA, VA and USDA loans eligible for Ginnie Mae securities issuance. In 2008, FHFA placed Fannie Mae and Freddie Mac into conservatorship and, as their conservator, controls and directs their operations. There is significant uncertainty regarding the future of the GSEs, including with respect to how long they will continue to be in existence, the extent of their roles in the market and what forms they will have, and whether they will be government agencies, government-sponsored agencies or private for-profit entities. Since they have been placed into conservatorship, many legislative and administrative plans for GSE reform have been put forth, but all have been met with resistance from various constituencies.

In September 2019, the U.S. Department of the Treasury released a proposal for reform, and, in October 2019, FHFA released a strategic plan regarding the conservatorships, which included a Scorecard that has preparing for exiting conservatorship as one of its key objectives. Among other things, the Treasury recommendations include recapitalizing the GSEs, increasing private-sector competition with the GSEs, replacing GSE statutory affordable housing goals, changing mortgage underwriting requirements for GSE guarantees, revising the CFPB’s Qualified Mortgage regulations, and continuing to support the market for 30-year fixed-rate mortgages. Some of Treasury’s recommendations would require administrative action whereas others would require legislative action. It is uncertain whether these recommendations will be enacted or whether such recommendations may in the future be subject to change resulting from changes in U.S. executive administration or Congressional leadership. If these recommendations are enacted, the future roles of Fannie Mae and Freddie Mac could be reduced (perhaps significantly) and the nature of their guarantee obligations could be considerably limited relative to historical measurements. In addition, various other proposals to generally reform the U.S. housing finance market have been offered by members of the U.S. Congress, and certain of these proposals seek to significantly reduce or eliminate over time the role of the GSEs in purchasing and guaranteeing mortgage loans. Any such proposals, if enacted, may have broad adverse implications for the MBS market and our business. It is possible that the adoption of any such proposals might lead to higher fees being charged by the GSEs or lower prices on our sales of mortgage loans to them.

The extent and timing of any regulatory reform regarding the GSEs and the U.S. housing finance market, as well as any effect on our business operations and financial results, are uncertain. It is not yet possible to determine whether such proposals will be enacted and, if so, when, what form any final legislation or policies might take or how proposals, legislation or policies may impact the MBS market and our business. Our inability to make the necessary adjustments to respond to these changing market conditions or loss of our approved seller/servicer status with the GSEs could have a material adverse effect on our mortgage origination operations and our mortgage servicing operations. If those agencies cease to exist, wind down, or otherwise significantly change their business operations or if we lost approvals with those agencies or our relationships with those agencies is otherwise adversely affected, we would seek alternative secondary market participants to acquire our mortgage loans at a volume sufficient to sustain our business. If such participants are not available on reasonably comparable economic terms, the above changes could have a material adverse effect on our ability to profitably sell loans we originate that are securitized through Fannie Mae, Freddie Mac or Ginnie Mae.

 

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There may be material changes to the laws, regulations, rules or practices of or applicable to the FHA, HUD, Ginnie Mae or Fannie Mae which could materially adversely affect the reverse mortgage industry as a whole, including our FAR business.

The reverse mortgage industry is largely dependent upon the FHA, HUD and government agencies like Ginnie Mae. There can be no guarantee that HUD/FHA will retain Congressional authorization to continue the HECM program, which provides FHA government insurance for qualifying HECM loans, that any or all of these entities will continue to participate in the reverse mortgage industry or that they will not make material changes to the laws, regulations, rules or practices applicable to reverse mortgage programs.

For example, HUD previously implemented certain lending limits for the HECM program, and added credit-based underwriting criteria designed to assess a borrower’s ability and willingness to satisfy future tax and insurance obligations. In addition, Ginnie Mae’s participation in the reverse mortgage industry may be subject to economic and political changes that cannot be predicted. If participation by Ginnie Mae in the reverse mortgage market were reduced or eliminated, or its structure were to change (e.g., limitation or removal of the guarantee obligation), our ability to originate HECM loans and acquire Agency HMBS could be adversely affected. These developments could materially and adversely impact our portfolio.

Regulators continue to be active in the reverse mortgage space, including due to the perceived susceptibility of older borrowers to be influenced by deceptive or misleading marketing activities. Regulators have also focused on appraisal practices because reverse mortgages are largely dependent on collateral valuation. If we fail to comply with applicable laws and regulations relating to the origination of reverse mortgages, we could be subject to adverse regulatory actions, including potential fines, penalties or sanctions, and our business, reputation, financial condition and results of operations could be materially and adversely affected.

We may be subject to liability for potential violations of predatory lending laws, which could adversely impact our results of operations, financial condition and business.

Various federal, state and local laws have been enacted that are designed to discourage predatory lending and servicing practices. The Home Ownership and Equity Protection Act of 1994 (“HOEPA”) prohibits inclusion of certain provisions in residential loans that have mortgage rates or origination costs in excess of prescribed levels and requires that borrowers be given certain disclosures prior to origination. Some states have enacted, or may enact, similar laws or regulations, which in some cases impose restrictions and requirements greater than those in HOEPA. In addition, under the anti-predatory lending laws of some states, the origination of certain residential loans, including loans that are not classified as “high cost” loans under applicable law, must satisfy a net tangible benefits test with respect to the related borrower. This test may be highly subjective and open to interpretation. As a result, a court may determine that a residential loan, for example, does not meet the test even if the related originator reasonably believed that the test was satisfied. Failure of residential loan originators or servicers to comply with these laws, to the extent any of their residential loans are or become part of our mortgage-related assets, could subject us, as a servicer or, in the case of acquired loans, as an assignee or purchaser, to monetary penalties and could result in the borrowers rescinding the affected loans. Lawsuits have been brought in various states making claims against originators, servicers, assignees and purchasers of high cost loans for violations of state law. Named defendants in these cases have included numerous participants within the secondary mortgage market. If our loans are found to have been originated in violation of predatory or abusive lending laws, we could be subject to lawsuits or governmental actions, or we could be fined or incur losses.

Compliance with federal, state and local laws and regulations that govern employment practices and working conditions may be particularly burdensome to us due to the distributed nature of our workforce.

We have operations across an expansive geographic footprint with a U.S. workforce of over 4,500 employees operating in local markets across 48 states and Puerto Rico, in each case, as of September 30, 2020. In addition to complying with the Fair Labor Standards Act and the Equal Employment Opportunity Act, we are

 

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required to comply with similar state laws and regulations in each market where we have employees. Compliance with these laws and regulations requires a significant amount of administrative resources and management attention. Many of these laws and regulations provide for qui tam or similar private rights of action and we are routinely subject to litigation and regulatory proceedings related to these laws and regulations in the ordinary course of our business. For example, we are currently in litigation brought under the California Private Attorneys General Act related to alleged violations of the California Labor Code. See “—We are subject to legal proceedings, federal or state governmental examinations and enforcement investigations from time to time. Some of these matters are highly complex and slow to develop, and results are difficult to predict or estimate.” Regardless of the outcome or whether the claims are meritorious, we may need to devote substantial time and expense to defend against claims related to PAGA or other similar federal, state and local laws and regulations in the ordinary course of business. Unfavorable rulings could result in adverse impacts on our business, financial condition or results of operations.

We also have over 1,000 employees in our Lender Services division who are based in the Philippines. For those employees, we are required to comply with the laws of the Philippines relating to labor and employment matters. Compliance with these laws and regulations requires a significant amount of administrative resources and management attention, and failure to comply with them could result in penalties.

Conducting our business in a manner so that we are exempt from registration under, and in compliance with, the Investment Company Act, may reduce our flexibility and could limit our ability to pursue certain opportunities. At the same time, failure to continue to qualify for exemption from the Investment Company Act could adversely affect us.

Under the Investment Company Act, an investment company is required to register with the SEC and is subject to extensive restrictive and potentially adverse regulations relating to, among other things, operating methods, management, capital structure, dividends, and transactions with affiliates. We expect that one or more of our subsidiaries will qualify for an exclusion from registration as an investment company under the Investment Company Act pursuant to Section 3(c)(5)(C) of the Investment Company Act, which is available for entities that do not issue redeemable securities, face-amount certificates of the installment type or periodic payment plan certificates and are primarily engaged in the business of “purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” We believe that we conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company under the Investment Company Act. We are organized as a holding company and conduct our businesses primarily through our majority and wholly owned subsidiaries. We conduct our operations so that we and our subsidiaries do not come within the definition of an investment company. In order to continue to do so, however, we and each of our subsidiaries must either operate so as to fall outside the definition of an investment company under the Investment Company Act or satisfy its own exclusion under the Investment Company Act. For example, to avoid being defined as an investment company, an entity may limit its ownership or holdings of investment securities to less than 40% of its total assets. In order to satisfy an exclusion from being defined as an investment company, other entities, among other things, maintain at least 55% of their assets in certain qualifying real estate assets (the “55% Requirement”) and also maintain an additional 25% of their assets in such qualifying real estate assets or certain other types of real estate-related assets (the “25% Requirement”). Rapid changes in the values of assets we own, however, can disrupt prior efforts to conduct our business to meet these requirements and in turn, we may have to make investment decisions that we otherwise would not make absent the Investment Company Act considerations.

If we or one of our subsidiaries fell within the definition of an investment company under the Investment Company Act and failed to qualify for an exclusion or exemption, including, for example, if it was required to and failed to meet the 55% Requirement or the 25% Requirement, it could, among other things, be required either (i) to change the manner in which it conducts operations to avoid being required to register as an investment company or (ii) to register as an investment company, either of which could adversely affect us by, among other things, requiring us to dispose of certain assets or to change the structure of our business in ways that we may not believe to be in our best interests. Legislative or regulatory changes relating to the Investment

 

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Company Act or which affect our efforts to qualify for exclusions or exemptions, including our ability to comply with the 55% Requirement and the 25% Requirement, could also result in these adverse effects on us.

To the extent that we or any of our subsidiaries rely on Section 3(c)(5)(C) of the Investment Company Act, we expect to rely on guidance published by the SEC staff or on our analyses of such guidance to determine which assets are qualifying real estate assets for purposes of the 55% Requirement and real estate related assets for purposes of the 25% Requirement. However, the SEC’s guidance was issued in accordance with factual situations that may be different from the factual situations we face, and much of the guidance was issued more than 25 years ago. No assurance can be given that the SEC staff will concur with our classification of our assets. In addition, the SEC staff may, in the future, issue further guidance that may require us to re-classify our assets for purposes of qualifying for an exemption from registration under the Investment Company Act. If we are required to re-classify our assets, we may no longer be in compliance with the exclusion from the definition of an “investment company” provided by Section 3(c)(5)(C) of the Investment Company Act. To the extent that the SEC staff publishes new or different guidance with respect to any assets we have determined to be qualifying real estate assets, we may be required to adjust our strategy accordingly. In addition, we may be limited in our ability to make certain investments, and these limitations could result in a subsidiary holding assets we might wish to sell or selling assets we might wish to hold.

As a consequence of our seeking to avoid registration under the Investment Company Act on an ongoing basis, we and/or our subsidiaries may be restricted from making certain investments or may structure investments in a manner that would be less advantageous to us than would be the case in the absence of such requirements. In particular, a change in the value of any of our assets could negatively affect our ability to avoid registration under the Investment Company Act and cause the need for a restructuring of our investment portfolio. For example, these restrictions may limit our and our subsidiaries’ ability to invest directly in mortgage-backed securities that represent less than the entire ownership in a pool of senior loans, debt and equity tranches of securitizations and certain asset-backed securities, non-controlling equity interests in real estate companies or in assets not related to real estate. In addition, seeking to avoid registration under the Investment Company Act may cause us and/or our subsidiaries to acquire or hold additional assets that we might not otherwise have acquired or held or dispose of investments that we and/or our subsidiaries might not have otherwise disposed of, which could result in higher costs or lower proceeds to us than we would have paid or received if we were not seeking to comply with such requirements. Thus, avoiding registration under the Investment Company Act may hinder our ability to operate solely on the basis of maximizing profits.

