As filed with the Securities and Exchange Commission on October 13, 2023
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMERICAN ONCOLOGY NETWORK, INC.
(Exact name of registrant as specified in its charter)
|
Delaware
|
| |
7372
|
| |
84-2968594
|
|
(State or other jurisdiction of
incorporation or organization)
|
| |
(Primary Standard Industrial
Classification Code Number)
|
| |
(I.R.S. Employer
Identification Number)
|
14543 Global Parkway, Suite 110
Fort Myers, FL 33913
Telephone: (833) 886-1725
(Address, including zip code and telephone number, including area code, of
Registrant’s principal executive offices)
Erica Mallon, Esq.
14543 Global Parkway, Suite 110
Fort Myers, FL 33913
Telephone: (412) 496-0474
(Name, address, including zip code and telephone number, including area code, of
agent for service)
Copies to:
Brian Lee, Esq.
Dentons US LLP
1221 Avenue of the Americas
New York, NY 10020
(212) 768-6926
Approximate date of commencement of proposed
sale of the securities to the public: From time to time after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 (the “Securities Act”) check the following box: ☒
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering ☐
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act. ☐
|
Large accelerated filer
|
| |
☐
|
| |
Accelerated filer
|
| |
☐
|
|
Non-accelerated filer
|
| |
☒
|
| |
Smaller reporting company
|
| |
☒
|
|
|
| |
|
| |
Emerging growth company
|
| |
☒
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until this registration statement shall become effective on such date as the SEC, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED OCTOBER 13, 2023
PRELIMINARY PROSPECTUS
AMERICAN ONCOLOGY NETWORK, INC.
Primary Offering of
14,450,833 Shares of Class A
Common Stock
Secondary Offering of
51,161,832 Shares of Class A
Common Stock
6,113,333 Warrants to Purchase
Shares of Class A Common Stock
This prospectus relates to (i) the issuance by us of up to
14,450,833 shares of class A common stock, par value $0.0001 per share (the “Class A Common Stock”), of American Oncology Network, Inc., a Delaware corporation (the “Company” “we,” “us,” or “AON”), to be issued upon the exercise of 8,337,500
public warrants and 6,113,333 private placement warrants, each of which entitles its holder to purchase shares of Class A Common Stock at an exercise price of $11.50 per share and (ii) the resale of (a) an aggregate of 51,161,832 shares of
Class A Common Stock by certain of the selling securityholders named in this prospectus (each a “Selling Securityholder” and, collectively, the “Selling Securityholders”) and (b) 6,113,333 private placement warrants to purchase shares of
Class A Common Stock issued to the Selling Securityholders. The securities registered for resale covered by this prospectus consist of:
|
(i)
|
8,337,500 shares of Class A Common Stock held by the Sponsors of Digital Transformation Opportunities Corp. (“DTOC”) (such
shares, the “Founder Shares”) which were issued upon the conversion of the Founder Shares, which includes up to 2,918,125 shares of Class A Common Stock (that may be issued from time to time upon achievement of certain stock price
thresholds) to affiliates of the Company in connection with the earnout provisions set forth in the Sponsor Support Agreement (the “Earnout Shares”);
|
|
(ii)
|
28,109,796 shares of the Class A Common Stock issued in connection with the exchange or redemption of AON LLC Common Units
(“Common Units”) and Class B Common Stock issued or Warrants to convert into Class B Common Stock pursuant to the terms of AON LLC’s Amended and Restated LLC Agreement or Amended and Restated Company Certificate of Incorporation, as
applicable (collectively, the “Exchange Shares”);
|
|
(iii)
|
up to 8,601,203 shares of Class A Common Stock that may be issued from time to time upon conversion of Series A Preferred
Stock including up to 1,949,593 shares of Class A Common Stock that may be issuable pursuant to non-cash dividends that may accrue on the shares of Series A Preferred Stock; and
|
|
(iv)
|
6,113,333 private placement warrants each exercisable for one share of Class A Common Stock at an exercise price of $11.50
per share, purchased by the Sponsors and their permitted transferees, at a price of $1.50 per private placement warrant in a private placement simultaneously with the consummation of DTOC’s IPO; and
|
|
(v)
|
6,113,333 shares of Class A Common Stock underlying the private placements warrants.
|
This prospectus provides you with a general description of such
securities and the general manner in which we and the Selling Securityholders may offer or sell the securities. More specific terms of any securities that we and the Selling Securityholders may offer or sell may be provided in a prospectus
supplement that describes, among other things, the specific amounts and prices of the securities being offered and the terms of the offering. The prospectus supplement may also add, update or change information contained in this prospectus.
We will receive the proceeds from any exercise of the warrants
for cash, but not from the resale of the shares of common stock or private placement warrants by the Selling Securityholders. However, we will pay the expenses, other than underwriting discounts and commissions, associated with the sale of
securities pursuant to this prospectus.
Our registration of the securities covered by this prospectus
does not mean that either we or the Selling Securityholders will issue, offer or sell, as applicable, any of the securities. The Selling Securityholders may offer and sell the securities covered by this prospectus in a number of different ways
and at varying prices. Please the Section entitled “Information Related To Offered Securities” for the prices that the selling securityholders paid for the shares and warrants offered for resale under
this prospectus. We provide more information about how the Selling Securityholders may sell the shares in the section entitled “Plan of Distribution.” You should read this prospectus and any prospectus supplement or amendment carefully before
you invest in our securities.
Our shares of Class A Common Stock are listed on the Nasdaq Stock
Market under the symbol “AONC.” On October 9,2023 the closing sale price of shares of our Class A Common Stock was $7.06. Our warrants are listed on the Nasdaq Stock Market under the symbol “AONCW.” On October 9, 2023 the closing sale price of
our warrants was $0.20.
As of the date of this prospectus, our warrants are “out-of-the
money,” which means that the trading price of the shares of our Class A Common Stock underlying our warrants is below the $11.50 exercise prices, as applicable (subject to adjustment as described herein), of the warrants. For so long as the
warrants remain “out-of-the money,” we do not expect warrant holders to exercise their warrants and therefore any cash proceeds that we may receive in relation to the exercise of such securities being offered for sale in this prospectus will be
dependent on the trading price of our Class A Common Stock. If the market price for our Class A Common Stock is less than the exercise price of the warrants the holders of such securities will be unlikely to exercise such securities. We expect
to use the net proceeds from the exercise of such warrants, if any, for general corporate purposes. See the section entitled “Description of Securities — Warrants” for more information.
The number of shares of Class A Common Stock being registered for
resale under this prospectus is approximately 537% of the number of shares of Class A Common Stock currently outstanding because a significant portion of the shares being registered under this prospectus represents shares that will be issued
upon the exercise of warrants, or the conversion of our Class B Common Stock or the conversion of our Series A Preferred Stock. Such shares of Common Stock will represent a substantial portion of our public float. If the warrants are exercised,
and if our Class B Common Stock or Series A Preferred Stock are converted into Class A Common Stock, such shares of Class A Common Stock will be significantly dilutive and may cause a decline in the market price of our securities. Accordingly,
if and to the extent we determine to raise additional capital in the future, there can be no assurance that such additional capital would be available on attractive terms, if at all. Following the expiration of the applicable lock-up
restrictions described herein, the sale of the securities registered for resale hereunder, or the perception that such sales may occur, may cause the market prices of our securities to decline significantly. On October 9, 2023 the closing price
of our Class A Common Stock was $7.06, and most of the Selling Securityholders have purchased certain shares at prices per share lower than such closing price as described above. As a result, many of the Selling Securityholders may earn a
positive rate of return by selling such shares, even if such sale results in a significant decline in the public trading price of our Class A Common Stock and such Selling Securityholders’ shares are sold at a lower public trading price. For
example, based on the closing price of our Class A Common Stock of $7.06 on October 9, 2023, the Sponsors and other holders of the founder shares would experience a potential profit of up to approximately $7.06 per share, or approximately $58.9
million in the aggregate. See “Information Related to Offered Securities,” “Risk Factors — The sale of the securities registered for resale hereunder and future sales of
substantial amounts of our securities in the public market (including the shares of Class A Common Stock issuable upon exercise of our warrants), or the perception that such sales may occur, may cause the market price of our securities to
decline significantly” and “Risk Factors — Certain existing shareholders purchased our shares at a price below the current trading price of such shares, and may experience a positive rate of return
based on the current trading price. Other investors and shareholders in our Company may not experience a similar rate of return” and “Risk Factors — Risks
Relating to Our Common Stock and Warrants” for more information.
We are an “emerging growth company” and a “smaller reporting
company” as such terms are defined under the federal securities laws and, as such, are subject to certain reduced public company reporting requirements.
Investing in shares of our Common Stock or
warrants involves risks that are described in the “Risk Factors” section beginning on page 13 of this prospectus.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of the securities to be issued under this prospectus or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2023.
TABLE OF CONTENTS
|
|
| |
Page
|
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | |
You should rely only on the information contained in this
prospectus. No one has been authorized to provide you with information that is different from that contained in this prospectus. This prospectus is dated as of the date set forth on the cover hereof. You should not assume that the information
contained in this prospectus is accurate as of any date other than that date.
This prospectus is part of a registration statement on Form S-1
that we filed with the Securities and Exchange Commission (the “SEC”) using a “shelf” registration process. Under this shelf registration process, we and the Selling Securityholders may, from time to time, issue, offer and sell, as applicable,
any combination of the securities described in this prospectus in one or more offerings. We may use the shelf registration statement to issue up to an aggregate of 14,450,833 shares of Class A Common Stock that are issuable upon, the exercise
of (i) 8,337,500 public warrants and (ii) 6,113,333 private placement warrants. The Selling Securityholders may use the shelf registration statement to sell up to an aggregate of 51,161,832 shares of Class A Common Stock and up to 6,113,333
private placement warrants from time to time through any means described in the section entitled “Plan of Distribution.” More specific terms of any securities that the Selling Securityholders offer and
sell may be provided in a prospectus supplement that describes, among other things, the specific amounts and prices of the common stock or warrants being offered and the terms of the offering.
A prospectus supplement may also add, update or change information
included in this prospectus. Any statement contained in this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in such prospectus supplement modifies or supersedes
such statement. Any statement so modified will be deemed to constitute a part of this prospectus only as so modified, and any statement so superseded will be deemed not to constitute a part of this prospectus. You should rely only on the
information contained in this prospectus, any applicable prospectus supplement or any related free writing prospectus. See “Where You Can Find More Information.”
Neither we nor the Selling Securityholders have authorized anyone
to provide any information or to make any representations other than those contained in this prospectus, any accompanying prospectus supplement or any free writing prospectus we have prepared. We and the Selling Securityholders take no
responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the securities offered hereby and only under circumstances and in jurisdictions
where it is lawful to do so. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus, any applicable prospectus supplement or any related free writing prospectus.
This prospectus is not an offer to sell securities, and it is not soliciting an offer to buy securities, in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus or any
prospectus supplement is accurate only as of the date on the front of those documents only, regardless of the time of delivery of this prospectus or any applicable prospectus supplement, or any sale of a security. Our business, financial
condition, results of operations and prospects may have changed since those dates.
This prospectus contains summaries of certain provisions contained
in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein
have been filed, will be filed or will be incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below under “Where You Can Find More Information.”
Digital Transformation Opportunities Corp. (“DTOC”), American
Oncology Network, LLC, (“AON LLC”), GEF AON Holdings Corp. (“AON Class C Preferred Investor”), and DTOC Merger Sub, Inc., a direct, wholly owned subsidiary of DTOC (“Merger Sub”) entered into a Business Combination Agreement (the “Business
Combination Agreement”), dated as of June 14, 2023 (which further amended and restated the Business Combination Agreement entered into by DTOC and AON LLC as of October 5, 2022, and amended and restated on January 6, 2023, and April 27, 2023),
pursuant to which, among other transactions, on September 20, 2023 (the “Closing Date”), DTOC and AON LLC undertook a series of transactions (the “Business Combination”) resulting in the organization of the combined post-business combination
company as an umbrella partnership C corporation, in which substantially all of the assets and the business of the combined company are held by DTOC and DTOC became a member of AON LLC. In connection with the closing of the Business
Combination, DTOC changed its name to “American Oncology Network, Inc.” (referred to herein as “AON”).
Unless the context otherwise requires, “we,” “us,” “our” and the
“Company” refer to AON and its consolidated subsidiaries following the Closing. All references herein to “DTOC” refer to Digital Transformation Opportunities Corp., our predecessor prior to the Closing. All references herein to the “Board”
refer to the board of directors of AON.
1
This document may contain trademarks, service marks and trade
names of AON or of third parties. Each one of these trademarks, service marks or trade names of AON is either (1) AON’s registered trademark, (2) a trademark for which AON has a pending application, or (3) a trade name or service mark for which
AON claims common law rights. All other trademarks, trade names or service marks of any other company appearing in this document belong to their respective owners. Solely for convenience, the trademarks, service marks and trade names referred
to in this prospectus are presented without the TM, SM and ® symbols, but such references are not intended to indicate, in any way, that AON or the applicable licensor will not assert, to the fullest extent under applicable law, its respective
rights to these trademarks, service marks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other
companies.
2
This prospectus contains forward-looking statements for purposes
of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995, including statements about the financial condition, results of operations, earnings outlook and prospects of AON. Investors should note that
on April 8, 2021, the staff of the SEC issued a public statement entitled “SPACs, IPOs and Liability Risk under the Securities Laws,” in which the SEC staff indicated that there is uncertainty as to the availability of the safe harbor under
these Sections in connection with a SPAC merger. In addition, any statements that refer to projections (including EBITDA, adjusted EBITDA, EBITDA margin and revenue projections), forecasts or other characterizations of future events or
circumstances, including any underlying assumptions, are forward-looking statements. Forward-looking statements are typically identified by words such as “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,”
“project,” “continue,” “could,” “may,” “might,” “possible,” “potential,” “predict,” “should,” “would” and other similar words and expressions, but the absence of these words does not mean that a statement is not forward-looking. The
forward-looking statements are based on projections prepared by, and are the responsibility of AON’s management teams.
Factors that could cause actual results to differ from those
implied by the forward-looking statements in this prospectus are more fully described under the heading “Risk Factors” and elsewhere in this prospectus. The risks described under the heading “Risk Factors” are not exhaustive. Other sections of
this prospectus describe additional factors that could adversely affect the business, financial condition or results of operations of AON. New risk factors emerge from time to time and it is not possible to predict all such risk factors, nor
can AON assess the impact of all such risk factors on the business of AON, or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements.
Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements, which speak only as of the date hereof. All forward-looking statements attributable to AON or persons acting on their behalf
are expressly qualified in their entirety by the foregoing cautionary statements. AON undertakes no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise,
except as required by law.
3
This summary highlights selected information from this
prospectus and may not contain all of the information that is important to you in making an investment decision. Before investing in our securities, you should carefully read this entire prospectus, including our financial statements and the
related notes included in this prospectus and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” See also the section titled “Where You Can Find More Information.”
Unless the context otherwise requires, references in this
prospectus to the “Company,” “we,” “us” or “our” are to American Oncology Network, Inc.
Overview
Since its inception in 2018, American Oncology Network, Inc.
(f/k/a American Oncology Network, LLC) (“AON”) has offered a progressive model of physician-led, community-based oncology management. AON preserves and elevates community oncology by helping its physicians navigate the complex healthcare
landscape, providing them an efficient platform to work autonomously and thrive, and most importantly, improving the quality of patient care that is being delivered. We are an alliance of physicians and veteran healthcare leaders partnering
to ensure the long-term success and viability of oncology diagnosis and treatment in community-based settings. As of September 30, 2023, AON’s platform includes 109 physicians and 31 practices across 85 locations in 19 states. Our robust
platform provides oncology practices with comprehensive support, access to revenue-diversifying adjacent services and practice management expertise to empower physicians to make cancer care better for every patient.
Our mission is to provide the best cancer care that is
affordable and close to where patients live and work. We believe the key to accessible and equitable healthcare lies in the strength of community healthcare practices and we are committed to closing the gap in cancer care to ensure every
patient has access to the optimal care needed to help in their fight against cancer. To accomplish this, we have practices in some of the most densely populated cities as well as rural areas where medical resources are scarce. We deliver
cancer care innovation by bringing new treatments to the forum and also by ensuring the access to the necessary adjacent services to provide comprehensive quality cancer care and, preserving the delivery of personalized cancer care in the
community oncology setting.
Through access to care-enhancing patient services such as a
centralized specialty pharmacy, wide ranging clinical lab and pathology, a fully integrated technology platform anchored by an oncology-specific electronic medical record system, as well as a care management team and a variety of financial
assistance programs, our patients receive expert cancer care at each of our clinics.
We provide patients a variety of services to enhance patient
care throughout the healthcare journey: high-quality and timely laboratory services for routine and specialized testing; in-house professional and technical pathology providing complete, accurate and timely pathology reports; in-house
specialty pharmacy with patient education, financial assistance, and 24/7 patient assistance; and care management support services including nutrition guidance.
As the future of healthcare continues to transition from volume
to value, we are at the forefront of this initiative by ensuring care quality over care quantity and adopting a patient-first mentality. Through an integrated system of seamless communication, coordination and patient care for better health
outcomes, AON practices benefit from decreased expenditures through the implementation of centralized administrative services, processes, and technologies designed to support effective decision-making such as optimal pricing on drugs and
medical supplies. Our patients benefit through our 24/7 clinical care support leading to a reduction in unnecessary emergency room visits and admissions and enhanced care quality. Ultimately, the payors benefit from more efficient delivery of
high-quality, comprehensive services comparable to any hospital system at a lower cost point.
Though our network spans the country, its clinicians are
interconnected and focused on driving change not just at their local clinics, but throughout our network. Our Network Practices unite in collaboration through a physician advisory board, which acts as a liaison between AON management and our
Network Practices so that we remain apprised of issues and opinions concerning our Network Practices. In addition, our Network Practices also remain at the forefront of new discoveries and findings by expanding and improving cancer treatment
options for every patient through a pharmacy and therapeutics committee that continuously updates its formulary in real time as advanced therapeutics come to market and through participating in clinical research to ensure we remain on the
cutting edge of cancer protocols. Patients benefit from convenient access to clinical trials that we participate in without the need to travel to large cities or tertiary cancer care facilities, and personalized care by matching a patient’s
cancer to a tailored therapy using molecular profiling.
4
We have made significant investment in a resilient,
integrated technology platform to support the practices which includes a fully-integrated electronic health record and a robust decision support tool and analytics engine. Our development of compliance materials ensures consistency and
optimal patient experiences and meets or exceeds the Office of Inspector General (“OIG”) guidelines.
We believe that our position in the market and focus on
elevating the state of oncology care with our affiliated providers bodes well for future growth. Our proprietary technology platform supports this growth and enables the our oncology practices and affiliated care providers (“Network
Practices”) to standardize and deliver consistent care at scale. We believe that our model will support growth into new markets and allow us to continue to service more patients across the United States.
Corporate Information
Our principal executive office is located at 14543 Global Pkwy
STE 110, Fort Myers, FL 33913. Our telephone number is (833) 886-1725. Our website address is www.aoncology.com. Information contained on our website is not a part of this prospectus, and the inclusion of our website address in this
prospectus is an inactive textual reference only.
Emerging Growth Company
Section 102(b)(1) of the Jumpstart Our Business Startups Act of
2012 exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a registration statement under the Securities Act declared
effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended
transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a
standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
This may make comparison of AON’s financial statements with those of another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or
impossible because of the potential differences in accounting standards used.
We will remain an emerging growth company until the earlier of:
(1) the last day of the fiscal year (a) following the fifth anniversary of the Closing of DTOC’s Initial Public Offering, (b) in which we have total annual gross revenue of at least $1.235 billion or (c) in which we are deemed to be a large
accelerated filer, which means the market value of our common equity that is held by non-affiliates exceeds $700 million as of the end of the second fiscal quarter of our most recently completed fiscal year; and (2) the date on which we have
issued more than $1.00 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging growth company” have the meaning associated with it in the JOBS Act.
5
We are registering (i) the issuance by us of up to 14,450,833
shares of Class A Common Stock that may be issued upon exercise of (i) 8,337,500 the public warrants and (ii) 6,113,333 private placement warrants, each of which entitles its holder to purchase shares of Class A Common Stock at an exercise
price of $11.50 per share to purchase Class A Common Stock at an exercise price of $11.50 per share and (ii) the resale of (a) an aggregate of 51,161,832 shares of Class A Common Stock by certain of the selling securityholders named in this
prospectus (each a “Selling Securityholder” and, collectively, the “Selling Securityholders”)and (b) 6,113,333 warrants to purchase shares of Class A Common Stock issued to certain of the Selling Securityholders in private placements prior to
DTOC’s IPO (the “Private Placement Warrants”). Any investment in the securities offered hereby is speculative and involves a high degree of risk. You should carefully consider the information set forth under the “Risk Factors” section of this
prospectus.
Issuance of Common Stock
The following information is as of October 1, 2023 and does not
give effect to issuances of our Class A Common Stock or the exercise of warrants after such date.
Shares of our Class A Common Stock to be issued
upon exercise of the public warrants and private warrants
14,450,833 shares of Class A Common Stock to be issued upon exercise of the (i)
8,337,500 public warrants and (ii) 6,113,333 private placement warrants, each of which entitles its holder to purchase shares of Class A Common Stock at an exercise price of $11.50 per share.
Use of proceeds
We will receive up to an aggregate of approximately $166.2 million from the
exercise of all warrants assuming the exercise in full of all such warrants for cash. Unless we inform you otherwise in a prospectus supplement or free writing prospectus, we intend to use the net proceeds from the exercise of such warrants
for general corporate purposes which may include acquisitions or other strategic investments. Our warrants are currently out-of-the money. We do not expect warrant holders to exercise their warrants and, therefore, we do not expect to receive
cash proceeds from any such exercise, for so long as the warrants remain out-of-the money. See the section entitled “Description of Securities — Warrants” for more information.
Resale of Shares of Class A
Common Stock and Warrants
Shares of Class A Common Stock offered by the
Selling Securityholders
51,161,832 shares
Private Placement Warrants offered by the Selling
Securityholders
6,113,333 Private Placement Warrants
Exercise Price
$11.50 per share with respect to the public warrants and $11.50 per share with
respect to the private placement warrants, subject to adjustment as described herein, which exceeds the market price of our Class A Common Stock of $7.06 per share based on the closing price on the Nasdaq on October 9, 2023. If all of our
public warrants and private warrants were exercised in full for cash, we would receive an aggregate of approximately $166.2 million. For so long as the warrants remain out-of-the money, we believe it is
6
unlikely that the Selling Securityholders will exercise their warrants and
therefore, we do not expect to receive cash proceeds from any such exercise. There can be no assurance that the warrants will ever be in-the money prior to their expiration and as such, the warrants may expire worthless.
Redemption
The private placement warrants are not redeemable by us. See “Description of Our Securities—Warrants” for further discussion.
Use of proceeds
We will not receive any of the proceeds from the sale of the shares of Class A
Common Stock by the Selling Securityholders. With respect to shares of Class A Common Stock underlying the warrants, we will not receive any proceeds from such shares except with respect to amounts received by us upon exercise of such
warrants to the extent such warrants are exercised for cash. See “Use of proceeds” above for more information on the proceeds we expect to receive from the exercise of such warrants.
Ticker Symbol
Our shares of Class A Common Stock and warrants are listed on Nasdaq under the
symbols “AONC” and “AONCW, respectively.”
Lock-up restrictions
All of the Selling Securityholders, except for holders of our Series A
Preferred Stock, are subject to certain restrictions on transfer until the termination of applicable lock-up periods. See “Securities Act Restrictions on Resale of Securities – Lock-up Restrictions.”
7
This prospectus relates to (i) the issuance by us of up to
14,450,833 shares of Class A Common Stock that may be issued upon exercise of (a) 8,337,500 the public warrants and (b) 6,113,333 private placement warrants, each of which entitles its holder to purchase shares of Class A Common Stock at an
exercise price of $11.50 per share and (ii) the resale of (a) an aggregate of 51,161,832 shares of Class A Common Stock by certain of the selling securityholders named in this prospectus (each a “Selling Securityholder” and, collectively, the
“Selling Securityholders”) and (b) 6,113,333 private placement warrants to purchase shares of Class A Common Stock issued to the Selling Securityholders prior to DTOC’s IPO (the “Private Placement Warrants”). The securities registered for
resale covered by this prospectus consist of:
|
(a)
|
8,337,500 shares of Class A Common Stock held by the Sponsors of Digital Transformation Opportunities Corp. (“DTOC”) (such
shares, the “Founder Shares”) which were issued upon the conversion of the Founder Shares, which includes up to 2,918,125 shares of Class A Common Stock (that may be issued from time to time upon achievement of certain stock price
thresholds) to affiliates of the Company in connection with the earnout provisions set forth in the Sponsor Support Agreement (the “Earnout Shares”);
|
|
(b)
|
28,109,796 shares of the Class A Common Stock issued in connection with the exchange or redemption of AON LLC Common Units
(“Common Units”) and Class B Common Stock issued or Warrants to convert into Class B Common Stock pursuant to the terms of AON LLC’s Amended and Restated LLC Agreement or Amended and Restated Company Certificate of Incorporation, as
applicable (collectively, the “Exchange Shares”);
|
|
(c)
|
up to 8,601,203 shares of Class A Common Stock that may be issued from time to time upon conversion of Series A Preferred
Stock, including up to 1,949,593 shares of Class A Common Stock that may be issuable pursuant to non-cash dividends that may accrue on the shares of Series A Preferred Stock;
|
|
(d)
|
6,113,333 private placement warrants each exercisable for one share of Class A Common Stock at an exercise price of $11.50
per share, purchased by the Sponsors and their permitted transferees, at a price of $1.50 per private placement warrant in a private placement simultaneously with the consummation of DTOC’s IPO; and
|
|
(e)
|
6,113,333 shares of Class A Common Stock underlying the private placements warrants.
|
8
The following table includes information relating to the
securities held by the Selling Securityholders, including the price each Selling Securityholder paid for the securities, the potential profit relating to such securities and any applicable lock-up restrictions. The following table is in part
based off AON’s internal records and is for illustrative purposes only. The table should not be relied upon for any purpose outside of its illustrative nature. The public offering price in DTOC’s IPO was $10.00 per share. Consequently, as
seen in the table below, some of the Selling Securityholders may realize a positive rate of return on the sale of their Common Stock covered by this prospectus even if the market price per share of our Common Stock is below $10.00 per share,
in which case the public shareholders may experience a negative rate of return on their investment.
|
Selling Securityholder
|
| |
Number of
Offered
Securities
|
| |
Effective
Purchase
Price
per Offered
Security
|
| |
Potential
Profit per
Offered
Security(1)
|
| |
Lock-Up
Restrictions
|
|
Entities or persons affiliated with
Digital Transformation Sponsor LLC and permitted transferees
|
| |
|
| |
|
| |
|
| |
|
|
Founder shares
|
| |
8,337,500
|
| |
$0.003
|
| |
$7.06
|
| |
(2)
|
|
Private placement warrants
|
| |
6,113,333
|
| |
$1.50
|
| |
$—
|
| |
N/A
|
|
Shares of Class A Common Stock underlying private
placement warrants
|
| |
6,113,333
|
| |
$11.50(3)
|
| |
$—
|
| |
(2)
|
|
AON LLC Equityholders
|
| |
|
| |
|
| |
|
| |
|
|
Class A Common stock
|
| |
28,109,796
|
| |
$10.00(4)
|
| |
$—
|
| |
(5)
|
|
Holders of Series A Preferred Stock
|
| |
|
| |
|
| |
|
| |
|
|
Class A Common stock
|
| |
8,601,203
|
| |
$10.00(6)
|
| |
$—
|
| |
N/A
|
|
(1)
|
Based on the closing price of our Class A Common Stock on October 9, 2023 of $7.06 and the closing price of our public
warrants on October 9, 2023 of $0.20.
|
|
(2)
|
The Sponsor, DTOC’s former directors and officers, certain affiliates of the Sponsor and their permitted transferees agreed
to subject any shares of Class A Common Stock (including founder shares) received by them to lock-up restrictions. Pursuant to the Sponsor Support Agreement, during the period beginning on the Closing Date until 12 months after the
Closing Date, such persons may not transfer any of its, his or her shares of Class A Common Stock (including founder shares), except for certain limited permitted transfers.
|
|
(3)
|
Represents the exercise price of the private placement warrants and public warrants.
|
|
(4)
|
Represents the value of AON securities exchanged by AON LLC equityholders at the Business Combination, calculated pursuant
to the exchange ratio set forth in the Business Combination Agreement, which valued AON securities at $10.00 per share.
|
|
(5)
|
Equityholders of AON LLC agreed to subject the shares of Class B Common Stock issued to them in the Business Combination to
lock-up restrictions. During the period beginning on the Closing until 6 months after the Closing, such persons may not transfer any of its, his or her shares of Class B Common Stock issued to them in the Business Combination, except
for certain limited permitted transfers, and until the expiration of this lock-up period, such equityholders of AON LLC may not exchange AON LLC common units together with an equal number of shares of AON Class B Common Stock for
shares of AON Class A Common Stock.
|
|
(6)
|
Represents the initial conversion price of the Series A Preferred Stock into Class A Common Stock.
|
9
Summary of Risk Factors
You should carefully consider the following risk factors,
together with all of the other information included in this prospectus.
Risks Related to Our Business and Industry
|
•
|
We need to contract and form partnerships with Network Practices in order to execute our growth strategy.
|
|
•
|
Our Network Practices primarily depend on reimbursement from third-party payors, which could lead to delays, denials, or
uncertainties in the reimbursement process.
|
|
•
|
A significant portion of our revenue is derived from a limited number of health insurance and medical group companies.
|
|
•
|
We have identified material weaknesses in its internal control over financial reporting and if we are unable to remediate
these material weaknesses, investor confidence in our business and the value of AON common stock could be adversely affected.
|
|
•
|
The AON PNC Loans and the associated restrictive covenants thereunder could adversely affect our financial condition and
will restrict our ability to raise capital.
|
|
•
|
The AON PNC Loans subjects us to interest rate risk, which could cause our debt service obligations to increase
significantly and potentially limit our ability to effectively refinance our indebtedness.
|
|
•
|
A pandemic, epidemic or outbreak of an infectious disease could adversely affect our business.
|
|
•
|
We must be able to attract and retain highly qualified physicians, medical professionals and other personnel, as well as
new patients and obtain new payor contracts in order to grow its business.
|
|
•
|
We face risks associated with estimating the amount of revenue that is recognized under Network Practices’ risk agreements
with health plans.
|
|
•
|
Reductions in government reimbursement rates or changes in the rules governing government healthcare programs could have a
material adverse effect.
|
|
•
|
Our business could be adversely affected by health care reform and other changes in government programs.
|
|
•
|
Changes in the payor mix of patients and potential decreases in reimbursement rates as a result of consolidation among
plans could affect our business.
|
|
•
|
We face significant competition from other healthcare services providers.
|
|
•
|
Competition for physicians and nurses, shortages of qualified personnel or other factors could increase our labor costs.
|
|
•
|
Our Network Practices must provide consistently high quality of care.
|
|
•
|
Our business could be adversely affected by supply price increases and shortages.
|
|
•
|
We rely on third-party information technology systems that could suffer from disruptions and data breaches.
|
|
•
|
We could be subject to legal proceedings and litigation.
|
|
•
|
Some jurisdictions preclude AON from entering into non-compete agreements with physicians.
|
|
•
|
Current and future acquisitions may use significant resources, may be unsuccessful, and could expose us to unforeseen
liabilities.
|
|
•
|
We need to protect its confidentiality of our trade secrets, know-how and other proprietary and internally developed
information.
|
|
•
|
Negative publicity regarding the managed healthcare industry generally could adversely affect our results of operations or
business.
|
|
•
|
Our facilities may be negatively impacted by weather and other factors beyond its control.
|
10
Risks Related to our Regulatory Environment
|
•
|
We are dependent on our relationships with our Network Practices to provide healthcare services.
|
|
•
|
Our managed clinics and our Network Practices providing professional services at such clinics may become subject to medical
liability claims.
|
|
•
|
Changes in accounting standards by the Financial Accounting Standards Board (“FASB”) subjects us to risk.
|
|
•
|
Our managed clinics and our Network Practices may be subject to third-party payor audits.
|
|
•
|
We are subject to extensive fraud, waste, and abuse laws.
|
|
•
|
We face risks relating to loss of regulatory licenses, permits and/or accreditation status.
|
|
•
|
We face risks relating to applicable data interoperability and information blocking rules.
|
|
•
|
We face risks relating to actual or perceived failures to comply with applicable data protection, privacy and security,
advertising and consumer protection laws, regulations, standards and other requirements.
|
|
•
|
We are subject to are subject to federal, state and local laws and regulations that govern our business.
|
|
•
|
We are subject to applicable tax laws and regulations.
|
Risks Related to our Operating as a Public Company
|
•
|
The requirements of being a public company, including maintaining adequate internal control over our financial and
management systems, may strain our resources and divert management’s attention.
|
|
•
|
We are an “emerging growth company” and, as a result of the reduced disclosure and governance requirements applicable to
emerging growth companies.
|
|
•
|
Pursuant to the JOBS Act, our independent registered public accounting firm will not be required to attest to the
effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act for so long as we are an “emerging growth company.”
|
|
•
|
The trading price of our Class A Common Stock may be volatile, and purchasers of our Class A Common Stock could incur
substantial losses.
|
|
•
|
Anti-takeover provisions in our organizational documents could delay or prevent a change of control.
|
|
•
|
Our charter will designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types
of actions and proceedings that may be initiated by our stockholders
|
Risks Relating to Our Common Stock and Warrants
|
•
|
The sale of the securities registered for resale hereunder and future sales of substantial amounts of our securities in the
public market (including the shares of Class A Common Stock issuable upon exercise of our warrants, conversion of our Class B Common Stock, or conversion of our Series A Preferred Stock), or the perception that such sales may occur,
may cause the market price of our securities to decline significantly.
|
|
•
|
Certain existing shareholders purchased our shares at a price below the current trading price of such shares, and may
experience a positive rate of return based on the current trading price. Other investors and shareholders may not experience a similar rate of return.
|
|
•
|
Because we do not anticipate paying any cash dividends in the foreseeable future, capital appreciation, if any, would be
your sole source of gain.
|
|
•
|
A market for our securities may not continue, which would adversely affect the liquidity and price of its securities.
|
|
•
|
Nasdaq may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in
its securities and subject us to additional trading restrictions.
|
|
•
|
Our warrants may never be in the money, and they may expire worthless.
|
11
|
•
|
We may redeem unexpired public warrants prior to their exercise at a time that is disadvantageous to the warrant holders,
thereby making the warrants worthless.
|
|
•
|
The warrants to purchase AON Class A Common Stock will become exercisable on October 20, 2023 which could increase the
number of shares eligible for future resale in the public market and result in dilution to its stockholders.
|
|
•
|
Future offerings of debt or offerings or issuances of equity securities by us may adversely affect the market price of
Class A Common Stock or otherwise dilute all other stockholders.
|
|
•
|
The price of Class A Common Stock could decline if securities analysts do not publish research or if securities analysts or
other third parties publish inaccurate or unfavorable research about us.
|
|
•
|
We may be subject to securities litigation, which is expensive and could divert management’s attention.
|
12
These risk factors are not exhaustive and
investors are encouraged to perform their own investigation with respect to the business, prospects, financial condition and operating results of AON. You should carefully consider the following risk factors in addition to the other information
included in this prospectus, including matters addressed in the section entitled “Cautionary Statement 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, prospects, financial condition or operating results. The following discussion should be read in conjunction with our financial statements and notes to the financial statements
included herein.
Risks Related to Our Business
In order to execute our growth strategy, we
will need to acquire oncology practices and affiliated care providers (“Network Practices”) through AON. Our ability to grow depends upon a number of factors, including our ability to obtain referrals for cancer patient care services, identify
appropriate physician practices to acquire, enter into contracts with such additional Network Practices, obtain leases, identify appropriate facilities to acquire, complete internal buildouts of new facilities within proposed timelines and
budgets, and hire and retain employees including but not limited to physicians affiliated with Network Practices. We cannot guarantee that we will be successful in pursuing our growth strategy.
Our growth strategy involves a number of risks and uncertainties,
including that:
|
•
|
we and our Network Practices may not be able to successfully enter into contracts with local payors on terms acceptable to us
or at all. In addition, we compete for payor relationships with other healthcare organizations, many of whom may have greater resources than we do. This competition may intensify due to the ongoing consolidation in the healthcare
industry, which may increase our costs to pursue such opportunities. Patients may also choose providers with more competitive contracted rates than we are able to negotiate;
|
|
•
|
we will require additional capital and resources in order to acquire additional Network Practices;
|
|
•
|
we cannot make any assurance that we will be able to maintain relationships with our Network Practices;
|
|
•
|
through our Network Practices, we may not be able to recruit or retain a sufficient number of new patients to execute our
growth strategy, and we may incur substantial costs to recruit new patients and we may be unable to recruit a sufficient number of new patients to offset those costs;
|
|
•
|
we may not be able to contract with a sufficient numbers of physicians and other staff and may fail to integrate our
employees, particularly our medical personnel, into our care model;
|
|
•
|
our Network Practices may not conform to our exact business model, which may impact their profitability and in-turn, our
profitability;
|
|
•
|
when expanding our business into new states, we may be required to comply with laws and regulations that may differ from
states in which we currently operate;
|
|
•
|
we may not be able to easily monitor and track changes to state and local laws in the states in which we operate, which could
increase our legal exposure; and
|
|
•
|
depending upon the nature of the local market, we may not be able to implement our business model in every local market that
we enter, which could negatively impact our revenues and financial condition.
|
There can be no assurance that we will be able to successfully capitalize on growth
opportunities, which may negatively impact our business model, revenues, results of operations and financial condition.