There can be no assurance that we and our subsidiaries will be able to successfully avoid operating as an unregistered investment company. If it were established that we were an unregistered investment company, there would be a risk that we would be subject to monetary penalties and injunctive relief in an action brought by the SEC, that we would be unable to enforce contracts with third parties, that third parties could seek to obtain rescission of transactions undertaken during the period it was established that we were an unregistered investment company, and that we would be subject to limitations on corporate leverage that would have an adverse impact on our investment returns.

If we were required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use borrowings), management, operations, transactions with affiliated persons (as defined in the Investment Company Act) and portfolio composition, including disclosure requirements and restrictions with respect to diversification and industry concentration and other matters. Compliance with the Investment Company Act would, accordingly, limit our ability to make certain investments and require us to significantly restructure our business plan, which could materially adversely affect our ability to pay distributions to our stockholders. For additional information, see “Information About FoA—Investment Company Act Considerations.”

 

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We are currently subject to, and may in the future become subject to additional, U.S. and state laws and regulations imposing obligations on how we collect, store and process personal information. Our actual or perceived failure to comply with such obligations could harm our business. Ensuring compliance with such laws could also impair our efforts to maintain and expand our customer base, and thereby decrease our revenue.

We are, and may increasingly become, subject to various laws and regulations, as well as contractual obligations, relating to data privacy and security in the jurisdictions in which we operate. The regulatory environment related to data privacy and security is increasingly rigorous, with new and constantly changing requirements applicable to our business, and enforcement practices are likely to remain uncertain for the foreseeable future. These laws and regulations may be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that may have a material adverse effect on our business, financial condition, results of operations and prospects.

In the United States, various federal and state regulators, including governmental agencies like the CFPB and the Federal Trade Commission, have adopted, or are considering adopting, laws and regulations concerning personal information and data security. Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to personal information than federal, international or other state laws, and such laws may differ from each other, all of which may complicate compliance efforts. For example, the California Consumer Privacy Act, or CCPA, which increases privacy rights for California residents and imposes obligations on companies that process their personal information, came into effect on January 1, 2020. Among other things, the CCPA requires covered companies to provide new disclosures to California consumers and provide such consumers new data protection and privacy rights, including the ability to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation. In addition, laws in all 50 U.S. states require businesses to provide notice to consumers whose personal information has been disclosed as a result of a data breach. State laws are changing rapidly and there is discussion in the U.S. Congress of a new comprehensive federal data privacy law to which we would become subject if it is enacted.

All of these evolving compliance and operational requirements impose significant costs, such as costs related to organizational changes, implementing additional protection technologies, training employees and engaging consultants, which are likely to increase over time. In addition, such requirements may require us to modify our data processing practices and policies, distract management or divert resources from other initiatives and projects, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects. Any failure or perceived failure by us to comply with any applicable federal, state or similar foreign laws and regulations relating to data privacy and security could result in damage to our reputation, as well as proceedings or litigation by governmental agencies or other third parties, including class action privacy litigation in certain jurisdictions, which would subject us to significant fines, sanctions, awards, penalties or judgments, all of which could have a material adverse effect on our business, financial condition and operating results.

Risks Related to Our Indebtedness

Our substantial leverage could adversely affect our financial condition, our ability to raise additional capital to fund our operations, our ability to operate our business, our ability to react to changes in the economy or our industry or our ability to pay our debts, and could divert our cash flow from operations to debt payments.

As of September 30, 2020, on an as adjusted basis after giving effect to the senior unsecured notes offering that closed on November 5, 2020 and the related use of proceeds, we would have had $3,254.3 million in total indebtedness outstanding, $2,904.3 million of which would have been senior secured indebtedness and $350.0 million of which would have been corporate indebtedness, consisting of the senior notes. As of September 30, 2020, we also had approximately $14.7 billion of HMBS related obligations and non-recourse debt that is recorded on our balance sheet. We will also have other significant contractual obligations, including

 

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if the Business Combination closes, New Pubco’s obligations to make payments under the Tax Receivable Agreements. Subject to the limits contained in the agreements that govern our warehouse facilities and lines of credit, the indenture that will govern the notes offered hereby and the applicable agreements governing our other existing indebtedness, we may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of debt could increase. Specifically, our high level of debt could have important consequences, including the following:

 

   

making it more difficult for us to satisfy our obligations with respect to our debt;

 

   

limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;

 

   

requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;

 

   

increasing our vulnerability to general adverse economic and industry conditions;

 

   

exposing us to the risk of increased interest rates as certain of our borrowings are at variable rates of interest;

 

   

limiting our flexibility in planning for and reacting to changes in the industry in which we compete;

 

   

placing us at a disadvantage compared to other, less leveraged competitors; and

 

   

increasing our cost of borrowing.

Following the closing of the Business Combination, New Pubco will be a holding company, and its consolidated assets are owned by, and our business is conducted through, its subsidiaries. Revenue from these subsidiaries is its primary source of funds for debt payments and operating expenses. If New Pubco’s subsidiaries are restricted from making distributions, its ability to meet its debt service obligations or otherwise fund our operations may be impaired. Moreover, there may be restrictions on payments by subsidiaries to their parent companies under applicable laws, including laws that require companies to maintain minimum amounts of capital and to make payments to shareholders only from profits. As a result, although a subsidiary of New Pubco may have cash, it may not be able to obtain that cash to satisfy our obligation to service our outstanding debt or fund our operations.

Despite our current level of indebtedness, we may be able to incur substantially more debt and enter into other transactions, which could further exacerbate the risks to our financial condition described above.

We may be able to incur significant additional indebtedness in the future. Although certain of the agreements governing our existing indebtedness (including the indenture that will govern the notes and the agreements that govern our warehouse facilities and lines of credit) contain restrictions on the incurrence of additional indebtedness and entering into certain types of other transactions, these restrictions are subject to a number of qualifications and exceptions. Additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also do not prevent us from incurring obligations, such as trade payables, that do not constitute indebtedness as defined under our debt instruments. To the extent new debt is added to our current debt levels, the substantial leverage risks described in the immediately preceding risk factor would increase.

As of September 30, 2020, we had total borrowing capacity of approximately $5,165 million under our warehouse facilities, securities repurchase lines and lines of credit, all of which would be secured indebtedness, including approximately $659 million of committed borrowing capacity. As of September 30, 2020, we also had approximately $14.7 billion of HMBS related obligations and non-recourse debt that is recorded on our balance sheet.

 

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Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly.

Interest rates may increase in the future. As a result, interest rates on variable rate debt offerings could be higher or lower than current levels. As of September 30, 2020, after taking into account our interest rate derivatives, $2,667 million (equivalent), or 91.2%, of our outstanding debt had variable interest rates. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease.

In addition, certain of our variable rate indebtedness use LIBOR as a benchmark for establishing the rate of interest. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressures may cause LIBOR to be replaced with a new benchmark or to perform differently than in the past. The consequences of these developments cannot be entirely predicted, but could include an increase in the cost of our variable rate indebtedness.

We may be unable to service our indebtedness.

Our ability to make scheduled payments on and to refinance our indebtedness depends on and is subject to our financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business and other factors, all of which are beyond our control, including the availability of financing in the international banking and capital markets. Lower revenues generally will reduce our cash flow. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to service our debt, including the notes, to refinance our debt or to fund our other liquidity needs.

If we are unable to meet our debt service obligations or to fund our other liquidity needs, we will need to restructure or refinance all or a portion of our debt which could cause us to default on our debt obligations and impair our liquidity. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations.

In addition, our investments in MSRs have limited liquidity and our investments in mortgage loans may become illiquid. If we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we previously recorded such asset, making it more difficult to repay our indebtedness after an event of default.

Moreover, in the event of a default, the holders of our indebtedness could elect to declare all the funds borrowed to be due and payable, together with accrued and unpaid interest, if any. The lenders under our warehouse facilities and lines of credit could also elect to terminate their commitments thereunder, cease making further loans, and institute foreclosure proceedings against their collateral, and we could be forced into bankruptcy or liquidation. If we breach our covenants under the agreements that govern our warehouse facilities and lines of credit, we would be in default thereunder. The lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.

The agreements that govern our senior notes, warehouse facilities and lines of credit impose, significant operating and financial restrictions on FoA and its restricted subsidiaries, which may prevent us from capitalizing on business opportunities.

The agreements that govern our senior notes, warehouse facilities and lines of credit impose, significant operating and financial restrictions on us. These restrictions in the indenture will limit the ability of FoA and its restricted subsidiaries to, among other things:

 

   

incur or guarantee additional debt or issue disqualified stock or preferred stock;

 

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pay dividends and make other distributions on, or redeem or repurchase, capital stock;

 

   

make certain investments;

 

   

incur certain liens;

 

   

enter into transactions with affiliates;

 

   

merge or consolidate;

 

   

enter into agreements that prohibit the ability of restricted subsidiaries to make dividends or other payments to FoA or other subsidiaries;

 

   

designate restricted subsidiaries as unrestricted subsidiaries;

 

   

prepay, redeem or repurchase certain indebtedness; and

 

   

transfer or sell assets.

These restrictions in the agreements that govern our warehouse facilities and lines of credit will limit the ability of the applicable borrower (and certain parent entities) to, among other things, incur or guarantee additional debt, incur certain liens, enter into transactions with affiliates and transfer or sell certain assets. In addition, certain of the agreements that govern our warehouse facilities and lines of credit require us to maintain certain net worth and liquidity levels, among other financial covenants.

As a result of the restrictions described above, we will be limited as to how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.

Our failure to comply with the restrictive covenants described above as well as other terms of our indebtedness could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations and financial condition could be adversely affected.

A decline in our operating results or available cash could cause us to experience difficulties in complying with covenants contained in more than one agreement, which could result in our bankruptcy or liquidation.

If we were to sustain a decline in our operating results or available cash, we could experience difficulties in complying with the financial covenants contained in the agreements that govern our warehouse facilities and lines of credit. The failure to comply with such covenants could result in an event of default under our warehouse facilities or lines of credit and by reason of cross-acceleration or cross-default provisions, other indebtedness may then become immediately due and payable. In addition, should an event of default occur, the lenders under our warehouse facilities or lines of credit could elect to terminate their commitments thereunder, cease making loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to obtain waivers from the required lenders under our warehouse facilities or lines of credit to avoid being in default. If we breach our covenants under our warehouse facilities or lines of credit and seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we would be in default under our warehouse facilities or lines of credit, the lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.

Repayment of our debt is dependent on cash flow generated by our subsidiaries, which may be subject to limitations beyond our control.

Our subsidiaries own all of our assets and conduct all of our operations. Accordingly, repayment of our indebtedness is dependent on the generation of cash flow by our subsidiaries and their ability to make such cash

 

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available to us, by dividend, debt repayment or otherwise. Our subsidiaries may not be able to, or may not be permitted to, make distributions or repay intercompany loans to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. In the event that we are unable to receive distributions from subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.

Our failure to comply with the agreements relating to our outstanding indebtedness, including as a result of events beyond our control, could result in an event of default that could materially and adversely affect our results of operations and our financial condition.

If there were an event of default under any of the agreements relating to our outstanding indebtedness, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately. We cannot assure you that our assets or cash flows would be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default. Further, if we are unable to repay, refinance or restructure our indebtedness under our secured debt, including our warehouse facilities or lines of credit, the holders of such debt could proceed against the collateral securing that indebtedness. In addition, any event of default or declaration of acceleration under one debt instrument could also result in an event of default under one or more of our other debt instruments.

Risks Related to Replay and the Business Combination

Subsequent to the completion of the Business Combination, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and our stock price, which could cause you to lose some or all of your investment.

Although we have conducted due diligence on FoA, we cannot assure you that our diligence surfaced all material issues that may be present inside FoA, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of FoA and outside of our control will not later arise. As a result of these factors, we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even if our due diligence successfully identified certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even though these charges may be non-cash items and would not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities. In addition, charges of this nature may cause us to be unable to obtain future financing on favorable terms or at all. Accordingly, any shareholders who choose to remain shareholders following the Business Combination could suffer a reduction in the value of their shares. Such shareholders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by our officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the proxy statement/prospectus relating to the Business Combination contained an actionable material misstatement or material omission.

There can be no assurance that the Class A Common Stock will be approved for listing on NYSE following the Closing, or if approved, that we will be able to comply with the continued listing standards of NYSE.

Our Units, Ordinary Shares and Warrants are currently listed on NYSE. On the effective date of the Domestication, the currently issued and outstanding Ordinary Shares will automatically convert by operation of law, on a one-for-one basis, into Replay LLC Units, which will then automatically convert into the right to receive shares of Class A Common Stock pursuant to the Replay Merger. In connection with the Closing, we intend to apply to list the Class A Common Stock on NYSE after the Closing under the symbol “FOA.” As part

 

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of the application process, we are required to provide evidence that we are able to meet the initial listing requirements of NYSE which may depend, in part, on the number of shares of our Ordinary Shares that are redeemed in connection with the Business Combination.

If, after the Closing, NYSE delists New Pubco’s shares from trading on its exchange for failure to meet the listing standards, New Pubco and its shareholders could face significant material adverse consequences including:

 

   

a limited availability of market quotations for our securities;

 

   

reduced liquidity for our securities;

 

   

a determination that shares of the Class A Common Stock are a “penny stock” which will require brokers trading in the Class A Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

 

   

a limited amount of news and analyst coverage; and

 

   

a decreased ability to issue additional securities or obtain additional financing in the future.

If the Business Combination’s benefits do not meet the expectations of investors or securities analysts, the market price of our securities may decline.

If the benefits of the Business Combination do not meet the expectations of investors or securities analysts, the market price of our securities prior to the Closing may decline. The market values of our securities at the time of the Business Combination may vary significantly from their prices on the date the Transaction Agreement was executed, the date of this proxy statement/prospectus, or the date on which our shareholders vote on the Business Combination.

In addition, following the Business Combination, fluctuations in the price of New Pubco could contribute to the loss of all or part of your investment. Prior to the Business Combination, there has not been a public market for the Class A Common Stock. Accordingly, the valuation ascribed to New Pubco and its securities in the Business Combination may not be indicative of the price that will prevail in the trading market following the Business Combination. If an active market for our securities develops and continues, the trading price of our securities following the Business Combination could be volatile and subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on your investment in our securities and our securities may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further decline.

Factors affecting the trading price of our securities may include:

 

   

actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

 

   

changes in the market’s expectations about our operating results;

 

   

success of competitors;

 

   

our operating results failing to meet the expectation of securities analysts or investors in a particular period;

 

   

changes in financial estimates and recommendations by securities analysts concerning FoA or the asset management industry in general;

 

   

operating and share price performance of other companies that investors deem comparable to us;

 

   

our ability to market new and enhanced products on a timely basis;

 

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changes in laws and regulations affecting our business;

 

   

our ability to meet compliance requirements;

 

   

commencement of, or involvement in, litigation involving us;

 

   

changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;

 

   

the volume of shares of Class A Common Stock available for public sale;

 

   

any major change in our board of directors or management;

 

   

sales of substantial amounts of Class A Common Stock by our directors, executive officers or significant shareholders or the perception that such sales could occur; and

 

   

general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism.

Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in general, and NYSE in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial condition or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.

Following the consummation of the Business Combination, New Pubco will incur significant increased expenses and administrative burdens as a public company, which could have a material adverse effect on our business, financial condition and results of operations.

Following the consummation of the Business Combination, New Pubco will face increased legal, accounting, administrative and other costs and expenses as a public company that FoA does not incur as a private company. The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), including the requirements of Section 404, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations promulgated and to be promulgated thereunder, the Public Company Accounting Oversight Board and the securities exchanges, impose additional reporting and other obligations on public companies. Compliance with public company requirements will increase costs and make certain activities more time-consuming. A number of those requirements will require New Pubco to carry out activities FoA has not done previously. For example, New Pubco will create new board committees and adopt new internal controls and disclosure controls and procedures. In addition, additional expenses associated with SEC reporting requirements will be incurred. Furthermore, if any issues in complying with those requirements are identified (for example, if the auditors identify a material weakness or significant deficiency in the internal control over financial reporting), New Pubco could incur additional costs rectifying those issues, and the existence of those issues could adversely affect New Pubco’s reputation or investor perceptions of it. It may also be more expensive to obtain director and officer liability insurance. Risks associated with New Pubco’s status as a public company may make it more difficult to attract and retain qualified persons to serve on the board of directors or as executive officers. The additional reporting and other obligations imposed by these rules and regulations will increase legal and financial compliance costs and the costs of related legal, accounting and administrative activities. These increased costs will require New Pubco to divert a significant amount of money that could otherwise be used to expand the business and achieve strategic objectives. Advocacy efforts by shareholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase costs.

 

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New Pubco may not be able to timely and effectively implement controls and procedures required by Section 404 of the Sarbanes-Oxley Act that will be applicable to us after the Business Combination and the transactions related thereto are consummated.

As a public company, we are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of internal control over financial reporting. To comply with the requirements of being a public company, New Pubco will be required to provide attestation on internal controls, and we may need to undertake various actions, such as implementing additional internal controls and procedures and hiring additional accounting or internal audit staff. The standards required for a public company under Section 404 of the Sarbanes-Oxley Act are significantly more stringent than those required of FoA as a privately held company. Management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that will be applicable to New Pubco after the Business Combination. If New Pubco is not able to implement the additional requirements of Section 404 in a timely manner or with adequate compliance, it may not be able to assess whether its internal controls over financial reporting are effective, which may subject it to adverse regulatory consequences and could harm investor confidence and the market price of our securities. Further, as an emerging growth company, our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404 until the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event that it is not satisfied with the level at which the controls of New Pubco are documented, designed or operating.

Upon the listing of New Pubco’s Class A Common Stock on the NYSE, New Pubco will be a “controlled company” within the meaning of NYSE rules and, as a result, will qualify for exemptions from certain corporate governance requirements. The stockholders of New Pubco will not have the same protections afforded to stockholders of companies that are subject to such requirements.

Upon the consummation of the Business Combination, New Pubco’s Principal Stockholders will be parties to the Stockholders Agreement described in “Certain Agreements Related to the Business Combination—Stockholders Agreement” and will beneficially own approximately 66.6% of the combined voting power of New Pubco’s Class A Common Stock and Class B Common Stock, assuming no redemptions by Replay’s Public Shareholders. As a result, New Pubco will be a “controlled company” within the meaning of the NYSE corporate governance standards. Under these corporate governance standards, a company of which more than 50% of the voting power in the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements. For example, controlled companies:

 

   

are not required to have a board that is composed of a majority of “independent directors,” as defined under the NYSE rules;

 

   

are not required to have a compensation committee that is composed entirely of independent directors; and

 

   

are not required to have director nominations be made, or recommended to the full board of directors, by its independent directors or by a nominations committee that is composed entirely of independent directors.

Accordingly, the stockholders of New Pubco will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of NYSE.

The unaudited pro forma financial information included herein may not be indicative of what New Pubco’s actual financial position or results of operations would have been.

The unaudited pro forma financial information included herein is presented for illustrative purposes only and is not necessarily indicative of what New Pubco’s actual financial position or results of operations would have been had the Business Combination been completed on the dates indicated.

 

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FoA’s management has limited experience in operating a public company.

Certain of FoA’s executive officers and certain directors have limited experience in the management of a publicly traded company. FoA’s management team may not successfully or effectively manage its transition to a public company following the Business Combination that will be subject to significant regulatory oversight and reporting obligations under federal securities laws. Their limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities which will result in less time being devoted to the management and growth of the company. It is possible that New Pubco will be required to expand its employee base and hire additional employees to support its operations as a public company which will increase its operating costs in future periods.

Our Initial Shareholders have agreed to vote in favor of the Business Combination, regardless of how our Public Shareholders vote.

Unlike some other blank check companies in which the initial stockholders agree to vote their founder shares in accordance with the majority of the votes cast by the public stockholders in connection with an initial business combination, our Initial Shareholders have agreed to vote their Founder Shares, as well as any Public Shares purchased during or after our IPO, in favor of the Business Combination. We expect that our Initial Shareholders and their permitted transferees will own approximately 27.0% of our outstanding Ordinary Shares at the time of any such vote. Accordingly, it is more likely that the necessary shareholder approval will be received than would be the case if our Initial Shareholders agreed to vote their Founder Shares in accordance with the majority of the votes cast by our Public Shareholders.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.

Before the Business Combination can be completed, approval must be obtained under the HSR Act and various approvals must be obtained from a variety of federal, state and other governmental authorities, including GSEs. In deciding whether to grant antitrust clearance, the relevant governmental authorities consider a variety of factors, including the effect of the merger on competition within their relevant jurisdiction. On November 4, 2020, the request for early termination of the waiting period under the HSR Act with respect to the Business Combination was granted by the Federal Trade Commission. FoA’s operations are subject to regulation, supervision and licensing under various federal, state and local statutes, ordinances and regulations. In most states in which FoA operates, a regulatory authority regulates and enforces laws relating to mortgage servicing companies and mortgage origination companies such as FoA. In deciding whether to grant approvals under relevant mortgage servicing, mortgage origination, collection agency, real estate, appraisal management and title insurance laws, the relevant governmental or regulatory entities will consider a variety of factors, including each party’s regulatory standing. An adverse development in either party’s regulatory standing or other factors could result in an inability to obtain one or more of the required regulatory approvals or delay their receipt. The terms and conditions of the approvals that are granted may impose requirements, limitations or costs, or place restrictions on the conduct of the combined company’s business. The requirements, limitations or costs imposed by the relevant governmental authorities might be unacceptable to the parties, or could delay the completion of the Business Combination or diminish the anticipated benefits thereof. Additionally, the completion of the Business Combination is conditioned on the absence of certain orders, injunctions or decrees by any court or regulatory authority of competent jurisdiction that would prohibit or make illegal the completion of the Business Combination.

If we are not able to complete an initial business combination within the required time period, we will cease all operations except for the purpose of winding up and we will redeem our Public Shares and liquidate, in which case our Warrants will expire worthless.

Our Existing Organizational Documents provide that we must complete an initial business combination within 24 months from the closing of our IPO, or April 8, 2021. We may not be able to consummate an initial

 

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business combination within such time period. Our ability to complete an initial business combination may be negatively impacted by general market conditions, volatility in the capital and debt markets and the other risks described herein.

If we are unable to complete an initial business combination by the Outside Date, we will: (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than 10 business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest (less up to $100,000 of interest to pay dissolution expenses and which interest shall be net of taxes payable), divided by the number of then issued and outstanding Public Shares, which redemption will completely extinguish Public Shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any), subject to applicable law; and (iii) as promptly as reasonably possible following such redemption, subject to the approval of Replay’s remaining shareholders and Replay’s board of directors, wind up its affairs and subsequently dissolve, subject in each case to Replay’s obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. Accordingly, the Warrants will expire worthless.

For illustrative purposes, based on funds in the Trust Account of approximately $293.3 million on September 30, 2020, the estimated per share redemption price would have been approximately $10.20.

Our Sponsor, directors, executive officers, advisors and their affiliates may elect to purchase shares from Public Shareholders, which may influence the vote on the Business Combination and reduce the public “float” of our Ordinary Shares.