Our Network Practices primarily depend on
reimbursement from third-party payors, as well as payments by individuals, which could lead to delays, denials, or uncertainties in the reimbursement process.
The reimbursement process is complex and can involve lengthy
delays. Although we recognize revenue when our Network Practices provide services to patients, our Network Practices may from time to time experience delays in receiving the associated payments. In addition, third-party payors may disallow, in
whole or in part, requests for reimbursement based on determinations that the patient is not eligible for coverage, certain amounts are not reimbursable under plan coverage or the services provided that were not medically necessary or
additional supporting
13
documentation is necessary. Retroactive adjustments may change amounts realized
from third-party payors. Our Network Practices are subject to audits by such payors, including governmental audits of our Medicare and Medicaid claims, and may be required to repay these payors if a finding is made that we were incorrectly
reimbursed. Delays and uncertainties in the reimbursement process may adversely affect accounts receivable, increase the overall costs of collection and cause us to incur additional costs associated with raising capital. Third-party payors are
also increasingly focused on controlling healthcare costs, and such efforts, including any revisions to reimbursement policies, may further complicate and delay our Network Practices’ reimbursement claims.
In addition, certain of the patients are covered under health
plans that require the patient to cover a portion of their own healthcare expenses through the payment of copayments or deductibles. Our Network Practices may not be able to collect the full amounts due with respect to these payments that are
the patient’s financial responsibility, or in those instances where physicians provide services to uninsured individuals. To the extent permitted by law, amounts not covered by third-party payors are the obligations of individual patients for
which our Network Practices may not receive whole or partial payment. Any increase in cost shifting from third-party payors to individual patients, including as a result of high deductible plans for patients, increases our collection costs and
reduces overall collections, which we may not be able to offset such additional costs with sufficient revenue.
In response to the COVID-19 pandemic, the Centers for Medicare and
Medicaid Services (CMS), the federal agency responsible for administering the Medicare program, made several changes in the manner in which Medicare will pay for telehealth visits, many of which relax previous requirements, including site
requirements for both the providers and patients, telehealth modality requirements and others. State law applicable to telehealth, particularly licensure requirements, has also been relaxed in many jurisdictions as a result of the COVID-19
pandemic. It is unclear which, if any, of these changes will remain in place permanently and which will be rolled-back following the COVID-19 pandemic. If regulations change to restrict our Network Practices’ ability to deliver care through
telehealth modalities, our financial condition and results of operations may be adversely affected.
A significant portion of our revenue is
derived from a limited number of health insurance and medical group companies. Those payors could take action to remove, exclude, delay, or otherwise prevent the inclusion of our Network Practices in their provider networks.
Our operations are dependent on a concentrated number of payors
with whom our Network Practices contract to provide services to patients. We generally manage our Network Practices’ payor contracts on a state by state basis, entering into a separate contract in each state with the local affiliate of the
relevant payor such that no one local payor contract accounts for a majority of our collective revenue. We believe that a majority of our Network Practices’ revenues will continue to be derived from a limited number of key payors, which may
terminate their contracts with our Network Practices or the individual Network Practice physicians credentialed by them upon the occurrence of certain events. The sudden loss of any of our network Practices’ payors, or the renegotiation of any
of our Network Practices’ payor contracts, could adversely affect our operating results. In the ordinary course of business, we engage in active discussions and renegotiations with payors in respect of the services our Network Practices provide
and the terms of our Network Practices’ payor agreements. As the payors’ businesses respond to market dynamics and financial pressures, and as payors make strategic business decisions in respect of the lines of business they pursue and programs
in which they participate, certain of the payors may seek to renegotiate or terminate their agreements with our Network Practices. These discussions could result in reductions to the fees and changes to the scope of services contemplated by the
original payor contracts and consequently could negatively impact our revenues, business and prospects.
Because we rely on a limited number of payors for a significant
portion of our Network Practices’ revenues, we depend on the creditworthiness of these payors. The payors are subject to a number of risks including reductions in payment rates from governmental programs, higher than expected health care costs
and lack of predictability of financial results when entering new lines of business, particularly with high-risk populations. If the financial condition of our Network Practices’ payors declines, our financial results could be impacted. Should
one or more of our Network Practices’ payors declare bankruptcy, be declared insolvent or otherwise be restricted by state or federal laws or regulation from continuing in some or all of their operations, this could adversely affect our ongoing
revenues, the collectability of our accounts receivable, our bad debt reserves and our net income.
Although our Network Practices have long-term contracts with many
payors, these contracts may be terminated before their term expires for various reasons, such as changes in the regulatory landscape and poor performance by our Network Practices and our affiliated providers, subject to certain conditions.
Certain of the payor contracts are terminable immediately upon the occurrence of certain events. Certain of the payor contracts may be terminated
14
immediately by the payor if our Network Practices lose applicable licenses, go
bankrupt, lose their liability insurance or receive an exclusion, suspension or debarment from state or federal government authorities. Additionally, if a payor were to lose applicable licenses, go bankrupt, lose liability insurance, become
insolvent, file for bankruptcy or become subject to exclusion, suspension or debarment from state or federal government authorities, the Network Practices’ contract with such payor could in effect be terminated. In addition, certain of the
payor contracts may be terminated immediately if a Network Practice becomes insolvent or file for bankruptcy. If any of the contracts with the Network Practice’s payors are terminated, the Network Practice may not be able to recover all fees
due under the terminated contract, which may adversely affect our operating results.
AON has identified material weaknesses in
its internal control over financial reporting. If AON is unable to remediate these material weaknesses, or if it identifies additional material weaknesses in the future or otherwise fails to maintain effective internal control over financial
reporting, AON may not be able to accurately or timely report its financial condition or results of operations, which may adversely affect investor confidence in AON’s business and the value of AON common stock.
As a public company, AON will be required to furnish a report by
management on the effectiveness of our internal control over financial reporting beginning with our second annual report on Form 10-K. If AON is unable to establish or maintain appropriate internal control over financial reporting or implement
these additional requirements in a timely manner or with adequate compliance, it could result in material misstatements in its consolidated financial statements, failure to meet its reporting obligations on a timely basis, increases in
compliance costs, and subject AON to adverse regulatory consequences, all of which may adversely affect investor confidence in AON and the value of AON common stock.
As of December 31, 2022, material weaknesses existed in our
internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of AON’s
annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses that AON identified were as follows:
|
•
|
The Company did not design and maintain an effective control environment commensurate with its financial reporting
requirements. Specifically, the Company lacked a sufficient complement of resources with (i) an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely
and accurately, and (ii) an appropriate level of knowledge and experience to establish effective processes and controls. Additionally, the lack of a sufficient complement of resources resulted in an inability to consistently establish
appropriate authorities and responsibilities in pursuit of its financial reporting objectives, as demonstrated by, among other things, insufficient segregation of duties in its finance and accounting functions.
|
|
•
|
The Company did not effectively design and maintain effective controls in response to the risks of material misstatement.
Specifically, changes to existing controls or the implementation of new controls have not been sufficient to respond to changes to the risks of material misstatement to financial reporting.
|
These material weaknesses contributed to the following additional
material weaknesses:
|
•
|
The Company did not design and maintain effective controls to identify, analyze, account for and disclose non-routine,
unusual or complex transactions. Specifically, the Company did not design and maintain controls to account for its business combinations, asset acquisitions, clinical trial agreements, and related party transactions.
|
|
•
|
The Company did not design and maintain effective controls related to the period-end financial reporting process, including
designing and maintaining formal accounting policies, procedures and controls to achieve complete and accurate financial accounting, reporting and disclosures. Additionally, the Company did not design and maintain controls over the
preparation and review of account reconciliations and journal entries, including maintaining appropriate segregation of duties. The Company did not design and maintain effective controls to achieve complete, accurate and timely
accounting of accrued liabilities.
|
|
•
|
The Company did not design and maintain effective controls to achieve complete, accurate and timely accounting of revenue and
accounts receivable. Specifically, the Company did not design and maintain controls over the inputs, assumptions, and calculations to develop our contractual allowances.
|
15
The material weaknesses above resulted in a revision to the
Company’s previously issued financial statements as of and for the year ended December 31, 2020 as well as audit adjustments to the Company’s financial statements as of and for the year ended December 31, 2021 related to the amortization of
leasehold improvements within property and equipment, non-controlling interest, accrued liabilities, operating expenses, and related financial disclosures. A revision was also made to the Company’s previously issued condensed consolidated
interim financial statements as of and for the nine-month period ended September 30, 2022 related to marketable securities, cash and cash equivalents, patient service revenue, net, patients accounts receivables, net, accrued other, and cost of
revenue. Additionally, these material weaknesses could result in further misstatements of the aforementioned account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements
that would not be prevented or detected.
The Company did not design and maintain effective information
technology (“IT”) general controls for information systems that are relevant to the preparation of its financial statements. Specifically, the Company did not design and maintain: (i) program change management controls to ensure that program
and data changes are identified, tested, authorized, and implemented appropriately; (ii) user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to appropriate personnel; (iii)
computer operations controls to ensure that processing and transfer of data, and data backups and recovery are monitored; and (iv) program development controls to ensure that new software development is tested, authorized and implemented
appropriately.
The Company is in the process of designing and implementing
measures designed to improve our internal control over financial reporting and remediate the control deficiencies which led to the material weaknesses. The Company’s remediation measures are ongoing and include the following:
|
•
|
Hiring additional accounting and finance personnel with applicable technical accounting knowledge, training and experience in
financial reporting and control matters, supplemented by third-party technical accounting resources;
|
|
•
|
Designing and implementing formalized review processes for unusual, non-routine or complex transactions including legal,
finance, and operations personnel;
|
|
•
|
With the assistance of third-party resources, performing detailed risk assessments for significant financial processes to
identify, design, and implement control activities related to internal control over financial reporting;
|
|
•
|
Designing and implementing formal accounting policies, procedures and controls supporting our period-end financial reporting
process, including controls over the preparation and review of account reconciliations and journal entries as well as additional procedures and controls within our revenue, receivable and accrued liabilities processes;
|
|
•
|
Designing and implementing controls to formalize roles and review responsibilities to align with AON's skills and experience
and designing and implementing controls over segregation of duties; and
|
|
•
|
Designing and implementing IT general controls, including controls over change management, the review and update of user
access rights and privileges, controls over batch jobs and data backups, and program development approvals and testing.
|
AON has begun the process to remediate its identified material
weaknesses as detailed above. The material weaknesses will not be considered remediated until management completes the design and implementation of the processes and controls described above and the controls operate for a sufficient period of
time, and AON has concluded, through testing, that the newly implemented and enhanced controls are operating effectively. At this time, AON cannot predict the success of such efforts or the outcome of future assessments of the remediation
efforts. AON’s current controls and any new controls that it develops may become inadequate because of changes in conditions in its business, personnel, IT systems and applications, or other factors. If AON fails to remediate AON’s existing
material weakness or identifies new material weaknesses in its internal controls over financial reporting, if it is unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if it is unable to
conclude that its internal controls over financial reporting are effective, it is possible that a material misstatement of AON’s financial statements would not be prevented or detected on a timely basis, investors may lose confidence in the
accuracy and completeness of AON’s financial reports, and the market price of AON Class A Common Stock could be negatively affected.
16
Our services are concentrated in certain
geographic areas and populations exposing us to unfavorable changes in local benefit costs, reimbursement rates, competition and economic conditions.
Our services are concentrated in certain geographic areas in the
United States. Unfavorable changes in health care or other benefit costs or reimbursement rates or increased competition in the states in which we operate or any other geographic area where our Network Practices are concentrated in the future
could therefore have a disproportionately adverse effect on our operating results. Additionally, the geographic concentration of a significant portion of our Network Practices may make them more vulnerable to events such as the COVID-19
pandemic.
Risks Related to the AON PNC Loans
The AON PNC Loans and the associated
restrictive covenants thereunder could adversely affect our financial condition and will restrict our ability to raise capital.
On April 30, 2021, we entered into the AON PNC Loans with PNC Bank
National Association (“PNC”). The AON PNC Loans contains various restrictive and financial covenants, including restrictions on indebtedness, leverage ratio, restricts our ability to (i) incur indebtedness other than (a) in connection with and
as allowed under certain provisions of the agreements governing the AON PNC Loans or (b) in ordinary course of business, (ii) permit any lien or encumbrance upon our property except as generally permitted by PNC or as specifically enumerated in
the agreements governing the AON PNC Loans, (a) purchase or redeem any of our membership interests, (b) declare or pay any dividend or set aside any funds for any such purpose (c) prepay, purchase or redeem any other debt, (d) lend or advance
any funds or (e) repay any loans or advances to, for or from any of our affiliates, except, for each of the foregoing, as specifically permitted under the AON PNC Loans, (iv) merge or consolidate with or into, or convey, transfer, lease or
otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of our assets (whether now owned or hereafter acquired) to, any person or entity, (v) without prior written consent, make any change in
any borrower’s name, identity, corporate structure or location under the AON PNC Loans or make any other change in such borrower’s identity or corporate structure, or (vi) acquire another business (via assets or equity) unless certain other
requirements are met, including that acquisitions via capital stock may only be of a subsidiary of AON. Subject to customary exceptions and exclusions, our obligations under the AON PNC Loans are guaranteed by a perfected, first-priority
security interest in substantially all of our assets, including our intellectual property and the equity ownership interests directly and indirectly held by us in our wholly-owned subsidiaries and excluding certain assets used in connection
with medical services. Compliance with such covenants and our indebtedness will result in the following, which could materially and adversely affect our business, financial condition and results of operations:
|
•
|
require us to dedicate a substantial portion of cash and cash equivalents to the payment of interest on, and principal of,
the indebtedness, which will reduce the amounts available to fund working capital, capital expenditures, product development efforts and other general corporate purposes;
|
|
•
|
oblige us to comply with negative covenants restricting our activities, including limitations on dispositions, mergers or
acquisitions, encumbering our intellectual property, incurring indebtedness or liens, paying dividends, making investments and engaging in certain other business transactions;
|
|
•
|
limit our flexibility in planning for, or reacting to, changes in our business and our industry;
|
|
•
|
place us at a competitive disadvantage compared to our competitors who have less debt or competitors with comparable debt at
more favorable interest rates;
|
|
•
|
limit our ability to borrow additional amounts for working capital, capital expenditures, research and development efforts,
acquisitions, debt service requirements, execution of our business strategy and other purposes and otherwise restrict our financing options.
|
Furthermore, because the interests of the lenders may potentially
differ from ours and from those of our stockholders, we may be unable to engage in transactions or other activities that may be beneficial to our stockholders. The covenants under the agreements governing the AON PNC Loans could materially and
adversely affect our business, financial condition and results of operations.
Servicing our indebtedness requires a significant amount of cash.
Our ability to repay the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not
generate cash flow from operations in the future sufficient to service our indebtedness. If we are unable to generate cash flow, we may be required to
17
adopt one or more alternatives, such as restructuring debt or obtaining additional
financing on terms that may be unfavorable to us or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at the time we seek to refinance such indebtedness. Our inability to
satisfy our debt obligations could materially and adversely affect our financial position and results of operations.
A failure to comply with the conditions of the AON PNC Loans could
result in an event of default. An event of default under the AON PNC Loans includes, among other things, a failure to pay any amount due under the AON PNC Loans. If we fail to comply with any of the covenants under our indebtedness and are
unable to obtain a waiver or amendment, the lenders may, among other things, accelerate our outstanding indebtedness and exercise rights with respect to collateral securing our outstanding indebtedness, each of which could have an adverse
effect on our business, financial condition and results of operations.
Any of these events could materially and adversely affect our
business, financial condition and results of operations.
The AON PNC Loans subjects us to interest
rate risk, which could cause our debt service obligations to increase significantly and potentially limit our ability to effectively refinance our indebtedness as it matures.
Borrowings under the AON PNC Loans bear interest at variable rates
and expose us to interest rate risk. If interest rates increase and we do not hedge such variable rates, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed will remain the same, which
will negatively impact our net income and operating cash flows, including cash available for servicing our indebtedness.
Additionally, our ability to refinance portions of our
indebtedness in advance of their maturity dates depends on securing new financing bearing interest at rates that we are able to service. While we believe that we currently have adequate cash flows to service the interest rates currently
applicable to our indebtedness, if interest rates were to continue to rise significantly, we might be unable to maintain a level of cash flows from operating activities sufficient to meet our debt service obligations at such increased rates.
Operational Risks and Risks Related to Our Industries
A pandemic, epidemic or outbreak of an
infectious disease in the United States or worldwide, such as the outbreak of COVID-19 or the continuation of such an outbreak, could adversely affect our business, financial condition, results of operations and growth.
If a pandemic, epidemic or outbreak of an infectious disease
occurs in the United States or worldwide, our business may be adversely affected. The severity, magnitude and duration of the current COVID-19 outbreak is still uncertain. Furthermore, the full impact of the COVID-19 pandemic may not be fully
reflected in our results of operations and overall financial condition until future periods.
To the extent the COVID-19 pandemic, or another pandemic, epidemic
or outbreak of an infectious disease occurs in the United States or worldwide, adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section,
including but not limited to those relating to cyberattacks and security vulnerabilities, interruptions or delays due to third-parties, or our ability to raise additional capital or generate sufficient cash flows necessary to fulfill our
obligations under our existing indebtedness or to expand our operations.
If we are unable to attract new patients and
to obtain new payor contracts our revenue growth will be adversely affected.
To increase our revenue, our business strategy is to expand the
number of oncology clinics and affiliated physicians in our network. In order to support such growth, we must continue to win new contracts and retain or grow existing contracts with payors. Our Network Practices face competition from other
oncology providers. If our Network Practices are unable to convince potential payors and patients of the benefits of our value-based system, or if potential or existing payors and patients prefer the care provider model of one of our
competitors, we may not be able to effectively implement our growth strategy, which depends on our ability to attract new patient referrals and payors for our Network Practices. Network Practices’ inability to obtain new payor agreements and
patient referrals and retain existing payors and patients would harm our ability to execute our growth strategy and may have a material adverse effect on our business operations and financial position.
18
We face risks associated with estimating
the amount of revenue that is recognized under Network Practices’ agreements with health plans, and if our estimates of revenue are materially inaccurate, it could impact the timing and the amount of our revenue recognition or have a material
adverse effect on our business, results of operations, financial condition and cash flows.
There are significant risks associated with estimating the amount
of revenues that are recognized under Network Practices’ agreements with health plans in a reporting period and it is possible that we may not accurately estimate the amount of such revenues. The billing and collection process is complex due to
ongoing insurance coverage changes, geographic coverage differences, differing interpretations of contract coverage and other payor issues, such as ensuring appropriate documentation. Determining applicable primary and secondary coverage for
patients, together with the changes in patient coverage that occur each month, requires complex, resource-intensive processes. Errors in determining the correct coordination of benefits may result in refunds to payors. Revenues associated with
Medicare and Medicaid programs are also subject to estimating risk related to the amounts not paid by the primary government payor that will ultimately be collectible from other government programs paying secondary coverage, the patient’s
commercial health plan secondary coverage or the patient. Collections, refunds and payor recoupments typically continue to occur for up to three years and longer after services are provided. If our estimates of revenues are materially
inaccurate, it could impact the timing and the amount of our revenues recognition and have a material adverse impact on our business, results of operations, financial condition and cash flows.
Reductions in government reimbursement
rates or changes in the rules governing government healthcare programs could have a material adverse effect on our financial condition and results of operations.
Our Network Practices receive a significant portion of revenue
directly from Medicare. In addition, many private payors base their reimbursement rates on the published Medicare rates or, in the case of Medicare Advantage, are themselves reimbursed by Medicare for the services our Network Practices provide.
As a result, our results of operations are, in part, dependent on government funding levels for Medicare programs, particularly Medicare Advantage programs. Any changes that limit or reduce Medicare Advantage or general Medicare reimbursement
levels, such as reductions in or limitations of reimbursement amounts or rates under programs, reductions in funding of programs, expansion of benefits without adequate funding, elimination of coverage for certain benefits, or elimination of
coverage for certain individuals or treatments under programs, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
The Medicare program and its reimbursement rates and rules are
subject to frequent change. These include statutory and regulatory changes, rate adjustments (including retroactive adjustments), administrative or executive orders and government funding restrictions, all of which may materially adversely
affect the rates at which Medicare reimburses our Network Practices for patient care services. Budget pressures often lead the federal government to reduce or place limits on reimbursement rates under Medicare. Implementation of these and other
types of measures has in the past and could in the future result in substantial reductions in our revenue and operating margins.
In addition, CMS often changes the rules governing the Medicare
program, including those governing reimbursement. Changes that could adversely affect our business include:
|
•
|
administrative or legislative changes to rates or the bases of payment;
|
|
•
|
limits on the services or types of providers for which Medicare will provide reimbursement;
|
|
•
|
changes in methodology for patient assessment and/or determination of payment levels;
|
|
•
|
the reduction or elimination of annual rate increases; or
|
|
•
|
an increase in co-payments or deductibles payable by beneficiaries.
|
Any reductions in reimbursement rates or the scope of services
rendered by our Network Practices being reimbursed could have a material, adverse effect on our financial condition and results of operations or even result in reimbursement rates that are insufficient to cover our operating expenses.
Additionally, any delay or default by the government in making Medicare or Medicaid reimbursement payments to our Network Practices or any reduction in patients eligible for such programs could materially and adversely affect our business,
financial condition and results of operations.
19
We cannot predict the effect that health
care reform and other changes in government programs may have on our business, financial condition or results of operations.
The impact of healthcare reform legislation and other changes in
the healthcare industry and in healthcare spending is currently unknown, but may adversely affect our business, financial condition and results of operations. Our revenue is dependent on the healthcare industry and could be affected by changes
in healthcare spending, reimbursement and policy. The healthcare industry is subject to changing political, regulatory and other influences. By way of example, the Affordable Care Act (“ACA”), which was enacted in 2010, made major changes in
how healthcare is delivered and reimbursed, and it increased access to health insurance benefits to the uninsured and underinsured populations of the United States.
Since its enactment, there have been judicial, executive and
Congressional challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA.
Prior to the Supreme Court’s decision, President Biden issued an executive order initiating a special enrollment period from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA
marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare. It is unclear how healthcare reform measures enacted by Congress or
implemented by the Biden administration, if any, will impact our business.
Other legislative changes have been proposed and adopted since the
ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of 2% per fiscal year, which began in 2013 and will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020
through March 31, 2022. Under current legislation, the actual reduction in Medicare payments varies from 1% from April 1, 2022 to June 30, 2022, to up to 3% in the final fiscal year of this sequester, unless additional Congressional action is
taken. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers,
and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. New laws may result in additional reductions in Medicare and other healthcare funding, which may materially
adversely affect consumer demand and affordability for our products and services and, accordingly, the results of our financial operations. Additional changes that may affect our business include the expansion of new programs such as Medicare
payment for performance initiatives for physicians under the Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, which first affected physician payment in 2019. At this time, it is unclear how the introduction of the Medicare
quality payment program will impact overall physician reimbursement. The Inflation Reduction Act of 2022, or IRA, signed into law on August 16, 2022, also contains a number of provisions designed to limit or reduce drug prices under the
Medicare program, reduce beneficiary out-of-pocket spending under Medicare’s prescription drug benefit, and expand subsidies for individuals to obtain private health insurance under the ACA. While these provisions of the IRA do not apply
directly to healthcare providers like our Network Practices, we are continuing to evaluate the potential impact, if any, that the IRA may have on our business.
Such changes in the regulatory environment may also result in
changes to our payer mix that may affect our operations and revenue. In addition, certain provisions of the ACA authorize voluntary demonstration projects, which include the development of bundling payments for acute, inpatient hospital
services, physician services and post-acute services for episodes of hospital care.
Further, the ACA may adversely affect payers by increasing medical
costs generally, which could have an effect on the industry and potentially impact our business and revenue as payers seek to offset these increases by reducing costs in other areas. Uncertainty regarding future amendments to the ACA as well as
new legislative proposals to reform healthcare and government insurance programs, along with the trend toward managed healthcare in the United States, could result in reduced demand and prices for our services. We expect that additional state
and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments and other third party payers will pay for healthcare products and services, which could adversely
affect our business, financial condition and results of operations.
Changes in the payor mix of patients and
potential decreases in reimbursement rates as a result of consolidation among plans could adversely affect our revenues and results of operations.
The amounts our Network Practices receive for services provided to
patients are determined by a number of factors, including the payor mix of patients and the reimbursement methodologies and rates utilized by the patients’
20
plans. Patient services revenue consists of fee-for-service agreements held by our
Network Practices. Under a fee-for-service payor arrangement, our Network Practices collect fees directly from the payor as services are provided. Patient services revenue accounted for substantially all of our total revenue for the year ended
December 31, 2022. A significant decrease in the number of fee-for-service arrangements held by our Network Practices could adversely affect our revenues and results of operation.
The healthcare industry has also experienced a trend of
consolidation, resulting in fewer but larger payors that have significant bargaining power, given their market share. Payments from payors are the result of negotiated rates. These rates may decline based on renegotiations and larger payors
have significant bargaining power to negotiate higher discounted fee arrangements with healthcare providers. As a result, payors increasingly are demanding discounted fee structures or the assumption by healthcare providers of all or a portion
of the financial risk related to paying for care provided through capitation agreements.
We face significant competition from other
healthcare services providers. Our failure to adequately compete could adversely affect our business.
We and our Network Practices compete directly with national,
regional and local providers of healthcare for patients and physicians. There are many other companies and individuals currently providing healthcare services, many of which have been in business longer and/or have substantially more resources.
Other companies could enter the healthcare industry in the future and divert some or all of our business. If we expand to other geographies, we expect competition may change based on a number of factors, including the number of competing
oncology care facilities in the local market and the types of services available at those facilities, our Network Practices’ reputation for quality care of patients, the commitment and expertise of our Network Practices’ medical staff, our
local service offerings and community programs, the cost of care in each locality, and the physical appearance, location, age and condition of our facilities. If we are unable to attract patients to our managed clinics, our revenue and
profitability will be adversely affected. Some of our competitors may have greater recognition and be more established in their respective communities than we are, and may have greater financial and other resources than we have. Competing
oncology care providers may also offer larger facilities or different programs or services than our Network Practices do, which, combined with the foregoing factors, may result in our competitors being more attractive to our current patients,
potential patients and referral sources. Furthermore, while we budget for routine capital expenditures at our managed clinics to keep them competitive in their respective markets, to the extent that competitive forces cause those expenditures
to increase in the future, our financial condition may be negatively affected. In addition, our relationships with governmental and private third-party payors are not exclusive and our competitors have established or could seek to establish
relationships with such payors to serve their covered patients. Additionally, as we expand into new geographies, we may encounter competitors with stronger relationships or recognition in the community in such new geography, which could give
those competitors an advantage in obtaining new patients. Individual physicians, physician groups and companies in other healthcare industry segments, including those with which our Network Practices have contracts, and some of which have
greater financial, marketing and staffing resources, may become competitors in providing health care services, and this competition may have a material adverse effect on our business operations and financial position.
Competition for physicians and nurses,
shortages of qualified personnel or other factors could increase our labor costs and adversely affect our revenue, profitability and cash flows.
Our operations are dependent on the efforts, abilities and
experience of our Network Practices’ physicians and clinical personnel. We compete with other healthcare providers, primarily hospitals and other oncology practices, in attracting physicians, nurses and medical staff to support our managed
clinics, recruiting and retaining qualified management and support personnel responsible for the daily operations of each of our managed clinics and in our Network Practices contracting with payors in each of our markets. In some markets, the
lack of availability of clinical personnel has become a significant operating issue facing all healthcare providers. This shortage may require us and our Network Practices to continue to enhance wages and benefits to recruit and retain
qualified personnel or to contract for more expensive temporary personnel. We also depend on the available labor pool of semi-skilled and unskilled workers in each of the markets in which we operate.
If our labor costs increase, we may not be able to raise rates to
offset these increased costs. Because a significant percentage of our revenue consists of fixed, prospective payments, our ability to pass along increased labor costs is limited. In particular, if labor costs rise at an annual rate greater than
our net annual consumer price index basket update from Medicare, our results of operations and cash flows will likely be adversely affected. Any union activity
21
at our managed clinics that may occur in the future could contribute to increased
labor costs. Certain proposed changes in federal labor laws and the National Labor Relations Board’s modification of its election procedures could increase the likelihood of employee unionization attempts. Although none of our employees or the
employees of our Network Practices are currently represented by a collective bargaining agreement, to the extent a significant portion of our employee base unionizes, it is possible our labor costs could increase materially. Our failure to
recruit and retain qualified management and medical personnel for our Network Practices, or to control our collective labor costs, could have a material adverse effect on our business, prospects, results of operations and financial condition.
Because competition for qualified personnel
is intense, we may not be able to attract and retain the highly skilled employees we need to execute our business strategies and growth plans.
To execute on our growth plan, we and our Network Practices must
attract and retain highly qualified personnel. Competition for highly qualified personnel is intense, especially for physicians and other medical professionals who are experienced in providing oncology care services. We and our Network Practice
have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies and healthcare providers with which we compete for experienced
personnel have greater resources than we have. If we and our Network Practices hire employees from competitors or other companies or healthcare providers, their former employees may attempt to assert that these employers or we have breached
certain legal obligations, resulting in a diversion of our time and resources.
As we become a more mature company, we may find our recruiting
efforts more challenging. The incentives to attract, retain, and motivate employees provided by our stock options and other equity awards, or by other compensation arrangements, may not be as effective as in the past. As such, we may not be
successful in continuing to attract and retain qualified personnel. Our recruiting efforts may also be limited by laws and regulations, such as restrictive immigration laws, and restrictions on travel or availability of visas. If we fail to
attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be harmed.
If our Network Practices and the physicians
affiliated therewith are unable to provide consistently high quality of care, our business will be adversely impacted.
Our business is dependent upon our Network Practices and the
physicians affiliated therewith providing high-quality care to patients. In particular, the ability to attract and retain patients and patient referrals is dependent upon providing cost effective, quality patient care that meets or exceeds the
patients’ and payors’ expectations. We depend on third parties for certain of the patient care needs. If we, our Network Practices or the physicians affiliated therewith fail to provide service that meets the patients’ and payors’ expectations,
we may have difficulty retaining or growing the patient base, which could adversely affect our business, financial condition and results of operations.
We expect the importance of high-quality patient experience to
increase as we, through our Network Practices, expand our business and pursue new lives served. Any failure to maintain high-quality patient experience, or a market perception that we do not maintain high-quality care, could harm our reputation
and our ability to grow the number of lives served, and our business, results of operations, and financial condition. Additionally, as the number of lives served by our Network Practices in our managed clinics grows, we will need to hire
additional personnel to provide quality care at scale. If we, our Network Practices or the physicians affiliated therewith are unable to provide such care, our business, results of operations, financial condition, and reputation could be
harmed.
If certain of our suppliers do not meet our
needs, if there are material price increases on supplies, if we are not reimbursed or adequately reimbursed for drugs purchased or if we are unable to effectively access new technology or superior products, it could negatively impact the
ability of our Network Practices to effectively provide the services we offer and could have a material adverse effect on our business, results of operations, financial condition and cash flows.
If our suppliers do not meet our Network Practices’ needs for the
products they supply, including in the event of a product recall, shortage or dispute, and are not able to find adequate alternative sources, if our Network Practices experience material price increases from these suppliers that we are unable
to mitigate, or if some of the drugs that our Network Practices purchase are not reimbursed or not adequately reimbursed by commercial or government payors, it could have a material adverse impact on our business, results of operations,
financial condition and cash flows. In addition, the technology related to the products critical to the services we provide is subject to new developments which may result in superior products. If we are not able to access superior products on
a cost-effective
22
basis or if suppliers are not able to fulfill our requirements for such products,
we and our Network Practices could face patient attrition and other negative consequences which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We depend on our information technology
systems, and those of our third-party vendors, contractors and consultants, and any failure or significant disruptions of these systems, security breaches or loss of data could materially adversely affect our business, financial condition and
results of operations.
Our business is dependent on maintaining effective information
systems as well as the integrity and timeliness of the data we use to serve patients, support our care teams and operate our business. Because of the large amount of data that we collect and manage, it is possible that hardware failures or
errors in our systems could result in data loss or corruption or cause the information that we collect to be incomplete or contain inaccuracies that our partners regard as significant. If our data were found to be inaccurate or unreliable due
to fraud or other error, or if we, or any of the third-party service providers we engage, were to fail to maintain information systems and data integrity effectively, we could experience operational disruptions that may impact patients and care
teams and hinder our ability to provide services, retain and attract patients, establish appropriate pricing for services, manage patient risk profiles, establish reserves, report financial results timely and accurately and maintain regulatory
compliance, among other things.
Our information technology strategy and execution are critical to
our continued success. We must continue to invest in long-term solutions that will enable us to anticipate patient needs and expectations, enhance the patient experience, act as a differentiator in the market and protect against cybersecurity
risks and threats. We believe our success is dependent, in large part, on maintaining the effectiveness of existing technology systems and continuing to deliver and enhance technology systems that support our business processes in a
cost-efficient and resource-efficient manner. Increasing regulatory and legislative changes will place additional demands on our information technology infrastructure that could have a direct impact on resources available for other projects
tied to our strategic initiatives. In addition, recent trends toward greater patient engagement in health care require new and enhanced technologies, including more sophisticated applications for mobile devices. Connectivity among technologies
is becoming increasingly important. We must also develop new systems to meet current market standards and keep pace with continuing changes in information processing technology, evolving industry and regulatory standards and patient needs.
Failure to do so may present compliance challenges and impede our ability to deliver services in a competitive manner. Further, because system development projects are long-term in nature, they may be more costly than expected to complete and
may not deliver the expected benefits upon completion.
Security incidents compromising the confidentiality, integrity,
and availability of our confidential or personal information and our and our third-party service providers’ information technology systems could result from cyber-attacks, computer malware, viruses, social engineering (including spear phishing
and ransomware attacks), credential stuffing, supply chain attacks, efforts by individuals or groups of hackers and sophisticated organizations, including state-sponsored organizations, errors or malfeasance of our personnel, and security
vulnerabilities in the software or systems on which we and our third party service providers rely. As techniques used by cyber criminals change frequently, a disruption, cyberattack or other security breach of our information technology systems
or infrastructure, or those of our third-party service providers, may go undetected for an extended period and could result in the theft, transfer, unauthorized access to, disclosure, modification, misuse, loss or destruction of our employee,
representative, customer, vendor, consumer and/or other third-party data, including sensitive or confidential data, personal information and/or intellectual property. We and certain of our service providers are from time to time, subject to
cyberattacks and security incidents, and we cannot guarantee that our security efforts will prevent breaches or breakdowns of our or our third-party service providers’ information technology systems. While we do not believe that we have
experienced any significant system failure, accident or security breach to date, if we suffer a material loss or disclosure of health-related or other personal or confidential information as a result of a breach of our information technology
systems, including those of our third-party service providers, we may suffer reputational, competitive and/or business harm, incur significant costs and be subject to government investigations, litigation, fines and/or damages, which could have
a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows. Moreover, while we maintain cyber insurance that may help provide coverage for these types of incidents, we cannot assure you
that our insurance will be adequate to cover costs and liabilities related to these incidents. Further, our failure to effectively invest in, implement improvements to and properly maintain the uninterrupted operation and data integrity of our
information technology and other business systems could adversely affect our results of operations, financial position and cash flow.
23
We may be subject to legal proceedings and
litigation, including intellectual property and privacy disputes, which are costly to defend and could materially harm our business and results of operations.
We and our Network Practices may be party to lawsuits and legal
proceedings in the normal course of business. These matters are often expensive and disruptive to normal business operations. We may face allegations, lawsuits and regulatory inquiries, audits and investigations regarding data privacy,
security, labor and employment, consumer protection and intellectual property infringement, including claims related to privacy, patents, publicity, trademarks, copyrights and other rights. We may also face allegations or litigation related to
our acquisitions, securities issuances or business practices, including public disclosures about our business. Litigation and regulatory proceedings may be protracted and expensive, and the results are difficult to predict. Certain of these
matters may include speculative claims for substantial or indeterminate amounts of damages and include claims for injunctive relief. Additionally, our litigation costs could be significant. Adverse outcomes with respect to litigation or any of
these legal proceedings may result in significant settlement costs or judgments, penalties and fines, or require us to modify our services or require us to stop serving certain patients or geographies, all of which could negatively impact our
geographical expansion and revenue growth. Our Network Practices may also become subject to periodic audits, which would likely increase our regulatory compliance costs and may require us to change our business practices, which could negatively
impact our revenue growth. Managing legal proceedings, litigation and audits, even if we achieve favorable outcomes, is time-consuming and diverts the attention of management and our affiliated providers from our business.
The results of regulatory proceedings, litigation, claims, and
audits cannot be predicted with certainty, and determining reserves for pending litigation and other legal, regulatory and audit matters requires significant judgment. There can be no assurance that our expectations will prove correct, and even
if these matters are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our reputation, business, financial condition, results of operations
and the market price of our common stock.
Furthermore, our business exposes our Network Practices and
affiliated providers to potential medical malpractice, professional negligence or other related actions or claims that are inherent in the provision of healthcare services. These claims, with or without merit, could cause us to incur
substantial costs, and could place a significant strain on our financial resources, divert the attention of management and our affiliated providers from our core business, harm our reputation and adversely affect our Network Practices’ ability
to attract and retain patients, any of which could have a material adverse effect on our business, financial condition and results of operations.
Although we maintain professional liability insurance coverage for
our Network Practices and affiliated providers, it is possible that claims against them may exceed the coverage limits of our insurance policies. Even if any professional liability loss is covered by an insurance policy, our liability could
exceed the limits of our insurance coverage. Professional liability claims in excess of applicable insurance coverage could have a material adverse effect on our collective business, financial condition and results of operations. In addition,
any professional liability claim brought against our Network Practices and affiliated providers, with or without merit, could result in an increase of our professional liability insurance premiums. Insurance coverage varies in cost and can be
difficult to obtain, in particular insurance coverage relating to cybersecurity, and we cannot guarantee that we will be able to obtain insurance coverage on behalf of our Network Practices and affiliated providers in the future on terms
acceptable to us or at all. If costs of insurance and claims increase, then our collective earnings could decline.