Our Sponsor, directors, executive officers, advisors or their affiliates may purchase shares in privately negotiated transactions or in the open market either prior to or following the completion of the Business Combination, although they are under no obligation to do so. Such a purchase may include a contractual acknowledgement that such shareholder, although still the record holder of our shares is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that our Sponsor, directors, executive officers, advisors or their affiliates purchase shares in privately negotiated transactions from Public Shareholders who have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their prior elections to redeem their shares. The purpose of such purchases could be to vote such shares in favor of the Business Combination and thereby increase the likelihood of obtaining shareholder approval of the Business Combination or to satisfy the minimum cash closing condition in the Transaction Agreement, where it appears that such requirement would otherwise not be met. This may result in the completion of the Business Combination that may not otherwise have been possible.

In addition, if such purchases are made, the public “float” of our Ordinary Shares and the number of beneficial holders of our securities may be reduced, possibly making it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange.

Our ability to successfully effect the Business Combination and successfully operate the business thereafter will be largely dependent upon the efforts of certain key personnel of FoA, all of whom we expect to stay with New Pubco following the Business Combination. The loss of such key personnel could negatively impact the operations and financial results of the combined business.

Our ability to successfully effect the Business Combination and successfully operate the business following the Closing is dependent upon the efforts of certain key personnel of FoA. Although we expect key personnel to remain with New Pubco following the Business Combination, there can be no assurance that they will do so. It is possible that FoA will lose some key personnel, the loss of which could negatively impact the operations and profitability of New Pubco. Furthermore, following the Closing, certain of the key personnel of FoA may be unfamiliar with the requirements of operating a company regulated by the SEC, which could cause New Pubco to have to expend time and resources helping them become familiar with such requirements.

 

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Our board of directors did not obtain a fairness opinion in determining whether or not to proceed with the Business Combination and, as a result, the terms may not be fair from a financial point of view to our Public Shareholders.

In analyzing the Business Combination, our management conducted significant due diligence on FoA. For a discussion of the factors considered by Replay’s board of directors in approving the Business Combination, see the section entitled, “The Business Combination—Replay’s Board of Directors’ Reasons for the Approval Business Combination.” Our board of directors believes because of the financial skills and background of its directors, it was qualified to conclude that the Business Combination was fair from a financial perspective to its shareholders and that FoA’s fair market value was at least 80% of our net assets (net of taxes payable and excluding the amount of any deferred underwriting discounts held in trust). Notwithstanding the foregoing, our board of directors did not obtain a fairness opinion to assist it in its determination. Accordingly, our board of directors may be incorrect in its assessment of the Business Combination.

The ability of our Public Shareholders to exercise redemption rights with respect to a large number of Ordinary Shares could increase the probability that the Business Combination will be unsuccessful and that our shareholders will have to wait for liquidation in order to redeem their Public Shares.

Since the Transaction Agreement requires that Replay has at least $400,000,000 of available cash at the Closing (unless such requirement is waived by the Seller-Side Parties), the probability that the Business Combination will be unsuccessful is increased if a large number of Public Shares are tendered for redemption. If the Business Combination is unsuccessful, Public Shareholders will not receive their pro rata portion of the Trust Account until the Trust Account is liquidated. If Public Shareholders are in need of immediate liquidity, they could attempt to sell their Public Shares in the open market; however, at such time, the Ordinary Shares may trade at a discount to the pro rata per share amount in the Trust Account. In either situation, our shareholders may suffer a material loss on their investment or lose the benefit of funds expected in connection with the redemption until Replay is liquidated or our shareholders are able to sell their Public Shares in the open market.

If our shareholders fail to comply with the procedures for tendering their shares, such shares may not be redeemed.

This proxy statement/prospectus describes the various procedures that must be complied with in order for a Public Shareholder to validly redeem its Public Shares. In the event that a shareholder fails to comply with these procedures, its shares may not be redeemed.

Our Public Shareholders will not have any rights or interests in funds from the Trust Account, except under certain limited circumstances. To liquidate their investment, therefore, Public Shareholders may be forced to sell their securities, potentially at a loss.

Our Public Shareholders will be entitled to receive funds from the Trust Account only (i) in the event of a redemption of the Public Shares prior to any winding up in the event Replay does not consummate its initial business combination by the Outside Date, (ii) if they redeem their shares in connection with an initial business combination that Replay consummates or (iii) if they redeem their shares in connection with a shareholder vote to amend any provision of our Existing Organizational Documents relating to shareholders’ rights or pre-initial business combination activity. In no other circumstances will a Public Shareholder have any right or interest of any kind in the Trust Account. Accordingly, to liquidate your investment, you may be forced to sell your securities, potentially at a loss.

Public Shareholders, together with any affiliates of theirs or any other person with whom they are acting in concert or as a “group,” will be restricted from seeking redemption rights with respect to more than 15% of the Public Shares.

Our Existing Organizational Documents provide that a Public Shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined

 

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under Section 13(d)(3) of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 15% of the shares sold in our IPO, which we refer to as the “Excess Shares.” However, our Existing Organizational Documents do not restrict our shareholders’ ability to vote all of their shares (including Excess Shares) for or against an initial business combination. Our Public Shareholders’ inability to redeem the Excess Shares will reduce their influence over our ability to complete an initial business combination and they could suffer a material loss on their investment in us if they sell Excess Shares in open market transactions. Additionally, they will not receive redemption distributions with respect to the Excess Shares if we complete an initial business combination, and, as a result, they will continue to hold that number of shares exceeding 15% and, in order to dispose of such shares, would be required to sell their shares in open market transactions, potentially at a loss.

If third parties bring claims against us, the proceeds held in the Trust Account could be reduced and the per-share redemption amount received by shareholders may be less than $10.00 per share.

Our placing of funds in the Trust Account may not protect those funds from third-party claims against us. Although we have sought and will continue to seek to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of our Public Shareholders, such parties may not execute such agreements, or even if they execute such agreements they may not be prevented from bringing claims against the Trust Account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim against our assets, including the funds held in the Trust Account. If any third-party refuses to execute an agreement waiving such claims to the monies held in the Trust Account, our management will perform an analysis of the alternatives available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would be significantly more beneficial to us than any alternative. We are not aware of any product or service providers who have not or will not provide such waiver other than the underwriters of our IPO and our independent registered public accounting firm.

Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third-party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the Trust Account for any reason. Upon redemption of our Public Shares, if we are unable to complete our initial business combination within the prescribed time frame, or upon the exercise of a redemption right in connection with our initial business combination, we will be required to provide for payment of the claims of creditors that were not waived that may be brought against us within the 10 years following redemption. Accordingly, the per-share redemption amount received by Public Shareholders could be less than the $10.00 per share initially held in the Trust Account, due to claims of such creditors.

Our Sponsor has agreed that it will be liable to us if and to the extent any claims by a vendor for services rendered or products sold to us, or a prospective target business with which we have discussed entering into a transaction 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 amount of interest which may be withdrawn to pay taxes, except as 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 our 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, our Sponsor will not be responsible to the extent of any liability for such third-party claims. We have not independently verified whether our Sponsor has

 

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sufficient funds to satisfy its indemnity obligations. We have not asked our Sponsor to reserve for such eventuality. We believe the likelihood of our Sponsor having to indemnify the Trust Account is limited because we have and will continue to endeavor to have all vendors and prospective target businesses as well as other entities execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.

Our independent directors may decide not to enforce the indemnification obligations of our Sponsor, resulting in a reduction in the amount of funds in the Trust Account available for distribution to our Public Shareholders.

In the event that the proceeds in the Trust Account are reduced below (1) $10.00 per Public Share or (2) 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 value of the trust assets, in each case net of the amount of interest which may be withdrawn to pay taxes, and our Sponsor asserts that it is unable to satisfy its indemnification obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against our Sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against our Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance. Accordingly, we cannot assure you that due to claims of creditors the actual value of the per-share redemption price will not be substantially less than $10.00 per share.

If, after we distribute the proceeds in the Trust Account to our Public Shareholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, a bankruptcy court may seek to recover such proceeds, and the members of our board of directors may be viewed as having breached their fiduciary duties to our creditors, thereby exposing the members of our board of directors and us to claims of punitive damages.

If, after we distribute the proceeds in the Trust Account to our Public Shareholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, any distributions received by shareholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as a voidable performance. As a result, a liquidator could seek to recover all amounts received by our shareholders. In addition, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or having acted in bad faith by paying Public Shareholders from the Trust Account prior to addressing the claims of creditors, thereby exposing itself and us to claims of punitive damages.

If, before distributing the proceeds in the Trust Account to our Public Shareholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the claims of creditors in such proceeding may have priority over the claims of our shareholders and the per-share amount that would otherwise be received by our shareholders in connection with our liquidation may be reduced.

If, before distributing the proceeds in the Trust Account to our Public Shareholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy claims deplete the Trust Account, the per-share amount that would otherwise be received by our shareholders in connection with our liquidation may be reduced.

Our shareholders may be held liable for claims by third parties against us to the extent of distributions received by them upon redemption of their shares.

If we are forced to enter into an insolvent liquidation, any distributions received by shareholders could be viewed as an unlawful payment if it was proved that immediately following the date on which the distribution

 

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was made, we were unable to pay our debts as they fall due in the ordinary course of business. As a result, a liquidator could seek to recover some or all amounts received by our shareholders. Furthermore, our directors may be viewed as having breached their fiduciary duties to us or our creditors and/or may have acted in bad faith, and thereby exposing themselves and us to claims, by paying Public Shareholders from the Trust Account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons. We and our directors and officers who knowingly and willfully authorized or permitted any distribution to be paid out of our share premium account while we were unable to pay our debts as they fall due in the ordinary course of business would be guilty of an offence and may be liable to a fine of up to approximately $15,000 and to imprisonment for five years in the Cayman Islands.

Our directors have potential conflicts of interest in recommending that shareholders vote in favor of approval of the Cayman Proposals and approval of the other Proposals described in this proxy statement/prospectus.

When considering our board of directors’ recommendation that our shareholders vote in favor of the approval of the Cayman Proposals, our shareholders should be aware that certain of our directors and the executive officers have interests in the Business Combination that may be different from, or in addition to, the interests of our shareholders. These interests include:

 

   

the beneficial ownership of Replay’s Sponsor and certain of Replay’s directors of an aggregate of 7,187,500 Founder Shares, which shares would become worthless if Replay does not complete a business combination within the applicable time period, as Replay’s Initial Shareholders have waived any right to redemption with respect to these shares. Such shares have an aggregate market value of approximately $73 million based on the closing price of Ordinary Shares of $10.19 on NYSE on January 28, 2021, the record date for the general meeting of shareholders;

 

   

Replay’s directors will be reimbursed for any out-of-pocket expenses incurred by them on Replay’s behalf incident to identifying, investigating and consummating a business combination; and

 

   

the continued indemnification and advancement of expenses of current directors and officers of Replay and the continuation of directors’ and officers’ liability insurance after the Business Combination.

These interests may influence our directors in making their recommendation that you vote in favor of the Cayman Proposals, and the transactions contemplated thereby.

The exercise of discretion by our directors and officers in agreeing to changes to the terms of or waivers of closing conditions in the Transaction Agreement may result in a conflict of interest when determining whether such changes to the terms of the Transaction Agreement or waivers of conditions are appropriate and in the best interests of our shareholders.

In the period leading up to the Closing, other events may occur that, pursuant to the Transaction Agreement, would require us to agree to amend the Transaction Agreement, to consent to certain actions or to waive rights that we are entitled to under those agreements. Such events could arise because of changes in the course of FoA’s business, a request by FoA to undertake actions that would otherwise be prohibited by the terms of the Transaction Agreement or the occurrence of other events that would have a material adverse effect on FoA’s business and would entitle us to terminate the Transaction Agreement. In any of such circumstances, it would be in our discretion, acting through our board of directors, to grant our consent or waive our rights. The existence of the financial and personal interests of the directors described elsewhere in this proxy statement/prospectus may result in a conflict of interest on the part of one or more of the directors between what he may believe is best for us and our shareholders and what he may believe is best for himself or his affiliates in determining whether or not to take the requested action. As of the date of this proxy statement/prospectus, we do not believe there will be any changes or waivers that our directors and officers would be likely to make after shareholder approval of the Business Combination has been obtained. While certain changes could be made without further shareholder approval, if there is a change to the terms of the transaction that would have a material impact on the shareholders, we will be required to circulate a new or amended proxy statement/prospectus or supplement thereto and resolicit the vote of our shareholders with respect to the Cayman Proposals.

 

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There may be sales of a substantial amount of New Pubco Class A Common Stock after the Business Combination by Replay’s shareholders and/or FoA’s current owners, and these sales could cause the price of New Pubco’s securities to fall.

Of our issued and outstanding Ordinary Shares that were issued prior to the Business Combination, all will be freely transferable, except for any shares held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act. Following completion of the Business Combination, we expect that approximately 68.4% of the outstanding New Pubco Class A Common Stock will be held by entities affiliated with New Pubco and its executive officers and directors , assuming no redemptions by Replay’s Public Shareholders and the exchange of all FoA Units by the Continuing Unitholders.

After the Business Combination and pursuant to the Registration Rights Agreement, certain shareholders will be entitled to demand that New Pubco registers the resale of their securities subject to certain minimum requirements. These shareholders will also have certain “piggyback” registration rights with respect to registration statements filed subsequent to the Business Combination.

Upon effectiveness of any registration statement we file pursuant to the Registration Rights Agreement, and upon the expiration of the lockup periods applicable to the parties to the Registration Rights Agreement, these parties may sell large amounts of our Ordinary Shares in the open market or in privately negotiated transactions, which could have the effect of increasing the volatility in the share price of our Ordinary Shares or putting significant downward pressure on the price of our Ordinary Shares.

Sales of substantial amounts of our Ordinary Shares in the public market after the Business Combination, or the perception that such sales will occur, could adversely affect the market price of our Ordinary Shares and make it difficult for us to raise funds through securities offerings in the future.

We may amend the terms of the Warrants in a manner that may be adverse to holders with the approval by the holders of at least a majority of the then outstanding Public Warrants.

Our Warrants are issued in registered form under the Warrant Agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The 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 a majority of the then outstanding Public Warrants to make any change that adversely affects the interests of the registered holders. Accordingly, we may amend the terms of the Warrants in a manner adverse to a holder if holders of at least a majority of the then outstanding Public Warrants approve of such amendment. Although our ability to amend the terms of the Warrants with the consent of at least the majority of the then outstanding Public Warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the Warrants, shorten the exercise period or decrease the number of shares of our Ordinary Shares purchasable upon exercise of a Warrant.

We may redeem your unexpired Warrants prior to their exercise at a time that is disadvantageous to you, thereby making your Warrants worthless.

We have the ability to redeem outstanding Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per Warrant; provided that the last reported sales price of our Ordinary Shares equals or exceeds $18.00 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date we send the notice of such redemption to the Warrant holders. If and when the Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding Warrants could force you (i) to exercise your Warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) to sell your Warrants at the then-current market price when you might otherwise wish to hold your

 

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Warrants or (iii) to accept the nominal redemption price which, at the time the outstanding Warrants are called for redemption, is likely to be substantially less than the market value of your Warrants. In addition, we may redeem your Warrants after they become exercisable for a number of Ordinary Shares determined based on the redemption date and the fair market value of our Ordinary Shares. Any such redemption may have similar consequences to a cash redemption described above. In addition, such redemption may occur at a time when the Warrants are “out-of-the-money,” in which case you would lose any potential embedded value from a subsequent increase in the value of the Ordinary Shares had your Warrants remained outstanding.

In addition, we may redeem your Warrants after they become exercisable for a number of Ordinary Shares determined based on the redemption date and the fair market value of our Ordinary Shares. Any such redemption may have similar consequences to a cash redemption described above. In addition, such redemption may occur at a time when the Warrants are “out-of-the-money,” in which case you would lose any potential embedded value from a subsequent increase in the value of the Ordinary Shares had your Warrants remained outstanding. None of the Private Placement Warrants will be redeemable by us so long as they are held by our Sponsor or its permitted transferees.

Our Warrants may have an adverse effect on the market price of our Ordinary Shares.

We have issued Warrants to purchase 14,375,000 shares of our Ordinary Shares as part of the Units offered in our IPO and, simultaneously with the closing of our IPO, we issued in a private placement an aggregate of 7,750,000 Private Placement Warrants, each exercisable to purchase one Ordinary Share at $11.50 per share. To the extent such Warrants are exercised, additional shares of our Ordinary Shares will be issued, which will result in dilution to our shareholders and increase the number of Ordinary Shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such Warrants may be exercised could adversely affect the market price of our Ordinary Shares.

Because each Unit contains one-half of one Warrant and only a whole Warrant may be exercised, the Units may be worth less than Units of other blank check companies.

Each Unit contains one-half of one Warrant. Pursuant to the Warrant Agreement, no fractional Warrants will be issued upon separation of the Units, and only whole Units will trade. This is different from other offerings similar to ours whose units include one ordinary share and one whole warrant to purchase one share. We have established the components of the Units in this way in order to reduce the dilutive effect of the Warrants upon completion of a business combination since the Warrants will be exercisable in the aggregate for a half of the number of shares compared to units that each contain a whole warrant to purchase one share. Nevertheless, this unit structure may cause our Units to be worth less than if they included a warrant to purchase one whole share.

Because we have no current plans to pay cash dividends on our Ordinary Shares for the foreseeable future, you may not receive any return on investment unless you sell your Ordinary Shares for a price greater than that which you paid for it.

We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay any cash dividends for the foreseeable future. Any decision to declare and pay dividends as a public company in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant. In addition, our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur. As a result, you may not receive any return on an investment in our Ordinary Shares unless you sell our Ordinary Shares for a price greater than that which you paid for it. See the section entitled “Price Range of Securities and Dividends—Dividends.”

 

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The Principal Stockholders will control New Pubco following the Business Combination and their interests may conflict with New Pubco’s or yours in the future.

Immediately following the Business Combination, the Principal Stockholders will beneficially own approximately 66.6% of the combined voting power of New Pubco’s Class A Common Stock and Class B Common Stock, assuming no redemptions by Replay’s Public Shareholders. Moreover, New Pubco will agree to nominate to our board individuals designated by the Principal Stockholders in accordance with the Stockholders Agreement New Pubco intends to enter into in connection with this offering. The Principal Stockholders will retain the right to designate directors subject to the maintenance of certain ownership requirements in us. See “Certain Agreements Related to the Business Combination—Stockholders Agreement.” Even when the Principal Stockholders cease to own shares of New Pubco stock representing a majority of the total voting power, for so long as the Principal Stockholders continue to own a significant percentage of New Pubco stock, they will still be able to significantly influence or effectively control the composition of the New Pubco Board and the approval of actions requiring stockholder approval through their voting power. Accordingly, for such period of time, the Principal Stockholders will have significant influence with respect to New Pubco’s management, business plans and policies, including the appointment and removal of New Pubco’s officers. In particular, for so long as the Principal Stockholders continue to own a significant percentage of New Pubco’s stock, the Principal Stockholders will be able to cause or prevent a change of control of New Pubco or a change in the composition of the New Pubco Board and could preclude any unsolicited acquisition of New Pubco. The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of Class A Common Stock as part of a sale of New Pubco and ultimately might affect the market price of the Class A Common Stock.

In addition, immediately following the Business Combination, the Principal Stockholders will own 56.7% of the FoA Units, assuming no redemptions by Replay’s Public Shareholders. Because they hold ownership interests directly in FoA, the Principal Stockholders may have conflicting interests with holders of shares of the Class A Common Stock. For example, if FoA makes distributions to New Pubco, the Principal Stockholders will also be entitled to receive such distributions pro rata in accordance with the percentages of their respective membership interests in FoA and their preferences as to the timing and amount of any such distributions may differ from those of New Pubco’s public stockholders. The Principal Stockholders may also have different tax positions from us which could influence their decisions regarding whether and when to dispose of assets, especially in light of the existence of the Tax Receivable Agreement that we will enter into in connection with this offering, whether and when to incur new or refinance existing indebtedness, and whether and when New Pubco should terminate the Tax Receivable Agreements and accelerate its obligations thereunder. In addition, the structuring of future transactions may take into consideration the Principal Stockholders’ tax or other considerations even where no similar benefit would accrue to New Pubco. See “Certain Agreements Related to the Business Combination—Tax Receivable Agreements.”

The Proposed Charter will not limit the ability of the Principal Stockholders to compete with New Pubco and they may have investments in businesses whose interests conflict with New Pubco.

The Principal Stockholders and their respective affiliates engage in a broad spectrum of activities, including investments in businesses that may compete with New Pubco. In the ordinary course of their business activities, the Principal Stockholders and their respective affiliates may engage in activities where their interests conflict with New Pubco’s interests or those of its stockholders. The Proposed Charter provides that none of the Principal Stockholders or any of their respective affiliates or any of New Pubco’s directors who are not employed by New Pubco (including any non-employee director who serves as one of New Pubco’s officers in both his or her director and officer capacities) or his or her affiliates will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which New Pubco operates. See “Description of Securities—Conflicts of Interest.” The Principal Stockholders and their respective affiliates also may pursue acquisition opportunities that may be complementary to New Pubco’s business, and, as a result, those acquisition opportunities may not be available to New Pubco. In addition, the Principal Stockholders may have an interest in New Pubco pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance their investment, even though such transactions might involve risks to New Pubco and its stockholders.

 

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Anti-takeover provisions under Delaware law could make an acquisition of New Pubco, which may be beneficial to New Pubco’s stockholders, more difficult and may prevent attempts by New Pubco’s stockholders to replace or remove New Pubco’s management.

New Pubco is incorporated in Delaware. The Proposed Charter and the Proposed Bylaws that will become effective immediately prior to the consummation of this offering will contain provisions that may make the merger or acquisition of New Pubco more difficult without the approval of the New Pubco Board. Among other things, these provisions:

 

   

provide that subject to the rights of the holders of any preferred stock and the rights granted pursuant to the Stockholders Agreement, vacancies and newly created directorships may be filled only by the remaining directors at any time the Principal Stockholders beneficially own less than 30% of the total voting power of all then outstanding shares of New Pubco’s capital stock entitled to vote generally in the election of directors;

 

   

would allow New Pubco to authorize the issuance of shares of one or more series of preferred stock, including in connection with a stockholder rights plan, financing transactions or otherwise, the terms of which series may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders of common stock;

 

   

prohibit stockholder action by written consent from and after the date on which the Principal Stockholders beneficially own at least 30% of the total voting power of all then outstanding shares of New Pubco’s capital stock entitled to vote generally in the election of directors unless such action is recommended by all directors then in office;

 

   

provide for certain limitations on convening special stockholder meetings; and

 

   

establish advance notice requirements for nominations for elections to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings.

Further, as a Delaware corporation, New Pubco will also be subject to provisions of Delaware law, which may impede or discourage a takeover attempt that New Pubco’s stockholders may find beneficial. These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of New Pubco, including actions that New Pubco’s stockholders may deem advantageous, or negatively affect the trading price of the Class A Common Stock. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause New Pubco to take other corporate actions you desire. For further discussion of these and other such anti-takeover provisions, see “Description of Securities—Certain Anti-Takeover Provisions of Our Proposed Charter and Proposed Bylaws.”

The Proposed Charter will designate the Court of Chancery of the State of Delaware or the federal district courts of the United States of America, as applicable, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by New Pubco’s stockholders, which could limit New Pubco’s stockholders’ ability to obtain a favorable judicial forum for disputes with New Pubco or New Pubco’s directors, officers or other employees.

The Proposed Charter will provide that, unless New Pubco consents to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for: (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a breach of fiduciary duty owed by any current or former director, officer, stockholder or employee of New Pubco to New Pubco or its stockholders; (iii) any action asserting a claim against New Pubco arising under the DGCL, the Proposed Organizational Documents or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; or (iv) any action asserting a claim against New Pubco that is governed by the internal affairs doctrine.