Some jurisdictions preclude Network
Practices from entering into non-compete agreements with physicians, and other non-compete agreements and restrictive covenants applicable to certain physicians and other clinical employees may not be enforceable.
Network Practices have employment contracts with physicians and
other health professionals in many states. Some of these contracts include provisions preventing these physicians and other health professionals from competing with us both during and after the term of our contract with them. The law governing
non-compete agreements and other forms of restrictive covenants varies from state to state. Some jurisdictions prohibit our Network Practices from using non-competition covenants with our professional staff. Other states are reluctant to
strictly enforce non-compete agreements and restrictive covenants applicable to physicians and other healthcare professionals. There can be no assurance that our Network Practices’ non-compete agreements related to physicians and other health
professionals will be found enforceable if challenged in certain states. In such event, our Network Practices would be unable to prevent physicians and other health professionals formerly employed by our Network Practices from competing with
us, potentially resulting in the loss of some of our patients.
24
Current and future acquisitions may use
significant resources, may be unsuccessful, and could expose us to unforeseen liabilities.
As part of our growth strategy, we may pursue acquisitions of
oncology and other physician practices and services. These acquisitions may involve significant cash expenditures, debt incurrence, additional operational losses and expenses, and compliance risks that could have a material adverse effect on
our financial condition and results of operations. We may not be able to successfully integrate the acquired businesses into ours and our Network Practices’, and therefore, we may not be able to realize the intended benefits from an
acquisition. These acquisitions could result in difficulties integrating acquired operations, technologies, and personnel into our business. Such difficulties may divert significant financial, operational, and managerial resources from our
existing operations and make it more difficult to achieve our operating and strategic objectives. We and our Network Practices may fail to retain employees or patients acquired through these acquisitions, which may negatively impact the
integration efforts. These acquisitions could also have a negative impact on our results of operations if it is subsequently determined that goodwill or other acquired intangible assets are impaired, thus resulting in an impairment charge in a
future period.
In addition, these acquisitions involve risks that the acquired
businesses will not perform in accordance with expectations; that we may become liable for unforeseen financial or business liabilities of the acquires businesses, including liabilities for failure to comply with applicable healthcare
regulations; that the expected synergies associated with acquisitions will not be achieved; and that business judgments concerning the value, strengths and weaknesses of businesses acquired will prove incorrect, which could have a material
adverse effect on our financial condition and results of operations.
If we are unable to protect the
confidentiality of our trade secrets, know-how and other proprietary and internally developed information, the value of our technology could be adversely affected.
We may not be able to protect our trade secrets, know-how and
other internally developed information adequately. Although we use reasonable efforts to protect this internally developed information and technology, our employees, consultants and other parties (including independent contractors and companies
with which we conduct business) may unintentionally or willfully disclose our information or technology to competitors. Enforcing a claim that a third party illegally disclosed or obtained and is using any of our internally developed
information or technology is difficult, expensive and time-consuming, and the outcome is unpredictable. We rely, in part, on non-disclosure, confidentiality and assignment-of-invention agreements with our employees, independent contractors,
consultants and companies with which we conduct business to protect our internally developed information. These agreements may not be self-executing, or they may be breached and we may not have adequate remedies for such breach. Moreover, third
parties may independently develop similar or equivalent proprietary information or otherwise gain access to our trade secrets, know- how and other internally developed information.
Negative publicity regarding the managed
healthcare industry generally could adversely affect our results of operations or business.
Negative publicity regarding the managed healthcare industry
generally may result in increased regulation and legislative review of industry practices that further increase our costs of doing business and adversely affect our results of operations or business by:
|
•
|
requiring us to change our products and services;
|
|
•
|
increasing the regulatory, including compliance, burdens under which we operate, which, in turn, may negatively impact the
manner in which our Network Practices provide services and increase our costs of providing services;
|
|
•
|
adversely affecting our ability to market our products or services through the imposition of further regulatory restrictions;
or
|
|
•
|
adversely affecting our ability to attract and retain patients.
|
Our managed clinics may be negatively impacted
by weather and other factors beyond our control.
Our results of operations may be adversely impacted by adverse
conditions affecting our managed clinics, including severe weather events such as hurricanes and flooding, natural disasters such as earthquakes and forest fires. In particular, Fort Myers, Florida where our headquarters are located,
experienced significant damage in the wake of Hurricane Ian. We may not fully realize Ian’s impact on Fort Myers for some time, and Fort Myers is likely
25
to be adversely impacted by other severe storms and/or hurricanes in the future.
Our results of operations may also be adversely impacted by public health concerns such as contagious disease outbreaks, violence or threats of violence or other factors beyond our control that cause disruption of patient scheduling,
displacement of patients, employees and care teams, or force certain of our managed clinics to close temporarily. Our future operating results may be adversely affected by these and other factors that disrupt the operation of our managed
clinics.
Risks Related to Our Regulatory Environment
We are dependent on our relationships with
our Network Practices to provide healthcare services, and our business would be harmed if those relationships were disrupted or if our arrangements with our Network Practices become subject to legal challenges.
Our contractual relationships with our Network Practices may
implicate certain state laws that generally prohibit non-professional entities from providing licensed medical services or exercising control over licensed physicians or other healthcare professionals (such activities generally referred to as
the “corporate practice of medicine”) or engaging in certain practices such as fee-splitting with such licensed professionals. The interpretation and enforcement of these laws vary significantly from state to state. There can be no assurance
that these laws will be interpreted in a manner consistent with our practices or that other laws or regulations will not be enacted in the future that could have a material and adverse effect on our business, financial condition and results of
operations. Regulatory authorities, state boards of medicine, state attorneys general and other parties may assert that, despite the agreements through which we operate, we are engaged in the provision of medical services and/or that our
arrangements with our Network Practices constitute unlawful fee-splitting. If a jurisdiction’s prohibition on the corporate practice of medicine or fee-splitting is interpreted in a manner that is inconsistent with our practices, we would be
required to restructure or terminate our arrangements with our Network Practices to bring our activities into compliance with such laws. A determination of non-compliance, or the termination of or failure to successfully restructure these
relationships could result in disciplinary action, penalties, damages, fines, and/or a loss of revenue, any of which could have a material and adverse effect on our business, financial condition and results of operations. State corporate
practice of medicine and fee-splitting prohibitions also often impose penalties on healthcare professionals for aiding in the improper rendering of professional services, which could discourage physicians and other healthcare professionals with
whom we contract from providing clinical services.
Our managed clinics and our Network
Practices providing professional services at such clinics may become subject to medical liability claims, which could have a material adverse impact on our business.
Our business entails the risk of medical liability claims against
us, our Network Practices and their clinicians. Although we, our Network Practices and their clinicians carry insurance covering medical malpractice claims in amounts that we believe are appropriate in light of the risks attendant to our
business, successful medical liability claims could result in substantial damage awards that exceed the limits of our and our clinicians’ insurance coverage, and/or plaintiffs in these matters may request punitive or other damages that may not
be covered by insurance. In addition, professional liability insurance is expensive and insurance premiums may increase significantly in the future, particularly as we expand our services. As a result, adequate professional liability insurance
may not be available to our clinicians, our affiliated practices or to us in the future at acceptable costs or at all.
Any claims made against us or our Network Practices that are not
fully covered by insurance could be costly to defend, result in substantial damage awards against us and divert the attention of our management and our Network Practices from our operations, which could have a material adverse effect on our
business, financial condition and results of operations. In addition, any claims may adversely affect our business or reputation.
If there is a change in accounting standards
by the Financial Accounting Standards Board (“FASB”) or the interpretation thereof affecting consolidation of entities, it could have a material adverse effect on our consolidation of total revenues derived from our Network Practices.
Our financial statements are consolidated in accordance with
applicable accounting standards and include the accounts of our Network Practices, which we manage under long-term management services agreements but are not owned by us. Such consolidation for accounting and/or tax purposes does not, is not
intended to, and should not be deemed to, imply or provide us any control over the medical decisions of our Network Practices. In the event a change in accounting standards promulgated by FASB or in interpretation of its standards, or if there
is an adverse determination by a regulatory agency or a court, or a change in state or federal law relating to the ability to maintain present agreements or arrangements with our Network Practices, we may not be permitted to continue to
consolidate the total revenues of such practices.
26
Our managed clinics and our Network
Practices may be subject to third-party payor audits, which, if adversely determined against us or our Network Practices, may have a material effect on our results of operations and financial condition.
As a result of our Network Practices’ participation in the
Medicare and Medicaid programs, our managed clinics and our Network Practices are subject to various governmental inspections, reviews, audits and investigations to verify our compliance with these programs and applicable laws and regulations.
Payors may also reserve the right to conduct audits. We also
periodically conduct internal audits and reviews of our regulatory compliance. An adverse inspection, review, audit or investigation could result in:
|
•
|
refunding amounts we have been paid pursuant to the Medicare or Medicaid programs or from payors;
|
|
•
|
state or federal agencies imposing fines, penalties and other sanctions on us;
|
|
•
|
temporary suspension of payment for new patients to the facility or agency;
|
|
•
|
decertification or exclusion from participation in the Medicare or Medicaid programs or one or more payor networks;
|
|
•
|
self-disclosure of violations to applicable regulatory authorities;
|
|
•
|
damage to our reputation;
|
|
•
|
the revocation of a facility’s or agency’s license; and
|
|
•
|
loss of certain rights under, or termination of, our contracts with payors.
|
If adverse inspections, reviews, audits or investigations occur
and any of the results noted above occur, it could have a material adverse effect on our business and operating results. Furthermore, the legal, document production and other costs associated with complying with these inspections, reviews,
audits or investigations could be significant.
We are subject to extensive fraud, waste,
and abuse laws that may give rise to federal and state audits, investigations, lawsuits and claims against us, the outcome of which may have a material adverse effect on our business, financial condition, cash flows, or results of operations.
The U.S. healthcare industry is heavily regulated and closely
scrutinized by federal, state and local governments. Comprehensive statutes and regulations govern the manner in which we provide and bill for services and collect reimbursement from governmental programs and private payors, our contractual
relationships and arrangements with healthcare providers and vendors, our marketing activities and other aspects of our operations. Of particular importance are:
|
•
|
the federal Anti-Kickback Statute, or AKS, which prohibits the knowing and willful offer, payment, solicitation or receipt of
any bribe, kickback, rebate or other remuneration for referring an individual, in return for ordering, leasing, purchasing or recommending or arranging for or to induce the referral of an individual or the ordering, purchasing or
leasing of items or services covered, in whole or in part, by any federal healthcare program, such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it to
have committed a violation;
|
|
•
|
the federal physician self-referral law, the Stark Law, which, subject to limited exceptions, prohibits physicians from
referring Medicare or Medicaid patients to an entity for the provision of certain designated health services, or DHS, if the physician or a member of such physician’s immediate family has a direct or indirect financial relationship
(including an ownership interest or a compensation arrangement) with the entity, and prohibits the entity from billing Medicare or Medicaid for such DHS;
|
|
•
|
the federal False Claims Act, or FCA, which imposes civil and criminal liability on individuals or entities that knowingly
submit false or fraudulent claims for payment to the government or knowingly make, or cause to be made, a false statement in order to have a false claim paid, including qui tam
|
|
•
|
or whistleblower suits. There are many potential bases for liability under the FCA. The government has used the FCA to
prosecute Medicare and other government healthcare program fraud such as coding errors, billing for services not provided, and providing care that is not medically necessary
|
27
|
•
|
or that is substandard in quality. In addition, the government may assert that a claim including items or services resulting
from a violation of the AKS or Stark Law constitutes a false or fraudulent claim for purposes of the FCA;
|
|
•
|
the Civil Monetary Penalties Law, which prohibits, among other things, an individual or entity from offering remuneration to
a federal healthcare program beneficiary that the individual or entity knows or should know is likely to influence the beneficiary to order or receive healthcare items or services from a particular provider. We may also be subject to
civil monetary penalties and other sanctions under the statute if we or our Network Practices hire or contract with any individuals or entities that are or become excluded from government healthcare programs, for the provision of items
or
|
|
•
|
services for which payment may be made under such programs;
|
|
•
|
the criminal healthcare fraud provisions of HIPAA and related rules that prohibit knowingly and willfully executing a scheme
or artifice to defraud any healthcare benefit program or falsifying, concealing or covering up a material fact or making any material false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare
benefits, items or services. Similar to the AKS, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation;
|
|
•
|
reassignment of payment rules that prohibit certain types of billing and collection practices in connection with claims
payable by the Medicare or Medicaid programs;
|
|
•
|
similar state law provisions pertaining to anti-kickback, self-referral and false claims issues, some of which may apply to
items or services reimbursed by any payor, including patients and commercial insurers;
|
|
•
|
laws that regulate debt collection practices;
|
|
•
|
a provision of the Social Security Act that imposes criminal penalties on healthcare providers who fail to disclose, or
refund known overpayments;
|
|
•
|
federal and state laws that prohibit providers from billing and receiving payment from Medicare and Medicaid for services
unless the services are medically necessary, adequately and accurately documented, and billed using codes that accurately reflect the type and level of services rendered;
|
|
•
|
federal and state laws and policies that require healthcare providers to maintain licensure, certification or accreditation
to enroll and participate in the Medicare and Medicaid programs, to report certain changes in their operations to the agencies that administer these programs and, in some cases, to re- enroll in these programs when changes in direct or
indirect ownership occur;
|
|
•
|
federal and state laws pertaining to the provision of services by nurse practitioners and physician assistants in certain
settings, physician supervision of those services, and reimbursement requirements that depend on the types of services provided and documented and relationships between physician supervisors and nurse practitioners and physician
assistants; and
|
|
•
|
Medicare and Medicaid regulations, manual provisions, local coverage determinations, national coverage determinations and
agency guidance imposing complex and extensive requirements upon healthcare providers.
|
The laws and regulations in these areas are complex, changing and
often subject to varying interpretations. As a result, there is no guarantee that a government authority will find that we or our Network Practices are in compliance with all such laws and regulations that apply to our business. Further,
because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of the business activities undertaken by us or our Network Practices could be subject to challenge under
one or more of these laws, including, without limitation, patient assistance programs that waive or reduce the patient’s obligation to pay copayments, coinsurance or deductible amounts owed for the services provided to them if they meet certain
financial need criteria. If we or our Network Practices’ operations are found to be in violation of any of such laws or any other governmental regulations that apply, we may be subject to significant penalties, including, without limitation,
administrative, civil and criminal penalties, damages, fines, disgorgement, the curtailment or restructuring of operations, integrity oversight and reporting obligations, exclusion from participation in federal and state healthcare programs and
imprisonment. In addition, any action against us or our Network Practices for violation of these laws
28
or regulations, even if successfully defended against, could cause us to incur
significant legal expenses, divert our management’s attention from the operation of our business and result in adverse publicity, or otherwise experience a material adverse impact on our business, results of operations, financial condition,
cashflows, reputation as a result.
If any of our managed clinics or Network
Practices lose their regulatory licenses, permits and/or accreditation status, or become ineligible to receive reimbursement under Medicare or Medicaid or other third-party Payors, there may be a material adverse effect on our business,
financial condition, cash flows, or results of operations.
The operations of our managed clinics through our Network
Practices are subject to extensive federal, state and local regulation relating to, among other things, the adequacy of medical care, equipment, personnel, operating policies and procedures, dispensing of prescription drugs, fire prevention,
rate-setting and compliance with building codes and environmental protection. Our managed clinics and Network Practices are also subject to extensive laws and regulation relating to facility and professional licensure, conduct of operations,
including financial relationships among healthcare providers, Medicare and Medicaid fraud and abuse and physician self-referrals, and maintaining updates to our Network Practices’ enrollment in the Medicare and Medicaid programs, including
addition of new clinic locations, providers and other enrollment information. Our managed clinics and Network Practices are subject to periodic inspection by licensing authorities and accreditation organizations to assure their continued
compliance with these various standards. There can be no assurance that these regulatory authorities will determine that all applicable requirements are fully met at any given time. Should any of our managed clinics or Network Practices be
found to be noncompliant with these requirements, we or our Network Practices could be assessed fines and penalties, could be required to refund reimbursement amounts or could lose our licensure or Medicare and/or Medicaid certification or
accreditation so that we or our Network Practices are unable to receive reimbursement from such programs and possibly from other third-party payors, any of which could materially adversely affect our business, financial condition, cash flows or
results of operations.
If we or our Network Practices fail to
comply with applicable data interoperability and information blocking rules, our consolidated results of operations could be adversely affected.
The 21st Century Cures Act (the “Cures Act”), which was signed
into law in December 2016, includes provisions related to data interoperability, information blocking and patient access. In May 2020, the HHS Office of the National Coordinator for Health Information Technology, or ONC, and CMS published the
Cures Act final rule, which was intended to clarify provisions of the Cures Act regarding interoperability and information blocking, and include, among other things, requirements surrounding information blocking, changes to ONC’s health IT
certification program and requirements that CMS-regulated payors make relevant claims/care data and provider directory information available through standardized patient access and provider directory application programming interfaces, or APIs,
that connect to provider electronic health record systems, or EHRs. The final rule will transform the way in which healthcare providers, health IT developers, health information exchanges/health information networks, or HIEs/HINs, and health
plans share patient information, and create significant requirements for healthcare industry participants. For example, the final rule, which went into effect on April 5, 2021, prohibits healthcare providers, health IT developers of certified
health IT, and HIEs/HINs from engaging in practices that are likely to interfere with, prevent, materially discourage, or otherwise inhibit the access, exchange or use of electronic health information, or EHI, also known as “information
blocking.” To further support access and exchange of EHI, the final rule identifies eight “reasonable and necessary activities” as exceptions to information blocking activities, as long as specific conditions are met. Any failure to comply with
these rules could have a material adverse effect on our business, results of operations and financial condition.
Actual or perceived failures to comply with
applicable data protection, privacy and security, advertising and consumer protection laws, regulations, standards and other requirements could adversely affect our business, financial condition and results of operations.
We and our Network Practices collect, receive, generate, use,
process, and store significant and increasing volumes of sensitive information, such as employee, individually identifiable health information and other personally identifiable information. We and our Network Practices are subject to a variety
of federal and state laws and regulations, as well as contractual obligations, relating to the collection, use, storage, retention, security, disclosure, transfer, return, destruction and other processing of personal information, including
health-related information. Enforcement actions and consequences for noncompliance with such laws, directives and regulations are rising, and the regulatory framework for privacy, data protection and data transfers is complex and rapidly
evolving and is likely to remain uncertain for the foreseeable future.
29
In the United States, numerous such federal and state laws and
regulations, including data breach notification laws, health information privacy laws, and consumer protection laws and regulations, including those that govern the collection, use, disclosure, and protection of health-related and other
personal information, could apply to our operations or the operations of our Network Practices. For example, the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and
Clinical Health Act of 2009, and regulations implemented thereunder, which we refer to collectively as HIPAA, imposes privacy, security and breach notification obligations on certain health care providers, health plans, and health care
clearinghouses, known as covered entities, as well as business associates that perform certain services that involve creating, receiving, maintaining or transmitting individually identifiable health information for or on behalf of such covered
entities. HIPAA requires covered entities, such as our Network Practices, and business associates, such as us, to develop and maintain policies with respect to the protection of, use and disclosure of protected health information, or PHI,
including the adoption of administrative, physical and technical safeguards to protect such information, and certain notification requirements in the event of a data breach.
Entities that are found to be in violation of HIPAA as the result
of a breach of unsecured PHI, a complaint about privacy practices or an audit by HHS, may be subject to significant civil, criminal and administrative fines and penalties and/or additional reporting and oversight obligations if required to
enter into a resolution agreement and corrective action plan with HHS to settle allegations of HIPAA non-compliance. HIPAA also authorizes state Attorneys General to file suit on behalf of their residents. Courts may award damages, costs and
attorneys’ fees related to violations of HIPAA in such cases. While HIPAA does not create a private right of action allowing individuals to sue us in civil court for violations of HIPAA, its standards have been used as the basis for duty of
care in state civil suits such as those for negligence or recklessness in the misuse or breach of PHI. Enforcement actions by HHS or state Attorneys General could result in significant financial liability and reputational harm, in addition to
depleting financial resources.
Numerous other state and federal laws, including consumer
protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality, security and processing of personal information, including health-related information, some of which are more stringent than HIPAA and many
of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. In addition, these laws and regulations in many cases are more restrictive than, and may not be preempted by, HIPAA and
may be subject to varying interpretations by courts and government agencies.
Laws in all 50 states and other United States territories have
been enacted that may require businesses to provide notice to regulators or to individuals whose personal information has been accessed without authorization or disclosed as a result of a data breach. Such laws are not always consistent, and
compliance in the event of a widespread data breach is costly and may be challenging. We also may be contractually required to comply with various requirements relating to privacy and security of personal information and to provide notice or
take other actions in connection with a data breach, and failures to comply with such contractual requirements could result in potential contractual liability. Although we may have certain contractual protections in our contracts with third
parties, such contractual protections may not be sufficient to adequately protect us from potential liability, potential harm to our reputation or the need to expend significant resources on data security and responding to an actual or
perceived data breach.
States are also constantly amending existing laws, requiring
attention to frequently changing requirements, and we expect these changes to continue. For example, in June 2018, California enacted the California Consumer Privacy Act, or the CCPA, which became effective on January 1, 2020, and, among other
things, requires covered companies to provide disclosures to California consumers, and affords such consumers certain data protection 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 that may increase data breach litigation. While the CCPA includes certain exceptions for health-related
information, including PHI, it still may require us to modify our data practices and policies and to incur substantial costs and expenses in an effort to comply. Further, the California Privacy Rights Act, or CPRA, recently passed in
California. The CPRA will impose additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses
of sensitive data. It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. The majority of the provisions will go into
effect on January 1, 2023, and additional compliance investment and potential business process changes may be required.
30
As required by certain laws, we publicly post documentation
regarding our privacy practices concerning the collection, processing, use and disclosure of certain data. The publication of our privacy policy and other documentation that provide promises and assurances about privacy and security can subject
us to potential state and federal action if they are found to be deceptive, unfair, or misrepresentative of our actual practices. In addition, although we endeavor to comply with our published policies and documentation, individuals could
allege we have failed to do so, or we may at times actually fail to do so despite our efforts. Any failure by us, our third-party service providers or other parties with whom we do business to comply with this documentation or with laws or
regulations applicable to our business could result in proceedings against us by governmental entities or others.
In addition, the Federal Trade Commission, or the FTC, expects a
company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce
vulnerabilities. Our failure to take any steps perceived by the FTC as appropriate to protect consumers’ personal information may result in claims by the FTC that we have engaged in unfair or deceptive acts or practices in violation of
Section 5(a) of the FTC Act. State consumer protection laws provide similar causes of action for unfair or deceptive practices for alleged privacy, data protection and data security violations.
In addition to government regulation, privacy advocates and
industry groups may propose self- regulatory standards from time to time. These and other industry standards may legally or contractually apply to us, or we may elect to comply with such standards or to facilitate our customers’ compliance with
such standards. We expect that there will continue to be new proposed laws and regulations concerning privacy, data protection, and information security, and we cannot yet determine the impact such future laws, regulations, and standards may
have on our business. New laws, amendments to or re-interpretations of existing laws and regulations, industry standards, contractual and other obligations may require us to incur additional costs and restrict our business operations. Because
the interpretation and application of laws, standards, contractual and other obligations relating to privacy and data protection are still uncertain and changing, it is possible that these laws, standards, contractual and other obligations may
be interpreted and applied in a manner that is inconsistent with our data management practices, our privacy, data protection or data security policies or procedures or the features of our technology. If so, in addition to the possibility of
fines, lawsuits, regulatory investigations, imprisonment of company officials and public censure, other claims and penalties, significant costs for remediation and damage to our reputation, we could be required to fundamentally change our
business activities and practices or modify our technology, any of which could adversely affect our business. We may be unable to make such changes or modifications in a commercially reasonable manner, or at all, and our ability to develop new
software or provide new services could be limited. Any inability to adequately address privacy, data protection or information security-related concerns, even if such concerns are unfounded, or to successfully negotiate privacy, data protection
or information security- related contractual terms with customers, or to comply with applicable laws and regulations, or our policies relating to privacy, data protection, and information security, could result in additional cost and liability
to us, harm our reputation and brand, and adversely affect our business, financial condition and results of operations.
We and our Network Practices are subject to
federal, state and local laws and regulations that govern our business. These include regulations of our employment practices, including minimum wage, living wage, and paid time-off requirements, permitting and licensing, employee health and
safety and the storage, treatment and disposal of waste. Failure to comply with these laws and regulations, or changes to these laws and regulations that increase our expenses, could adversely impact our operations.
We and our Network Practices are required to comply with all
applicable federal, state and local laws and regulations related to the operation of our business. These regulations include regulations governing our Network Practices’ dispensary services, the construction, the use of our managed clinics and
the treatment of hazardous waste or drug products. Changes in regulations or new regulations could increase our costs, cause our Network Practices to lose licenses or accreditations or otherwise harm our business or the business of our Network
Practices.
We and our Network Practices are required to comply with all
applicable federal, state and local laws and regulations relating to employment, including occupational safety and health requirements, wage and hour and other compensation requirements, employee benefits, providing leave and sick pay,
employment insurance, proper classification of workers as employees or independent contractors, immigration and equal employment opportunity laws. These laws and regulations can vary significantly among jurisdictions and can be highly
technical. Costs and expenses related to these requirements are a significant operating expense and may increase as a result of, among other things, changes in federal, state or local laws or regulations, or the interpretation thereof,
requiring employers
31
to provide specified benefits or rights to employees, increases in the minimum
wage and local living wage ordinances, increases in the level of existing benefits or the lengthening of periods for which unemployment benefits are available. We may not be able to offset any increased costs and expenses. Furthermore, any
failure to comply with these laws requirements, including even a seemingly minor infraction, can result in significant penalties which could harm our reputation and have a material adverse effect on our business.
Future changes to applicable tax laws and
regulations and/or their interpretation may have an adverse effect on our business, financial condition and results of operations. Tax rules and regulations are subject to interpretation and require judgment by us that may be successfully
challenged by the applicable taxation authorities upon audit, which could result in additional tax liabilities.
Changes in tax laws or their interpretation could decrease the
amount of revenues we receive, the value of any tax loss carry-forwards and tax credits recorded on our balance sheet and the amount of our cash flow, and adversely affect our business, financial condition or results of operations. In addition,
other factors or events, including business combinations and investment transactions, changes in the valuation of our deferred tax assets and liabilities, adjustments to taxes upon finalization of various tax returns or as a result of
deficiencies asserted by taxing authorities, increases in expenses not deductible for tax purposes, changes in available tax credits, other changes in the apportionment of our income, and changes in tax rates, could also increase our future
effective tax rate.
In addition, our effective tax rate and tax liability are based on
the application of current income tax laws, regulations and treaties. These laws, regulations and treaties are complex, and the manner which they apply to us and our diverse set of business arrangements is often open to interpretation, and can
require us to take positions regarding the interpretation of applicable rules or the valuation of our assets that are subject to material uncertainty. Significant management judgment is required in determining our provision for taxes, our
deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. The proper tax treatment or characterization of the transactions we undertake is often subject to significant uncertainty, and the
resolution of any related issues could affect the withholding tax liabilities to which we are subject or the tax deductions that we are able to claim. The tax authorities could challenge our interpretation of laws, regulations and treaties or
the positions that we have taken regarding the valuation of our assets, resulting in additional tax liability or adjustment to our income tax provision.
Our tax filings are subject to review or audit by various taxing
authorities. As discussed above, we exercise significant judgment in determining our provision for taxes and, in the ordinary course of our business, there may be transactions and calculations where the proper tax treatment is uncertain. We may
also be liable for taxes in connection with businesses we acquire. Our determinations are not binding on the IRS or any other taxing authorities, and accordingly the final determination in an audit or other proceeding may be materially
different than the treatment reflected in our tax provisions, accruals and returns. An assessment of additional taxes because of an audit could have a material adverse effect on our business, financial condition, results of operations and cash
flows.
New income, sales, use or other tax laws, statutes, rules,
regulations or ordinances could be enacted at any time, or interpreted, changed, modified or applied adversely to us, any of which could adversely affect our business operations and financial performance. We are unable to predict what changes
will occur and, if so, the ultimate impact on its business. To the extent that such changes have a negative impact on us, they may materially and adversely impact its business, financial condition, results of operations and cash flows.
Risks Related to our Operating as Public Company
The requirements of being a public company,
including maintaining adequate internal control over our financial and management systems, may strain our resources, divert management’s attention, make us incur increased costs, and affect our ability to attract and retain executive management
and qualified board members.
As a public company we will incur significant legal, accounting,
and other expenses that we did not incur as a private company. We are subject to reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the rules subsequently implemented by the SEC, the rules and regulations of the listing
standards of Nasdaq and other applicable securities rules and regulations. Stockholder activism, the current political and social environment, and the current high level of government intervention and regulatory reform, may lead to substantial
new regulations and disclosure obligations, which will likely result in additional compliance costs and could impact the manner in which we operate our business in ways we cannot currently anticipate.
Our management team has limited experience managing a publicly
traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. Our
32
management team may not successfully or efficiently manage our transition to being
a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require
significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition and results of operations. Although we have
already hired additional employees to assist us in complying with these requirements, our finance team is small and we may need to hire more employees in the future, or engage outside consultants, which will increase our operating expenses. We
also expect that being a public company and complying with applicable rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantially higher costs to
obtain and maintain the same or similar coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors and qualified executive officers.
Compliance with these rules and regulations may strain our
financial and management systems, internal controls, and employees. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. Moreover, the Sarbanes-
Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures, and internal control, over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures, and
internal control over, financial reporting to meet this standard, significant resources and management oversight may be required. If we encounter additional material weaknesses or deficiencies in our internal control over financial reporting,
we may not detect errors on a timely basis and our consolidated financial statements may be materially misstated. Effective internal control is necessary for us to produce reliable financial reports and is important to prevent fraud.
As a public company listed in the United States, we will incur
significant additional legal, accounting and other costs. These additional costs could negatively affect our financial results. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure,
including regulations implemented by the SEC and Nasdaq, may increase legal and financial compliance costs and make some activities more time- consuming. These laws, regulations and standards are subject to varying interpretations and, as a
result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in
increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If, notwithstanding our efforts to comply with new laws, regulations and standards, we
fail to comply, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
We may lose our eligibility to qualify as an emerging growth
company prior to the last day of the fiscal year following the fifth anniversary of the completion of the IPO of DTOC, our predecessor prior to the Business Combination, if (i) our annual gross revenues exceed $1.235 billion, (ii) we become a
large accelerated filer, or (iii) we issue more than $1 billion in non-convertible debt. When we lose our eligibility to qualify as an emerging growth company, subject to any other applicable exemptions, our independent registered public
accounting firm will be required to formally attest to the effectiveness of our internal control over financial reporting commencing with our next annual report on Form 10-K following loss of emerging growth company status. We expect to incur
significant expenses and devote substantial management effort toward ensuring compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. Despite our efforts, there is a risk that we will not be able to
conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. If we are not able to timely and effectively remediate the material weaknesses described above in
this section, or if we identify one or more additional material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. As a result, the market
price of our common stock could be negatively affected, and we could become subject to investigations by Nasdaq, the SEC or other regulatory authorities, which could require additional financial and management resources.
Failure to comply with these rules might also make it more
difficult for us to obtain some types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar
coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of senior management.
33
We are an “emerging growth company” and,
as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act,
and we may take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” In particular, while we are an “emerging growth company,” we
will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; we will be exempt from any rules that could be adopted by the PCAOB requiring mandatory audit firm rotations or a supplement
to the auditor’s report on financial statements; we will be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and we will not be required to hold non-binding advisory votes
on executive compensation or stockholder approval of any golden parachute payments not previously approved.
In addition, the JOBS Act provides that an emerging growth company
can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply
to private companies. We have elected to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or
revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth
company.
We will be an “emerging growth company” until the earlier of (1)
the last day of the fiscal year following the fifth anniversary of DTOC’s IPO, (b) in which we have total annual gross revenue of at least $1.235 billion or (c) in which we are deemed to be a large accelerated filer, which means the market
value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our prior second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the
prior three-year period.
The exact implications of the JOBS Act are subject to
interpretation and guidance by the SEC and other regulatory agencies, and we cannot assure that we will be able to take advantage of all of the benefits of the JOBS Act. In addition, investors may find our common stock less attractive to the
extent we rely on the exemptions and relief granted by the JOBS Act. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and the price of our common stock may
decline or become more volatile.
Pursuant to the JOBS Act, our independent
registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes- Oxley Act for so long as we are an “emerging growth company.”
Section 404 of the Sarbanes-Oxley Act requires annual management
assessments of the effectiveness of our internal control over financial reporting, and generally requires in the same report a report by our independent registered public accounting firm on the effectiveness of our internal control over
financial reporting. However, under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the
Sarbanes-Oxley Act until we are no longer an “emerging growth company.”
The trading price of our Class A Common
Stock may be volatile, and purchasers of our Class A Common Stock could incur substantial losses.
The trading price of our Class A Common Stock may be volatile. The
stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above the
price paid for the shares. The market price for our Class A Common Stock may be influenced by many factors, including:
|
•
|
actual or anticipated variations in our operating results;
|
|
•
|
changes in financial estimates by us or by any securities analysts who might cover our shares;
|
|
•
|
conditions or trends in our industry;
|
|
•
|
changes as a result of the COVID-19 pandemic, international hostilities or similar macroeconomic events;
|
|
•
|
unfavorable general economic conditions, such as a recession or economic slowdown;
|
34
|
•
|
stock market price and volume fluctuations of comparable companies;
|
|
•
|
announcements by us or our competitors of new product or service offerings, significant acquisitions, strategic partnerships,
or divestitures;
|
|
•
|
announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;
|
|
•
|
capital commitments;
|
|
•
|
investors’ general perception of us and our business;
|
|
•
|
recruitment or departure of key personnel; and
|
|
•
|
sales of Class A Common Stock, including sales by our directors and officers or specific stockholders.
|
In addition, in the past, stockholders have initiated class action
lawsuits following periods of volatility in the market prices of these companies’ stock. Such litigation, if instituted against us, could cause us to incur substantial costs and divert management’s attention and resources from our business.
Anti-takeover provisions in our organizational
documents could delay or prevent a change of control.
Certain provisions of our Charter and Bylaws may have an
anti-takeover effect and may delay, defer or prevent a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by our stockholders. These provisions provide for, among other things:
|
•
|
the division of our Board into three classes of directors, with each class serving a staggered three year term;
|
|
•
|
there is no cumulative voting with respect to the election of our Board;
|
|
•
|
the ability of our Board to issue one or more series of preferred stock;
|
|
•
|
advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at our
annual meetings;
|
|
•
|
limiting the ability of stockholders to call special stockholder meetings;
|
|
•
|
limiting the ability of stockholders to act by written consent;
|
|
•
|
the ability of our Board to exclusively fill a vacancy created by the expansion of our Board or the resignation, death or
removal of a director in certain circumstances;
|
|
•
|
providing that our Board is expressly authorized to adopt, amend, alter or repeal our bylaws;
|
|
•
|
providing that stockholders may amend the bylaws only by the affirmative vote of at least 66.7% of the voting power of all
then outstanding shares of capital stock of AON entitled to vote generally in the election of directors, voting together as a single class; and
|
|
•
|
AON is subject to the provisions of Section 203 of the DGCL.
|
These anti-takeover provisions could make it more difficult for a
third party to acquire us, even if the third party’s offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares. 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 us to take other corporate actions you desire. See “Description of
Securities.”
Our charter will designate the Court of
Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for
disputes with us or our directors, officers, employees or stockholders.
Our charter will provide that, subject to limited exceptions, the
Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any (i) derivative action or proceeding brought on behalf of us, (ii) action asserting a claim of breach of a duty (including any fiduciary duty) owed by any
current or former director, officer, stockholder, employee or agent of the Company to us or our stockholders, (iii) action asserting out of or relating to any provision of the DGCL, the Charter or the Bylaws or (iv) action asserting a claim
governed by the internal affairs
35
doctrine of the State of Delaware shall, to the fullest extent permitted by law.
Our charter will also provide that, to the fullest extent permitted by law, the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.
Any person or entity purchasing, otherwise acquiring or holding any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of the provisions of the Charter described above. This choice
of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our
directors, officers and employees. This exclusive forum provision will not apply to claims under the Exchange Act, but will apply to actions arising under the Securities Act. Section 22 of the Securities Act, however, creates concurrent
jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
Accordingly, there is uncertainty as to whether a court would
enforce such a forum selection provision as written in connection with claims arising under the Securities Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. If a court were to
find these provisions of the Charter inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions,
which could adversely affect our business and financial condition.
Risks Relating to Our Common Stock and Warrants
The sale of the securities registered for
resale hereunder and future sales of substantial amounts of our securities in the public market (including the shares of Class A Common Stock issuable upon exercise of our warrants, conversion of our Class B Common Stock, or conversion of our
Series A Preferred Stock), or the perception that such sales may occur, may cause the market price of our securities to decline significantly.
The shares of Class A Common Stock offered for resale by the
Selling Securityholders in this prospectus represent approximately 537% of total AON Class A Common Stock outstanding as of October 1, 2023 (assuming no exercise of any of our warrants). The amount of Class A Common Stock offered for resale by
the Selling Securityholders exceeds the number of shares of Class A Common Stock currently outstanding because a significant portion of the shares of Class A Common Stock offered for resale is not currently outstanding and are issuable upon the
exercise of warrants, conversion of our Class B Common Stock, or conversion of our Series A Preferred Stock. The sale of these securities in the public market, or the perception that holders of a large number of securities intend to sell their
securities, could reduce the market price of our Class A Common Stock and public warrants.