 

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The Proposed Charter further will provide that, unless New Pubco consents in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the federal securities laws of the United States, including the Securities Act and the Exchange Act and, in each case, the applicable rules and regulations promulgated thereunder.

Any person or entity purchasing or otherwise acquiring any interest in any shares of New Pubco’s capital stock shall be deemed to have notice of and to have consented to the forum provision in the Proposed Charter. This choice-of-forum provision may limit a stockholder’s ability to bring a claim in a different judicial forum, including one that it may find favorable or convenient for a specified class of disputes with New Pubco or New Pubco’s directors, officers, other stockholders or employees, which may discourage such lawsuits. Alternatively, if a court were to find this provision of the Proposed Charter inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, New Pubco may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect New Pubco’s business, financial condition and results of operations and result in a diversion of the time and resources of New Pubco’s management and board of directors.

The Replay LLCA, if approved, will designate the Court of Chancery of the State of Delaware or, if such court lacks jurisdiction, the state or federal courts in the State of Delaware and any appellate court thereof, as applicable, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by Replay Acquisition LLC’s members, which could limit Replay Acquisition LLC’s members’ ability to obtain a favorable judicial forum for disputes with Replay Acquisition LLC or Replay Acquisition LLC’s managers, officers or other employees.

As permitted by the DLLCA, the Replay LLCA, if approved, will provide that each member of Replay submits, to the fullest extent permitted by applicable law, to the exclusive jurisdiction of the Court of Chancery of the State of Delaware or, if such court lacks jurisdiction, the state or federal courts in the State of Delaware and any appellate court thereof, in any action or proceeding arising out of or relating to the Replay LLCA or the business of Replay (including any claim arising under the internal affairs doctrine). This provision of the Replay LLCA does not provide exclusive jurisdiction to the Court of Chancery of the State of Delaware or any other state court in the State of Delaware where such court does not have jurisdiction, such as actions or proceedings brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder (which actions or proceedings we understand must be brought in federal courts under Section 27 of the Exchange Act). Also, this provision of the Replay LLCA does not apply to actions or proceedings that do not arise out of or are unrelated to the Replay LLCA or the business of Replay Acquisition LLC (including any claim under the internal affairs doctrine), such as actions or proceedings brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder or the Exchange Act or the rules and regulations thereunder. In connection with the submission to such courts in an appropriate action or proceeding, the Replay LLCA, if approved, will provide that each member of Replay waives any objection to venue in such courts and defense of inconvenient forum to the maintenance of such action or proceeding in such courts, in each case, to the fullest extent permitted by applicable law. Members of Replay Acquisition LLC will not be deemed to have waived compliance with the federal securities laws and the rules and regulations thereunder as a result of the forum selection provisions in the Replay LLCA.

The Replay LLCA, if approved, will include a jury trial waiver that could limit the ability of members of Replay Acquisition LLC to bring or demand a jury trial in any claim or cause of action arising out of or relating to the Replay LLCA, or the business or affairs of Replay Acquisition LLC (including any claim arising under the internal affairs doctrine).

The Replay LLCA, if approved, will contain a provision pursuant to which members of Replay Acquisition LLC waive their respective rights to a trial by jury in any action or proceeding arising out of or relating to the Replay LLCA, or the business or affairs of Replay Acquisition LLC (including any claim arising under the internal affairs doctrine). This jury trial waiver does not apply to any claim or cause of action arising out of or relating to the Securities Act or Exchange Act, and does not apply to shareholders of New Pubco in any claim or cause of action arising out of or relating to New Pubco’s organizational documents, business or affairs.

 

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If Replay Acquisition LLC opposed a jury trial demand based on the jury trial waiver, the appropriate court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law, including in respect of federal securities laws claims.

This waiver of jury trial provision may limit the ability of a member of Replay Acquisition LLC to bring or demand a jury trial in any claim or cause of action arising out of or relating to the Replay LLCA, or the business or affairs of Replay Acquisition LLC (including any claim arising under the internal affairs doctrine), which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the waiver of jury trial provision contained in the Replay LLCA to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action, which could harm our business, operating results and financial condition.

New Pubco cannot predict the impact its dual class structure may have on the market price of the Class A Common Stock.

New Pubco cannot predict whether its dual class structure will result in a lower or more volatile market price of the Class A Common Stock, in adverse publicity or other adverse consequences. Certain index providers have announced restrictions on including companies with multiple class share structures in certain of their indices. For example, S&P Dow Jones has stated that companies with multiple share classes will not be eligible for inclusion in the S&P Composite 1500 (composed of the S&P 500, S&P MidCap 400 and S&P SmallCap 600), although existing index constituents in July 2017 were grandfathered. Under the announced policies, New Pubco’s dual class capital structure would make it ineligible for inclusion in any of these indices. Given the sustained flow of investment funds into passive strategies that seek to track certain indices, exclusion from stock indices would likely preclude investment by many of these funds and could make the Class A Common Stock less attractive to other investors. As a result, the market price of the Class A Common Stock could be materially adversely affected.

New Pubco is a holding company and its only material asset after the Business Combination will be its interest in FoA, and it is accordingly dependent upon distributions from FoA to pay taxes, make payments under the Tax Receivable Agreements and pay dividends.

New Pubco will be a holding company and will have no material assets other than its direct and/or indirect ownership of FoA Units. New Pubco has no independent means of generating revenue. FoA intends to make distributions to the holders of FoA Units, including New Pubco and the Principal Stockholders, in an amount sufficient to cover all applicable taxes at assumed tax rates, payments under the Tax Receivable Agreements and dividends, if any, declared by it. Deterioration in the financial condition, earnings or cash flow of New Pubco and its subsidiaries for any reason could limit or impair their ability to pay such distributions. Additionally, to the extent that New Pubco needs funds, and FoA is restricted from making such distributions under applicable law or regulation or under the terms of New Pubco’s financing arrangements, or is otherwise unable to provide such funds, such restriction could materially adversely affect New Pubco’s liquidity and financial condition.

It is anticipated that FoA will continue to be treated as a partnership for U.S. federal income tax purposes and, as such, generally will not be subject to any entity-level U.S. federal income tax. Instead, taxable income will be allocated to holders of FoA Units, including New Pubco. Accordingly, New Pubco will be required to pay income taxes on its allocable share of any net taxable income of FoA. Legislation that is effective for taxable years beginning after December 31, 2017 may impute liability for adjustments to a partnership’s tax return to the partnership itself in certain circumstances, absent an election to the contrary. FoA may be subject to material liabilities pursuant to this legislation and related guidance if, for example, its calculations of taxable income are incorrect. In addition, the income taxes on New Pubco’s allocable share of FoA’s net taxable income will increase over time as the Continuing Unitholders exchange their FoA Units for shares of New Pubco Class A Common Stock. Such increase in New Pubco’s tax expenses may have an adverse effect on New Pubco’s business, results of operations and financial condition.

 

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Under the terms of the A&R LLC Agreement, FoA is obligated to make tax distributions to holders of FoA Units (including New Pubco) at certain assumed tax rates. These tax distributions may in certain periods exceed New Pubco’s tax liabilities and obligations to make payments under the Tax Receivable Agreements. The New Pubco Board, in its sole discretion, will make any determination from time to time with respect to the use of any such excess cash so accumulated, which may include, among other uses, acquiring additional newly issued FoA Units from FoA at a per unit price determined by reference to the market value of the Class A Common Stock; paying dividends, which may include special dividends, on its Class A Common Stock; funding repurchases of Class A Common Stock; or any combination of the foregoing. New Pubco will have no obligation to distribute such cash (or other available cash other than any declared dividend) to its stockholders. To the extent that New Pubco does not distribute such excess cash as dividends on its Class A Common Stock or otherwise undertake ameliorative actions between FoA Units and shares of Class A Common Stock and instead, for example, hold such cash balances, the Continuing Unitholders may benefit from any value attributable to such cash balances as a result of their ownership of Class A Common Stock following a redemption or exchange of their FoA Units, notwithstanding that the Continuing Unitholders may previously have participated as holders of FoA Units in distributions by FoA that resulted in such excess cash balances at New Pubco. See “Certain Agreements Related to the Business Combination—Amended and Restated Limited Liability Company Agreement.”

Payments of dividends, if any, will be at the discretion of the New Pubco Board after taking into account various factors, including its business, operating results and financial condition, current and anticipated cash needs, plans for expansion and any legal or contractual limitations on its ability to pay dividends. FoA’s existing financing arrangements include and any financing arrangement that New Pubco enters into in the future may include restrictive covenants that limit its ability to pay dividends. In addition, FoA is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of FoA (with certain exceptions) exceed the fair value of its assets. Subsidiaries of FoA are generally subject to similar legal limitations on their ability to make distributions to FoA.

New Pubco will be required to make payments under the Tax Receivable Agreements for certain tax benefits New Pubco may claim, and the amounts of such payments could be significant.

In connection with the Business Combination, concurrently with the Closing, New Pubco will enter into a Tax Receivable Agreement with certain funds affiliated with Blackstone (the “Blackstone Tax Receivable Agreement”) and a Tax Receivable Agreement with certain other members of FoA (the “FoA Tax Receivable Agreement,” and collectively with the Blackstone Tax Receivable Agreement, the “Tax Receivable Agreements”). The Tax Receivable Agreements generally provide for the payment by New Pubco to certain owners of FoA prior to the Business Combination (the “TRA Parties”) of 85% of the cash tax benefits, if any, that New Pubco is deemed to realize (calculated using certain simplifying assumptions) as a result of (i) tax basis adjustments as a result of sales and exchanges of units in connection with or following the Business Combination and certain distributions with respect to units, (ii) New Pubco’s utilization of certain tax attributes attributable to Blocker or the Blocker Shareholders, and (iii) certain other tax benefits related to entering into the Tax Receivable Agreements, including tax benefits attributable to making payments under the Tax Receivable Agreements. New Pubco will generally retain the benefit of the remaining 15% of these cash tax benefits.

Estimating the amount of payments that may be made under the Tax Receivable Agreements is by its nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors. The anticipated tax basis adjustments, as well as the amount and timing of any payments under the Tax Receivable Agreements, will vary depending upon a number of factors, including the timing of exchanges, the price of shares of New Pubco’s Class A Common Stock at the time of the exchange, the extent to which such exchanges are taxable, the amount of tax attributes, changes in tax rates and the amount and timing of New Pubco’s income. As a result of the size of the anticipated tax basis adjustment of the tangible and intangible assets of FoA and New Pubco’s possible utilization of certain tax attributes, the payments that New Pubco may make under the Tax Receivable Agreements are expected to be substantial. See “Proposal No. 1—The Cayman Proposals—Certain Agreements Related to the Business Combination—Tax Receivable Agreements.”

 

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In certain cases, payments under the Tax Receivable Agreements may be accelerated and/or significantly exceed the actual benefits, if any, New Pubco realizes in respect of the tax attributes subject to the Tax Receivable Agreements.

The Tax Receivable Agreements provide that if New Pubco exercises its right to terminate the Tax Receivable Agreements or in the case of a change in control of New Pubco or a material breach of New Pubco’s obligations under either the Blackstone Tax Receivable Agreement or the FoA Tax Receivable Agreement, all obligations under the Tax Receivable Agreements will be accelerated and New Pubco will be required to make a payment to the TRA Parties in an amount equal to the present value of future payments under the Tax Receivable Agreements.

The amount due and payable in those circumstances is determined based on certain assumptions, including an assumption that any FoA Units that have not been exchanged are deemed exchange for the market value of Class A Common Stock at the time of the termination or the change of control and an assumption New Pubco would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the Tax Receivable Agreements.