Although (i) the AON LLC equityholders for whom 28,109,796 shares
are registered for resale hereunder, are currently prohibited from transferring any of their shares of Class B Common Stock or from exchanging their Class B Common Stock together with an equal number of AON LLC common units for Class A Common
Stock for a period of 6 months following the Closing Date, and (ii) the Sponsors and its permitted transferees for whom 14,450,833 shares are registered for resale hereunder, are currently prohibited from transferring any of their shares of
Class A Common Stock for a period of 12 months following the Closing Date, once such resale restrictions end, the market price of our Class A Common Stock could decline if the holders of currently restricted shares sell them or are perceived by
the market as intending to sell them.
Certain existing shareholders purchased our
shares at a price below the current trading price of such shares, and may experience a positive rate of return based on the current trading price. Other investors and shareholders may not experience a similar rate of return.
The Sponsor paid the nominal price of $0.003 per share for the
shares of Class A Common Stock held by it and $1.50 per private placement warrant. The shares held by the Sponsor and its permitted transferees (including 2,918,125 Earnout Shares, which are subject to vesting) represent approximately 87% of
the total outstanding shares of the Company’s Class A Common Stock. As a result of these nominal prices compared with the market prices of our Class A Common Stock and public warrants, which as of October 9, 2023, were $7.06 per share and $0.20
per warrant, respectively, the Sponsor is likely to earn a positive return on its investment even if other holders of shares of Class A Common Stock, including our public stockholders, experience a negative return on their investment in the
Company’s securities. As a result, the Sponsor and its permitted transferees may be incentivized to sell its securities when others are not. Other shareholders and investors may not experience a similar rate of return.
36
Because we do not anticipate paying any
cash dividends in the foreseeable future, capital appreciation, if any, would be your sole source of gain.
We currently anticipate that we will retain future earnings for
the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. As a result, capital appreciation, if any, of Class A Common Stock would be your sole source of
gain on an investment in such shares for the foreseeable future.
A market for our securities may not
continue, which would adversely affect the liquidity and price of its securities.
The price of our securities may continue to fluctuate
significantly. An active trading market for our securities may never develop or, if developed, it may not be sustained. In addition, the price of our securities can vary due to general economic conditions and forecasts, our general business
condition and the release of our financial reports. Additionally, if our securities are not listed on, or become delisted from Nasdaq for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for
equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if we were quoted or listed on Nasdaq or another national securities exchange. You may be unable to sell your
securities unless a market can be established or sustained.
Nasdaq may delist our securities from
trading on its exchange, which could limit investors’ ability to make transactions in its securities and subject us to additional trading restrictions.
Currently, Class A Common Stock and public warrants are listed on
Nasdaq under the symbols “AONC” and “AONCW.” In order to continue the list of these securities on Nasdaq, we are required to maintain certain financial, distribution and stock price levels. Generally, we are required to maintain a public float
of $500,000, a minimum market capitalization of $1,000,000 and a minimum number of holders of our securities (generally 300 round lot shareholders). If Nasdaq delists our securities from trading on its exchange and we are not able to list its
securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:
|
•
|
a limited availability of market quotations for our securities;
|
|
•
|
reduced liquidity for our securities;
|
|
•
|
a determination that Class A Common Stock is a “penny stock” which will require brokers trading in 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.
|
The National Securities Markets Improvement Act of 1996, which is
a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Since Class A Common Stock and public warrants are listed on Nasdaq, they are covered securities.
However, if our securities were no longer listed on Nasdaq, they would not be covered securities and we would be subject to regulation in each state in which we offer our securities.
Our warrants may never be in the money, and
they may expire worthless.
The exercise price for our public warrants is $11.50 per share,
and the exercise price for our private placement warrants is $11.50 per share (each as subject to adjustment as described herein), which exceeds the market price of Class A Common Stock, which was $7.06 per share based on the closing price of
Class A Common Stock on Nasdaq on October 9, 2023. If all of our warrants were exercised in full for cash, we would receive an aggregate of approximately $166.2 million. We do not expect warrant holders to exercise their warrants and,
therefore, we do not expect to receive cash proceeds from any such exercise, for so long as the warrants remain out-of-the money. There can be no assurance that the public warrants will ever be in the money prior to their expiration and, as
such, the warrants may expire worthless.
We may redeem unexpired public warrants
prior to their exercise at a time that is disadvantageous to the warrant holders, thereby making the warrants worthless.
We may redeem outstanding warrants (excluding any private
placement warrants held by the Sponsor or its permitted transferees) at any time after they become exercisable and prior to their expiration, at $0.01 per warrant,
37
provided that the last reported sales price (or the closing bid price of Class A
Common Stock in the event Class A Common Stock is not traded on any specific trading day) of Class A Common Stock equals or exceeds $18.00 per-share for any 20 trading days within a 30 trading-day period ending on the third business day prior
to the date we send proper notice of such redemption, provided that on the date we give notice of redemption and during the entire period thereafter until the time we redeem the warrants, there is an effective registration statement under the
Securities Act covering the shares of Class A Common Stock issuable upon exercise of the warrants and a current prospectus relating to them is available. We also have the ability to redeem outstanding warrants (excluding any private placement
warrants held by the Sponsor or its permitted transferees) at any time after they become exercisable and prior to their expiration, at $0.10; provided that (i) the last reported sales price of the Class A Common Stock equals or exceeds $10.00
per share (as adjusted for stock splits, stock dividends, reorganizations and the like) on each of 20 trading days within the 30 trading-day period ending on the third business day prior to the date on which AON sends proper notice of such
redemption and (ii) if the last reported sales price of the Class A Common Stock is less than $18.00 per share, the Private Placement Warrants are also concurrently exchanged at the same price (equal to a number of shares of Class A Common
Stock) as the outstanding Public Warrants; provided that on the date AON gives notice of redemption and during the entire period thereafter until the time AON redeems the warrants, AON has an effective registration statement under the
Securities Act covering the shares of Class A Common Stock issuable upon exercise of the warrants and a current prospectus relating to them is available. 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 a warrant holder: (i) to exercise its warrants and pay the exercise
price therefore at a time when it may be disadvantageous for it to do so, (ii) to sell its warrants at the then-current market price when it might otherwise wish to hold its warrants or (iii) to accept the nominal redemption price which, at the
time the outstanding warrants are called for redemption, will be substantially less than the market value of its warrants.
Assuming the effectiveness of the
registration statement of which this prospectus is part of, the warrants to purchase AON Class A Common Stock will become exercisable on October 20, 2023 which could increase the number of shares eligible for future resale in the public market
and result in dilution to its stockholders.
As of the closing of the Business Combination, there were
8,337,500 public warrants and 6,113,333 private placement warrants outstanding, all of which will become exercisable on October 20, 2023, assuming the effectiveness of the registration statement of which this prospectus is part of. Each public
warrant entitles its holder to purchase one share of Common Stock at an exercise price of $11.50 per share, and each private placement warrant entitles its holder to purchase one share of Common Stock at an exercise price of $11.50 per share
(subject to adjustment as described herein). To the extent warrants are exercised, additional shares of Common Stock will be issued, which will result in dilution to our then existing stockholders and increase the number of shares eligible for
resale in the public market. Sales of substantial numbers of such shares in the public market could depress the market price of Class A Common Stock.
Future offerings of debt or offerings or
issuances of equity securities by us may adversely affect the market price of Class A Common Stock or otherwise dilute all other stockholders.
In the future, we may attempt to obtain financing or to further
increase our capital resources by issuing additional shares of our Class A Common Stock or offering debt or other equity securities, including commercial paper, medium-term notes, senior or subordinated notes, debt securities convertible into
equity or shares of preferred stock. We also expect to grant equity awards to employees, directors, and consultants under our stock incentive plans. Future acquisitions could require substantial additional capital in excess of cash from
operations. We would expect to obtain the capital required for acquisitions through a combination of additional issuances of equity, corporate indebtedness and/or cash from operations.
Issuing additional shares of common stock or other equity
securities or securities convertible into equity may dilute the economic and voting rights of our existing stockholders or reduce the market price of our Class A Common Stock or both. Upon liquidation, holders of such debt securities and
preferred shares, if issued, and lenders with respect to other borrowings would receive a distribution of our available assets prior to the holders of our Class A Common Stock. Debt securities convertible into equity could be subject to
adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion. Preferred shares, if issued, could have a preference with respect to liquidating distributions or a
preference with respect to dividend payments that could limit the our ability to pay dividends to the holders of the Class A Common Stock. Our
38
decision to issue securities in any future offering will depend on market
conditions and other factors beyond our control, which may adversely affect the amount, timing and nature of our future offerings.
The price of Class A Common Stock could
decline if securities analysts do not publish research or if securities analysts or other third parties publish inaccurate or unfavorable research about us.
The trading market for Class A Common Stock will be influenced by
the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no or few securities or industry analysts
commence coverage of us, the trading price for Class A Common Stock could be negatively impacted. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue an adverse or misleading opinion
regarding us, our business model or the performance of Class A Common Stock, or if our results of operations fail to meet the expectations of analysts, the price of Class A Common Stock would likely decline. If one or more of these analysts
cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline.
We may be subject to securities litigation,
which is expensive and could divert management’s attention.
The share price of our Class A Common Stock may be volatile and,
in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. AON may be the target of this type of litigation in the future. Litigation of this type could
result in substantial costs and diversion of management’s attention and resources, which could have a material adverse effect on its business, financial condition, results of operations and prospects. Any adverse determination in litigation
could also subject us to significant liabilities.
39
All of the shares of Common Stock and warrants offered by the
Selling Securityholders will be sold by them for their respective accounts. We will not receive any of the proceeds from these sales. We will receive up to an aggregate of approximately $166.2 million from the exercise of all warrants assuming
the exercise in full of all such warrants for cash. Our warrants are currently “out-of-the money,” which means that the trading price of the shares of Class A Common Stock underlying our warrants is below the $11.50 exercise prices, as
applicable (subject to adjustment as described herein), of the warrants. For so long as the warrants remain “out-of-the money,” we do not expect warrant holders to exercise their warrants and, therefore, we do not expect to receive cash
proceeds from any such exercise. See the section entitled “Description of Securities—Warrants” for more information.
Unless we inform you otherwise in a prospectus supplement or free
writing prospectus, we intend to use the net proceeds from the exercise of such warrants for general corporate purposes which may include acquisitions or other strategic investments.
The Selling Securityholders will pay any underwriting fees,
discounts, selling commissions, stock transfer taxes and certain legal expenses incurred by such Selling Securityholders in disposing of their shares of securities, and we will bear all other costs, fees and expenses incurred in effecting the
registration of such securities covered by this prospectus, including, without limitation, all registration and filing fees, Nasdaq listing fees and fees and expenses of our counsel and our independent registered public accountants.
40
Market Price of Our Common Stock and Warrants
Trading of our Class A Common Stock and warrants began on Nasdaq
on September 21, 2023, under the ticker symbol “AONC” for common stock and “AONCW” for the warrants. Prior to the Business Combination, the DTOC Class A Common Stock, and DTOC Warrants traded under the ticker symbols “DTOC” and “DTOCW”,
respectively, on Nasdaq. On October 9, 2023, the closing sale price of our Class A Common Stock was $7.06 per share and the closing price of our warrants was $0.20 per warrant.
Dividend Policy
We have not paid any cash dividends on our common stock to date
and prior to the Business Combination, DTOC had not paid any dividends on its ordinary shares. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial
condition. The payment of any cash dividends will be within the discretion of our board of directors. Our ability to declare dividends are limited by the terms of financing and other agreements.
41
Introduction
Digital Transformation Opportunities Corp., a Delaware corporation
(“DTOC”) and American Oncology Network, LLC, a Delaware limited liability company (the “Company” or “AON”) are providing the following unaudited pro forma condensed combined financial information to aid you in your analysis of the financial
aspects of the Business Combination, as defined within this prospectus. The unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X and should be read in conjunction with
the accompanying notes.
The following unaudited pro forma condensed combined balance sheet
as of June 30, 2023, combines the unaudited balance sheet of DTOC as of June 30, 2023, with the unaudited consolidated balance sheet of the Company as of June 30, 2023, giving effect to the Business Combination as if it had been consummated on
June 30, 2023.
The unaudited pro forma condensed combined statement of operations
for the six months ended June 30, 2023, combines the unaudited statement of operations of DTOC for the six months ended June 30, 2023, with the unaudited consolidated statement of operations of the Company for the six months ended June 30,
2023. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022, combines the audited statement of operations of DTOC for the year ended December 31, 2022, with the audited consolidated statement of
operations of the Company for the year ended December 31, 2022. The unaudited pro forma condensed combined statements of operations give effect to the Business Combination as if it had been consummated on January 1, 2022, the beginning of the
earliest period presented.
The unaudited pro forma condensed combined financial information
was derived from, and should be read in conjunction with, the following historical financial statements and the accompanying notes:
|
•
|
The historical unaudited condensed financial statements of DTOC as of and for the six months ended June 30, 2023, and the
historical audited financial statements of DTOC as of and for the year ended December 31, 2022; and
|
|
•
|
The historical unaudited condensed consolidated financial statements of the Company as of and for the six months ended
June 30, 2023, and the historical audited consolidated financial statements of the Company as of and for the year ended December 31, 2022.
|
The foregoing historical financial statements have been prepared
in accordance with GAAP. The unaudited pro forma condensed combined financial information has been prepared based on the aforementioned historical financial statements and the assumptions and adjustments as described in the notes to the
unaudited pro forma condensed combined financial information. The pro forma adjustments reflect transaction accounting adjustments related to the Business Combination, which is discussed in further detail below. The unaudited pro forma
condensed combined financial statements are presented for illustrative purposes only and do not purport to represent DTOC’s consolidated results of operations or consolidated financial position that would actually have occurred had the Business
Combination been consummated on the dates assumed or to project DTOC’s consolidated results of operations or consolidated financial position for any future date or period.
The unaudited pro forma condensed combined financial information
should also be read together with “AON Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other financial information included elsewhere in this prospectus.
Description of the Business Combination
As previously disclosed, Digital Transformation Opportunities
Corp., American Oncology Network, LLC, GEF AON Holdings Corp. (“AON Class C Preferred Investor”), and DTOC Merger Sub, Inc., a direct, wholly owned subsidiary of DTOC (“Merger Sub”) entered into a Business Combination Agreement (the “Business
Combination Agreement”), dated as of June 14, 2023 (which further amended and restated the Business Combination Agreement entered into by DTOC and AON as of October 5, 2022, and amended and restated on January 6, 2023, and April 27, 2023),
pursuant to which, among other transactions, on September 20, 2023 (the “Closing Date”), DTOC and AON undertook a series of transactions (the “Business Combination”) resulting in the organization of the combined post-business combination
company as an umbrella partnership C corporation, in which substantially all of the assets and the business of the combined company are held by AON, and DTOC became a member of AON.
42
In connection with the closing of the Business Combination, DTOC changed its name
to “American Oncology Network, Inc.” (sometimes referred to herein as “New AON”).
On September 19, 2023, DTOC held a special meeting of its
stockholders (the “Special Meeting”) in connection with the Business Combination. At the Special Meeting, DTOC stockholders voted to approve the Business Combination with AON and related proposals. Prior to the Special Meeting, a total of
1,699,558 shares of common stock, par value $0.0001, of DTOC (“DTOC Common Stock”) were presented for redemption for cash at a price of approximately $10.50 per share in connection with the Special Meeting.
As a result of, and in connection with, the Closing, among other
things, (i) AON amended and restated its operating agreement (the “Amended and Restated AON LLC Agreement”) to reclassify its existing Class A units, Class A-1 units and Class B units into a single class of AON LLC common units that were
exchanged on a one-to-one basis for shares of New AON Class A common stock (“New AON Class A Common Stock”) and its existing AON Class C units into AON Series A preferred units; (ii) AON converted profit pool units of certain of AON’s
subsidiaries into an equal number of AON LLC common units and shares of New AON Class B common stock (“New AON Class B Common Stock”), which together are exchangeable into shares of New AON Class A Common Stock (together with the New AON
Class B Common Stock, the “New AON Common Stock”); (iii) New AON amended and restated its charter (the “Charter”) to provide for (a) the conversion of all existing shares of DTOC Class B common stock into shares of New AON Class A Common Stock
on a one-to-one basis, (b) amendment of the terms of New AON Class B Common Stock to provide holders voting rights but no economic rights and (c) designation of a new series of New AON preferred stock as Series A convertible preferred stock
(the “New AON Series A Preferred Stock”) with such rights and preferences as provided for in the certificate of designation of the New Aon Series A Preferred Stock (the “New AON Series A Certificate of Designation”); and (iv) among other
things, (a) AON issued common units to New AON in exchange for a combination of cash and shares of New AON Class B Common Stock and warrants to acquire shares of New AON Class B Common Stock (the “Class B Prefunded Warrants”), (b) New AON was
admitted as a member of AON, (c) AON distributed shares of New AON Class B common stock or Class B Prefunded Warrants, as applicable, to AON equityholders, (d) New AON reserved a specified number of additional shares of New AON Class A Common
Stock after the Closing for issuance to eligible participants, (e) Merger Sub merged with and into the AON Class C Preferred Investor whereby the separate existence of Merger Sub ceased and New AON issued a number of shares of New AON Series A
Preferred Stock equal to the number of AON Series A preferred units held by the AON Class C Preferred Investor to AEA Growth Management LP, the parent of AON Class C Preferred Investor (“AEA Growth”) in exchange for all the shares of common
stock held by AEA Growth in the AON Class C Preferred Investor (the “First Step”), (f) promptly after the First Step, the AON Class C Preferred Investor merged with and into New AON whereby the separate existence of the AON Class C Preferred
Investor ceased and New AON held all the AON Series A preferred units and (g) from and after the Closing (but subject to lock-up restrictions), the AON common equityholders (other than New AON) will have the right (but not the obligation) to
exchange AON LLC common units together with an equal number of shares of New AON Class B Common Stock (whether held directly or indirectly through Class B Prefunded Warrants) for shares of New AON Class A Common Stock.
In addition, in connection with the Closing of the Business
Combination, DTOC completed the offer to the holders of AON Class B-1 units to exchange their AON Class B-1 units for such number of newly issued shares of New AON Class A Common Stock equal to the ratio set forth in the Business Combination
Agreement (such offer, the “Exchange Offer”). DTOC and AON solicited consents from the holders of AON Class B-1 units to make certain amendments to the terms of the awards and the unit grant agreements pursuant to which the AON Class B-1 units
were granted, which provided for the automatic exchange, as of immediately prior to the adoption of the Amended and Restated AON LLC Agreement, of all outstanding AON Class B-1 units into shares of New AON Class A Common Stock (collectively,
the “Proposed Amendments”). The requisite number of holders of Class B-1 units provided their consent to the Proposed Amendments, and as a result, in connection with the closing of the Business Combination, all AON Class B-1 units were
exchanged for an aggregate of 1,047,343 shares of New AON Class A Common Stock.
Accounting Treatment for the Business Combination
As the Company does not meet any of the characteristics of a VIE
under ASC 810, the Transaction was evaluated under ASC 805, Business Combinations. Notwithstanding the legal form of the Business Combination pursuant to the Business Combination Agreement, the Business Combination has been accounted for as a
reverse recapitalization in accordance with GAAP. Under this method of accounting, DTOC will be treated as the acquired company and
43
AON has been treated as the acquirer for financial statement reporting purposes.
The Company has been determined to be the accounting acquirer based on, in summary, an evaluation of the following primary facts and circumstances:
|
•
|
AON’s directors represent a majority of the board seats for New AON’s board of directors;
|
|
•
|
AON’s senior management is the senior management of the combined company;
|
|
•
|
AON’s operations comprising the ongoing operations of the post-combination company; and
|
|
•
|
AON’s relative size is significantly larger compared to DTOC.
|
Accordingly, for accounting purposes, the financial statements of
the post-combination entity will represent a continuation of the financial statements of the Company with the acquisition being treated as the equivalent of the Company issuing stock for the net assets of DTOC, accompanied by a
recapitalization. The net assets of DTOC is stated at historical cost, with no goodwill or other intangible assets recorded.
Accounting for the Earnout Shares
Following the Closing and for five years thereafter, the Sponsor
has agreed to subject 35% of the shares of New AON common stock held by it as of the Closing (the “Sponsor Earnout Shares”) to the following vesting and forfeiture provisions:
|
•
|
the Sponsor Earnout Shares will vest when the volume-weighted average price of the New AON Class A common stock equals or
exceeds $13.50 per share for any 20 trading days within any 30 trading day period beginning after the Closing and ending 60 months following the Closing;
|
|
•
|
the Sponsor Earnout Shares will be released immediately upon the consummation of a change of control transaction within the
60-month period following the Closing; and
|
|
•
|
if the Sponsor Earnout Shares are not released pursuant to the foregoing provisions on or before the date that is 60 months
after the Closing, then the Sponsor Earnout Shares will be forfeited immediately following such date.
|
As the Business Combination has been accounted for as a reverse
recapitalization, the issuance of the Sponsor Earnout Shares to the Company’s existing shareholders will be accounted for as an equity transaction. The accounting for the Sponsor Earnout Shares was evaluated under ASC Topic 480, Distinguishing
Liabilities from Equity, and ASC Subtopic 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity, to determine if the Sponsor Earnout Shares should be classified as a liability or within equity. As part of that analysis, it was
determined that the Sponsor Earnout Shares are freestanding from the related shares of common stock, do not meet the criteria within ASC 480 to be classified as a liability, and meet the criteria in ASC 815-40 to be considered indexed to the
post-combination entity’s common stock and classified within equity. Therefore, an adjustment to recognize the Sponsor Earnout Shares would have no net impact on any financial statement line item as it would simultaneously increase and decrease
additional paid-in capital. Thus, no adjustment has been applied to the unaudited pro forma combined financial information related to the Sponsor Earnout Shares.
Basis of Pro Forma Presentation
The historical financial information has been adjusted to give pro
forma effect to the transaction accounting required for the Business Combination. The unaudited pro forma condensed combined financial information reflects the application of transaction accounting adjustments and are based upon available
information and certain assumptions, described in the accompanying notes hereto, that management believes are reasonable under the circumstances.
44
Upon the consummation of the Business Combination, the shares
outstanding as presented in the unaudited pro forma condensed combined financial statements include the following:
|
|
| |
Shares
|
| |
%
|
|
New AON Class B shareholders (Former AON A & B shareholders)
|
| |
25,109,551
|
| |
60.7%
|
|
New AON Class B Warrants (Former AON A-1 shareholders)
|
| |
3,000,245
|
| |
7.3%
|
|
New AON Series A Preferred stock (Former AON C Unit shareholders)
|
| |
6,651,610
|
| |
16.1%
|
|
New AON Class A common stock (Former AON B-1 shareholders)
|
| |
1,047,343
|
| |
2.5%
|
|
New AON Class A common stock (Former DTOC Class A shareholders)
|
| |
147,511
|
| |
0.4%
|
|
New AON Class A common stock (Former DTOC sponsor)
|
| |
5,419,375
|
| |
13.1%
|
|
Shares Outstanding at Closing
|
| |
41,375,635
|
| |
100.0%
|
Immediately after giving effect to the Business Combination, there
were (i) 9,532,354 issued and outstanding shares of New AON Class A Common Stock, which includes common stock held by DTOC stockholders and Digital Transformation Sponsor LLC (the “Sponsor”) (including those shares subject to vesting and
forfeiture pursuant to the Sponsor Support Agreement), but does not include shares which may be issued under the Incentive Equity Plan and (ii) 25,109,551 issued and outstanding shares of New AON Class B Common Stock, which excludes the Class B
Warrants.
The following percentages exclude the Class B Warrants and include
the Earnout Shares in the calculations. As of the Closing Date, (i) AON’s equityholders (not including AEA Growth) beneficially owned approximately 63.3% of the outstanding shares of New AON Common Stock, (ii) the public stockholders of DTOC
immediately prior to the Closing beneficially owned approximately 0.4% of the outstanding shares of New AON Common Stock, (iii) the Sponsor and the DTOC officers and directors immediately prior to the Closing Date beneficially owned
approximately 20.2% of the outstanding shares of New AON Common Stock, and (iv) AEA Growth beneficially owned approximately 16.1% of the outstanding shares of New AON Common Stock (based upon conversion of the New AON Series A Preferred Stock
at an initial conversion price of $10.00 per share).
Assumptions and estimates underlying the unaudited pro forma
adjustments set forth in the unaudited pro forma condensed combined financial statements are described in the accompanying notes. The unaudited pro forma condensed combined financial statements have been presented for illustrative purposes only
and are not necessarily indicative of the operating results and financial position that would have been achieved had the Business Combination and related transactions occurred on the dates indicated. Further, the unaudited pro forma condensed
combined financial statements do not purport to project the future operating results or financial position of DTOC following the completion of the Business Combination and related transactions. The unaudited pro forma adjustments represent
management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial statements and are subject to change as additional information becomes available and analyses are performed. DTOC and
the Company have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
45
Unaudited Pro Forma Condensed Combined Balance Sheet
As of June 30, 2023
(amounts in thousands, except share amounts)
|
|
| |
American
Oncology
Network, LLC
(Historical)
|
| |
Digital
Transformation
Opportunities
Corp.
(Historical)
|
| |
Pro Forma
Transaction
Accounting
Adjustments
|
| |
|
| |
Pro Forma
Combined
|
|
Assets
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Current assets
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Cash and cash equivalents
|
| |
$72,708
|
| |
$2
|
| |
$19,303
|
| |
(a)
|
| |
$65,290
|
|
|
| |
|
| |
|
| |
99
|
| |
(a)
|
| |
|
|
|
| |
|
| |
|
| |
(17,853)
|
| |
(b)
|
| |
|
|
|
| |
|
| |
|
| |
(4,610)
|
| |
(f)
|
| |
|
|
|
| |
|
| |
|
| |
(507)
|
| |
(i)
|
| |
|
|
|
| |
|
| |
|
| |
(3,852)
|
| |
(n)
|
| |
|
|
Short-term marketable securities
|
| |
9,984
|
| |
—
|
| |
—
|
| |
|
| |
9,984
|
|
Restricted cash
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
|
Patient accounts receivable, net
|
| |
145,159
|
| |
—
|
| |
—
|
| |
|
| |
145,159
|
|
Inventories
|
| |
41,886
|
| |
—
|
| |
—
|
| |
|
| |
41,886
|
|
Other receivables
|
| |
32,929
|
| |
—
|
| |
338
|
| |
(k)
|
| |
33,267
|
|
Prepaids expenses and other current assets
|
| |
3,398
|
| |
92
|
| |
—
|
| |
|
| |
3,490
|
|
Current portion of notes receivable - related parties
|
| |
1,492
|
| |
—
|
| |
—
|
| |
|
| |
1,492
|
|
Total current assets
|
| |
307,556
|
| |
94
|
| |
(7,082)
|
| |
|
| |
300,568
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Property and equipment, net
|
| |
35,672
|
| |
—
|
| |
—
|
| |
|
| |
35,672
|
|
Operating lease right-of-use assets, net
|
| |
43,439
|
| |
—
|
| |
—
|
| |
|
| |
43,439
|
|
Notes receivable - related parties
|
| |
1,752
|
| |
—
|
| |
—
|
| |
|
| |
1,752
|
|
Other assets
|
| |
8,311
|
| |
—
|
| |
(1,109)
|
| |
(l)
|
| |
7,202
|
|
Goodwill and intangibles, net
|
| |
1,230
|
| |
—
|
| |
—
|
| |
|
| |
1,230
|
|
Net deferred tax assets
|
| |
—
|
| |
—
|
| |
845
|
| |
(k)
|
| |
845
|
|
Cash and securities held in Trust Account
|
| |
—
|
| |
19,303
|
| |
(19,303)
|
| |
(a)
|
| |
—
|
|
Total assets
|
| |
397,960
|
| |
19,397
|
| |
(26,649)
|
| |
|
| |
390,708
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Liabilities, commitments and
shareholders’ equity (deficit)
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Current liabilities
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Accounts payable
|
| |
122,168
|
| |
3,871
|
| |
(3,852)
|
| |
(n)
|
| |
122,187
|
|
Promissory note - related party
|
| |
—
|
| |
200
|
| |
(200)
|
| |
(i)
|
| |
—
|
|
Advances from related party
|
| |
—
|
| |
307
|
| |
(307)
|
| |
(i)
|
| |
—
|
|
Income taxes payable
|
| |
—
|
| |
1,054
|
| |
(1,054)
|
| |
(k)
|
| |
—
|
|
Excise tax payable
|
| |
—
|
| |
3,212
|
| |
(471)
|
| |
(o)
|
| |
2,741
|
|
Accrued compensation related costs
|
| |
10,176
|
| |
—
|
| |
—
|
| |
|
| |
10,176
|
|
Accrued other
|
| |
22,873
|
| |
—
|
| |
(3,875)
|
| |
(e)
|
| |
18,998
|
|
Current portion of operating lease liabilities
|
| |
7,113
|
| |
—
|
| |
—
|
| |
|
| |
7,113
|
|
Total current liabilities
|
| |
162,330
|
| |
8,644
|
| |
(9,759)
|
| |
|
| |
161,215
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Long-term debt, net
|
| |
80,208
|
| |
—
|
| |
—
|
| |
|
| |
80,208
|
|
Long-term operating lease liabilities
|
| |
39,527
|
| |
—
|
| |
—
|
| |
|
| |
39,527
|
|
Other long-term liabilities
|
| |
8,245
|
| |
—
|
| |
—
|
| |
|
| |
8,245
|
|
Deferred underwriting fee
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
46
|
|
| |
American
Oncology
Network, LLC
(Historical)
|
| |
Digital
Transformation
Opportunities
Corp.
(Historical)
|
| |
Pro Forma
Transaction
Accounting
Adjustments
|
| |
|
| |
Pro Forma
Combined
|
|
Net deferred tax liabilities
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
|
Warrant liability
|
| |
—
|
| |
2,251
|
| |
—
|
| |
(j)
|
| |
2,251
|
|
Total liabilities
|
| |
290,310
|
| |
10,895
|
| |
(9,759)
|
| |
|
| |
291,446
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Commitments:
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
DTOC Class A Common Stock subject to possible redemption,
1,847,069 shares at redemption value of $10.11 at June 30, 2023
|
| |
—
|
| |
18,670
|
| |
(18,670)
|
| |
(b)
|
| |
—
|
|
Mezzanine Equity:
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Redeemable convertible preferred Class C units; 2,459
units outstanding at June 30, 2023 (Liquidation preference of $65,327 at June 30, 2023)
|
| |
62,897
|
| |
|
| |
(62,897)
|
| |
(c)
|
| |
—
|
|
New AON Series A convertible preferred stock, $0.0001 par
value; 7,500,000 shares authorized; 6,651,610 issued and outstanding at June 30, 2023, with an aggregate liquidation preference of $65,327 at June 30, 2023.
|
| |
|
| |
|
| |
62,897
|
| |
(c)
|
| |
62,897
|
|
Stockholders' equity (deficit)
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
New AON Class A common stock, $0.0001 par value;
200,000,000 shares authorized; 6,614,229 shares issued and outstanding at June 30, 2023
|
| |
—
|
| |
—
|
| |
1
|
| |
(g)
|
| |
1
|
|
New AON Class B common stock, $0.0001 par value;
100,000,000 shares authorized; 28,109,796 shares issued and outstanding at June 30, 2023
|
| |
—
|
| |
—
|
| |
3
|
| |
(g)
|
| |
3
|
|
DTOC Class A common stock, $0.0001 par value; 200,000,000
shares authorized; 8,262,500 shares issued and outstanding (excluding 1,847,069 shares subject to possible redemption) at June 30, 2023
|
| |
—
|
| |
1
|
| |
(1)
|
| |
(g)
|
| |
—
|
|
DTOC Class B common stock, $0.0001 par value; 20,000,000
shares authorized; 75,000 shares issued and outstanding at June 30, 2023
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
|
Class A units; 7,725 units outstanding at June 30, 2023
|
| |
7,725
|
| |
—
|
| |
(7,725)
|
| |
(g)
|
| |
—
|
|
Class A-1 units; 904 units outstanding at June 30, 2023
|
| |
31,040
|
| |
—
|
| |
(31,040)
|
| |
(g)
|
| |
—
|
|
Class B units; 2,322 units outstanding at June 30, 2023
|
| |
80
|
| |
—
|
| |
(80)
|
| |
(g)
|
| |
—
|
|
Noncontrolling interest
|
| |
134
|
| |
—
|
| |
33,952
|
| |
(h)
|
| |
34,086
|
|
Additional paid-in capital
|
| |
—
|
| |
11,202
|
| |
817
|
| |
(b)
|
| |
4,242
|
|
|
| |
|
| |
|
| |
(21,371)
|
| |
(d)
|
| |
|
|
|
| |
|
| |
|
| |
38,842
|
| |
(g)
|
| |
|
|
|
| |
|
| |
|
| |
2,526
|
| |
(e)
|
| |
|
|
|
| |
|
| |
|
| |
4,659
|
| |
(e)
|
| |
|
|
|
| |
|
| |
|
| |
—
|
| |
(j)
|
| |
|
|
|
| |
|
| |
|
| |
(138)
|
| |
(f)
|
| |
|
|
|
| |
|
| |
|
| |
(3,864)
|
| |
(f)
|
| |
|
|
|
| |
|
| |
|
| |
845
|
| |
(k)
|
| |
|
47
|
|
| |
American
Oncology
Network, LLC
(Historical)
|
| |
Digital
Transformation
Opportunities
Corp.
(Historical)
|
| |
Pro Forma
Transaction
Accounting
Adjustments
|
| |
|
| |
Pro Forma
Combined
|
|
|
| |
|
| |
|
| |
5,257
|
| |
(m)
|
| |
|
|
|
| |
|
| |
|
| |
(33,994)
|
| |
(h)
|
| |
|
|
|
| |
|
| |
|
| |
(1,109)
|
| |
(l)
|
| |
|
|
|
| |
|
| |
|
| |
99
|
| |
(a)
|
| |
|
|
|
| |
|
| |
|
| |
471
|
| |
(o)
|
| |
|
|
Accumulated other comprehensive loss
|
| |
(29)
|
| |
—
|
| |
—
|
| |
|
| |
(29)
|
|
Accumulated earnings (deficit)
|
| |
5,803
|
| |
(21,371)
|
| |
21,371
|
| |
(d)
|
| |
(1,938)
|
|
|
| |
|
| |
|
| |
3,864
|
| |
(f)
|
| |
|
|
|
| |
|
| |
|
| |
(3,864)
|
| |
(f)
|
| |
|
|
|
| |
|
| |
|
| |
(608)
|
| |
(f)
|
| |
|
|
|
| |
|
| |
|
| |
(5,257)
|
| |
(m)
|
| |
|
|
|
| |
|
| |
|
| |
1,392
|
| |
(k)
|
| |
|
|
|
| |
|
| |
|
| |
1,349
|
| |
(e)
|
| |
|
|
|
| |
|
| |
|
| |
(4,659)
|
| |
(e)
|
| |
|
|
|
| |
|
| |
|
| |
(99)
|
| |
(a)
|
| |
|
|
|
| |
|
| |
|
| |
99
|
| |
(a)
|
| |
|
|
|
| |
|
| |
|
| |
42
|
| |
(h)
|
| |
|
|
Total Stockholders' equity (deficit)
|
| |
44,753
|
| |
(10,168)
|
| |
1,780
|
| |
|
| |
36,365
|
|
Total liabilities, commitments,
mezzanine equity and stockholders’ equity (deficit)
|
| |
$397,960
|
| |
$19,397
|
| |
$(26,649)
|
| |
|
| |
$390,708
|
48
Unaudited Pro Forma Condensed Combined Statement of Operations
For the six months ended June 30, 2023
(amounts in thousands, except per share amounts)
|
|
| |
American
Oncology
Network, LLC
(Historical)
|
| |
Digital
Transformation
Opportunities
Corp.
(Historical)
|
| |
Reclassification
Adjustments
|
| |
Pro Forma
Transaction
Accounting
Adjustments
|
| |
|
| |
Pro Forma
Combined
|
|
Revenue
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Patient service revenue, net
|
| |
$613,486
|
| |
$—
|
| |
$—
|
| |
$—
|
| |
|
| |
$613,486
|
|
HHS grant income
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
|
Other revenue
|
| |
5,212
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
5,212
|
|
Total revenue
|
| |
618,698
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
618,698
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Costs and expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Cost of Revenue
|
| |
569,933
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
569,933
|
|
General and administrative expenses
|
| |
52,915
|
| |
—
|
| |
754
|
| |
(3,618)
|
| |
(oo)
|
| |
50,051
|
|
Transaction related expenses
|
| |
|
| |
|
| |
1,757
|
| |
(1,757)
|
| |
(oo)
|
| |
—
|
|
Formation and operating costs
|
| |
—
|
| |
2,511
|
| |
(2,511)
|
| |
—
|
| |
|
| |
—
|
|
Total costs and expenses
|
| |
622,848
|
| |
2,511
|
| |
—
|
| |
(5,375)
|
| |
|
| |
619,984
|
|
Income (loss) from operations
|
| |
(4,150)
|
| |
(2,511)
|
| |
—
|
| |
5,375
|
| |
|
| |
(1,286)
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Nonoperating income (expense):
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest expense
|
| |
(2,968)
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
(2,968)
|
|
Interest income
|
| |
126
|
| |
2,561
|
| |
—
|
| |
(2,561)
|
| |
(ll)
|
| |
126
|
|
Other income (expense), net
|
| |
(4,380)
|
| |
—
|
| |
—
|
| |
5,066
|
| |
(pp)
|
| |
686
|
|
Reduction of deferred underwriting fee payable
|
| |
—
|
| |
420
|
| |
|
| |
(420)
|
| |
(ll)
|
| |
—
|
|
Unrealized gain (loss) on marketable securities held in
Trust Account
|
| |
—
|
| |
(139)
|
| |
—
|
| |
139
|
| |
(kk)
|
| |
—
|
|
Change in fair value of warrant liability
|
| |
—
|
| |
(1,376)
|
| |
—
|
| |
—
|
| |
|
| |
(1,376)
|
|
Income (loss) before income taxes
|
| |
(11,372)
|
| |
(1,045)
|
| |
—
|
| |
7,599
|
| |
|
| |
(4,818)
|
|
Income tax expense (benefit)
|
| |
—
|
| |
487
|
| |
—
|
| |
909
|
| |
(mm)
|
| |
1,396
|
|
Net income (loss) before equity loss in
affiliate
|
| |
(11,372)
|
| |
(1,532)
|
| |
—
|
| |
6,690
|
| |
|
| |
(6,214)
|
|
Equity loss in affiliate
|
| |
(219)
|
| | | | | | | |
|
| |
(219)
|
|||
|
Net Income (loss)
|
| |
(11,591)
|
| |
(1,532)
|
| |
—
|
| |
6,690
|
| |
|
| |
(6,433)
|
|
Net income (loss) attributable to
noncontrolling interest
|
| |
—
|
| |
—
|
| |
—
|
| |
(5,072)
|
| |
(nn)
|
| |
(5,072)
|
|
Net income (loss) attributable to New
AON
|
| |
$(11,591)
|
| |
$(1,532)
|
| |
$—
|
| |
$11,762
|
| |
|
| |
$(1,361)
|
49
Unaudited Pro Forma Condensed Combined Statement of Operations
For the year ended December 31, 2022
(amounts in thousands, except per share amounts)
|
|
| |
American
Oncology
Network, LLC
(Historical)
|
| |
Digital
Transformation
Opportunities
Corp.
(Historical)
|
| |
Reclassification
Adjustments
|
| |
Pro Forma
Transaction
Accounting
Adjustments
|
| |
|
| |
Pro Forma
Combined
|
|
Revenue
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Patient service revenue, net
|
| |
$1,137,932
|
| |
$—
|
| |
$—
|
| |
$—
|
| |
|
| |
$1,137,932
|
|
HHS grant income
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
—
|
|
Other revenue
|
| |
11,738
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
11,738
|
|
Total revenue
|
| |
1,149,670
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
1,149,670
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Costs and expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Cost of Revenue
|
| |
1,054,217
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
1,054,217
|
|
General and administrative expenses
|
| |
89,887
|
| |
—
|
| |
294
|
| |
(3,277)
|
| |
(ff)
|
| |
92,161
|
|
|
| |
|
| |
|
| |
|
| |
5,257
|
| |
(gg)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
—
|
| |
|
| |
|
|
Transaction related expenses
|
| |
|
| |
|
| |
2,095
|
| |
4,472
|
| |
(ee)
|
| |
15,219
|
|
|
| |
|
| |
|
| |
|
| |
3,618
|
| |
(hh)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
1,757
|
| |
(hh)
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
3,277
|
| |
(ff)
|
| |
|
|
Formation and operating costs
|
| |
—
|
| |
2,389
|
| |
(2,389)
|
| |
—
|
| |
|
| |
—
|
|
Total costs and expenses
|
| |
1,144,104
|
| |
2,389
|
| |
—
|
| |
15,104
|
| |
|
| |
1,161,597
|
|
Income (loss) from operations
|
| |
5,566
|
| |
(2,389)
|
| |
—
|
| |
(15,104)
|
| |
|
| |
(11,927)
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Nonoperating income (expense):
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest expense
|
| |
(3,417)
|
| |
—
|
| |
—
|
| |
—
|
| |
|
| |
(3,417)
|
|
Interest income
|
| |
151
|
| |
5,129
|
| |
—
|
| |
(5,129)
|
| |
(bb)
|
| |
151
|
|
Other income (expense), net
|
| |
289
|
| |
—
|
| |
—
|
| |
1,349
|
| |
(ii)
|
| |
(3,021)
|
|
|
| |
|
| |
|
| |
|
| |
(4,659)
|
| |
(ii)
|
| |
|
|
Unrealized gain (loss) on marketable securities held in
Trust Account
|
| |
—
|
| |
139
|
| |
—
|
| |
(139)
|
| |
(aa)
|
| |
—
|
|
Change in fair value of warrant liability
|
| |
—
|
| |
8,680
|
| |
—
|
| |
—
|
| |
|
| |
8,680
|
|
Income (loss) before income taxes
|
| |
2,589
|
| |
11,559
|
| |
—
|
| |
(23,682)
|
| |
|
| |
(9,534)
|
|
Income tax expense (benefit)
|
| |
—
|
| |
1,027
|
| |
—
|
| |
(2,302)
|
| |
(cc)
|
| |
(1,275)
|
|
Net income (loss)
|
| |
2,589
|
| |
10,532
|
| |
—
|
| |
(21,380)
|
| |
|
| |
(8,259)
|
|
Net income (loss) attributable to
noncontrolling interest
|
| |
—
|
| |
—
|
| |
—
|
| |
(5,269)
|
| |
(dd)
|
| |
(5,269)
|
|
Net income (loss) attributable to New
AON
|
| |
$2,589
|
| |
$10,532
|
| |
$—
|
| |
$(16,111)
|
| |
|
| |
$(2,990)
|
50
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
|
1.
|
Basis of Presentation
|
The pro forma adjustments have been prepared as if the Business
Combination had been consummated on June 30, 2023, in the case of the unaudited pro forma condensed combined balance sheet, and, in the case of the unaudited pro forma condensed combined statement of operations, as if the Business Combination
had been consummated on January 1, 2022, the beginning of the earliest period presented in the unaudited pro forma condensed combined statement of operations.
The unaudited pro forma condensed combined financial information
has been prepared assuming the following methods of accounting in accordance with GAAP.
The Business Combination has been accounted for as a reverse
recapitalization in accordance with GAAP. Accordingly, for accounting purposes, the financial statements of the post-combination entity will represent a continuation of the financial statements of the Company with the acquisition being treated
as the equivalent of the Company issuing stock for the net assets of DTOC, accompanied by a recapitalization.
The net assets of DTOC has been stated at historical cost, with no
goodwill or other intangible assets recorded.
The pro forma adjustments represent management’s estimates based
on information available as of the date of this prospectus and are subject to change as additional information becomes available and additional analyses are performed. Management considers this basis of presentation to be reasonable under the
circumstances.
One-time direct and incremental transaction costs anticipated to
be incurred prior to, or concurrent with, the Closing are reflected in the unaudited pro forma condensed combined balance sheet as a direct reduction to the post-combination entity’s additional paid-in capital and are assumed to be cash
settled.
|
2.
|
Adjustments and Assumptions to the Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2023
|
The adjustments included in the unaudited pro forma condensed
combined balance sheet as of June 30, 2023, are as follows:
|
(a)
|
Represents the reclassification of cash and investments of $19.4 million held in the Trust Account that become available in
conjunction with the Business Combination. Of the total $19.4 million, $0.1 million of interest was earned in the account after the issuance of DTOC’s historical unaudited condensed consolidated financial statements as of and for the
six months ended June 30, 2023. As such, $0.1 million of interest income was recorded in accumulated deficit and subsequently presented in APIC, to reflect the elimination of DTOC’s historical accumulated deficit for the net income
recognized.
|
|
(b)
|
Represents the redemption of 1,699,558 shares of DTOC Class A Common Stock for approximately $17.8 million and the
reclassification of 147,511 shares of DTOC Class A common stock and additional paid-in capital for approximately $0.9 million, using par value of $0.0001 per share and the issuance of shares to DTOC public shareholders.
|
|
(c)
|
Represents the pro forma adjustment to record the conversion of the Series A Investment net proceeds pursuant to the June 7,
2023 Unit Purchase Agreement, in which the AON Class C Preferred Investor purchased 2,459 AON Class C units at an aggregate purchase price of $65.0 million, net of $0.8 million of issuance costs and $1.3 million of Class C purchase
options rights classified as a derivative liability. Pursuant to the Business Combination Agreement, the pro forma adjustment also reflects issuance of New AON Series A Preferred Stock based on the Per Company Class C unit Exchange
Ratio.
|
New AON has preliminarily evaluated the accounting for the New AON Series A
Preferred Stock in accordance with the requirements of ASC 480-10-S99. For purposes of the unaudited pro forma condensed combined financial information, the Series A Investment is classified as mezzanine equity. However, the evaluation and
finalization of accounting conclusions including, but not limited to, classification of the instrument, impact to earnings per share, analysis of any potential embedded derivatives and the impact to other preferred/equity units are ongoing and
subject to change.
|
(d)
|
Reflects the elimination of DTOC’s historical accumulated deficit.
|
|
(e)
|
Represents the pro forma adjustment to remove AON’s Class C unit derivative liability. Upon the
|
51
consummation of the Business Combination, the option to purchase additional
Class C units expires. In addition, the pro forma adjustment represents the issuance of 718,549 shares of New AON Class B common stock to the Class A-1 unit holders in the amount of $7.2 million, pursuant to the AON Class A-1 Anti-dilution
Feature, presented as additional paid in capital. Of the total $7.2 million, the Company recorded a loss of $4.7 million in accumulated earnings to reflect the fair value of the New AON Class B common stock in excess of the derivative liability
recorded as of June 30, 2023. Upon the consummation of the Business Combination, AON’s Class A-1 unit holders do not retain the Anti-dilution Feature that was classified on AON’s condensed consolidated balance sheet as a derivative liability.
|
(f)
|
Represents the estimated incremental transaction costs incurred by DTOC and the Company of approximately $4.6 million for
advisory, banking, printing, legal and accounting fees.
|
Of the total $4.6 million, transaction expenses of $4.5 million are expected to be
expensed as incurred, as reflected in adjustment (ee) in the income statement for the year ended December 31, 2022. DTOC transaction expenses of $3.9 million were recorded in accumulated deficit and subsequently presented in APIC, to reflect
the elimination of DTOC’s historical accumulated deficit for the expenses incurred and $0.6 million of AON transaction expenses were presented in accumulated earnings, to reflect the expense incurred. The remaining $0.1 million in costs that
were direct and incremental to the equity raise were netted against the proceeds of the Business Combination.
|
(amounts in thousands)
|
| |
Capitalized
|
| |
Expensed
|
| |
Total
|
|
DTOC
|
| |
—
|
| |
3,864
|
| |
3,864
|
|
AON
|
| |
138
|
| |
608
|
| |
746
|
|
Total
|
| |
138
|
| |
4,472
|
| |
4,610
|
|
(g)
|
Represents the recapitalization of the Company’s Class A, Class A-1, Class B-1 and Class B outstanding common shares, using
par value of $0.0001 per share, and the recapitalization of DTOC’s Class A common stock, using par value of $0.0001 per share, into New AON Class A common stock and New AON Class B common stock, as follows:
|
|
in thousands, except share amounts
|
| |
Shares
|
| |
Par Value
|
|
New AON Class B shareholders (Former AON A & B shareholders)
|
| |
25,109,551
|
| |
$3
|
|
New AON Class B Warrants (Former AON A-1 shareholders)
|
| |
3,000,245
|
| |
$—
|
|
New AON Class A common stock (Former AON B-1 shareholders)
|
| |
1,047,343
|
| |
$—
|
|
New AON Class A common stock (Former DTOC sponsor)
|
| |
5,419,375
|
| |
$1
|
|
Shares Outstanding at Closing
|
| |
34,576,514
|
| |
$4
|
The recapitalization of the Company’s Class A, Class A-1, and Class B shares
included in accumulated paid in capital is calculated as follows:
|
in thousands
|
| |
Additional
paid-in
capital
|
|
Book Value of AON Class A units
|
| |
$7,725
|
|
Book Value of AON Class A-1 units
|
| |
31,040
|
|
Book Value of AON Class B units
|
| |
80
|
|
Total Historical AON Class A, Class A-1, Class B stockholders' equity
|
| |
$38,845
|
|
Less: par value
|
| |
3
|
|
Additional paid in capital
|
| |
$38,842
|
|
(h)
|
The financial results of AON and its wholly-owned subsidiaries are consolidated with and into New AON, and following the
Business Combination, a portion of the consolidated net income (loss) of AON, which the former AON unitholders are entitled to or are required to absorb, are allocated to the noncontrolling interests (the “NCI”). For purposes of the
unaudited pro forma condensed combined financial
|
52
information, a controlling interest of 32.06% and a noncontrolling interest of
67.94% were used. The Company has excluded Earnouts in the calculation of the ownership interest in AON as the Earnouts are subject to forfeiture if the achievement of a stock price threshold is not met within five years of the Business
Combination.
|
(amounts in thousands)
|
| |
Pro Forma
Transaction
Accounting
Adjustments
|
|
Historical Accumulated earnings (deficit)
|
| |
5,803
|
|
Less: Transaction Expenses attributed to AON
|
| |
608
|
|
Less : Share -Based Compensation attributed to AON
|
| |
5,257
|
|
Adjusted Accumulated earnings (deficit)
|
| |
(62)
|
|
Noncontrolling interest percentage
|
| |
67.94%
|
|
Noncontrolling interest
|
| |
(42)
|
|
|
| |
|
|
Historical Additional paid-in capital
|
| |
—
|
|
Less: Capitalized Offering Costs
|
| |
1,247
|
|
Plus: Vesting of AON B unit profit interest awards and
issuance of AON B-1 shares
|
| |
5,257
|
|
Plus: Recapitalization of Class A, A-1, B Shareholders
|
| |
46,027
|
|
Adjusted Additional paid-in-capital
|
| |
50,037
|
|
Noncontrolling interest percentage
|
| |
67.94%
|
|
Noncontrolling interest
|
| |
33,994
|
|
Total noncontrolling interest
|
| |
33,952
|
New AON is currently evaluating the requirements of ASC 480-10-S99 regarding
permanent versus mezzanine equity presentation of the noncontrolling interest. For purposes of the unaudited pro forma condensed combined financial information, noncontrolling interest is classified as permanent equity. However, the evaluation
and finalization of accounting conclusions regarding the classification are ongoing and subject to change in accordance with the terms contained within the final agreement.
|
(i)
|
The pro forma adjustment represents the repayment of the promissory note and Sponsor advances upon the consummation of the
Business Combination. On March 6, 2023, in connection with the Special Meeting held to approve the Extension Proposal, the Sponsor deposited $0.2 million into the Trust Account to fund the Extension Proposal. As repayment, DTOC issued
an unsecured promissory note to the Sponsor for $0.2 million. The promissory note bears no interest and all unpaid principal under the promissory note was due and payable in full up upon the consummation of the Business Combination. The
outstanding balance of the unsecured promissory note as of June 30, 2023 is $0.2 million. Further, during the six months ended June 30, 2023, the Sponsor advanced the Company $0.3 million for working capital purposes of which $0.0 was
repaid during the six months ended June 30, 2023.
|
|
(j)
|
Represents the issuance of 3,002,245 shares of AON Class B Prefunded Warrants to former AON A-1 unitholders with an exercise
price of $0.01. The AON Class B Prefunded Warrants are exercisable into one share of New AON Class B Common Stock. A share of New AON Class B Common Stock, together with an AON LLC common unit, may be exchanged for one share of New AON
Class A common stock. Because New AON Class B Common Stock has limited liquidity or value if the holder does not also possess an AON LLC common unit, and because the AON Class B Prefunded Warrants are exercisable into New AON Class B
Common Stock, the Company has estimated fair value of the warrants at $0.00. New AON is currently evaluating the accounting treatment related to these warrants. For purposes of the unaudited pro forma condensed combined financial
information, these warrants are classified as liability instruments. However, the evaluation and finalization of accounting conclusions regarding the classification are ongoing and subject to change based on final agreements.
|
|
(k)
|
Represents the pro forma adjustment to recognize a net deferred tax asset of $0.8 million and the pro forma adjustment to
reflect an income tax receivable of $0.3 million.
|
53
Temporary differences, resulting from differences including our investment in
AON and a valuation allowance, resulted in a pro forma net deferred tax asset of $0.8 million as of June 30, 2023.
|
(l)
|
Represents the reclassification of capitalized offering costs included in other assets to additional paid-in-capital in the
amount of $1.1 million.
|
|
(m)
|
Represents the issuance of both the AON Class B-1 units and the accelerated vesting of the existing AON Class B profit
interest awards noted in the pro forma adjustment (gg), in the aggregate amount of $5.3 million, recorded in accumulated deficit and accumulated paid-in-capital.
|
|
(n)
|
Represents the payment of the accrued DTOC transaction expenses included in Accounts Payable in the Historical DTOC balance
sheet as of June 30, 2023.
|
|
(o)
|
The pro forma adjustment represents the reduction of excise tax payable for the issuance New AON Series A Preferred Stock, in
the aggregate amount of $0.7 million, offset by the accrual of an additional $0.2 million in excise tax for the redemption of 1,699,558 shares of New AON Class A common stock, in the net amount of $0.5 million, recorded in excise tax
payable and APIC.
|
|
3.
|
Adjustments and Assumptions to the Unaudited Pro Forma Condensed Combined Statement of Operations for the six
months ended June 30, 2023
|
In the unaudited pro forma condensed combined statement of
operations for the six months ended June 30, 2023, $0.7 million and $1.8 million of historical Digital Transformation Corp. costs have been reclassified from “Formation and operating costs” to “General and administrative expenses” and
“Transaction related expenses”, respectively, to align financial statement descriptions.
The adjustments included in the unaudited pro forma condensed
combined statement of operations for the six months ended June 30, 2023, are as follows:
|
(kk)
|
Reflects the elimination of unrealized gains and losses on marketable securities held in the Trust Account.
|
|
(ll)
|
Reflects the elimination of interest earned on marketable securities held in the Trust Account and the elimination of the
impact of changes to the deferred underwriting fee.
|
|
(mm)
|
Reflects the income tax effect related to the transaction accounting adjustments, and the controlling interest of AON
historical results for the AON partnership entities, using a pro forma combined blended U.S. federal and state statutory tax rate of 25.00% for the six months ended June 30, 2023.
|
|
(nn)
|
The net loss of New AON was reduced by the estimated noncontrolling interest ownership of 67.94%, as follows:
|
|
(amounts in thousands)
|
| |
Pro Forma
Transaction
Accounting
|
|
Adjustments
|
| |
|
|
Historical Net income (loss)
|
| |
(11,591)
|
|
Plus: Reversal of AON transaction expenses attributed to
fiscal year 2022
|
| |
3,618
|
|
Plus: Tax benefit (expense) attributed to AON
|
| |
508
|
|
Adjusted Historical Net income (loss)
|
| |
(7,465)
|
|
Noncontrolling interest percentage
|
| |
67.94%
|
|
Net income (loss) attributable to noncontrolling interest
|
| |
(5,072)
|
|
(oo)
|
Reflects the removal of AON and DTOC transaction expenses incurred in the six months ended June 30, 2023. The unaudited pro
forma condensed combined statement of operations give effect to the Business Combination as if it had been consummated on January 1, 2022. As such, all transaction expenses are reflected in the year ended December 31, 2022 statement of
operations, see Note (hh).
|
|
(pp)
|
Reflects the reversal of $5.1 million of other expense recorded by AON to adjust the Class A-1 unit derivative liability to
fair market value in the six months ended June 30, 2023 condensed consolidated statement of operations. Upon the consummation of the Business Combination, AON’s Class A-1 unit holders do not retain the Anti-dilution Feature that was
classified on AON’s condensed consolidated balance sheet as a derivative liability.
|
54
|
4.
|
Adjustments and Assumptions to the Unaudited Pro Forma Condensed Combined Statement of Operations for the
year ended December 31, 2022
|
In the unaudited pro forma condensed combined statement of
operations for the year ended December 31, 2022, $0.3 million and $2.0 million of historical Digital Transformation Corp. costs have been reclassified from “Formation and operating costs” to “General and administrative expenses” and
“Transaction related expenses,” respectively, to align financial statement descriptions.
The adjustments included in the unaudited pro forma condensed
combined statement of operations for the year ended December 31, 2022, are as follows:
|
(aa)
|
Reflects the elimination of unrealized gains and losses on marketable securities held in the Trust Account.
|
|
(bb)
|
Reflects the elimination of interest earned on marketable securities held in the Trust Account.
|
|
(cc)
|
Reflects the income tax effect related to the transaction accounting adjustments, and the controlling interest of AON
historical results for the AON partnership entities, using a pro forma combined blended U.S. federal and state statutory tax rate of 25.00%, for the year ended December 31, 2022.
|
|
(dd)
|
The net loss of New AON was reduced by the estimated noncontrolling interest ownership of 67.94%, as follows:
|
|
(amounts in thousands)
|
| |
Pro Forma
Transaction
Accounting
Adjustments
|
|
Historical Net income (loss)
|
| |
2,589
|
|
Less: Incremental Transaction Expenses attributed to AON
|
| |
608
|
|
Less: AON transaction expenses attributed to fiscal year
2022
|
| |
3,618
|
|
Less: Stock Compensation Expense attributed to AON
|
| |
5,257
|
|
Less: Tax expense attributed to AON
|
| |
861
|
|
Adjusted Historical Net income (loss)
|
| |
(7,755)
|
|
Noncontrolling interest percentage
|
| |
67.94%
|
|
Net income (loss) attributable to noncontrolling interest
|
| |
(5,269)
|
|
(ee)
|
Reflects the incremental portion of transaction costs expected to be expensed as incurred based on the nature of the costs,
as noted at adjustment (f).
|
|
(ff)
|
Reflects $3.3 million of historical AON costs that have been reclassified from “General and administrative expenses” to
“Transaction related expenses” to align financial statement descriptions.
|
|
(gg)
|
Reflects $5.3 million of stock compensation related to the issuance of both 1,047,745 million shares of AON Class B-1 units
at a fair market value of $5.01 per share, and the accelerated vesting of 405 shares of AON Class B profit interest awards at a grant date fair market value of $25.59 per share.
|
|
(hh)
|
Reflects $3.6 million and $1.8 million of AON and DTOC transaction expenses attributed to the December 31, 2022 Statement of
Operations, as noted in pro forma adjustment (oo).
|
|
(ii)
|
Reflects both the gain of $1.3 million recognized to reflect the expiration of the option to purchase additional Class C
units and the loss of $4.7 million to reflect the issuance of 718,549 shares of New AON Class B common stock to the Class A-1 unit holders, as noted in adjustment (e). Upon the consummation of the Business Combination, the option to
purchase additional Class C units and the Anti-dilution Feature of the Class A-1 unit holders, each of which are liability-classified, no longer apply.
|
|
5.
|
Earnings per Share Information
|
The pro forma weighted average shares calculations have been
performed for the six months ended June 30, 2023 and the year ended December 31, 2022 using the historical weighted average shares outstanding, and the issuance of additional shares in connection with the Business Combination, assuming the
transaction occurred on
55
January 1, 2022. As the Business Combination is being reflected as if it had
occurred at the beginning of the periods presented, the calculation of weighted average share outstanding for both basic and diluted earnings per share assumes that the shares issuable relating to the Business Combination have been outstanding
for the entire periods presented.
|
(In thousands, except per share data)
|
| |
For the Six Months Ended
June 30, 2023
|
| |
For the Year Ended
December 31, 2022
|
|
Net loss
|
| |
(6,433)
|
| |
(8,259)
|
|
Net loss attributable to New AON
|
| |
(1,361)
|
| |
(2,990)
|
|
Less: Manditory Preferred Stock Dividend
|
| |
2,812
|
| |
5,304
|
|
Net loss attributable to common stockholders
|
| |
(4,173)
|
| |
(8,294)
|
|
Weighted average common shares outstanding - Basic &
Diluted(1)
|
| |
6,614,229
|
| |
6,614,631
|
|
Net loss per share attributable to Class A common
stockholders – Basic & Diluted
|
| |
(0.63)
|
| |
(1.25)
|
|
Weighted average shares outstanding
|
| |
|
| |
|
|
New AON Class A common stock (Former DTOC Class A
shareholders)
|
| |
147,511
|
| |
147,511
|
|
New AON Class A common stock (Former AON B-1 shareholders)
|
| |
1,047,343
|
| |
1,047,745
|
|
New AON Class A common stock (Former DTOC sponsor)
|
| |
5,419,375
|
| |
5,419,375
|
|
Basic weighted average shares outstanding
|
| |
6,614,229
|
| |
6,614,631
|
|
(1)
|
The net loss for the six months ended June 30, 2023 and the year ended December 31, 2022 results in an anti-dilutive effect on
earnings per share for all potentially dilutive instruments, therefore basic weighted average shares outstanding equals diluted weighted average shares outstanding for the period.
|
56
Overview
Since its inception in 2018, American Oncology Network, LLC
(“AON”) has offered a progressive model of physician-led, community-based oncology management. AON preserves and elevates community oncology by helping its physicians navigate the complex healthcare landscape, providing them an efficient
platform to work autonomously and thrive, and most importantly, improving the quality of patient care that is being delivered. We are an alliance of physicians and veteran healthcare leaders partnering to ensure the long-term success and
viability of oncology diagnosis and treatment in community-based settings. As of September 30, 2023, AON’s platform includes 109 physicians and 31 practices across 85 locations in 19 states. Our robust platform provides oncology practices with
comprehensive support, access to revenue- diversifying adjacent services and practice management expertise to empower physicians to make cancer care better for every patient.
Our mission is to provide the best cancer care that is affordable
and close to where patients live and work. We believe the key to accessible and equitable healthcare lies in the strength of community healthcare practices and we are committed to closing the gap in cancer care to ensure every patient has
access to the optimal care needed to help in their fight against cancer. To accomplish this, we have practices in some of the most densely populated cities as well as rural areas where medical resources are scarce. We deliver cancer care
innovation by bringing new treatments to the forum and also by ensuring the access to the necessary adjacent services to provide comprehensive quality cancer care and, preserving the delivery of personalized cancer care in the community
oncology setting.
Through access to care-enhancing patient services such as a
centralized specialty pharmacy, wide ranging clinical lab and pathology, a fully integrated technology platform anchored by an oncology-specific electronic medical record system, as well as a care management team and a variety of financial
assistance programs, our patients receive expert cancer care at each of our clinics.
We provide patients a variety of services to enhance patient care
throughout the healthcare journey: high-quality and timely laboratory services for routine and specialized testing; in-house professional and technical pathology providing complete, accurate and timely pathology reports; in-house specialty
pharmacy with patient education, financial assistance, and 24/7 patient assistance; and care management support services including nutrition guidance.
As the future of healthcare continues to transition from volume to
value, we are at the forefront of this initiative by ensuring care quality over care quantity and adopting a patient-first mentality. Through an integrated system of seamless communication, coordination and patient care for better health
outcomes, AON practices benefit from decreased expenditures through the implementation of centralized administrative services, processes, and technologies designed to support effective decision-making such as optimal pricing on drugs and
medical supplies. Our patients benefit through our 24/7 clinical care support leading to a reduction in unnecessary emergency room visits and admissions and enhanced care quality. Ultimately, the payors benefit from more efficient delivery of
high-quality, comprehensive services comparable to any hospital system at a lower cost point.
Though our network spans the country, its clinicians are
interconnected and focused on driving change not just at their local clinics, but throughout our network. Our Network Practices unite in collaboration through a physician advisory board, which acts as a liaison between AON management and our
Network Practices so that we remain apprised of issues and opinions concerning our Network Practices. In addition, our Network Practices also remain at the forefront of new discoveries and findings by expanding and improving cancer treatment
options for every patient through a pharmacy and therapeutics committee that continuously updates its formulary in real time as advanced therapeutics come to market and through participating in clinical research to ensure we remain on the
cutting edge of cancer protocols. Patients benefit from convenient access to clinical trials that we participate in without the need to travel to large cities or tertiary cancer care facilities, and personalized care by matching a patient’s
cancer to a tailored therapy using molecular profiling.
We have made significant investment in a resilient, integrated
technology platform to support the practices which includes a fully-integrated electronic health record and a robust decision support tool and analytics engine. Our development of compliance materials ensures consistency and optimal patient
experiences and meets or exceeds the Office of Inspector General (“OIG”) guidelines.
57
We believe that our position in the market and focus on
elevating the state of oncology care with our affiliated providers bodes well for future growth. Our proprietary technology platform supports this growth and enables the Network Practices to standardize and deliver consistent care at scale. We
believe that our model will support growth into new markets and allow us to continue to service more patients across the United States.
Market Overview
Our business is focused on caring for adult and senior populations
with medical oncology and related care needs, including members of Medicare Advantage (“MA”) plan run by private insurance companies on behalf of the Centers for Medicare and Medicaid Services, or CMS, as well as traditional Fee-For-Service
(“FFS”) Medicare, Medicaid, other government healthcare programs and commercial insurance populations.
As of September 30, 2023, we were active in 85 locations across 31
practices in 17 states. We also operate a triple-accredited specialty pharmacy and a state of the art clinical laboratory. According to the Community Oncology Services Global Market Report 2023, the global community oncology services market
size will grow from $47.95 billion in 2022 to $53.79 billion in 2023 at a compound annual growth rate (CAGR) of 12.2% and is expected to grow to $81.33 billion in 2027 at a CAGR of 10.9%. Furthermore, according to the BCC Research Global
Oncology Pharmaceuticals Market Report, the oncology pharmaceuticals market, which is also a significant market of AON’s services, is currently a $177 billion industry and is expected to grow to $314 billion by 2026. This expanding market
provides us with a substantial opportunity to grow in both our legacy, existing markets, as well as in our new expansion geographies.
Our Care Model
Since our founding, we have offered a progressive model of
physician-led, community-based oncology management. It preserves and elevates community oncology by helping our physicians navigate the complex healthcare landscape, providing them an efficient platform to work autonomously and thrive, and most
importantly, improving the quality of patient care that is being delivered. Our care model is focused on delivering personalized, evidenced-based care consistently and at scale. We seek to deliver better patient outcomes for lower costs, and to
care for more of our payors’ patient populations. Our care model is team-focused and values-driven and promotes a culture of loyalty and trust from providers and staff, leading to strong clinical outcomes.
|
•
|
Continuously Supporting the Patient — Deliver results by
providing compassionate oncology and hematology services with continued focus on the patient.
|
|
•
|
Always Do the Right Thing — Committed to personal excellence,
accountability, and integrity, abiding by the highest regulatory standards, performing in the most ethical manner, and taking responsibility for actions.
|
|
•
|
Respectfully Engage — Foster positive relationships, encourage
diversity of thought, and promote trust among teams and customers; encouraging healthy debate and respect for the thoughts and opinions of others; believing that talent, skills, and expertise are most important.
|
|
•
|
Exceed Expectations — Striving to provide excellence in all
things; creating a standard of caring that goes above and beyond while embracing change in support of continuous improvement for patients.
|
Our Network Physician Practices
We operate our physician practices through management service
agreements (“MSAs”) between American Oncology Management Company, LLC (“AOMC”), and American Oncology Partners, P.A. (“AON Partners”), and American Partners of Maryland, P.A. (“Partners of Maryland”). AOMC is a wholly owned subsidiary of the
Company while AON Partners and Partners of Maryland are physician owned.
58
Under our MSAs, we have agreed to serve, on an exclusive basis,
as manager and administrator of each our practice’s non-medical functions while healthcare services and items provided to patients are provided by physicians and other licensed healthcare providers employed by or under contract with a practice.
Under the MSAs, the responsibilities of AOMC include, but are not limited to negotiating provider and payor contracts, employment and compensation decisions, billing and collections, furnishing all supplies and equipment necessary for the
respective practice’s operations as well as, necessary real estate, contracting on behalf of AON Partners and Partners of Maryland, entering into leases, holding a power of attorney to perform the above activities, preparing, maintaining and
administering all accounting records (including financial reporting), expense payment, and maintenance of all information systems/software. Furthermore, the MSAs provide that AON Partners and Partners of Maryland have sole discretionary
authority on decisions with respect to medical practice and shall be based on their professional judgment and in the best interests of patients. The MSAs also provide that AOMC will not interfere with AON Partners’ and Partners of Maryland’s
decisions with respect to the supervision, selection, terms, conditions or obligations of their physicians and healthcare professionals. In addition, the MSAs provide that services provided by AOMC will comply with applicable federal and state
requirements, as well as any accreditation and certification requirements applicable to medical practices. We are paid a management fee to compensate AOMC for the services provided. The management fee has fixed and variable components, and is
negotiated and agreed upon on an annual basis by AOMC and AON Partners or Partners of Maryland, respectively. The fixed amount of the management fee to be agreed upon is based primarily on expenses incurred by AOMC in connection with providing
management and administrative services to each of AON Partners’ and Partners of Maryland’s medical practices. The variable component of the management fee is based primarily on the volume of collections by AON Partners and Partners of Maryland
and their respective profitability. The variable component of the management fee does not exceed 10% of the collections of our practices. In accordance with relevant accounting guidance, each of AON Partners and Partners of Maryland is
determined to be a variable interest entity, or VIE, of AON because AON has the ability under the MSAs to direct the activities (except for clinical decisions) that most affect the economic performance and profitability of AON Partners and
Partners of Maryland. Our MSAs with AON Partners or Partners of Maryland have five year terms that automatically renew for successive five year terms, unless terminated upon mutual agreement of the parties or unilaterally by a party following a
material breach or commencement of bankruptcy or liquidation events by the other party, or a governmental or judicial termination order against a party. In accordance with relevant accounting guidance, each of the AON Partners and Partners of
Maryland are determined to be variable interest entities, or VIEs, of the Company as the Company has the ability, through the MSA, to direct the activities (excluding clinical decisions) that most significantly affect the practice’s economic
performance.
Our Value Proposition
We believe we have developed a compelling value proposition for
each of our patients, providers, and payors. We seek to provide high quality and lower cost care delivery through the following capabilities:
Patient
|
•
|
Quality providers, continuous clinical improvements, and ancillary services such as clinical laboratory, professional and
technical pathology services, oral oncolytic pharmacy, care management, and access to clinical trials set a high standard of patient care.
|
|
•
|
Optimization of centralized administrative services allows providers the opportunity to maximize time serving patients.
|
|
•
|
In addition to traditional oncology care, a focus on addressing patients’ mental and spiritual health.
|
|
•
|
Delivery of true Value Base Care (“VBC”) through participation in alternative payment models such as CMS’ Oncology Care
Model.
|
Providers
|
•
|
Strong culture, based on a prominent clinical reputation, and attractive physician ownership model enable us to attract and
retain the best providers in a competitive market.
|
|
•
|
Proven practice management expertise, driving practice growth by providing outstanding administrative support including
managed care services, drug procurement, and revenue cycle management, as well as a proprietary playbook on driving same store growth of new patients for AON practices.
|
|
•
|
Access to new revenue streams through centralized ancillaries such as clinical lab, pathology, and oral oncolytic pharmacy
enables practice growth.
|
59
|
•
|
Differentiated, provider-centric culture attracts the industry’s leading providers.
|
|
•
|
96% Physician Quality Score according to CMMI (Center of Medicare and Medicaid Innovation).
|
Payors
|
•
|
Experienced and knowledgeable centralized Payor Strategy & Relations team coordinates with practices to maintain close
relationships with all payors across the AON platform.
|
|
•
|
Robust suite of solutions offered to practices driving cost savings for payors, addressing three cost drivers: 1) Variable
use of drugs and diagnostics during treatment; 2) Deterioration of patient health between treatments; and 3) Ineffective interventions near the end of life.
|
|
•
|
Optimized management solutions generating operational efficiencies and cost savings shared with payors.
|
We strive to add value by consistently performing these activities
effectively. The goal is a lower cost of care for the same or better clinical outcomes while providing a superior patient experience.
Growth Strategy and Opportunities
To date, we have achieved rapid growth through acquisition of
existing practices and through organic growth of these practices after acquisition. Revenue has grown at a roughly 53% CAGR from 2019 to 2022.
Our practice footprint as of September 30, 2023 spanned
approximately 17 states with 31 practices in 85 locations.
We anticipate adding more managed practices in the future across
our markets through acquisitions and through organic growth within existing practices.
Our go-to-market strategy focuses on demographic trends, secular
tailwinds, and fragmented community-based oncology practices facing pricing pressures, as follows:
|
•
|
According to BCC Research, oncology medicine spending is forecasted to grow at a 12% long-term CAGR.
|
|
•
|
Recent treatments tailored to the specific genomic sequence of each patient’s tumor have continued to drive growth in the
oncology market.
|
|
•
|
The number of cancer cases through 2040 is expected to grow five times faster than the population growth per the Journal of
Clinical Oncology.
|
|
•
|
The oncology service market is vast and extremely fragmented in the U.S. Of the over 12,000 oncologists in the country,
approximately 76% work in practices that employ between 1 – 5 oncologists.
|
60
We are well-positioned to capitalize on this growth opportunity
given our hands-on, “Patient-First” model, practice revenue diversification offerings such as our in-house pathology lab, and our specialty pharmacy which can dispense over 96% of the oral oncolytics available in the market today. We have
multiple strategies we believe can achieve long-term growth.
|
•
|
Significant Growth Embedded Within Existing Business: Our existing physician base will continue to grow as AON drive deeper
penetration of adjacent services and our physician recruitment team recruits new physicians to practices that are already part of the AON network. We have invested heavily in corporate infrastructure over the past two years, which
should lead to significant operating leverage.
|
|
•
|
New Service Line Growth: New service lines will drive growth from our existing physician base and attract new physicians to
the network. A sample of such new services that have been recently implemented are as follows:
|
|
•
|
In December 2022, we launched our AON Pharmacy MSA model that will offer potential AON practices access to pharmaceutical
management and a la carte services.
|
|
•
|
We are initiating new revenue streams developed from clinical informatics and data licensing subscriptions.
|
|
•
|
Implementing new CMS-approved patient services including Principal Care Management (“PCM”), Transitional Care Management
(“TCM”), and Chronic Care Management (“CCM”).
|
|
•
|
Participation in alternative payment models developed by CMMI and third-party payors.
|
|
•
|
M&A Opportunities: We plan to pursue accelerated growth through acquisition with a more aggressive approach towards
M&A. Access to the public markets allows us to pursue a broader M&A strategy and opening up the universe of potential targets. In addition, our more robust service offerings and flexibility in deal structuring will allow for
acceleration of our M&A efforts.
|
|
•
|
Expansion of research initiatives: We believe today’s research is tomorrow’s standard of care, accordingly, AON plans to
expand our national research platform. Access to cutting edge clinical trials within the community setting will be critical to oncology research and drug development and AON practices have the best opportunity to offer patients access
to such trials. We offer centralized administrative resources and innovative technology solutions that allows for the timely and efficient expansion in numbers of research investigators and clinical locations throughout the US. With a
significant investment in our standardized technology platform, AON maintains the ability to collaborate closely with trial sponsors in order to timely identify patients for clinical trial accrual across our network.
|
Contracting
Governmental programs, such as Medicare and Medicaid, are
collectively the largest payors for our affiliated practices and includes Managed Medicare and Medicaid programs whereby Medicare and Medicaid contract with third-party payors to administer health plans for their beneficiaries. Under such
programs, physicians are reimbursed at negotiated rates rather than the Medicare fee schedule and the payor is a third-party, rather than Medicare and Medicaid itself.