As a result of the foregoing, (i) New Pubco could be required to make cash payments to the TRA Parties that are greater than the specified percentage of the actual benefits New Pubco ultimately realizes in respect of the tax benefits that are subject to the Tax Receivable Agreements, and (ii) New Pubco would be required to make a cash payment equal to the present value of the anticipated future tax benefits that are the subject of the Tax Receivable Agreements, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits. In these situations, New Pubco’s obligations under the Tax Receivable Agreements could have a substantial negative impact on its liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combination, or other changes of control due to the additional transaction costs a potential acquirer may attribute to satisfying such obligations. New Pubco may need to incur additional debt to finance payments under the Tax Receivable Agreements to the extent its cash resources are insufficient to meet its obligations under the Tax Receivable Agreements as a result of timing discrepancies or otherwise. There can be no assurance that New Pubco will be able to finance its obligations under the Tax Receivable Agreements.

New Pubco will not be reimbursed for any payments made to the TRA Parties under the Tax Receivable Agreements in the event that any tax benefits are disallowed.

New Pubco will not be reimbursed for any cash payments previously made to the TRA Parties pursuant to the Tax Receivable Agreements if any tax benefits initially claimed by New Pubco are subsequently challenged by a taxing authority and are ultimately disallowed. Instead, any excess cash payments made by New Pubco to a TRA Party will be netted against any future cash payments that New Pubco might otherwise be required to make under the terms of the Tax Receivable Agreements. However, a challenge to any tax benefits initially claimed by New Pubco may not arise for a number of years following the initial time of such payment or, even if challenged early, such excess cash payment may be greater than the amount of future cash payments that New Pubco might otherwise be required to make under the terms of the Tax Receivable Agreements and, as a result, there might not be future cash payments from which to net against. The applicable U.S. federal income tax rules are complex and factual in nature, and there can be no assurance that the Internal Revenue Service (the “IRS”) or a court will not disagree with New Pubco’s tax reporting positions. As a result, it is possible that New Pubco could make cash payments under the Tax Receivable Agreements that are substantially greater than its actual cash tax savings. See “Proposal No. 1—The Cayman Proposals—Certain Agreements Related to the Business Combination—Tax Receivable Agreements” for a discussion of the Tax Receivable Agreements and the related likely benefits to be realized by New Pubco and the TRA Parties.

 

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Certain of the TRA Parties have substantial control over New Pubco, and their interests, along with the interests of other TRA Parties, in New Pubco’s business may conflict with yours.

The TRA Parties may receive payments from New Pubco under the Tax Receivable Agreements upon any redemption or exchange of their units, including the issuance of shares of Class A Common Stock upon any such redemption or exchange. As a result, the interests of the TRA Parties may conflict with the interests of holders of Class A Common Stock. For example, the TRA Parties may have different tax positions from New Pubco which could influence their decisions regarding whether and when to dispose of assets, whether and when to incur new or refinance existing indebtedness, especially in light of the existence of the Tax Receivable Agreements, and whether and when New Pubco should terminate the Tax Receivable Agreements and accelerate its obligations thereunder. In addition, the structuring of future transactions may take into consideration tax or other considerations of TRA Parties even in situations where no similar considerations are relevant to New Pubco. See “Proposal No. 1—The Cayman Proposals—Certain Agreements Related to the Business Combination—Tax Receivable Agreements” for a discussion of the Tax Receivable Agreements and the related likely benefits to be realized by New Pubco and the TRA Parties.

If, following the Business Combination, securities or industry analysts do not publish or cease publishing research or reports about New Pubco, its business, or its market, or if they change their recommendations regarding New Pubco’s securities adversely, the price and trading volume of New Pubco’s securities could decline.

The trading market for New Pubco’s securities will be influenced by the research and reports that industry or securities analysts may publish about New Pubco, its business, market or competitors. Securities and industry analysts do not currently, and may never, publish research on New Pubco. If no securities or industry analysts commence coverage of New Pubco, New Pubco’s share price and trading volume would likely be negatively impacted. If any of the analysts who may cover New Pubco change their recommendation regarding New Pubco’s securities adversely, or provide more favorable relative recommendations about New Pubco’s competitors, the price of New Pubco’s securities would likely decline. If any analyst who may cover New Pubco were to cease coverage of New Pubco or fail to regularly publish reports on it, New Pubco could lose visibility in the financial markets, which in turn could cause its share price or trading volume to decline.

As a result of the application of business combination accounting in connection with the Business Combination, the historical consolidated financial statements of FoA presented in this proxy statement/prospectus are not necessarily indicative of New Pubco’s future results of operations, financial position and cash flows, and in the future New Pubco may need to recognize impairment charges related to goodwill, identified intangible assets and fixed assets that are adjusted to fair value.

The Business Combination may be accounted for as a business combination using the acquisition method of accounting. Accordingly, the assets and liabilities of FoA would be recorded at their fair values at the date of the consummation of the Business Combination, with any excess of the purchase price over the estimated fair value recorded as goodwill. These fair value adjustments may result in substantial balances of goodwill and identified intangible assets. The application of business combination accounting requires the use of significant estimates and assumptions.

As a result of the application of business combination accounting in connection with the Business Combination, the historical consolidated financial statements of FoA presented in this proxy statement/prospectus are not necessarily indicative of New Pubco’s future results of operations, financial position and cash flows. For example, increased tangible and intangible assets resulting from adjusting the basis of tangible and intangible assets to their fair value would result in increased depreciation and amortization expense in the periods following the consummation of the Business Combination. Additionally, New Pubco will be required to test goodwill and any other intangible assets with an indefinite life for possible impairment on an annual basis and on an interim basis if there are indicators of a possible impairment. New Pubco will also be required to evaluate

 

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amortizable intangible assets and fixed assets for impairment if there are indicators of a possible impairment. There is significant judgment required in the analysis of a potential impairment of goodwill, identified intangible assets and fixed assets. If, as a result of a general economic slowdown, deterioration in one or more of the markets in which FoA operates or impairment in FoA’s financial performance and/or future outlook, the estimated fair value of New Pubco’s long- lived assets decreases, New Pubco may determine that one or more of its long-lived assets is impaired. An impairment charge would be determined based on the estimated fair value of the assets and any such impairment charge could have a material adverse effect on New Pubco’s business, financial condition and results of operations.

You may be diluted by the future issuance of additional Class A Common Stock or FoA Units in connection with New Pubco’s incentive plans, acquisitions or otherwise.

After the consummation of the Business Combination New Pubco will have 5,916,485,461 shares of Class A Common Stock authorized but unissued, including 111,943,961 shares of Class A Common Stock issuable upon exchange of FoA Units that will be held by the Continuing Unitholders and 14,375,000 shares of Class A Common Stock issuable upon exercise of the Warrants. The Proposed Charter authorizes New Pubco to issue these shares of Class A Common Stock and options, rights, warrants and appreciation rights relating to Class A Common Stock for the consideration and on the terms and conditions established by New Pubco’s Board in its sole discretion, whether in connection with acquisitions or otherwise. Similarly, the A&R LLC Agreement permits FoA to issue an unlimited number of additional limited liability company interests of FoA with designations, preferences, rights, powers and duties that are different from, and may be senior to, those applicable to the FoA Units, and which may be exchangeable for shares of Class A Common Stock. Additionally, New Pubco has reserved an aggregate of 23,769,904 shares of Class A Common Stock and FoA Units for issuance under the Incentive Plan. Any Class A Common Stock that New Pubco issues, including under the Incentive Plan or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by the investors who own shares of Class A Common Stock following the consummation of the Business Combination.

New Pubco may issue preferred stock whose terms could materially adversely affect the voting power or value of its Class A Common Stock.

The Proposed Charter will authorize New Pubco to issue, without the approval of its stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over New Pubco’s Class A Common Stock respecting dividends and distributions, as the Board may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of the Class A Common Stock. For example, New Pubco might grant holders of preferred stock the right to elect some number of New Pubco’s directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences New Pubco might assign to holders of preferred stock could affect the residual value of the Class A Common Stock.

Risks Related to Taxation

Our change in classification to a U.S. domestic corporation for U.S. federal income tax purposes may result in adverse tax consequences for you.

We will become a U.S. domestic corporation for U.S. federal income tax purposes as a result of the Domestication. If you are a U.S. holder (as defined in the section entitled “Certain U.S. Federal Income Tax Considerations”) of Ordinary Shares, you may be subject to U.S. federal income tax as a result of Domestication. If you are a non-U.S. holder (as defined in the section entitled “Certain U.S. Federal Income Tax Considerations”) of Ordinary Shares or Warrants, you may become subject to withholding tax on any dividends paid on the Ordinary Shares subsequent to the Domestication.

As described in more detail in the section entitled “Certain U.S. Federal Income Tax Considerations” below, the Domestication is intended to qualify as a tax-free reorganization. Assuming the Domestication qualifies as a

 

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tax-free reorganization. U.S. holders will be subject to Section 367 of the Code which imposes income tax on certain United States persons in connection with transactions that would otherwise be tax-free.

If you are a U.S. holder who owns (directly, indirectly, or constructively) Ordinary Shares with a fair market value of $50,000 or more, but less than 10% of the total combined voting power of all classes of our shares entitled to vote (and less than 10% of the total value of all classes of our shares) at the time we become taxable as a U.S. domestic corporation, you must generally recognize gain (but not loss) with respect to such Ordinary Shares, even if you continue to hold your stock and have not received any cash as a result of the Domestication. As an alternative to recognizing gain, however, such U.S. holder may elect to include in income the “all earnings and profits amount,” as the term is defined in Treasury Regulation Section 1.367(b)-2(d), attributable to its Ordinary Shares. We expect to have earnings and profits through the date of the Domestication.

If a U.S. holder owns (directly, indirectly, or constructively) Ordinary Shares representing 10% or more of the total combined voting power of all classes of our shares entitled to vote or 10% or more of the total value of all classes of our shares at the time we become taxable as a U.S. domestic corporation, such U.S. holder will be required to include in income the “all earnings and profits amount” attributable to its Ordinary Shares. Complex attribution rules apply in determining whether a U.S. holder owns 10% or more (by vote or value) of our shares for U.S. federal tax purposes.

If you are a U.S. holder who on the date of the Domestication who owns (directly, indirectly, or constructively) Ordinary Shares with a fair market value less than $50,000, you should not be required to recognize any gain or loss in connection with the Domestication, and generally should not be required to include any part of the all earnings and profits amount in income.

If we are a passive foreign investment company (“PFIC”) at any time during a U.S. holder’s holding period of Ordinary Shares, such U.S. holder may be required to recognize gain in connection with Domestication and be subject to complex rules applicable to a shareholder of a PFIC. We believe that we have been a PFIC since our inception. The determination of whether a non-U.S. corporation is a PFIC is primarily factual and there is little administrative or judicial authority on which to rely to make a determination.

EACH U.S. HOLDER IS STRONGLY URGED TO CONSULT ITS OWN TAX ADVISOR.

For a more detailed description of the material U.S. federal income tax consequences associated with the Domestication, please read the section entitled “Certain U.S. Federal Income Tax Considerations” below. WE STRONGLY URGE YOU TO CONSULT WITH YOUR OWN TAX ADVISOR.

 

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UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION

Introduction

We are providing the following unaudited pro forma combined consolidated financial information to aid you in your analysis of the financial aspects of the Business Combination. The unaudited pro forma combined consolidated financial information should be read in conjunction with the accompanying notes.

The unaudited pro forma combined consolidated balance sheet as of September 30, 2020 combines the unaudited condensed balance sheet of Replay as of September 30, 2020 with the unaudited consolidated balance sheet of FoA as of September 30, 2020, giving effect to the Business Combination as if it had been consummated on that date.

The unaudited pro forma combined consolidated statement of operations for the nine months ended September 30, 2020 combines the unaudited condensed statement of operations of Replay for the nine months ended September 30, 2020 with the unaudited consolidated statement of operations of FoA for the nine months ended September 30, 2020. The unaudited pro forma combined consolidated statement of operations for the year ended December 31, 2019 combines the audited statement of operations of Replay for the year ended December 31, 2019 with the audited consolidated statement of operations of FoA for the year ended December 31, 2019. The unaudited pro forma combined consolidated statement of operations for the nine months ended September 30, 2020 and the year ended December 31, 2019 give effect to the Business Combination as if it had been consummated on January 1, 2019.