Medicare reimbursement for physician services is based on a fee
schedule, which establishes payment for a given service, in relation to actual resources used in providing the service, through the application of relative value units. The resources used are converted into a dollar amount of reimbursement
through a conversion factor, which is updated annually by CMS, based on a formula.
Also, Medicare reimburses providers for oncology pharmaceuticals
administered in our clinics based on the average sales price (“ASP”) for drugs plus a fixed percentage (adjusted for sequestration). Our ability to manage pharmaceutical acquisition costs and concentration of our purchases with a limited number
of manufacturers is critical to our success. Nearly all of our pharmaceutical pricing advantage relative to other suppliers is derived from a limited number of drugs. Implementation of ASP-based reimbursement has reduced the amount of
differential pricing that is available to us from pharmaceutical manufacturers, which is one of our key competitive strengths.
In addition to traditional FFS arrangements, we continue to
explore several other forms of alternative payment models including value-based arrangements. Although many of these arrangements continue to be based on an FFS-based methodology, our affiliated providers are eligible to earn additional bonuses
based on their ability to achieve oncology-specific clinical and other quality of care-based benchmarks as well as financial rewards often
61
based on total cost of care. While these alternative value-based arrangements may
not produce as much initial revenue, we believe this flexibility in contracting models will allow us to speed our expansion into new markets while preserving the value-based economics that are critical for our business’ growth and success.
Payor Relationships
We are attractive to physician practices because of our ability to
efficiently manage payor relationships for our Network Practices. As is the case with many healthcare providers, our Network Practices seek payment for their services from a limited number of payors. We generally manage our Network Practices’
payor contracts on a state-by-state basis, entering into a separate contract in each state with the local affiliate of the relevant payor such that no one local payor contract accounts for a majority of our collective revenue. Our centralized
Payor Strategy & Relations team coordinates with practices and fosters close relationships with all payors across the AON platform. Our solutions offer unique cost savings opportunities to payors, and our optimized revenue cycle management
function generates operation efficiencies and cost savings that are shared with payors. We believe these factors make our practices attractive to payors. Our Network Practices have long-term contracts with many payors including some of the
biggest and most respected names in healthcare, including Anthem and United Healthcare. Generally, the contracts with our payors are entered into on substantially consistent terms. These terms include the period of performance, reimbursement
rates and termination clauses that are standard in the industry. For example, typically, many of our contracts are terminable for convenience by either the payor or us after a notice period has passed. Many of our payor contracts include cure
periods for certain breaches, during which time we may attempt to resolve any issues that would trigger a payor’s ability to terminate the contract. Typically, contracts may be terminated immediately by the payor if we lose applicable licenses,
go bankrupt, lose our liability insurance, become insolvent, file for bankruptcy or receive an exclusion, suspension or debarment from state or federal government authorities. We consider our relationships with our payors to be very strong.
Practice Structure, Staffing and Network Design
We have a standard clinic design and approach to staffing that we
continually improve and refine.
Managed clinics average 6,200 square feet and typically offer
services from up to 30 providers (physicians and advanced practice providers) per clinic. We have flexibility around clinic size to allow us to establish smaller clinics and part time staffing in areas where needed to ensure the Network
Practices can meet patient needs under existing payor contracts. We group our managed clinics by geography into regions. We have operations teams managing our markets and regions allowing us to drive performance and scale efficiently.
Competition
The U.S. healthcare industry is highly competitive. We compete
directly with national, regional, and local providers of healthcare for patients and physicians. Our primary competitors are traditional community oncology physician practices, local and national health systems and national oncology management
service organizations such as US Oncology Network, Inc., and OneOncology, Inc. Similar to the Company, US Oncology Network, Inc. and OneOncology, Inc. each offers a nationwide oncology management platform that offers diagnostics, specialty
pharmacies and clinical laboratories; however, we differentiate ourselves from these competitors in our management model. We give our network physicians a high level of autonomy with respect to their practice after joining our network as AON
employed physicians. We believe this structure differentiates us from our competitors. Some of our competitors may have greater recognition and be more established in their respective communities than we are and may have greater financial and
other resources than we have. Competing oncology care providers may also offer larger facilities or different programs or services than our Network Practices do, which, combined with the foregoing factors, may result in our competitors being
more attractive to our current patients, potential patients, and referral sources. We believe the principal competitive factors for serving the healthcare market include patient experience, quality of care, health outcomes, total cost of care,
brand identity and trust in that brand. We believe we compete favorably on all these factors within the markets we serve.
Government Regulation
Regulatory Licensing, Accreditation and
Certification
Participants in the healthcare industry are required to comply
with extensive government regulation at the federal, state and local levels. If we fail to comply with applicable laws and regulations, we may be subject to criminal penalties and civil sanctions, our providers could lose their licenses and we
could lose our ability to participate in
62
Medicare, Medicaid, and other government programs. These legal and regulatory
standards address, among other issues, licensure, certification, and enrollment with government programs; the necessity and adequacy of medical care; quality of medical equipment and services; qualifications of medical and support personnel;
operating policies and procedures; billing and coding for services; handling overpayments; classifications of levels of care provided; relationships with referral sources and referral recipients; maintenance of adequate records;; rate-setting;
building codes; environmental protection; privacy and security; interoperability and refraining from information blocking; debt collection; balance billing and billing for out-of-network services; and communications with patients and consumers.
Our clinics are subject to periodic inspection by federal, state,
and local authorities to determine their compliance with applicable regulations and requirements necessary for licensing and certification. All of our clinics and providers are licensed under appropriate state laws and are qualified to
participate in Medicare and Medicaid programs. Government regulations may change. If that happens, we may have to make changes to our facilities, equipment, personnel, and services so that our practices remain certified and qualified to
participate in these programs. We believe that our practices are in substantial compliance with current federal, state, and local regulations and standards. We cannot be certain that governmental officials responsible for enforcing these laws
or whistleblowers will not assert that we are in violation of them or that such statutes or regulations will be interpreted by the courts in a manner consistent with our interpretation.
State Corporate Practice of Medicine and
Fee-Splitting Laws
Some states, including states where we operate, prohibit
unlicensed persons or business entities, including corporations, from employing physicians. These prohibitions are generally referred to as prohibitions against the “corporate practice of medicine,” and their primary objective is to protect
physicians’ independent medical judgment from the influence of corporate profit motives. Corporate practice of medicine doctrines vary from state to state, and can be found in a mix of state laws and regulations, case law and state attorney
general opinions. But in virtually all (if not all) states, physicians are generally permitted to practice medicine through professional corporations or professional limited liability companies that restrict their ownership solely to licensed
physicians.
Some states, including states where we operate, also have adopted
laws that prohibit “fee-splitting” arrangements with physicians and unlicensed persons or business entities. Possible sanctions for violations of corporate practice of medicine and fee-splitting restrictions include loss of a physician’s
license, civil and criminal penalties, and rescission of business arrangements. These laws vary from state to state, are often vague and in some cases, have seldom been interpreted by the courts or regulatory agencies.
In order to comply with these various state laws and doctrines, a
non-licensed entity that enters into a business relationship with a physician practice will often use a management services model. In this structure, a professional corporation or limited liability company is formed with 100% physician
ownership. Such physician-owned entity contracts with a management services organization to furnish management and other services to the professional entity in consideration of a commercially reasonable, fair market value fee. The
physician-owned entity employs or contract with all of the practice’s licensed clinical personnel, such as physicians and advanced practice practitioners. The management services organization employs all of the non-clinical personnel who will
furnish administrative and business services to the physician-owned entity, such as financial management, billing and collection, human resources, management of office space, etc. The physician-owned entity typically pays for all clinical
compensation, benefits and malpractice insurance expenses of the practice from the professional revenues it generates. The management services organization, on the other hand, will incur all other expenses for the practices, which it will pay
using its management fee. The end result is that the physician-owned entity maintains control over the clinical aspects of the practice — maintaining independent professional judgment with respect to patient care — and the management services
organization manages the physician-owned entity’s back office functions. AON employs such an accepted model to comply with state regulations relating corporate practice and fee splitting laws in the states where AON operates.
Healthcare Fraud and Abuse Laws
We are subject to a number of federal and state healthcare
regulatory laws that restrict certain business practices in the healthcare industry. These laws include, but are not limited to, federal and state anti-kickback, self-referral, false claims, and other healthcare fraud and abuse laws.
The federal Anti-Kickback Statute, or AKS, which prohibits the
knowing and willful offer, payment, solicitation or receipt of any bribe, kickback, rebate, or other remuneration for referring an individual, in return for ordering,
63
leasing, purchasing, or recommending or arranging for or to induce the referral of
an individual or the ordering, purchasing, or leasing of items or services covered, in whole or in part, by any federal healthcare program, such as Medicare and Medicaid. Courts have interpreted this statute broadly and held that there is a
violation of the AKS if just one purpose of the remuneration is to generate referrals, even if there are other lawful purposes. Furthermore, a person or entity does not need to have actual knowledge of the statute or specific intent to violate
it to have committed a violation.
The federal physician self-referral law, the Stark Law, which,
subject to limited exceptions, prohibits physicians from referring Medicare or Medicaid patients to an entity for the provision of certain designated health services, or DHS if the physician or a member of such physician’s immediate family has
a direct or indirect financial relationship (including an ownership interest or a compensation arrangement) with the entity, and prohibits the entity from billing Medicare or Medicaid for such DHS.
The federal False Claims Act, or FCA, which imposes civil and
criminal liability on individuals or entities that knowingly submit false or fraudulent claims for payment to the government or knowingly make, or cause to be made, a false statement in order to have a false claim paid, including qui tam or
whistleblower suits. There are many potential bases for liability under the FCA. The government has used the FCA to prosecute Medicare and other government healthcare program fraud such as coding errors, billing for services not provided, and
providing care that is not medically necessary or that is substandard in quality. In addition, the government may assert that a claim including items or services resulting from a violation of the AKS or Stark Law constitutes a false or
fraudulent claim for purposes of the FCA.
The Civil Monetary Penalties Law, which prohibits, among other
things, an individual or entity from offering remuneration to a federal healthcare program beneficiary that the individual or entity knows or should know is likely to influence the beneficiary to order or receive healthcare items or services
from a particular provider. We may also be subject to civil monetary penalties and other sanctions under the statute if we or our Network Practices hire or contract with any individuals or entities that are or become excluded from government
healthcare programs, for the provision of items or services for which payment may be made under such programs.
The Health Insurance Portability and Accountability Act of 1996
(“HIPAA”) also established federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, and
knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar
to the AKS, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
Several states in which we operate have also adopted similar fraud
and abuse laws as described above. The scope of these laws and the interpretations of them vary from state to state and are enforced by state courts and regulatory authorities, each with broad discretion. Some state fraud and abuse laws apply
to items or services reimbursed by any payor, including patients and commercial insurers, not just those reimbursed by a federally funded healthcare program.
The laws and regulations in these areas are complex, changing and
often subject to varying interpretations. As a result, there is no guarantee that a government authority will find that we or our Network Practices are in compliance with all such laws and regulations that apply to our business. Further,
because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of the business activities undertaken by us or our Network Practices could be subject to challenge under
one or more of these laws, including, without limitation, patient assistance programs that waive or reduce the patient’s obligation to pay copayments, coinsurance or deductible amounts owed for the services provided to them if they meet certain
financial need criteria. If our or our Network Practices’ operations are found to be in violation of any of such laws or any other governmental regulations that apply, we may be subject to significant penalties, including, without limitation,
administrative, civil, and criminal penalties, damages, fines, disgorgement, the curtailment or restructuring of operations, integrity oversight and reporting obligations, contractual damages, exclusion from participation in federal and state
healthcare programs and imprisonment. In addition, any action against us or our Network Practices for
64
violation of these laws or regulations, even if successfully defended against it,
could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business and result in adverse publicity, or otherwise experience a material adverse impact on our business, results of operations,
financial condition, cash flows, reputation as a result.
Healthcare Reform
Our revenue is dependent on the healthcare industry and could be
affected by changes in healthcare spending, reimbursement, and policy. By way of example, the Affordable Care Act (ACA), which was enacted in 2010, made major changes in how healthcare is delivered and reimbursed, and it increased access to
health insurance benefits to the uninsured and underinsured populations of the United States. Since its enactment, there have been judicial, executive, and Congressional challenges to certain aspects of the ACA.
On June 17, 2021, the U.S. Supreme Court dismissed the most recent
judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision, President Biden issued an executive order initiating a special enrollment period
from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies
and rules that limit access to healthcare. It is unclear how healthcare reform measures enacted by Congress or implemented by the Biden administration, if any, will impact our business.
Other legislative changes have been proposed and adopted since the
ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of 2% per fiscal year, which began in 2013 and will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020
through March 31, 2022. Under current legislation, the actual reduction in Medicare payments varies from 1% from April 1, 2022 to June 30, 2022, to up to 3% in the final fiscal year of this sequester, unless additional Congressional action is
taken. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers,
and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. New laws may result in additional reductions in Medicare and other healthcare funding, which may materially
adversely affect consumer demand and affordability for our products and services and, accordingly, the results of our financial operations. Additional changes that may affect our business include the expansion of new programs such as Medicare
payment for performance initiatives for physicians under the Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, which first affected physician payment in 2019. At this time, it is unclear how the introduction of the Medicare
quality payment program will impact overall physician reimbursement. The Inflation Reduction Act of 2022, or IRA, signed into law on August 16, 2022, also contains a number of provisions designed to limit or reduce drug prices under the
Medicare program, reduce beneficiary out-of-pocket spending under Medicare’s prescription drug benefit, and expand subsidies for individuals to obtain private health insurance under the ACA. While these provisions of the IRA do not apply
directly to healthcare providers like our Network Practices, we are continuing to evaluate the potential impact, if any, that the IRA may have on our business.
The 21st Century Cures Act (the “Cures Act”), which was signed
into law in December 2016, includes provisions related to data interoperability, information blocking and patient access. In May 2020, the HHS Office of the National Coordinator for Health Information Technology, or ONC, and CMS published the
Cures Act final rule, which was intended to clarify provisions of the Cures Act regarding interoperability and information blocking, and include, among other things, requirements surrounding information blocking, changes to ONC’s health IT
certification program and requirements that CMS-regulated payors make relevant claims/care data and provider directory information available through standardized patient access and provider directory application programming interfaces, or APIs,
that connect to provider electronic health record systems, or EHRs. The final rule will transform the way in which healthcare providers, health IT developers, health information exchanges/health information networks, or HIEs/HINs, and health
plans share patient information, and create significant requirements for healthcare industry participants. For example, the final rule, which went into effect on April 5, 2021, prohibits healthcare providers, health IT developers of certified
health IT, and HIEs/HINs from engaging in practices that are likely to interfere with, prevent, materially discourage, or otherwise inhibit the access, exchange, or use of electronic health information, or EHI, also known as “information
blocking.” To further support access and exchange of EHI, the final rule identifies eight “reasonable and necessary activities” as exceptions to information blocking activities, as long as specific conditions are met. Any failure to comply with
these rules could have a material adverse effect on our business, results of operations and financial condition.
65
There is also uncertainty regarding the potential impact of
other reform efforts at the federal and state levels. For example, some members of Congress have proposed measures that would expand government- sponsored coverage, including proposals to expand coverage of federally-funded insurance programs
as an alternative to private insurance or establish a single-payer system (such reforms often referred to as “Medicare for All”). Some states have implemented or are considering measures such as individual health insurance mandates and public
health insurance options. Other initiatives and proposals, including those aimed at price transparency and out-of-network charges, may impact prices and the relationships between health care providers, insurers and patients. For example, the No
Surprises Act requires providers to send an insured patient’s health plan a good faith estimate of expected charges, including billing and diagnostic codes, prior to when the patient is scheduled to receive the item or service.
HIPAA Administrative Simplification and Privacy
and Security Requirements
The Health Insurance Portability and Accountability Act of 1996,
or HIPAA, requires the use of uniform electronic data transmission standards for healthcare claims and payment transactions submitted or received electronically. These provisions are intended to encourage electronic commerce in the healthcare
industry. U.S. Department of Health and Human Services Agency (“HHS”) has established electronic data transmission standards and code sets that all healthcare providers must use when submitting or receiving certain healthcare transactions
electronically and has issued operating rules to promote uniformity in the implementation of each standardized electronic transaction. HIPAA also requires that each provider use a National Provider Identifier.
As required by HIPAA, HHS has issued privacy and security
regulations that extensively regulate the use and disclosure of individually identifiable health-related information and require covered entities, including health plans and most healthcare providers, to implement administrative, physical and
technical practices to protect the security of individually identifiable health information that is electronically maintained or transmitted. Business associates (entities that handle protected health information for or on behalf of covered
entities) are subject to direct liability for violation of applicable provisions of the regulations. In addition, a covered entity may be subject to penalties as a result of a business associate violating HIPAA, if the business associate is
found to be an agent of the covered entity. We have developed and utilize a HIPAA compliance plan as part of our effort to comply with HIPAA privacy and security requirements. Our ongoing efforts to comply with privacy regulations and security
regulations have and will continue to impose significant costs on us.
Covered entities must report breaches of unsecured protected
health information to affected individuals without unreasonable delay, but not to exceed 60 days of discovery of the breach by the covered entity or its agents. Notification must also be made to HHS and, in certain situations involving large
breaches, to the media. HHS is required to publish on its website a list of all covered entities that report a breach involving more than 500 individuals. All non-permitted uses or disclosures of unsecured protected health information are
presumed to be breaches unless the covered entity or business associate establishes that there is a low probability the information has been compromised. Various state laws and regulations may also require us to notify affected individuals in
the event of a data breach involving individually identifiable information.
Violations of the HIPAA privacy and security regulations may
result in criminal penalties and in substantial civil penalties per violation. The civil penalties are adjusted annually based on updates to the consumer price index. HHS is required to perform compliance audits. In addition to enforcement by
HHS, state attorneys general are authorized to bring civil actions seeking either injunction or damages in response to violations of HIPAA privacy and security regulations that threaten the privacy of state residents. HHS may resolve HIPAA
violations through informal means, such as allowing a covered entity to implement a corrective action plan, but HHS has the discretion to move directly to impose monetary penalties and is required to impose penalties for violations resulting
from willful neglect. We are also subject to any federal or state privacy-related laws that are more restrictive than the privacy regulations issued under HIPAA. These laws vary and could impose additional penalties and subject us to additional
privacy and security restrictions. For example, the Federal Trade Commission uses its consumer protection authority to initiate enforcement actions in response to data breaches. In addition, various states have enacted, and other states are
considering, new laws and regulations concerning the privacy and security of consumer and other personal information. To the extent we are subject to such requirements, these laws and regulations often have far-reaching effects, are subject to
amendments and changing requirements and updates to regulators’ enforcement priorities, may require us to modify our data processing practices and policies, may require us to incur substantial costs and expenses to comply and may subject our
business to a risk of increased potential liability. These laws and regulations often provide for civil penalties for violations, as well as a private right of action for data breaches, which may increase the likelihood or impact of data breach
litigation. Any failure or perceived failure, by us or by third parties with whom
66
we work, to comply with these data protection, privacy and security, or consumer
protection laws and regulations could result in enforcement actions, including fines and liability, claims for damages, reputational harm, and other adverse effects on our business, financial condition and results of operations.
Intellectual Property
We own a number of active trademark registrations, The failure to
protect our intellectual property assets could have a material adverse effect on our business; however, the loss of any single trademark or service mark, taken alone, would not have a material adverse effect on the Company as a whole.
Legal Proceedings
From time to time, we may receive inquiries or subpoenas from
state regulators, state Medicaid Fraud Control units, fiscal intermediaries, CMS, the U.S. Department of Justice and other government entities regarding various Medicare and Medicaid issues. In addition, we may be subject to other claims and
lawsuits arising in the ordinary course of our business including lawsuits and claims related to billing practices and the administration of charity care policies at our practices. Based on current knowledge, management does not believe that
loss contingencies arising from pending legal, regulatory and governmental matters, including the matters described herein, will have a material adverse effect on the consolidated financial position or liquidity of the Company.
Insurance
As part of our business of providing oncology care to our
patients, we may be subject to legal actions alleging liability on our part. To cover claims arising out of the operations of our clinics and providers, we maintain professional malpractice liability insurance and general liability insurance on
a claims-made basis in excess of those amounts for which we are self-insured, in amounts we believe to be sufficient for our operations. We also maintain umbrella liability coverage for claims which, due to their nature or amount, are not
covered by our other insurance policies. However, our insurance coverage does not cover all claims against us or may not continue to be available at a reasonable cost for us to maintain adequate levels of insurance.
Employees and Human Capital Resources
As of September 30, 2023, we employed approximately 1,579
employees, including approximately 109 physicians and 96 advanced practice providers that we employ through our physician owned subsidiaries AON Partners and Partners of Maryland. None of our employees are represented by a labor union or party
to a collective bargaining agreement. We consider our relations with our employees to be good.
The healthcare industry, and in particular, oncology care, is
currently facing workforce challenges and this has become a significant operating issue for healthcare providers. A multipronged approach including staff retention bonuses, market adjustments to compensation, continuation of annual bonuses,
competitive fringe benefits including access to robust health insurance and retirement programs have assisted in increasing the retention of our providers and employees. We believe that these efforts will aid in our ability to acquire new
clinics and retain our current clinics. Due to the challenges above and other factors, our practices, like many other healthcare providers, have experienced rising labor costs. We may be required to continue to enhance wages and benefits to
recruit and retain healthcare providers.
Environmental Matters
We are subject to a number of federal, state and local
environmental laws, rules and regulations that govern, among other things, our disposal of medical waste, as well as our use, storage, transportation and disposal of hazardous and toxic materials. In addition, we could be affected by climate
change to the extent that climate change results in severe weather conditions or other disruptions impacting the communities in which our facilities are located or adversely impacts general economic conditions, including in communities in which
our facilities are located. At the current time, our compliance with environmental legal requirements, including legal requirements relating to climate change, does not have a material effect on our capital expenditures, financial results or
operations. However, it is possible that developments may arise in the future as a result of climate change or other environmental developments that we are unable to currently predict.
67
Properties
Our principal corporate offices are located in Fort Myers, Florida
where we lease approximately 9,500 square feet of office space that expires in 2030. We use this facility for administration, billing and collections, technology and development and professional services. We believe that our facilities are
adequate to meet our needs for the immediate future, and that, should it be needed, suitable additional space will be available to accommodate any such expansion of our operations.
We lease all of the 78 properties used for our practice locations
as well as administrative facilities under operating leases. As of December 31, 2022, we have leases located in Washington, Idaho, Nevada, Arizona, Iowa, Missouri, Arkansas, Louisiana, Michigan, Indiana, Ohio, Maryland, Virginia, Florida, North
Carolina, South Carolina, Georgia, and the District of Columbia. Generally, our leases are “net” leases, which require us to pay all of the cost of insurance, taxes, maintenance, and utilities. We intend to lease the premises for any new
practice locations. Our typical practice occupies an average of 6,200 square feet.
Additional Information
AON was originally formed as a limited liability company in
Delaware on February 23, 2017. AON is structured as a holding company and owns one wholly owned subsidiary, American Oncology Management Company, LLC (“AOM”). Our corporate website www.aoncology.com. The information on this website is not part
of and is not incorporated by reference into this prospectus.
68
The following discussion and analysis provides
information which AON’s management believes is relevant to an assessment and understanding of AON’s results of operations and financial condition. You should read the following discussion and analysis of AON’s financial condition and results of
operations together with AON’s condensed consolidated unaudited financial statements as of June 30, 2023 and for the six months ended June 30, 2023 and 2022, and its audited consolidated financial statements as of and for the years ended
December 31, 2022 and 2021, together with the related notes thereto, included in this Prospectus. This discussion and analysis should also be read together with the description of AON’s business in the section entitled “Business” in this
Prospectus.
Certain of the information contained in this
discussion and analysis or set forth elsewhere in this section, including information with respect to plans and strategy for AON’s business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors,
including those factors set forth in the section entitled “Risk Factors,” in the Prospectus. AON’s actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following
discussion and analysis. You should carefully read the section entitled “Risk Factors” to gain an understanding of the important factors that could cause actual results to differ materially from AON’s forward-looking statements. Please also see
the section entitled “Cautionary Statement Regarding Forward-Looking Statements” in the Prospectus.
Overview
Since its inception in 2018, AON has offered an innovative model
of physician-led, community-based oncology management. AON preserves and elevates community oncology by helping its physicians navigate the complex healthcare landscape, providing them an efficient platform to work autonomously and thrive, and
most importantly, improving the quality of patient care that is being delivered. We are an alliance of physicians and veteran healthcare leaders partnering to ensure the long-term success and viability of oncology diagnosis and treatment in
community-based settings. As of September 30, 2023, we have 109 physicians and 96 advanced practice providers across 85 locations in 19 states. Our robust platform provides oncology practices with comprehensive support, access to revenue-
diversifying adjacent services and practice management expertise to empower physicians to make cancer care better for every patient.
Our mission is to provide the best cancer care that is affordable
and close to where patients live and work. We believe the key to accessible and equitable healthcare lies in the strength of community healthcare practices and we are committed to closing the gap in cancer care to ensure every patient has
access to the optimal care needed to help in their fight against cancer. To accomplish this, we have practices in some of the most densely populated cities as well as rural areas where medical resources are scarce. We deliver cancer care
innovation by bringing new treatments to the forum and also by ensuring access to the necessary adjacent services to provide comprehensive quality cancer care and preserving the delivery of personalized cancer care in the community oncology
setting.
Through access to care-enhancing patient services such as a
centralized specialty pharmacy, wide ranging clinical lab and pathology services, a fully integrated technology platform anchored by an oncology- specific electronic medical record system, as well as a caring management team and a variety of
financial assistance programs, our patients receive expert cancer care at each of our clinics.
We provide patients a variety of services to enhance patient care
throughout the healthcare journey: high-quality and timely laboratory services for routine and specialized testing; in-house professional and technical pathology services providing complete, accurate and timely pathology reports; in-house
specialty pharmacy with patient education, financial assistance, and 24/7 patient assistance; and care management support services including nutrition guidance.
As the future of healthcare continues to transition from volume to
value, we are at the forefront of this initiative by ensuring we remain focused on care quality over care quantity and maintaining a patient-first mentality. Through an integrated system of seamless communication, coordination and patient care
for better health outcomes, AON practices benefit from decreased expenditures through the implementation of centralized administrative services, processes, and technologies designed to support effective decision- making such as optimal pricing
on drugs and medical supplies. Our patients benefit through our 24/7 clinical care support leading to a reduction in unnecessary emergency room visits and admissions and enhanced care quality. Ultimately, the payors benefit from more efficient
delivery of high-quality, comprehensive services comparable to any hospital system at a lower cost point.
69
Though our network spans the country, our clinicians are
interconnected and focused on driving change not just at their local clinics, but throughout our network. Our Network Practices not only unite in collaboration through a physician advisory board, but they also remain at the forefront of new
discoveries and findings by expanding and improving cancer treatment options for every patient through a Pharmacy and Therapeutics Committee that continuously updates its formulary in real time as advanced therapeutics come to market and
through participating in clinical research to ensure we remain on the cutting edge of cancer protocols. Patients benefit from convenient access to clinical trials that we participate in without the need to travel to large cities or tertiary
cancer care facilities, and personalized care by matching a patient’s cancer to a tailored therapy using molecular profiling.
We have invested significantly in a resilient, integrated
technology platform to support the practices which includes a fully integrated electronic health record and a robust decision support tool and analytics engine. Our development of compliance materials ensures consistency and optimal patient
experiences that meets or exceeds the Office of Inspector General (“OIG”) guidelines.
We believe that our position in the market and focus on elevating
the state of oncology care with our affiliated providers bodes well for future growth. Our proprietary technology platform supports this growth and enables the Network Practices to standardize and deliver consistent care at scale. We believe
that our model will support growth into new markets and allow us to continue to service more patients across the United States.
The Business Combination
On September 20, 2023 (the “Closing Date”), DTOC and AON undertook
a series of transactions (the “Business Combination”) resulting in the organization of the combined post-business combination company as an umbrella partnership C corporation, in which substantially all of the assets and the business of the
combined company are held by AON, and DTOC became a member of AON. In connection with the closing of the Business Combination, DTOC changed its name to “American Oncology Network, Inc.” (referred to herein as “AON”).
As a result of, and in connection with, the Closing, among other
things, (i) AON amended and restated its operating agreement (the “Amended and Restated AON LLC Agreement”) to reclassify its existing Class A units, Class A-1 units and Class B units into a single class of AON LLC common units that were
exchanged on a one-to-one basis for shares of AON Class A Common Stock (“AON Class A Common Stock”) and its existing AON Class C units into AON Series A preferred units; (ii) AON converted profit pool units of certain of AON’s subsidiaries into
an equal number of AON LLC common units and shares of AON Class B Common Stock (“AON Class B Common Stock”), which together are exchangeable into shares of AON Class A Common Stock (together with the AON Class B Common Stock, the “AON Common
Stock”); (iii) AON amended and restated its charter (the “Charter”) to provide for (a) the conversion of all existing shares of DTOC Class B Common Stock into shares of AON Class A Common Stock on a one-to-one basis, (b) amendment of the terms
of AON Class B Common Stock to provide holders voting rights but no economic rights and (c) designation of a new series of AON preferred stock as Series A convertible preferred stock (the “AON Series A Preferred Stock”) with such rights and
preferences as provided for in the certificate of designation of the AON Series A Preferred Stock (the “AON Series A Certificate of Designation”); and (iv) among other things, (a) AON issued common units to AON in exchange for a combination of
cash and shares of AON Class B Common Stock and warrants to acquire shares of AON Class B Common Stock (the “Class B Prefunded Warrants”), (b) AON was admitted as a member of AON, (c) AON distributed shares of AON Class B Common Stock or
Class B Prefunded Warrants, as applicable, to AON equityholders, (d) AON reserved a specified number of additional shares of AON Class A Common Stock after the Closing for issuance to eligible participants, (e) Merger Sub merged with and into
the AON Class C Preferred Investor whereby the separate existence of Merger Sub ceased and AON issued a number of shares of AON Series A Preferred Stock equal to the number of AON Series A preferred units held by the AON Class C Preferred
Investor to AEA Growth Management LP, the parent of AON Class C Preferred Investor (“AEA Growth”) in exchange for all the shares of common stock held by AEA Growth in the AON Class C Preferred Investor (the “First Step”), (f) promptly after the
First Step, the AON Class C Preferred Investor merged with and into AON whereby the separate existence of the AON Class C Preferred Investor ceased and AON held all the AON Series A preferred units and (g) from and after the Closing (but
subject to lock-up restrictions), the AON common equityholders (other than AON) will have the right (but not the obligation) to exchange AON LLC common units together with an equal number of shares of AON Class B Common Stock (whether held
directly or indirectly through Class B Prefunded Warrants) for shares of AON Class A Common Stock.
70
In addition, in connection with the Closing of the Business
Combination, DTOC completed the offer to the holders of AON Class B-1 units to exchange their AON Class B-1 units for such number of newly issued shares of AON Class A Common Stock equal to the ratio set forth in the Business Combination
Agreement (such offer, the “Exchange Offer”). DTOC and AON solicited consents from the holders of AON Class B-1 units to make certain amendments to the terms of the awards and the unit grant agreements pursuant to which the AON Class B-1 units
were granted, which provided for the automatic exchange, as of immediately prior to the adoption of the Amended and Restated AON LLC Agreement, of all outstanding AON Class B-1 units into shares of AON Class A Common Stock (collectively, the
“Proposed Amendments”). The requisite number of holders of Class B-1 units provided their consent to the Proposed Amendments, and as a result, in connection with the closing of the Business Combination, all AON Class B-1 units were exchanged
for an aggregate of 1,047,343 shares of AON Class A Common Stock.
Immediately after giving effect to the Business Combination, there
were (i) 9,532,354 issued and outstanding shares of AON Class A Common Stock, which includes common stock held by DTOC stockholders and Digital Transformation Sponsor LLC (the “Sponsor”) (including those shares subject to vesting and forfeiture
pursuant to the Sponsor Support Agreement), but does not include shares which may be issued under the Incentive Equity Plan (as defined below) and (ii) 25,109,551 issued and outstanding shares of AON Class B Common Stock. As of the Closing
Date, (i) AON’s equityholders (not including holders of our Series A Preferred Stock) beneficially owned approximately 63.3% of the outstanding shares of AON Common Stock, (ii) the public stockholders of DTOC immediately prior to the Closing
beneficially owned approximately 0.36% of the outstanding shares of AON Common Stock, (iii) the Sponsor and the DTOC officers and directors immediately prior to the Closing Date beneficially owned approximately 20.2% of the outstanding shares
of AON Common Stock, and (iv) holders of outstanding AON Series A Preferred Stock beneficially owned approximately 16.1% of the outstanding shares of AON Common Stock (based upon conversion of the AON Series A Preferred Stock at an initial
conversion price of $10.00 per share).
The Business Combination is accounted for as a reverse
recapitalization in accordance with GAAP. Under this method of accounting, DTOC is treated as the “acquired” company for financial reporting purposes. This determination was primarily based on AON’s directors comprising a majority of the board
seats for AON’s board of directors, AON senior management comprising substantially all of the senior management of the post-combination company, and AON comprising the substantive operations pre-combination as well as the ongoing operations of
the post-combination company. Accordingly, for accounting purposes, the financial statements of the combined entity will represent a continuation of the financial statements of AON with the Business Combination being treated as the equivalent
of AON issuing stock for the net assets of DTOC, accompanied by a recapitalization whereby no goodwill or other intangible assets are recorded.
Key Factors Affecting Performance & Non-GAAP Measures
Factors Affecting Our Revenues
There are many factors that drive patient service revenues;
however, we focus on certain key metrics such as:
|
•
|
Total patient encounters which include initial consultations and treatments, new patient encounters, recurring patient
encounters and treatments, and cancer vs non cancer patients.
|
|
•
|
Patient referrals which are also an important driver of patient service revenue; we manage the referral pipeline locally
through the coordinated efforts of our physician liaisons working with our physicians to market our practices by visiting referral sources such as, primary care providers and other medical specialties.
|
Factors Affecting Our Operating Costs
Operating costs are primarily dependent upon factors such as:
|
•
|
The cost of prescription drugs used in our treatment plans which include both intravenous and oral oncolytics. The management
of these costs are a critical component of our business as it is our single largest expense. We manage this cost by strategic volume purchases and continuously evaluating the most clinically effective drug for cancer type through our
Pharmaceutical and Therapeutics Committee.
|
|
•
|
Clinical compensation and benefits, including non-medical personnel, represent our second largest operating expense. These
costs are impacted by both micro and macro-economic factors as well as local
|
71
competition for personnel that could impact costs associated with personnel. In
particular, in all of our markets, we have seen significant increases in compensation for qualified nursing resources. We continuously monitor wages period over period to mitigate the impact of variations in industry and macro-economic labor
conditions.
|
•
|
We lease all of our facilities, therefore real-estate costs are a significant component of our operating costs. We
continuously monitor local and national real estate conditions to actively manage our exposure to fluctuating occupancy costs.
|
Key Non-GAAP Financial Measures We Use to Evaluate Our Performance
Adjusted EBITDA
This filing includes the non-GAAP financial measure “Adjusted
EBITDA”. Management views this metric as a useful way to look at the performance of our operations between periods and to exclude decisions on capital investment and financing that might otherwise impact the review of profitability of the
business based on present market conditions. Management believes this measure provides an additional way of viewing aspects of the Company’s operations that, when viewed with the GAAP results, provides a more complete understanding of the
Company’s results of operations and the factors and trends affecting the business.
Adjusted EBITDA is defined as net income prior to interest income,
interest expense, income taxes, and depreciation and amortization, as adjusted to add back certain other non-cash charges that we may record each year, such as stock-compensation expense, as well as non-recurring charges such as expenses
incurred related to major operational transitions and transaction costs. We believe these expenses and non-recurring charges are not considered an indicator of ongoing company performance. The measures are used as a supplement to GAAP results
in evaluating certain aspects of our business, as described below. We believe Adjusted EBITDA is useful to investors in evaluating our performance because the measure considers the performance of our operations, excluding decisions made with
respect to capital investment, financing, and other non-recurring charges as outlined above.
The Company includes Adjusted EBITDA because it is an important
measure upon which our management uses to assess the results of operations, to evaluate factors and trends affecting the business, and to plan and budget future periods. However, non-GAAP financial measures should be considered a supplement to,
and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP. Non-GAAP financial measures used by management may differ from the non-GAAP measures used by other companies, including the Company’s
competitors. Management encourages investors and others to review the Company’s financial information in its entirety, and not to rely on any single financial measure. Adjusted EBITDA should not be considered as an alternative to net income as
an indicator of our performance or as an alternative to any other measure prescribed by GAAP as there are limitations to using such non-GAAP measures. We compensate for these limitations by providing disclosure of the differences between
Adjusted EBITDA and GAAP results, including providing a reconciliation to GAAP results, to enable investors to perform their own analysis of our operating results.
Components of Results of Operations
Patient Service Revenue, net
The Company receives payments from the following sources for
services rendered: (i) commercial insurers; (ii) pharmacy benefit managers (“PBMs”); (iii) the federal government under the Medicare program administered by the Centers for Medicare and Medicaid Services (“CMS”); (iv) state governments under
Medicaid and other programs, including managed Medicare and Medicaid; and (v) individual patients.
The primary elements of patient service revenue are from fee for
service (“FFS”) revenue which includes revenue from required patient infusion and injection treatments, as well as oral prescription drugs. FFS revenue comprise revenues in which we bill and collect for medical services rendered by our
physicians or nurse practitioners including office visits and consults. FFS revenue also includes infusion therapies and treatment. FFS revenue consists of fees for medical services provided to patients. Payments for services provided are
generally less than billed charges. The Company records revenue net of an allowance for contractual adjustments, which represents the net revenue expected to be collected from third-party payors (including managed care, commercial, and
governmental payors such as Medicare and Medicaid), and patients.
72
These expected collections are based on fees and negotiated
payment rates in the case of third-party payors, the specific benefits provided for under each patient’s healthcare plan, mandated payment rates in the case of Medicare and Medicaid programs, and historical cash collections (net of recoveries).
The recognition of net revenue (gross charges less contractual allowances) from such services is dependent on certain factors, such as, the proper completion of medical charts following a patient encounter, proper medical coding of the charts,
and the verification and authorization of each patient’s eligibility at the time services are rendered as to the payor(s) responsible for payment of such services.
Oral prescription drugs comprise revenues from prescriptions
written by our doctors to their patients which are dispensed directly by AON’s specialty pharmacy. Revenue for the oral prescription is based on fee schedules set by various PBMs and other third-party payors. The fee schedule is often subject
to direct and indirect remuneration (“DIR”) fees, which are based primarily on adherence and other metrics. DIR fees may be significant and may be assessed in the periods after payments are received against future payments. The Company
recognizes revenue, net of estimated DIR fees, at the time the patient takes possession of the oral drug.
HHS grant income
HHS grant income represents a grant from the Department of Health
and Human Services as part of a government stimulus program which was designed to assist small businesses during the pandemic and does not require repayment.
Other Revenue
Other revenue is primarily generated from service arrangements
with various hospitals systems and data contracts as well as through clinical trials.
Cost of Revenue
Cost of services primarily includes chemotherapy drug costs,
clinician salaries and benefits, medical supplies, and clinical occupancy costs. Clinicians include oncologists, advanced practice providers such as physician assistants and nurse practitioners, and registered nurses. Specialty pharmacy costs
primarily include the cost of oral medications dispensed from the specialty pharmacy including overhead costs for running a free-standing pharmacy and shipping costs to patients.
General and administrative
Our general and administrative expenses include corporate
occupancy costs, technology infrastructure, operations, clinical and quality support, finance, legal, human resources, and business development. Depreciation and amortization expenses are also included in general and administrative expenses.
The Company expects its general and administrative expenses to increase over time following the consummation of the Business Combination due to the additional legal, accounting, insurance, investor relations and other costs that the Company
will incur as a public company, as well as other costs associated with continuing to grow the business. While we expect general and administrative expenses to increase in the foreseeable future, such expenses on average are expected to decrease
as a percentage of revenue over the long term, as the company continues to scale its operations.
Results of Operations
Comparison of the Six Months Ended June 30, 2023 and 2022 Revenue
|
|
| |
Six Months Ended June 30,
|
| |
Change
|
||||||
|
(dollars in thousands)
|
| |
2023
|
| |
2022
|
| |
$
|
| |
%
|
|
Patient service revenue, net
|
| |
$613,486
|
| |
$546,895
|
| |
$66,591
|
| |
12.2%
|
|
Other revenue
|
| |
5,212
|
| |
5,053
|
| |
159
|
| |
3.1%
|
|
Total revenue
|
| |
$618,898
|
| |
$551,948
|
| |
$66,750
|
| |
12.1%
|
73
Revenue increased by $66.8 million, or 12.1%, primarily due to
a $66.3 million increase in patient service revenue and a $0.4 million increase in other revenue.
Patient service revenue, net
The $66.3 million increase in revenue is primarily attributable to
organic growth seen between periods due to an increase of patient encounters of 6.5% driving $54.7 million of the revenue increase. An additional $11.5 million increase in patient services revenue was due to the impact of one acquisition and
five affiliate agreements in 2022 which are fully reflected in the six months ended June 30, 2023 as well as one affiliate agreement entered into in June of 2023.
Other revenue
Other revenue increased $0.4 million primarily due to a
$0.8 million increase in professional services agreements whereby the Company’s physicians provide services to various hospital systems offset by a $0.6 million decrease in clinical trial revenue.
Operating Expenses
|
|
| |
Six Months Ended June 30,
|
| |
Change
|
||||||
|
(dollars in thousands)
|
| |
2023
|
| |
2022
|
| |
$
|
| |
%
|
|
Cost of revenue
|
| |
$569,933
|
| |
$513,011
|
| |
$56,922
|
| |
11.1%
|
|
General and administrative expenses
|
| |
52,915
|
| |
42,723
|
| |
10,192
|
| |
23.9%
|
|
Total costs and expenses
|
| |
$622,848
|
| |
$555,734
|
| |
$67,114
|
| |
12.1%
|
Operating expenses increased $67.1 million, or 12.1%, due to a
$56.9 million increase in cost of revenue and a $10.2 million increase in general and administrative expenses.
Cost of revenue
Cost of revenue increased $56.9 million which was primarily driven
by drug and medical supply costs, due to both increased patient encounters and cost per encounter. The volume of patient encounters at our practices increased cost of revenue by $27.6 million, and the cost per encounter drove a $19.2 million
increase. The increased cost of patient encounters was driven by a combination of higher drug and supply costs as well as the drug and service mix patients required. The remaining $9.5 million increase in cost of revenue relates to drug and
supply costs from one acquisition and five affiliate agreements in 2022 which are fully reflected in the six months ended June 30, 2023 as well as one affiliate agreement entered into in June of 2023.
General and administrative expense
The $10.2 million increase in general and administrative expenses
was primarily driven by a $3.6 million increase in fees to a revenue cycle partner who is managing the optimization of our revenue cycle. Accounting and consulting fees and other expenses related to the Business Combination increased
$5.1 million from the comparable prior period. The remaining increase period over period was driven by an increase in depreciation and amortization of $1.2 million.
Other Income (Expense)
|
|
| |
Six Months Ended June 30,
|
| |
Change
|
||||||
|
(dollars in thousands)
|
| |
2023
|
| |
2022
|
| |
$
|
| |
%
|
|
Interest expense
|
| |
$(2,968)
|
| |
$(1,110)
|
| |
$(1,858)
|
| |
167.4%
|
|
Interest income
|
| |
126
|
| |
55
|
| |
71
|
| |
*
|
|
Other (expense) income, net
|
| |
(4,380)
|
| |
461
|
| |
(4,841)
|
| |
(1,050.1%)
|
|
Total other expense
|
| |
$(7,222)
|
| |
$(594)
|
| |
$(6,628)
|
| |
1,115.9%
|
|
*
|
— % not meaningful
|
74
Interest expense
The increase in interest expense was due to an increase in
interest rates resulting from an increase in the federal funds rate from 1.75% in the second quarter of 2022 to 5.25% in the second quarter of 2023.
Other (expense) income, net
The increase in other expense is attributable to a charge of
$5.1 million related to the fair value adjustment of the Class A-1 derivative liability, which was offset by an increase in various sources of nonoperating income.
Income taxes
|
|
| |
Six Months Ended June 30,
|
| |
Change
|
||||||
|
(dollars in thousands)
|
| |
2023
|
| |
2022
|
| |
$
|
| |
%
|
|
Income tax expense
|
| |
$ —
|
| |
$ —
|
| |
$ —
|
| |
*
|
The Company’s effective income tax rate was 0.0% and 0.0% for the
six months ended June 30, 2023 and 2022, respectively. The effective income tax rate for the six months ended June 30, 2023 and 2022 differed from the federal statutory rate primarily due to certain legal entities in the Company’s structure
being treated as partnerships for income tax purposes and, therefore, not being subject to income tax. All corporate entities within the Company’s structure continue to maintain a full valuation allowance against their net deferred tax assets.
Comparison of the Years Ended December 31, 2022 and 2021 Revenue
|
|
| |
Year ended December 31,
|
| |
Change
|
||||||
|
(dollars in thousands)
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
Patient service revenue, net
|
| |
$1,137,932
|
| |
$938,242
|
| |
$199,690
|
| |
21.3%
|
|
|
| |
Year ended December 31,
|
| |
Change
|
||||||
|
(dollars in thousands)
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
Other revenue
|
| |
11,738
|
| |
5,505
|
| |
$6,233
|
| |
113.2%
|
|
Total revenue
|
| |
$1,149,670
|
| |
$943,747
|
| |
$205,923
|
| |
21.8%
|
Revenue increased by $205.9 million, or 21.8%, primarily due to a
$200.0 million increase in patient service revenue and a $6.2 million increase in other revenue.
Patient service revenue, net
The $200.0 million increase in patient services revenue was
primarily due to the impact of five acquisitions and six affiliate agreements, including five in 2021 which are fully reflected in the year ended December 31, 2022, and accounted for $144.0 million of the increase in revenues between the
periods.
Organic growth, excluding the acquired practices, drove the
remaining increase in revenue. Patient encounters at our practices increased revenue by $10.0 million, and $50.5 million of our increased revenue was attributed to the drug and service mix that patients required based on their clinical
diagnoses and treatment plans.
Other revenue
Other revenue increased $6.2 million primarily due to a clinical
trial agreement entered into during 2022 and an increase in professional services agreements whereby the Company’s physicians provide services to various hospital systems.
Operating Expenses
|
|
| |
Year ended December 31,
|
| |
Change
|
||||||
|
(dollars in thousands)
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
Cost of revenue
|
| |
$1,054,217
|
| |
$865,788
|
| |
$188,429
|
| |
21.8%
|
|
General and administrative expenses
|
| |
89,887
|
| |
77,048
|
| |
12,839
|
| |
16.7%
|
|
Total costs and expenses
|
| |
$1,144,104
|
| |
$942,836
|
| |
$201,268
|
| |
21.3%
|
75
Operating expenses increased $201.3 million, or 21.3%, due to a
$188.4 million increase in cost of revenue and a $12.8 million increase in general and administrative expenses.
Cost of revenue
Cost of revenue increased $188.4 million which was primarily
driven by an increase of $113.4 million of drug and medical supply costs, $3.4 million of occupancy costs, and $17.3 million in clinical compensation and benefits related to the acquisition of five practices and six new affiliate agreements,
including five in 2021 which are fully reflected in the year-ended December 31, 2022.
Organic growth, excluding the practices above, drove the remaining
increase of drug and medical supply costs within cost of revenue. The volume of patient encounters at our practices increased cost of revenue by $7.7 million, and the cost per encounter drove a $47.1 million increase. The cost of patient
encounter was driven by a combination of higher drug and supply costs as well as the drug and service mix patients required.
General and administrative expense
The increase in general and administrative expenses were primarily
driven by a $7.0 million increase in corporate compensation due to the termination of the Company’s third party back office provider in 2021 which resulted in ramping up hiring of corporate personnel as well as increases due to the inflationary
effects of tight labor markets nationally. Further, there was a $4.7 million increase in IT costs, $4.7 million increase in consulting & accounting fees, and a $1.5 million increase in postage costs. These increases were offset by a
decrease of approximately $4.7 million in central service fees as well as a $1.5 million decrease in value-based care costs related to the federal oncology care model which ended in December of 2021.
Other Income (Expense)
|
|
| |
Year ended December 31,
|
| |
Change
|
||||||
|
(dollars in thousands)
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
Interest expense
|
| |
$(3,417)
|
| |
$(1,419)
|
| |
$(1,998)
|
| |
140.8%
|
|
Interest income
|
| |
151
|
| |
127
|
| |
24
|
| |
*
|
|
Other income, net
|
| |
289
|
| |
736
|
| |
(447)
|
| |
*
|
|
Total other expense
|
| |
$(2,977)
|
| |
$(556)
|
| |
$(2,421)
|
| |
*
|
|
*
|
— % not meaningful
|
Interest expense
The increase in interest expense was due to an increase in
interest rates resulting from the seven increases in the federal funds rate during 2022.
Other income, net
The decrease of other income, net is primarily attributable to a
$0.4 million decrease in sublease rental income.
Income taxes
|
|
| |
Year ended December 31,
|
| |
Change
|
||||||
|
(dollars in thousands)
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
Income tax expense
|
| |
$ —
|
| |
$460
|
| |
$(460)
|
| |
—
|
|
*
|
— % not meaningful
|
The Company’s effective income tax rate was 0.0% and 129.33% for
the years ended December 31, 2022 and 2021, respectively. The provision for income taxes was $0 and $460 for the years ended December 31, 2022 and 2021, respectively. The change in the provision for income taxes was primarily due to a full
valuation allowance on all corporate entities recorded against the Company’s deferred tax assets during 2022.
76
Comparison of the Years Ended December 31, 2021 and 2020 Revenue
|
|
| |
Year ended December 31,
|
| |
Change
|
||||||
|
(dollars in thousands)
|
| |
2021
|
| |
2020
|
| |
$
|
| |
%
|
|
Patient service revenue, net
|
| |
$938,242
|
| |
$714,678
|
| |
$223,564
|
| |
31.3%
|
|
HHS grant income
|
| |
—
|
| |
6,841
|
| |
(6,841)
|
| |
(100.0)%
|
|
Other revenue
|
| |
5,505
|
| |
3,224
|
| |
2,281
|
| |
70.8%
|
|
Total revenue
|
| |
$943,747
|
| |
$724,743
|
| |
$219,004
|
| |
30.2%
|
Revenue increased by $219.0 million, or 30.2%, primarily due to a
$223.6 million increase in patient service revenue and a $2.3 million increase in other revenue, offset by a $6.8 million decrease in HHS grant income.
Patient service revenue, net
The $223.6 million increase in patient services revenue was
primarily due to the impact of 10 acquisitions and one affiliate agreement, including six in 2020 which are fully reflected in the year ended December 31, 2021 and accounted for $199.1 million of the increase in revenues between the periods.
Organic growth, excluding the acquired practices, drove the remaining increase in revenue. Increased revenue of approximately $24.9 million was primarily attributable to an increase in patient encounters of 5.8%.
HHS grant income
The decrease in HHS grant income was due to the Department of
Health and Human Services providing a one-time grant of $6.8 million in 2020 to support small businesses during the COVID-19 pandemic which is not required to be repaid, but no similar grant was provided in 2021.
Other revenue
Other revenue increased $2.3 million primarily due to an increase
in professional services agreements whereby the Company’s physicians provide services to various hospital systems.
Operating Expenses
|
|
| |
Year ended December 31,
|
| |
Change
|
||||||
|
(dollars in thousands)
|
| |
2021
|
| |
2020
|
| |
$
|
| |
%
|
|
Cost of revenue
|
| |
$865,788
|
| |
$658,638
|
| |
$207,150
|
| |
31.5%
|
|
General and administrative expenses
|
| |
77,048
|
| |
44,033
|
| |
33,015
|
| |
75.0%
|
|
Total costs and expenses
|
| |
$942,836
|
| |
$702,671
|
| |
$240,165
|
| |
34.2%
|
Operating expenses increased $240.2 million, or 34.2%, due to a
$207.2 million increase in cost of revenue and a $33.0 million increase in general and administrative expenses.
Cost of revenue
Cost of revenue increased $207.2 million which was primarily
driven by an increase of $153.2 million of drug and medical supply costs, $4.6 million of occupancy costs, and $24.9 million in clinical compensation and benefits related to the acquisition of 10 practices and one new affiliate agreement,
including six in 2020 which are fully reflected in the year-ended December 31, 2021.
Organic growth, excluding the practices above, drove the remaining
increase of drug and medical supply costs within cost of revenue. Patient encounters rose 5.8% at our practices and were the primary driver of the increased cost of revenue, resulting in an increase in costs of approximately $27.3 million. This
increase was partially offset by a combination of lower drug and supply costs due to the service mix that patients required, resulting in an approximately $9.7 million reduction in costs when compared to the prior period. Further, an
$8.2 million increase in organic practice costs was attributable to the inflationary effects of tight labor markets nationally.
77
General and administrative expense
The increase in general and administrative expense was primarily
driven by the Company’s transition from a third party back office provider in 2021. This led to an increase of $25.6 million in costs due to the hiring of administrative and corporate personnel as well as a $10.6 million increase in other
related transition costs. Additionally, there was a $3.6 million increase in compensation and benefits attributable to the inflationary effects of tight labor markets nationally, $2.7 million increase in rent and depreciation and amortization
expense, $1.4 million in expenses associated with the Value Based Care program, as well as approximately $3.0 million increase of other G&A costs. This was partially offset by a decrease of $13.9 million in central service fees paid when
the Company outsourced its back-office functions to a third-party.
Other Income (Expense)
|
|
| |
Year ended December 31,
|
| |
Change
|
||||||
|
(dollars in thousands)
|
| |
2021
|
| |
2020
|
| |
$
|
| |
%
|
|
Interest expense
|
| |
$(1,419)
|
| |
$(1,116)
|
| |
$(303)
|
| |
27.2%
|
|
Interest income
|
| |
127
|
| |
32
|
| |
95
|
| |
*
|
|
Other income, net
|
| |
736
|
| |
180
|
| |
556
|
| |
*
|
|
Total other expense
|
| |
$(556)
|
| |
$(904)
|
| |
$348
|
| |
(38.5)%
|
|
*
|
— % not meaningful
|
Interest expense
The increase in interest expense was due to an increase of
$27.2 million in long-term borrowings offset by a decrease in interest rate, as a result of refinancing our credit agreement in the second quarter of 2021.
Other income, net
The increase of other income is primarily attributable to a
$0.4 million increase in sublease rental income.
Income taxes
|
|
| |
Year ended December 31,
|
| |
Change
|
||||||
|
(dollars in thousands)
|
| |
2021
|
| |
2020
|
| |
$
|
| |
%
|
|
Income tax expense (benefit)
|
| |
$460
|
| |
$(783)
|
| |
$1,243
|
| |
(158.7)%
|
The Company’s effective income tax rate was 129.33% and (3.71%)
for the years ended December 31, 2021 and 2020, respectively. The increase in income tax expense was primarily due to a significant decrease in pre-tax income from 2020 to 2021 attributable to the Company’s legal entities treated as
partnerships for income tax purposes. As partnerships, these legal entities are not subject to income tax, which significantly impacts state taxes and nontaxable passthrough LLC income. Additionally, the Company established a full valuation
allowance against its net deferred taxes at one of its corporate entities during 2021.
78
Our Adjusted EBITDA for recent comparative periods is presented as
follows:
Comparison of the Six Months Ended June 30, 2023 and 2022
The following table provides a reconciliation of net income, the
most closely comparable GAAP financial measure, to Adjusted EBITDA:
|
|
| |
Six Months Ended
June 30,
|
| |
Change
|
||||||
|
(dollars in thousands)
|
| |
2023
|
| |
2022
|
| |
$
|
| |
%
|
|
Net loss
|
| |
$(11,591)
|
| |
$(4,380)
|
| |
$7,211
|
| |
(164.6)%
|
|
Interest expense, net
|
| |
2,968
|
| |
1,110
|
| |
1,858
|
| |
167.4%
|
|
Depreciation and amortization
|
| |
4,308
|
| |
3,159
|
| |
1,149
|
| |
36.4%
|
|
Non-cash stock compensation
|
| |
—
|
| |
10
|
| |
(10)
|
| |
(100.0)%
|
|
Operational transformation*
|
| |
—
|
| |
1,174
|
| |
(1,174)
|
| |
(100.0)%
|
|
Gain/loss on derivative liabilities
|
| |
5,066
|
| |
—
|
| |
5,066
|
| |
100.0%
|
|
Transaction costs
|
| |
5,282
|
| |
—
|
| |
5,282
|
| |
100.0%
|
|
Adjusted EBITDA
|
| |
$6,033
|
| |
$1,073
|
| |
$4,960
|
| |
462.5%
|
|
*
|
Personnel costs associated with rationalization of our central services cost structure.
|
Adjusted EBITDA was $6.0 million for the six months ended June 30,
2023 as compared to $1.1 million for the six months ended June 30, 2022. The increase in Adjusted EBITDA was primarily due to the add back of the loss on derivatives in the amount of $5.1 million, an increase in certain non-recurring
transaction costs related to the Business Combination in the most recent period of $5.3 million as well as $1.1 million of additional depreciation and amortization and $1.9 million of additional interest expense. These amounts were offset by an
increase in the net loss of $7.2 million and $1.2 million of non-recurring operational transformation expenses incurred in 2022.
Comparison of the Years Ended December 31, 2022 and 2021
The following table provides a reconciliation of net income, the
most closely comparable GAAP financial measure, to Adjusted EBITDA:
|
|
| |
Year Ended
December 31,
|
| |
Change
|
||||||
|
(dollars in thousands)
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
Net income
|
| |
$2,589
|
| |
$(105)
|
| |
$2,694
|
| |
*
|
|
Interest expense, net
|
| |
3,266
|
| |
1,292
|
| |
1,974
|
| |
152.8%
|
|
Depreciation and amortization
|
| |
6,719
|
| |
6,079
|
| |
640
|
| |
10.5%
|
|
Income tax expense (benefit)
|
| |
0
|
| |
460
|
| |
(460)
|
| |
(100.0)%
|
|
Non-cash stock compensation
|
| |
—
|
| |
20
|
| |
(20)
|
| |
(100.0)%
|
|
Insourcing transition expenses**
|
| |
—
|
| |
1,886
|
| |
(1,886)
|
| |
(100.0)%
|
|
Other***
|
| |
510
|
| |
—
|
| |
510
|
| |
100.0%
|
|
Operational transformation****
|
| |
1,726
|
| |
—
|
| |
1,726
|
| |
100.0%
|
|
Transaction costs
|
| |
3,277
|
| |
—
|
| |
3,277
|
| |
100.0%
|
|
Adjusted EBITDA
|
| |
$18,087
|
| |
$9,632
|
| |
$8,455
|
| |
87.8%
|
|
*
|
% not meaningful
|
|
**
|
These expenses relate to incremental costs associated with our transition from a third-party back- office service provider to
internal resources.
|
|
***
|
Costs incurred related to Hurricane Ian.
|
|
****
|
Personnel costs associated with rationalization of our central services cost structure.
|
Adjusted EBITDA was $18.1 million for the year ended December 31,
2022 as compared to $9.6 million for the year ended December 31, 2021. The increase in Adjusted EBITDA was primarily due to an increase in net income of approximately $2.7 million. Additionally, the Company incurred certain non-recurring
expenses in the most recent period related to Hurricane Ian of approximately $0.5 million, operational transformation costs of $1.7 million, and
79
personnel costs associated with the rationalization of our central services cost
structure of $3.3 million, as well as $0.6 million of additional depreciation and amortization. This was partially offset by the non-recurrence of costs associated with our prior year insourcing efforts. As the number of oncology practices we
have acquired has grown, and continues to grow, we have focused our resources in recent periods on building a sustainable, scalable, operating platform. This has included adding headcount and processes that we believe will allow us to continue
to add additional physician practices without requiring this level of costs. The results of these efforts have led to compressed operating margins and reduced Adjusted EBITDA in the current period; however, we believe this positions us for
profitable growth as we continue to expand our clinical footprint through both acquisitions and organic growth.
Comparison of the Years Ended December 31, 2021 and 2020
The following table provides a reconciliation of net income, the
most closely comparable GAAP financial measure, to Adjusted EBITDA:
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
(dollars in thousands)
|
| |
2021
|
| |
2020
|
| |
$
|
| |
%
|
|
Net income
|
| |
$(105)
|
| |
$21,951
|
| |
$(22,056)
|
| |
(100.5)%
|
|
Interest expense, net
|
| |
1,292
|
| |
1,084
|
| |
208
|
| |
19.2%
|
|
Depreciation and amortization
|
| |
6,079
|
| |
3,656
|
| |
2,423
|
| |
66.3%
|
|
Income tax expense (benefit)
|
| |
460
|
| |
(783)
|
| |
1,243
|
| |
(158.8)%
|
|
Non-cash stock compensation
|
| |
20
|
| |
20
|
| |
—
|
| |
—
|
|
Insourcing transition expenses**
|
| |
1,886
|
| |
—
|
| |
1,886
|
| |
*
|
|
Adjusted EBITDA***
|
| |
$9,632
|
| |
$25,928
|
| |
$(16,296)
|
| |
(62.9)%
|
|
*
|
% not meaningful
|
|
**
|
These expenses relate to incremental costs associated with our transition from a third-party back-office service provider to
internal resources.
|
Adjusted EBITDA was $9.6 million for the year ended December 31,
2021 as compared to $25.9 million for the year ended December 31, 2020. The decrease in Adjusted EBITDA was primarily due to a reduction in net income of approximately $22.1 million. The reduction in net income resulted from, in large part, due
to the Department of Health and Human Services providing a one-time grant of $6.8 million in 2020 to support small businesses during the COVID-19 pandemic which is not required to be repaid, but no similar grant was provided in 2021. As the
number of oncology practices we have acquired has grown, and continues to grow, we have focused our resources in recent periods on building a sustainable, scalable, operating platform. This has included adding headcount and processes that we
believe will allow us to continue to add additional physician practices without requiring this level of costs. The results of these efforts have led to compressed operating margins and reduced Adjusted EBITDA in the current period; however, we
believe this positions us for profitable growth as we continue to expand our clinical footprint through both acquisitions and organic growth.
Liquidity and Capital Resources
General
To date, the Company has financed its operations principally
through the issuance of membership units and long-term debt, and to a lesser extent, cash flows from operations. As discussed below, on June 7, 2023, the Company entered into an agreement to issue Class C Preferred Units for net proceeds of
approximately $64.5 million. As of June 30, 2023, the Company had $72.7 million of cash and cash equivalents, $10.0 million of short-term marketable securities, $81.3 million in outstanding long-term indebtedness, and $1.0 million of
availability under its PNC Line of Credit.
The Company may incur operating losses and generate negative cash
flows from operations for the foreseeable future due to the investments management intends to continue making in expanding operations and sales and marketing and due to additional general and administrative expenses management expects to incur
in connection with operating as a public company. As a result, the Company may require additional capital resources to execute strategic initiatives to grow the business.
Management believes that the cash on hand, cash proceeds from the
Class C issuance, and additional cash from the Business Combination will be sufficient to fund the Company’s operating and capital needs for at least the next
80
12 months. The Company’s actual results may vary due to, and its future capital
requirements will depend on, many factors, including its organic growth rate and the timing and extent of acquisitions of new clinics and expansion into new markets. The Company may in the future enter into arrangements to acquire or invest in
complementary businesses. The Company could use its available capital resources sooner than management currently expects. The Company may be required to seek additional equity or debt financing.
The number of shares of Class A Common Stock being registered for
resale under this prospectus is in approximately 537% of the number of shares of Class A Common Stock currently outstanding because a significant portion of the shares being registered under this prospectus represents shares that will be issued
upon the exercise of warrants, or the conversion of our Class B Common Stock or the conversion of our Series A Preferred Stock. Such shares of Common Stock will represent a substantial portion of our public float. If the warrants are exercised
and if our Class B Common Stock or Series A Preferred Stock are converted into Class A Common Stock, such shares of Class A Common Stock will be significantly dilutive and may cause a decline in the market price of our securities. Accordingly,
if and to the extent we determine to raise additional capital in the future, there can be no assurance that such additional capital would be available on attractive terms, if at all. Following the expiration of the applicable lock-up
restrictions described herein, the sale of the securities registered for resale hereunder, or the perception that such sales may occur, may cause the market prices of our securities to decline significantly. On October 9, 2023 the closing price
of our Class A Common Stock was $7.06, and most of the Selling Securityholders have purchased certain shares at prices per share lower than such closing price. As a result, many of the Selling Securityholders may earn a positive rate of return
by selling such shares, even if such sale results in a significant decline in the public trading price of our Class A Common Stock and such Selling Securityholders’ shares are sold at a lower public trading price. For example, based on the
closing price of our Class A Common Stock of $7.06 on October 9, 2023, the Sponsors and other holders of the founder shares would experience a potential profit of up to approximately $7.06 per share, or approximately $58.9 million in the
aggregate.
In the event of the exercise of any of warrants for cash, AON will
receive the proceeds from such exercise. Assuming the exercise in full of all of warrants for cash, AON would receive an aggregate of approximately $166.2 million, but would not receive any proceeds from the sale of the shares of Class A Common
Stock issuable upon such exercise. To the extent any of the warrants are exercised on a “cashless basis,” AON will not receive any proceeds upon such exercise. AON expects to use any proceeds it receives from cash exercises of warrants for
general corporate and working capital purposes. AON believes the likelihood that warrant holders will exercise their warrants, and therefore the amount of cash proceeds AON would receive, is dependent upon the trading price of its Class A
Common Stock, the closing price for which was $7.06 per share on October 9, 2023. If the trading price of Class A Common Stock is less than the $11.50 exercise price per share of the warrants, AON expects that warrant holders will not exercise
their warrants. There is no guarantee the warrants will be in the money following the time they become exercisable and prior to their expiration, and as such, the warrants may expire worthless and AON may receive no proceeds from the exercise
of Warrants. As a result, AON does not expect to rely on the cash exercise of warrants to fund its operations and AON does not need such proceeds in order to support working capital and capital expenditure requirements for the next twelve
months. AON will continue to evaluate the probability of warrant exercises and the merit of including potential cash proceeds from the exercise of the warrants in its future liquidity projections. AON instead currently expects that cash on
hand, cash proceeds from the Class C issuance, and additional cash from the Business Combination, as described above, will be sufficient to fund the Company’s operating and capital needs for at least the next 12 months.
Significant Financing Transactions
2020 Sale of Class A-1 Equity
In March of 2020, the Company sold 730 Class A-1 Units for gross
proceeds of $30.0 million. Offering related costs of approximately $1.5 million were incurred, resulting in net proceeds to AON of approximately $28.5 million, which are recorded as a capital contribution in the Consolidated Statements of
Members’ Equity. The proceeds from the investment were used primarily for capital expenditures and to fund additional acquisitions of physician practices.
2020 Debt Financing Activity
During 2020, the Company held various term loans with Truist Bank
which were primarily used to finance acquisitions of various physician practices since the Company’s inception. The term loans, all of which had the same terms and provisions, were seven-year loans which required interest only payments for the
first two years of the loan
81
term. The base interest rate is the one-month LIBOR rate plus an applicable margin
of 1.45% (1.60% at December 31, 2020). The Company made approximately $0.6 million in interest payments during 2020 on this loan. There was approximately $26.5 million outstanding as of December 31, 2020 related to these loans.
The Company also modified its existing revolving credit
arrangement with Truist Bank during 2020. The original revolving line of credit was modified to extend the maturity date from April 2020 to September 2021, reduce the credit limit from $27.0 million to $10.0 million, and increase the interest
rate applicable to all amounts outstanding under the revolver from one-month LIBOR plus 1.3% to one-month LIBOR plus 3.6% or 4.35%. The Company had $10.0 million outstanding related to the revolving line of credit with Truist Bank as of
December 31, 2020.
2021 Debt Financing Activity
On April 30, 2021 the Company entered into the PNC Loan Facility
(“Facility”) which was collateralized by the Company’s assets and outstanding patient accounts receivable. The Facility is guaranteed on a limited basis by the Company and shareholder of AON Partners and Partners of Maryland. The Facility is
interest- only with total principal due upon maturity on April 30, 2024. Interest accrues at one-month LIBOR or an alternate base rate plus 1.45%. The Company received $65.0 million in proceeds (less related fees) under the Facility. The
Company utilized $34.6 million of the proceeds to pay off the Truist Term Loans and Truist Revolver. The remaining funds were made available for working capital and acquisitions of additional physician practices. The Company paid approximately
$1.4 million in interest payments in 2021.
On April 30, 2021, the Company also entered into a $5.0 million
revolving line of credit agreement (“PNC Line of Credit”). The PNC Line of Credit has an expiration date of April 30, 2024 and bears interest at a rate per annum equal to the sum of the daily LIBOR rate plus 1.65% or an alternate base rate plus
.65% and is due on the first day of each month beginning June 1, 2021. Any outstanding principal and accrued interest will be due on the expiration date. Beginning July 1, 2021, quarterly bank fees equal to 1.65% per day per annum will be due
in arrears and will continue on the first day of each quarter thereafter. All debt related to the PNC Line of Credit is collateralized by the Company’s assets. From the date the PNC Line of Credit was executed through December 31, 2021, no
draws had been made.
On July 29, 2021, the Company amended the PNC Loan Facility
increasing the Facility Limit from $65.0 million to $75.0 million.
2022 Debt Financing Activity
In 2022, the Company amended the PNC Facility and Line of Credit
agreements. The primary changes included an increase of the Facility limit from $75.0 million to $125.0 million, a decrease of the PNC Line of Credit amount from $5.0 million to $1.0 million, interest charges to be calculated based on the
Bloomberg Short-Term Bank Yield Index plus 1.65% and certain financial covenants. As part of the amendments, the Company drew an additional $16.3 million in proceeds under the Facility.
The total amount outstanding under the PNC Facility as of June 30,
2023 and December 31, 2022 was $81.3 million, at an interest rate of 6.63% as of June 30, 2023. No amounts were drawn down on the PNC Line of Credit as of June 30, 2023 and December 31, 2022.
2023 Sale of Class C Equity
On April 27, 2023, AON and the AON Class C Preferred Investor
entered into a Unit Purchase Agreement, which they subsequently amended and restated on June 7, 2023 (as amended, the “Unit Purchase Agreement”), which provides for an investment of at least $65.0 million with an option to increase the
investment to $75.0 million in connection with the issuance of AON Class C Convertible Preferred Units (“AON Class C Units”) to the AON Class C Preferred Investor.
Pursuant to the Unit Purchase Agreement, on June 7, 2023, the AON
Class C Preferred Investor purchased, and AON issued and sold to the AON Class C Preferred Investor, 2,459 AON Class C Units at an aggregate purchase price of $65.0 million. Under the Unit Purchase Agreement, the AON Class C Preferred Investor
has an option to purchase an additional 378 AON Class C Units until the closing of the Business Combination (the “Closing”), at a purchase price of $26,432 per Unit. In connection with the Class C Unit sale, AON amended and restated its
operating agreement, to among other things, authorize 2,837 AON Class C Units of which 2,459 were outstanding as of June 30, 2023 to the AON Class C Preferred Investor.
82
2023 Debt Financing Activity
On June 30, 2023, the Company entered into Amendment No. 7 to its
PNC Loan Facility which primarily extended the maturity date of the Facility from April 30, 2024 to June 30, 2026.
Cash Flows
Historical information regarding sources of cash and capital
expenditures in recent periods and analysis of those sources and uses is provided below.
Cash flows for the six months ended June 30, 2023 and 2022 were as
follows:
|
|
| |
Six Months Ended June 30,
|
| |
Change
|
||||||
|
(dollars in thousands)
|
| |
2023
|
| |
2022
|
| |
$
|
| |
%
|
|
Net cash used in operations
|
| |
$(2,271)
|
| |
$(9,998)
|
| |
$7,727
|
| |
(77.3)%
|
|
Net cash used in investing activities
|
| |
(6,309)
|
| |
(12,137)
|
| |
5,828
|
| |
(48.0)%
|
|
Net cash provided by financing activities
|
| |
54,362
|
| |
15,864
|
| |
38,498
|
| |
242.7%
|
Cash flows from operating activities
Net cash used in operating activities was $2.3 million during the
six months ended June 30, 2023 compared to $10.0 million for the comparable period for 2022. The $7.7 million period over period improvement was primarily attributable to:
|
•
|
The improvement in cash flows period over period resulting from a $5.5 million improvement in net changes to working capital
components.
|
|
•
|
The impacts from changes in the Medicare advance payments liability, which had no impact on cash flows in the six-month
period ended June 30, 2023, but had a $3.7 negative impact in the six-month period ended June 30, 2022.
|
|
•
|
These improvements were partially offset by a $1.6 million reduction in cash provided by net loss including the effects of
non-cash reconciling items.
|
Cash flows from investing activities
Net cash used in investing activities was $6.3 million for the six
months ended June 30, 2023 compared to $12.1 million for the comparable period for 2022. The decrease in cash used period over period was primarily attributable to the following:
|
•
|
Purchases of marketable securities for the six months ended June 30, 2023 of $2.3 million were offset by sales of marketable
securities of $2.2 million. Purchases of marketable securities for the six months ended June 30, 2022 were $10.0 million offset by sales of $0.3 million during this period. This difference resulted in a $9.7 million decrease in cash
used between periods.
|
|
•
|
The decrease in cash used was offset by a $4.1 million increase in purchases of property and equipment during the six months
ended June 30, 2023 compared to 2022.
|
Cash flows from financing activities
Net cash provided by financing activities was $54.4 million for
the six months ended June 30, 2023 compared to net cash provided of $15.9 million for the comparable period for 2022. The period over period increase in cash flows from financing activities was primarily attributable to the issuance of Class C
Units which resulted in net proceeds of $64.2 million. This was offset by preferred return distributions to Class A and A-1 members of $8.1 million. The increase in 2023 was further offset by the reduction in borrowings on long-term debt, which
were $16.3 million in the prior period and $0.0 during the six months ended June 30, 2023. There were no debt repayments during the period ended June 30, 2023.