The unaudited pro forma combined consolidated financial information was derived from and should be read in conjunction with the following historical financial statements and the accompanying notes, which are included elsewhere in this proxy statement/prospectus:

 

   

The historical unaudited condensed financial statements of Replay as of and for the nine months ended September 30, 2020 and the historical audited financial statements of Replay as of and for the year ended December 31, 2019; and

 

   

The historical unaudited consolidated financial statements of FoA as of and for the nine months ended September 30, 2020 and the historical audited consolidated financial statements of FoA as of and for the year ended December 31, 2019.

The foregoing historical financial statements have been prepared in accordance with GAAP.

The unaudited pro forma combined consolidated financial information should also be read together with “Replay Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “FoA Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other financial information included elsewhere in this proxy statement/prospectus.

Description of the Business Combination

On October 12, 2020, Replay, FoA, New Pubco, Replay Merger Sub, Blocker Merger Sub, Blocker, Blocker GP and the Sellers entered into the Transaction Agreement, pursuant to which Replay agreed to combine with FoA in a series of transactions that will result in New Pubco becoming a publicly-traded company on NYSE and controlling FoA in an “UP-C” structure.

Concurrently with the execution of the Transaction Agreement, Replay and New Pubco entered into the PIPE Agreements with the PIPE Investors, as applicable. In the aggregate, the PIPE Investors have committed to purchase $250.0 million of PIPE Shares, at a purchase price of $10.00 per PIPE Share. The closing of the sale of the PIPE Shares pursuant to the PIPE Agreements is contingent upon, among other customary closing conditions,

 

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the substantially concurrent consummation of the Business Combination. The purpose of the sale of the PIPE Shares is to raise additional capital for use in connection with the Business Combination and to meet the minimum cash requirements provided in the Transaction Agreement.

Pursuant to the Business Combination, among other things:

(i) Replay will effect the Domestication, whereby (A) each Ordinary Share outstanding immediately prior to the Domestication will be converted into a Replay LLC Unit and (B) Replay will be governed by the Replay LLCA;

(ii) the Sellers and Blocker GP will sell to Replay FoA Units in exchange for cash;

(iii) the Replay Merger will occur, with each Replay LLC Unit outstanding immediately prior to the effectiveness of the Replay Merger being converted into the right to receive one share of Class A Common Stock;

(iv) Blocker will be converted from a Delaware limited partnership to a Delaware limited liability company;

(v) the Blocker Merger will occur, with each Blocker Share outstanding immediately prior to the effectiveness of the Blocker Merger being converted into the right to receive a combination of shares of Class A Common Stock and cash;

(vi) Blocker GP will contribute its remaining FoA Units to New Pubco in exchange for shares of Class A Common Stock, after which New Pubco will contribute such FoA Units to Blocker; and

(vii) New Pubco will issue to the Continuing Unitholders shares of Class B Common Stock, which will have no economic rights but will entitle each holder of at least one such share (regardless of the number of shares so held) to a number of votes that is equal to the aggregate number of FoA Units held by such holder on all matters on which stockholders of New Pubco are entitled to vote generally.

As a result of the Business Combination, among other things:

(A) New Pubco will indirectly hold (through Replay and Blocker) FoA Units and will have the sole and exclusive right to appoint the board of managers of FoA;

(B) the Sellers will hold (i) FoA Units that are exchangeable on a one-for-one basis for shares of Class A Common Stock and (ii) shares of Class B Common Stock; and

(C) the Continuing Stockholders will, directly or indirectly, hold shares of Class A Common Stock.

As a result of the Business Combination, assuming no redemptions, New Pubco will initially own approximately 41.5% of the economic interest of FoA, but will have 100% of the voting power and will have the right to appoint the board of managers of FoA. Immediately following the completion of the Business Combination, the ownership percentage held by the noncontrolling interest will be approximately 58.5% assuming no redemptions and approximately 64.7% assuming maximum redemptions.

Additionally, in connection with the Business Combination, New Pubco will enter into the Tax Receivable Agreements with the TRA Parties that provides for the payment by New Pubco to the TRA Parties of 85% of the benefits, if any, that New Pubco is deemed to realize (calculated using certain assumptions) as a result of (i) tax basis adjustments that will increase the tax basis of the tangible and intangible assets of New Pubco as a result of sales or exchanges of FoA Units in connection with or after the Business Combination or distributions with respect to the FoA Units prior to or in connection with the Business Combination, (ii) New Pubco’s utilization of certain tax attributes attributable to the Blocker or the Blocker Shareholders, and (iii) certain other tax benefits

 

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related to entering into the Tax Receivable Agreements, including tax benefits attributable to payments under the Tax Receivable Agreements. Prior to and following the consummation of the Business Combination the primary asset held by Blocker is an investment in FoA through Class A Units held. All other assets and liabilities held by Blocker are not considered to be significant to New Pubco. See “Certain Agreements Related to the Business Combination—Tax Receivable Agreements” for more information. The computation of the adjustments to the pro forma balance sheet related to deferred tax assets and amounts payable under the Tax Receivable Agreement are complicated and subject to significant judgments, assumptions and uncertainties, which could cause actual results to differ materially from those presented in such pro forma adjustments. For example, any differences in the tax attributes used to measure the deferred tax asset as of the pro forma balance sheet date and the actual tax attributes upon the consummation of the Business Combination could result in the reduction of any deferred tax asset recognized or recognition of a deferred tax liability. Specifically, the amount of net operating losses, if any, that exist upon the consummation of the Business Combination will be impacted by the amount of taxable income through the consummation of the Business Combination.

Accounting for the Business Combination

The Business Combination will be accounted for using the acquisition method with New Pubco as the accounting acquirer. Under the acquisition method of accounting, New Pubco’s assets and liabilities will be recorded at carrying value and the assets and liabilities associated with FoA will be recorded at estimated fair value as of the acquisition date. The excess of the purchase price over the estimated fair values of the net assets acquired, if applicable, will be recognized as goodwill. For accounting purposes, the acquirer is the entity that has obtained control of another entity and, thus, consummated a business combination. The determination of whether control has been obtained begins with the evaluation of whether control should be evaluated based on the variable interest or voting interest model pursuant to ASC Topic 810, Consolidation (“ASC 810”). If the acquiree is a variable interest entity, the primary beneficiary would be the accounting acquirer. FoA meets the definition of a variable interest entity and New Pubco has been determined to be the primary beneficiary.

Other Events

On November 5, 2020, Finance of America Funding LLC, an indirect, wholly owned subsidiary of FoA, issued $350.0 million aggregate principal amount of 7.875% senior unsecured notes due November 15, 2025. FoA used approximately $298.4 million of the net proceeds of the offering to fund a distribution to its owners and the remaining net proceeds, after offering expenses, are being retained for growth and general corporate purposes.

Basis of Pro Forma Presentation

The unaudited pro forma combined consolidated financial information was prepared in accordance with Article 11 of Regulation S-X, using the assumptions set forth in the notes to the unaudited pro forma combined consolidated financial information. The unaudited pro forma combined consolidated financial information has been adjusted to give effect to transaction accounting adjustments reflecting only the application of required accounting to the Business Combination and related transactions linking the effects of the Business Combination and related transactions to the historical financial statements of Replay, which forms the accounting predecessor of New Pubco. The adjustments in the unaudited pro forma combined consolidated financial information have been identified and presented to provide relevant information necessary for an accurate understanding of the combined entity upon consummation of the Business Combination.

The unaudited pro forma combined consolidated financial information is for illustrative purposes only. The financial results may have been different had the companies always been combined. You should not rely on the unaudited pro forma combined consolidated 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 entity will experience.

 

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The unaudited pro forma combined consolidated financial statements are presented in two scenarios: (1) assuming No Redemptions, and (2) assuming Maximum Redemptions. The No Redemptions scenario assumes that no Replay shareholders elect to redeem their Ordinary Shares for a pro rata portion of cash in the Trust Account, and thus the full amount held in the Trust Account as of the balance sheet date is available for the Business Combination. The Maximum Redemptions scenario assumes that Replay shareholders redeem the maximum number of their Ordinary Shares for a pro rata portion of cash in the Trust Account that would still allow Replay to satisfy a condition precedent in the Transaction Agreement that Replay have at least $400 million of available cash at the closing (excluding payment of any deferred underwriting fees and certain permitted transaction expenses of each of FoA and Replay). In both scenarios, the amount of cash available is sufficient to (a) pay the cash consideration to existing FoA owners and (b) pay transaction expenses.

 

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Unaudited Pro Forma Combined Consolidated Balance Sheet

As of September 30, 2020

(in thousands, except share and per share amounts)

 

    (a)
Replay
Acquisition
Corp. as of
September 30,
2020
    (b)
Finance of
America
Equity
Capital, LLC
as of
September 30,
2020
    (c)
Offering
and Sale
of Senior
Notes
   

Footnote
Reference

  Assuming No Redemptions     Assuming Maximum Redemptions  
  Pro Forma
Adjustments
(Assuming
No
Redemptions)
   

Footnote
Reference

 
Pro Forma
Combined
(Assuming
No
Redemptions)
    Pro Forma
Adjustments
(Assuming
Maximum
Redemptions)
   

Footnote
Reference

 
Pro Forma
Combined
(Assuming
Maximum
Redemptions)
 

ASSETS

                   

Cash and cash equivalents

  $ 974     $ 205,444     $ 338,490     (d)   $ —           $ —        
        (298,448   (e)     —             —        
            (21,386   (f)       (8,997   (f)  
            8,464     (g)       8,464     (g)  
            293,256     (h)       293,256     (h)  
            (9,188   (i)       (9,188   (i)  
            250,000     (j)       250,000     (j)  
            (17,166   (k)       (17,166   (k)  
            (526,794   (l)       (395,927   (l)  
                223,646       (143,256   (m)     223,646  

Restricted cash

    —         308,311       —           —           308,311       —           308,311  

Reverse mortgage loans held for investment, subject to HMBS related obligations, at fair value

    —         9,811,263       —          
—  
 
      9,811,263       —           9,811,263  

Mortgage loans held for investment, subject to nonrecourse debt, at fair value

    —         5,180,911       —           —           5,180,911       —           5,180,911  

Mortgage loans held for investment, at fair value

    —         984,475       —           —           984,475       —           984,475  

Mortgage loans held for sale, at fair value

    —         1,893,555       —           —           1,893,555       —           1,893,555  

Debt securities, $0 at fair value

    —         13,368       —           —           13,368       —           13,368  

Mortgage servicing rights, at fair value

    —         100,539       —           —           100,539       —           100,539  

Derivative assets, at fair value

    —         114,563       —           —           114,563       —           114,563  

Fixed assets and leasehold improvements, net

    —         25,784       —           —           25,784       —           25,784  

Goodwill

    —         121,754       —           (504,857 )     (r)       (504,857  

(r)

 
            1,894,278     (x)     1,511,175       1,840,340     (x)     1,457,237  

Intangible assets, net

    —         16,855       —           366,745     (x)     383,600       366,745     (x)     383,600  

Investments held in Trust Account

    293,256       —         —           (293,256   (h)     —         (293,256   (h)     —    

Deferred tax asset (liability)

    —         —         —           7,251     (s), (t), (x)     7,251       350     (s), (t), (x)     350  

Due from related parties

    —         1,170       —           (1,170   (o)     —         (1,170   (o)     —    

Other assets

    47       244,023       —           —           244,070       —           244,070  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

TOTAL ASSETS

  $ 294,277     $ 19,022,015     $ 40,042       $ 1,446,177       $ 20,802,511     $ 1,385,338       $ 20,741,672  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

 

 

     

 

 

 

LIABILITIES, CONTINGENTLY REDEEMABLE NONCONTROLLING INTEREST (“CRNCI”) AND SHAREHOLDERS’ EQUITY

                   

HMBS related obligations, at fair value

  $ —       $