Cash flows for the years ended December 31, 2022 and December 31,
2021 were as follows:
|
|
| |
Year ended December 31,
|
| |
Change
|
||||||
|
(dollars in thousands)
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
Net cash used in operations
|
| |
$(6,784)
|
| |
$(26,338)
|
| |
$19,554
|
| |
(74.2)%
|
83
|
|
| |
Year ended December 31,
|
| |
Change
|
||||||
|
(dollars in thousands)
|
| |
2022
|
| |
2021
|
| |
$
|
| |
%
|
|
Net cash used in investing activities
|
| |
(13,991)
|
| |
(10,694)
|
| |
(3,297)
|
| |
30.8%
|
|
Net cash provided by financing activities
|
| |
15,347
|
| |
26,544
|
| |
(11,197)
|
| |
42.2%
|
Cash flows from operating activities
Net cash used in operating activities was $6.8 million during the
year ended December 31, 2022 compared to $26.3 million for the comparable period for 2021. The $19.6 million period over period improvement was primarily attributable to:
|
•
|
The impacts from the reduction in the Medicare advance payments liability, which was reduced from$ 3.7 million as of
December 31, 2021 to $0.0 as of December 31, 2022, resulting in a $3.7 million use of cash for the twelve-months ended December 31, 2022. This compared to the reduction in the same liability of $13.5 million from December 31, 2020 to
December 31, 2021, which resulted in a $13.5 million use of cash in the twelve months ended December 31, 2021. The difference in this liability reduction is a net increase in operating cash flows of approximately $9.8 million when
comparing the periods.
|
|
•
|
The improvements in period over period cash flows from operations also include an increase in cash generated from operating
activities as a result of the cash flow impacts of net income, after giving effect to non-cash reconciling items, of $11.8 million for the twelve months ended December 31, 2022 when compared to December 31, 2021. This improvement was
primarily attributable to a$ 10.4 million non-cash adjustment due to the amortization of right-of-use assets added as part of the adoption of Accounting Standards Codification 842 — Leases as well as a $2.7 million increase in net
income.
|
|
•
|
The above is partially offset by approximately $1.9 million increase in use of cash related to the net impact of working
capital changes between the periods.
|
Cash flows from investing activities
Net cash used in investing activities was $14.0 million for the
year ended December 31, 2022 compared to $10.7 million for the comparable period for 2021. The increase in cash used period over period was primarily attributable to purchases of marketable securities of $12.6 million for the year ended
December 31,2022, offset by proceeds from sales of marketable securities of $2.7 million. There were no purchases or sales of marketable securities during the comparable period.
The increase in cash used above was partially offset by the
following:
|
•
|
Purchases of property and equipment was $7.2 million for the year ended December 31, 2022, lower than $8.3 million for the
comparable period. Acquisition of physician practices decreased approximately $3.2 million period over period.
|
|
•
|
An increase of $1.4 million in proceeds related to the disposal of property and equipment period over period.
|
Cash flows from financing activities
Net cash provided by financing activities was $15.3 million for
the year ended December 31, 2022 compared to $26.5 million for the comparable period for 2021. The period over period decrease in cash flows from financing activities was primarily attributable to:
|
•
|
Borrowing on long-term debt was $16.3 million for the twelve months ended December 31, 2022 compared to $65.0 million in the
comparative period. The amounts in 2021 were related to the PNC Loan Facility, and the amounts in 2022 are related to $16.3 million which was borrowed when the Company entered into an amendment to the PNC Loan Facility which increased
the Facility limit to $125 million.
|
|
•
|
The period over period reduction in cash provided was offset by the repayment of $37.1 million of long-term debt (from the
prior Truist Loan and Revolver, which was extinguished in 2021 with the issuance of our PNC Loan Facility) during the twelve months ended December 31, 2021. There was no debt repayment in the twelve months ended December 31, 2022.
|
84
Off Balance Sheet Arrangements
As of the date of this prospectus, AON does not have any
off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with AON is a party, under which it has any
obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support
for such assets.
AON does not engage in off-balance sheet financing arrangements.
Material Cash Requirements
Based on the Company’s borrowings under the long-term debt
arrangement as of June 30, 2023, the Company expects future cash outflows related to interest expense (based on Bloomberg Short-Term Bank Yield Index rate of 6.63% as of June 30, 2023) of $2.7 million for the remainder of 2023 and $5.4 million
in 2024.
The Company also expects a cash outflow of $81.3 million related
to the repayment of principal when the PNC Loan Facility matures in June of 2026.
The Company expects the following cash flows related to operating
leases with third parties: $2.9 million in 2023, $7.7 million in 2024, $6.7 million in 2025, $6.3 million in 2026, $5.6 million in 2027, and $12.5 million thereafter.
The Company expects the following cash flows related to operating
leases with related parties: $1.3 million in 2023, $2.6 million in 2024, $2.5 million in 2025, $2.6 million in 2026, $2.4 million in 2027, and $3.0 million thereafter.
Cash outflows related to certain vendor contracts with committed
expenditures are expected to total approximately $3.0 million. The timing of the expenditures is as follows: $1.5 million in 2023, and $1.5 million in 2024.
The Company does not have any significant supply or other
arrangements which result in material cash requirements other than as described above.
Critical Accounting Policies and Estimates
The accompanying consolidated financial statements have been
prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions are involved in the calculation of the Company’s allowance for
contractual adjustments and allowances for uncollectible on accounts receivable, liabilities for provider compensation, and accrued insurance claim reserves. Actual results could differ from those estimates.
Variable Interest Entities
AOMC is a wholly owned subsidiary of the Company and neither AOMC
nor the Company has ownership interest in AON Partners and Partners of Maryland. Both AON Partners and Partners of Maryland are fully owned by physicians. The Company operates its physician practices through the MSAs and other contractual
agreements between AOMC, AON Partners, and Partners of Maryland. The responsibilities of AOMC include, but are not limited to negotiating provider and payor contracts, employment and compensation decisions, billing and collections, furnishing
all supplies and equipment necessary for the respective practice’s operations as well as, necessary real estate, contracting on behalf of AON Partners and Partners of Maryland, entering into leases, holding a power of attorney to perform the
above activities, preparing, maintaining and administering all accounting records (including financial reporting), expense payment, and maintenance of all information systems/software. The Company is paid a management fee to compensate AOMC for
the services provided. AON Central Services is 80% physician owned and 20% owned by AON LLC. AOMC entered into an agreement with AON Central Services, effective January 1, 2023, for AOMC to provide qualified non-clinical and non-medical
employees to AOMC to support the operation of the physician practices. AOMC pays a monthly management fee to AON Central Services equal to the aggregate cost of compensation, benefits and all other costs related to these employees.
85
Based on various quantitative and qualitative factors,
including assessment of certain services performed and relationships held above, management has determined that AON Partners, Partners of Maryland and AON Central Services are all variable interest entities and AOMC is the primary beneficiary
who holds the decision-making rights over the activities that most significantly impact AON Partners, Partners of Maryland and AON Central Services’ economic performance through the MSAs and other contractual agreements. Accordingly, the
results of AON Partners, Partners of Maryland and AON Central Services have been consolidated with the Company for all periods presented. During the first quarter of 2023, Meaningful Insights Biotech Analytics, LLC (“MIBA”) was established
which is also considered a VIE; however, as of June 30, 2023, it had immaterial activity.
Segment Reporting
Operating segments are identified as components of an enterprise
about which separate discrete financial information is available for evaluation by the chief operating decision-maker (the “CODM”). The Company’s CODM is its chief executive officer who reviews financial information together with certain
operating metrics principally to make decisions about how to allocate resources and to measure the Company’s performance. The Company has one operating segment and one reportable segment that are structured around the organizational management
of oncology practice operations. All revenues and assets are in the United States.
Revenue Recognition
Revenue is recognized under Accounting Standards Update (“ASU”)
2014-09 Revenue from Contracts with Customers (“Topic 606”). The Company determines the transaction price based upon standard charges for goods and services with anticipated consideration due from patients, third-party payors (including health
insurers and government agencies) and others. The Company’s revenue is primarily derived from patient service revenues, which encompass oncology services provided during patient encounters and shipments of pharmacy prescriptions. Performance
obligations for the Company’s services provided to patients and most procedures, are satisfied over the time of visit which is the same day services are performed. Performance obligations relating to pharmacy revenue are considered fully
satisfied at a point in time upon the customer receiving delivery of the prescription. Accordingly, the Company does not anticipate a significant amount of revenue from performance obligations satisfied (or partially satisfied) in previous
periods.
As services are performed and prescriptions are shipped, timely
billing occurs for services rendered and prescriptions shipped less discounts provided to uninsured patients and contractual adjustments to third-party payors based upon prospectively determined rates and discounted charges. Payment is
requested at the time of service for self-paying patients and for patients covered by third-party payors that are responsible for paying deductibles and coinsurance.
The Company monitors revenue and receivables to prepare estimated
contractual allowances for the anticipated differences between billed and reimbursed amounts. Payments from third-party payors and Government programs including Medicare and Medicaid may be subject to audit and other retrospective adjustments.
Such amounts are considered on an estimated basis when net patient revenue is recorded and are adjusted as final adjustments are determined.
The Company has a system and estimation process for recording
Medicare net patient service revenue and estimated recoupments as it relates to value-based care (“VBC”) revenue included in patient service revenue on the Consolidated Statements of Operations and Comprehensive Income (Loss). The Company’s VBC
revenue is primarily generated through its participation in the CMS Oncology Care Model (“OCM”) which is an episode-based payment model to promote high-quality cancer care. Participants enter six-month episode periods, and the Company bills a
monthly fee during the six-month period based on a fixed rate per participant per month and the total number of participants. Certain quality and compliance metrics are tracked as part of the program and submitted to CMS at the end of the
episode period which may result in recoupment of funds. The Company estimates the recoupment amount by developing a recoupment percentage for each period based on historical known recoupment from CMS and applies the recoupment percentage
against total fees for the period. Based on the estimate, the Company accrues a liability representing the expected final recoupments based on historical settlement trends.
Accounts Receivable
Accounts receivable from patients are carried at the original
charge for the services provided, and an adjustment is made to the receivable in a contra account based on the historical collection rate for the provider and payor
86
combination. This adjustment takes into consideration any allowance for doubtful
accounts. Management determines the allowance for uncollectible accounts based on historical experience.
Business Combinations
The Company evaluates acquired practices in accordance with ASU
2017-01, Business Combinations (Topic 805) — Clarifying the Definition of a Business. This standard clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be
accounted for as acquisitions or disposals of assets or businesses. Because substantially all of the value of each acquired practice did not relate to a similar group of assets and as each acquired practice contained both inputs and processes
necessary to provide economic benefits to the Company, it was determined that each acquisition represents a business combination. Therefore, the transactions have been accounted for using the acquisition method of accounting, which requires,
with limited exceptions, that assets acquired, and liabilities assumed be recognized at their estimated fair values as of the acquisition date. Any excess of the consideration transferred over the estimated fair values of the net assets
acquired is recorded as goodwill. Transaction costs related to business combinations are expensed in the period in which they are incurred.
Leases
The Company’s lease portfolio primarily consists of office and
equipment leases for its practice facilities. The Company evaluates whether a contract is or contains a lease at contract inception. A lease exists when a contract conveys to the customer the right to control the use of identified property or
equipment for a period of time in exchange for consideration. The definition of a lease embodies two conditions: 1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property, plant, and equipment); and 2)
the customer has the right to control the use of the identified asset. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental
borrowing rate. As the Company’s operating leases do not generally provide an implicit rate, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments. The
incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The lease term for all of the Company’s operating leases
include the noncancellable period of the lease plus any additional periods covered by either a lessee option to extend (or not to terminate) the lease that the lessee is reasonably certain to exercise, or an option to extend (or not to
terminate) the lease controlled by the lessor. Lease payments included in the measurement of the operating lease right-of-use (“ROU”) assets and lease liabilities are comprised of fixed payments (including in- substance fixed payments),
variable payments that depend on an index or rate, and the exercise price of a lessee option to purchase the underlying asset if the lessee is reasonably certain to exercise.
The operating lease ROU assets are initially measured at cost,
which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. The operating lease ROU assets are
subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease
expense for lease payments is recognized on a straight-line basis over the lease term. The operating lease liabilities are initially measured at the present value of the unpaid lease payments at the lease commencement date.
Professional Liability
The Company maintains an insurance policy for exposure to
professional malpractice insurance risk beyond selected retention levels. Reserves are established for estimates of the loss that will ultimately be incurred on claims that have been reported but not paid and claims that have been incurred but
not reported. These reserves are established based on consultation with a third-party actuary. The actuarial valuations consider a number of factors, including historical claims payment patterns, changes in case reserves and the assumed rate of
increase in healthcare costs. Management believes the use of actuarial methods to account for these reserves provides a consistent and effective way to measure these subjective accruals. However, due to the sensitive nature of this estimation
technique, recorded reserves could differ from ultimate costs related to these claims due to changes in claims reporting, claims payment and settlement practices and differences in assumed future cost increases. Accrued unpaid claims and
expenses that are expected to be paid within the next twelve months are classified as current liabilities and included
87
in accrued other. All other accrued unpaid claims and expenses are classified as
long-term liabilities and included in other long-term liabilities. Insurance recoveries associated with the unpaid claims are classified as long-term assets included in other assets.
Fair Value of Financial Instruments
Fair value is the price that would be received to sell an asset or
paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date.
Accounting guidance establishes a three-level hierarchy, which
requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the
measurement date. The three levels are defined as follows:
|
Level 1
|
Inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market.
|
|
Level 2
|
Inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or
model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability.
|
|
Level 3
|
Inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability.
This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
|
Assets and liabilities are classified in their entirety based on
the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and
liabilities being measured within the fair value hierarchy.
Our financial instruments include cash, short-term marketable
securities, accounts receivable, notes receivable, accounts payable, accrued expenses, long-term debt and contractual agreements that resulted in derivative liabilities. Our nonfinancial assets such as property and equipment are not measured at
fair value on a recurring basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence that impairment may exist.
The carrying amounts of cash, accounts receivable, accounts
payable, notes receivable, and accrued expenses approximate their fair value because of the short-term maturity and highly liquid nature of these instruments. We determine the fair value of long-term debt and marketable securities based on
various factors including maturity schedules and current market rates.
The fair value of our derivative liabilities was determined using
Level 3 inputs. The fair value was estimated using the Black-Scholes Option Pricing model or the “with and without” valuation approach. There were no transfers between any levels of the hierarchy during any periods presented.
Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact our
financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of exposure due to potential changes in inflation or interest rates. We do not hold financial instruments for trading
purposes.
Interest Rate Risk
Certain of AON’s outstanding indebtedness bears interest at a
floating rate. As a result, AON may be exposed to fluctuations in interest rates to the extent of its borrowings under these arrangements. AON does not currently engage in any hedging or derivative instruments to attempt to offset this risk.
Based on the total amount of variable debt outstanding as of June 30, 2023, if the Bloomberg Short-Term Bank Yield Index increased by 1.0% due to normal market conditions, AON’s interest expense will increase by approximately $0.8 million per
annum.
AON had $81.3 million of borrowings under loans with variable rates
as of June 30, 2023.
88
Inflation Risk
The healthcare industry is very labor intensive and salaries and
benefits are subject to inflationary pressures, as are drug and medical supplies costs, medical equipment and other costs. The nationwide shortage of nurses and other clinical staff and support personnel has been a significant operating issue
facing us and other healthcare providers. In particular, like others in the healthcare industry, we have experienced a shortage of nurses and other clinical staff and support personnel in certain geographic areas, which was largely driven by
the COVID-19 pandemic. Nationally, the increase demand for healthcare workers has in some regions, required us to offer one-time retention bonuses, pay premium wages above standard compensation for essential workers, and even utilize higher
cost temporary labor. This staffing shortage may require us to further enhance wages and benefits to recruit and retain nurses and other clinical staff and support personnel or require us to hire expensive temporary personnel. We have also
experienced cost increases related to the procurement of medical supplies and equipment as well as construction of new facilities and additional capacity added to existing facilities. Our ability to pass on increased costs associated with
providing healthcare to Medicare and Medicaid patients is limited due to various federal, state and local laws which have been enacted that, in certain cases, limit our ability to increase prices.
We minimize the impact of inflation on our labor, drug, and supply
costs primarily through maintaining strong relationship with our suppliers and GPO and renegotiated contracts with our payors. In addition, AOP has a Pharmacy and Therapeutics Committee (“P&T Committee”) that meets biweekly to evaluate and
modify the preferred drug formulary. The P&T Committee considers the following in its formulary recommendations: 1) evidence-based research demonstrating favorable clinical outcomes of such treatment; 2) potential adverse events or side
effects of such treatment; and 3) cost of such treatment to the applicable stakeholder (patient and payor).
89
The following persons serve as AON’s executive officers and
directors.
|
Name
|
| |
Age
|
| |
Position
|
|
Executive Officers
|
| |
|
| |
|
|
Todd Schonherz
|
| |
54
|
| |
Chief Executive Officer; Director
|
|
David H. Gould
|
| |
53
|
| |
Chief Financial Officer
|
|
Stephen “Fred” Divers, MD
|
| |
50
|
| |
Chief Medical Officer; Director
|
|
Erica Mallon
|
| |
35
|
| |
General Counsel
|
|
Directors
|
| |
|
| |
|
|
Bradley Fluegel
|
| |
61
|
| |
Director
|
|
James Stith
|
| |
39
|
| |
Director
|
|
Ravi Sarin
|
| |
42
|
| |
Director
|
Todd Schonherz has over 30 years of healthcare experience and has served as our Chief Executive Officer since the closing of the Business Combination in September 2023. Mr. Schonherz has served as AON LLC’s Chief Executive Officer since 2021 and
was previously President & Chief Operating Officer of AON LLC since its inception in 2017 to 2021. Previously, he was Chief Operating Officer of Florida Cancer Specialists (FCS). Prior to his role as COO of FCS in 2011, Mr. Schonherz was
Senior Vice President and Chief Information Officer for US Oncology from 1999 to 2010. Mr. Schonherz’ consulting and management experience in healthcare information technology includes positions with Datamedic Corporation (acquired by
VitalWorks and later Amicas Corporation), Multum Corporation (acquired by Cerner Corporation), and MedE America (acquired by WebMD and later HLTH Corporation). Mr. Schonherz received a bachelor’s degree in health policy and administration
from Pennsylvania State University. Mr. Schonherz has presented at national industry conferences including multiple Community Oncology Alliance (COA) conferences as well as national and regional information technology conferences. We believe
Mr. Schonherz’s 30 years of healthcare experience gives him a thorough understanding of all aspects of our business and operations and qualifies him to serve our Board of Directors.
David H. Gould has served as our Chief Financial Officer since the closing of the Business Combination in September 2023 and has served as Chief Financial Officer at AON LLC since September 2020. Prior to joining AON LLC, David was employed at
ApolloMD from March 2016 through September 2020, including serving as its Chief Financial Officer from February 2018 to September 2020. Prior to joining ApolloMD, David served approximately 10 years in progressively senior positions and
ultimately as the Vice President of Finance and Assistant Treasurer at Cumulus Media. Prior to that, he held financial management roles with both publicly traded and private companies within the healthcare industry. David started his career
in public accounting with the national audit firm of Ernst & Young out of their Washington, D.C. office. David holds a Bachelor of Science in Accounting from University of Maryland.
Stephen “Fred” Divers, MD has served as our Chief Medical Officer since the closing of the Business Combination in September 2023 and has been AON LLC’s Chief Medical Officer since 2022. In addition, since 2018, Dr. Divers is a Medical
Oncologist with Genesis Cancer and Blood Institute, one of the first practices to join the AON network. In July 2020, Mr. Divers was named Advisory Board Chairman. Dr. Divers has provided physician leadership as a member of several national
committees and currently serves on the Board of Directors for the Community Oncology Alliance (COA). He attended medical school at the Louisiana State University School of Medicine. He completed his residency at the University of North
Carolina and a fellowship at the University of Alabama at Birmingham Cancer Center. We believe that Dr. Diver’s experience as an executive and his breadth of knowledge and valuable understanding of oncology care qualifies him to serve on our
Board of Directors.
Erica Mallon is a healthcare-specialized attorney with nearly a decade of transactional and regulatory experience and has served as AON’s General Counsel since the closing of the Business Combination in September 2023. Ms. Mallon has served as
AON LLC’s General Counsel since May 2021. Prior to joining AON LLC, from June 2018 to May 2021, Ms. Mallon served as in-house counsel at Greenway Health, an electronic health record vendor. During her time at Greenway, Ms. Mallon focused on
strategic relationships and compliance with healthcare regulations and was instrumental in the negotiation, implementation, and ongoing compliance with Greenway’s Corporate Integrity Agreement. Prior to her tenure at Greenway, Ms. Mallon
worked as an attorney in the healthcare group of Carlton Fields, P.A. Ms. Mallon also serves on the board of directors of the Children’s Cancer Center, a Tampa Bay-based non-profit that provides emotional, financial, and educational support
to children with cancer or life-threatening blood disorders and their families. Ms. Mallon holds a Bachelor of Science degree in Journalism with dual minors in Business and Political Science from Ohio University and a law degree from Drexel
University.
90
Mr. Bradley Fluegel has served on our Board of Directors since the closing of the Business Combination in September 2023, and prior to that, served on the DTOC Board since DTOC’s IPO. Mr. Fluegel currently advises a number of
technology-enabled healthcare companies including Interwell Health Inc., Galileo Inc., Hims Inc., Pager Inc., and VillageMD Chicago, LLC. From October 2012 to January 2018, Mr. Fluegel was the Senior Vice President, Chief Healthcare
Commercial Market Development Officer and Chief Strategy and Business Development Officer for Walgreens Company. Prior to Walgreens, Mr. Fluegel served as an executive in residence at Health Evolution Partners from April 2011 to
September 2012, Executive Vice President and Chief Strategy and External Affairs Officer of Anthem Inc. from October 2007 to December 2010, Senior Vice President of National Accounts and Vice President of Enterprise Strategy at Aetna Inc.
from March 2005 to September 2007, and Chief Executive Officer for Reden & Anders (Optum Consulting) from October 2002 to February 2005. Mr. Fluegel currently serves on the board of directors of MJHS in New York City, Performant Financial
Corporation, AdhereHealth LLC and Premera Blue Cross. Mr. Fluegel earned a MPP from Harvard University’s Kennedy School of Government and a BBA from the University of Washington. Mr. Fluegel also serves as a lecturer at the University of
Pennsylvania’s Wharton School of Business. We believe Mr. Fluegel’s public company experience and expertise in accounting matters is valuable to the Company.
James Stith
has served on our Board of Directors since the closing of the Business Combination in September 2023, and has served as a Director on AON LLC's Board of Managers since June 2023. Since 2021, Mr. Stith has served as a Partner at AEA Growth, a
private equity growth fund managed by AEA Investors LP, a global investment firm. From 2016 to 2021, Mr. Stith served as Co-founder and Partner at ROCA Partners, a growth equity investment firm. Prior to ROCA Partners, Mr. Stith served as an
M&A executive at IAC/InterActiveCorp (a publicly-traded portfolio of consumer media and technology companies), a private equity investor at Ares Management (a global alternative investment manager), and an investment banker at Lehman
Brothers (a former global financial services firm). Mr. Stith holds a B.A. in Economics and International Relations from the University of Pennsylvania. We believe Mr. Stith's extensive experience in growth equity and healthcare investing
qualifies him to serve on our Board of Directors.
Mr. Ravi Sarin has serves on our Board of Directors since the closing of the Business Combination in September 2023. Mr. Sarin is Co-Head and Founding Partner of AEA Growth since 2021. Mr. Sarin is also the Founder and Managing Partner of ROCA
Partners, a growth equity investment firm focused on tech-enabled services, software and healthcare services companies, which he founded in 2015. Previously, he was a Principal in the Private Equity Group at Ares Management from 2009 to 2015.
At Ares, Mr. Sarin helped lead investments in healthcare services among a few other sectors. Prior to Ares, Mr. Sarin was a private equity investor at Bain Capital and a consultant at Bain & Company. Mr. Sarin currently serves on the
boards of directors of several companies including AS Software, Bespoke Partners, Cenegenics and Commonwealth Pain & Spine and previously served on the board of directors of a number of companies including Floor & Decor, Jacuzzi
Brands, Ob Hospitalist Group, Oceans Healthcare, Riviera Partners, True Blue Car Wash and Unified Women's Healthcare. Mr. Sarin received a B.S. in Electrical Engineering and a M.S. in Management Science & Engineering from Stanford
University and an M.B.A. from Harvard Business School. Mr. Sarin was selected to serve on our Board of Directors due to his experience working with and serving as a director of a number of healthcare services companies
Code of Business Conduct
The Board has adopted a Code of Business Conduct and Ethics that
applies to all of its employees, officers and directors, including its Chief Executive Officer and other executive and senior financial officers. The full text of AON’s Code of Business Conduct and Ethics is posted on the Corporate Governance
portion of AON’s website. When applicable, AON will post amendments to its Code of Business Conduct and Ethics or waivers of its Code of Business Conduct and Ethics for directors and officers on the same website.
Board Composition
AON’s business and affairs are managed under the direction of its
board of directors.
The AON Board is divided into three classes, designated as
Class I, Class II and Class III. The directors first elected to Class I will hold office for a term expiring at the first annual meeting of stockholders following the consummation of the Business Combination; the directors first elected to
Class II will hold office for a term expiring at the second annual meeting of stockholders following the consummation of the Business Combination; and the directors first elected to Class III will hold office for a term expiring at the third
annual meeting of stockholders following the consummation of the Business Combination. At each succeeding annual meeting of the stockholders
91
of AON, the successors to the class of directors whose term expires at that
meeting will be elected by plurality vote of all votes cast at such meeting to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election.
Director Independence
AON Class A Common Stock is listed on Nasdaq. Under the rules of
Nasdaq, independent directors must comprise a majority of a listed company’s board of directors. In addition, the rules of Nasdaq require that, subject to specified exceptions, each member of a listed company’s audit, compensation and
nominating and corporate governance committees be independent. We have a majority of independent directors on our board. Under the rules of Nasdaq, a director will only qualify as an “independent director” if that company’s board of directors
affirmatively determines that such person does not have a material relationship with the listed company. Audit committee members must also satisfy the additional independence criteria set forth in Rule 10A-3 under the Exchange Act and the rules
of Nasdaq.
Compensation committee members must also satisfy the additional
independence criteria set forth in Rule 10C-1 under the Exchange Act and the rules of Nasdaq.
In order to be considered independent for purposes of Rule 10A-3
under the Exchange Act and under the rules of Nasdaq, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the committee, the board of directors, or any other board committee: (1) accept,
directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries.
To be considered independent for purposes of Rule 10C-1 under the
Exchange Act and under the rules of Nasdaq, the board of directors must affirmatively determine that a member of the compensation committee is independent, including a consideration of all factors specifically relevant to determining whether
the director has a relationship to the company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to: (i) the source of
compensation of such director, including any consulting, advisory or other compensatory fee paid by the company to such director; and (ii) whether such director is affiliated with the company, a subsidiary of the company or an affiliate of a
subsidiary of the company.
Committees of the AON Board of Directors
The AON Board has an audit committee, compensation committee and
nominating and corporate governance committee. The composition and responsibilities of each of the committees of the AON Board is described below. Members will serve on these committees until their resignation or until as otherwise determined
by the AON Board. The AON Board may from time to time establish other committees. AON’s Chief Executive Officer and other executive officers will regularly report to the non-executive directors and each standing committee to ensure effective
and efficient oversight of its activities and to assist in proper risk management and the ongoing evaluation of management controls.
Audit Committee
Bradley Fluegel, James Stith and Ravi Sarin serve as members of
our Audit Committee. Under the Nasdaq listing standards and applicable SEC rules, all the directors on the Audit Committee must be independent; our board of directors has determined that each of Bradley Fluegel, James Stith and Ravi Sarin are
independent under the Nasdaq listing standards and applicable SEC rules. Bradley Fluegel serves as the Chairman of the Audit Committee. Each member of the Audit Committee is financially literate and our board of directors has determined that
Bradley Fluegel qualifies as an “audit committee financial expert” as defined in applicable SEC rules. The Audit Committee is responsible for, among other things:
|
•
|
overseeing and monitoring the quality and integrity of financial statements and the performance of our internal audit
function;
|
|
•
|
selecting a qualified firm to serve as the independent registered public accounting firm to audit AON’s financial statements;
|
|
•
|
helping to ensure the independence and evaluating and overseeing the performance of the independent registered public
accounting firm;
|
92
|
•
|
discussing the scope and results of the audit with the independent registered public accounting firm and reviewing, with
management and the independent registered public accounting firm, AON’s interim and year-end financial statements;
|
|
•
|
developing procedures for employees to submit concerns anonymously about questionable accounting or audit matters;
|
|
•
|
reviewing and overseeing AON’s policies on risk assessment and risk management, including enterprise risk management;
|
|
•
|
reviewing the adequacy and effectiveness of accounting principles, accounting policies, internal financial and accounting
control policies and procedures and AON’s disclosure controls and procedures and ensuring compliance with legal and regulatory requirements; and
|
|
•
|
approving or, as required, pre-approving, all audit and all permissible non-audit services, other than de minimis non-audit
services, to be performed by the independent registered public accounting firm.
|
The AON Board has adopted a written charter for the Audit
Committee which is available on AON’s website.
Compensation Committee
James Stith, Bradley Fluegel, and Ravi Sarin serve as members of
our Compensation Committee. Under the Nasdaq listing standards, we are required to have a Compensation Committee composed entirely of independent directors; our Board of Directors has determined that each of James Stith, Bradley Fluegel, and
Ravi Sarin are independent. James Stith serves as Chairman of the Compensation Committee. AON’s Compensation Committee is responsible for, among other things:
|
•
|
reviewing, approving and determining the compensation of AON’s executive officers;
|
|
•
|
reviewing, approving and determining compensation and benefits, including equity awards, to directors for service on the AON
Board or any committee thereof;
|
|
•
|
administering AON’s equity compensation plans;
|
|
•
|
reviewing, approving and, in certain situations, making recommendations to the AON Board regarding incentive compensation and
equity compensation plans; and
|
|
•
|
establishing and reviewing general policies relating to compensation and benefits of AON’s employees.
|
The AON Board has adopted a written charter for the Compensation
Committee, which is available on AON’s website.
Nominating and Corporate Governance Committee
Ravi Sarin, Bradley Fluegel and James Stith serve as members of
our Nominating and Corporate Governance Committee. Under the Nasdaq listing standards, we are required to have a nominating and corporate governance committee composed entirely of independent directors; our Board of Directors has determined
that each of Ravi Sarin, Bradley Fluegel and James Stith are independent. Ravi Sarin serves as Chairman of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee is responsible for, among other
things:
|
•
|
identifying, evaluating and selecting, or making recommendations to the AON Board regarding, nominees for election to the AON
Board and its committees consistent with criteria approved by the AON Board;
|
|
•
|
evaluating the performance of the AON Board, individual directors and management of AON;
|
|
•
|
considering, and making recommendations to the AON Board regarding the composition of the AON Board and its committees;
|
|
•
|
reviewing developments in corporate governance practices;
|
|
•
|
evaluating the adequacy of the corporate governance practices and reporting;
|
|
•
|
reviewing related party transactions; and
|
|
•
|
developing, and making recommendations to the AON Board regarding, corporate governance guidelines and matters.
|
93
The AON Board has adopted a written charter for the Nominating
and Corporate Governance Committee, which is available on AON’s website.
Compensation Committee Interlocks and Insider Participation
None of the AON officers currently serves, and in the past year
has not served, (i) as a member of the compensation committee or the board of directors of another entity, one of whose officers served on Company’s compensation committee, or (ii) as a member of the compensation committee of another entity,
one of whose officers served on the Company Board.
Related Party Policy
AON has a formal written policy that sets forth the following
policies and procedures for the review and approval or ratification of related party transactions. A “Related Party Transaction” is a transaction, arrangement or relationship in which AON or any of its subsidiaries was, is or will be a
participant, the amount of which involved exceeds $120,000, and in which any related party had, has or will have a direct or indirect material interest. A “Related Party” means:
|
•
|
any person who is, or at any time during the applicable period was, one of AON’s officers or one of AON’s directors;
|
|
•
|
any person who is known by AON to be the beneficial owner of more than five percent (5%) of its voting stock;
|
|
•
|
any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse,
sibling, mother-in-law, father-in-law, daughter-in-law, son-in-law, sister-in- law or brother-in-law of a director, officer or a beneficial owner of more than five percent (5%) of its voting stock, and any person (other than a tenant or
employee) sharing the household of such director, officer or beneficial owner of more than five percent (5%) of its voting stock; and
|
|
•
|
any firm, corporation or other entity in which any of the foregoing persons is a partner or principal or in a similar
position or in which such person has a ten percent (10%) or greater beneficial ownership interest.
|
AON enacted policies and procedures designed to minimize potential
conflicts of interest arising from any dealings it may have with its affiliates and to provide appropriate procedures for the disclosure of any real or potential conflicts of interest that may exist from time to time. Specifically, pursuant to
its charter, the Audit Committee has the responsibility to review related party transactions.
Role of the AON Board in Risk Oversight
The AON Board has extensive involvement in the oversight of risk
management related to AON and its business as a whole, including its strategy, business performance, capital structure, management selection, compensation programs, shareholder engagement, corporate reputation, ESG matters, and ethical business
practices. The AON Board will discharge various aspects of its oversight responsibilities through its standing committees, which in turn will report to it regularly regarding their activities. The Audit Committee will represent the AON Board by
periodically reviewing our accounting, reporting and financial practices, including the integrity of AON’s financial statements and the surveillance of administrative and financial controls, as well as enterprise risk management, cyber risk and
review of related party transactions.
Through its regular meetings with management, including the
finance, legal, internal audit and information technology functions, the audit committee will review and discuss all significant areas of our business and summarize for the AON Board all areas of risk and the appropriate mitigating factors. The
governance committee will provide oversight over compliance with legal and regulatory requirements, ethics and whistleblower matters. The Compensation Committee will review the Company’s incentive compensation arrangements to determine whether
they encourage excessive risk-taking and discuss with management the relationship between risk management policies and practices and compensation. The Nominating and Corporate Governance Committee will assist the AON Board in the discharge of
its responsibilities relating to the evaluation of nominations for director elections and re-elections. In addition, the AON Board will receive periodic detailed operating performance reviews from management.
94
Unless the context otherwise requires, all
references in this section to the “Company,” “we,” “us,” or “our” refer to the business of AON. This discussion may contain forward-looking statements that are based on AON’s current plans, considerations, expectations and determinations
regarding future compensation programs.
Executive and Director Compensation of DTOC prior to the Business
Combination
None of DTOC’s directors or executive officers has received any
compensation for services rendered to DTOC except (i) DTOC’s independent directors, who each received 25,000 shares of Class A Common Stock in March 2021 and (2) Kyle Francis, DTOC’s Chief Financial Officer, who received 150,000 shares of
Class A Common Stock in March 2021. Other than the aggregate 225,000 shares of Class A Common Stock transferred to DTOC’s independent directors and Chief Financial Officer, no compensation of any kind, including finders or other similar fees,
were paid to any of DTOC’s Sponsor, Chief Executive Officer, Chief Financial Officer and directors, or any of their respective affiliates, prior to, or for any services they render in order to effectuate, the consummation of a Business
Combination.
Executive and Director Compensation of AON LLC
As an emerging growth company under the JOBS Act, we have opted to
comply with the executive compensation disclosure rules applicable to “smaller reporting companies” as such term is defined in the rules promulgated under the Securities Act, which permit us to limit reporting of executive compensation to our
principal executive officer and our two other most highly compensated executive officers.
Our executive compensation program is designed to attract,
motivate and retain high quality leadership and incentivize our executive officers to achieve performance goals over the short-and long-term, which also aligns the interests of our executive officers with those of our stockholders.
Our named executive officers (or “NEOs”) for the fiscal year ended
December 31, 2022, which consist of our principal executive officer and our two other most highly compensated executive officers, and one additional individual for whom would have been one of our two other most highly compensated executive
officer but for the fact that the individual was not serving as an executive officer at the end of the last completed fiscal year, were:
|
•
|
Todd Schonherz, Chief Executive Officer;
|
|
•
|
Stephen “Fred” Divers, M.D.;
|
|
•
|
David Gould, Chief Financial Officer and
|
|
•
|
Bradley Prechtl, our former President and Chief Development Officer.
|
|
Name and Principal Position
|
| |
Year
|
| |
Salary
($)
|
| |
Bonus
($)
|
| |
Non-Equity
Incentive Plan
Compensation
($)
|
| |
Option
Reward
($)
|
| |
Other
Compensation
($)
|
| |
Total
($)
|
|
Todd Schonherz
Chief Executive Officer
|
| |
2022
|
| |
698,375
|
| |
192,500
|
| |
—
|
| |
—
|
| |
28,103(1)
|
| |
918,978
|
| |
2021
|
| |
682,065
|
| |
—
|
| |
—
|
| |
—
|
| |
24,121(2)
|
| |
706,186
|
||
|
Stephen “Fred” Divers, MD
Chief Medical Officer
|
| |
2022
|
| |
416,667
|
| |
—
|
| |
1,236,368(3)
|
| |
—
|
| | | |
1,653,035
|
|
| |
|
| |
|
| |
|
| |
—
|
| |
—
|
| |
|
| |
|
||
|
David Gould
Chief Financial Officer
|
| |
2022
|
| |
317,310
|
| |
41,614
|
| |
—
|
| |
—
|
| |
|
| |
358,924
|
| |
2021
|
| |
333,646
|
| |
—
|
| |
—
|
| |
—
|
| |
748
|
| |
334,394
|
||
|
Bradley Prechtl
Former President and Chief Development
Officer(4)
|
| |
2022
|
| |
599,514
|
| |
—
|
| |
—
|
| |
—
|
| |
218,854(5)
|
| |
818,368
|
| |
2021
|
| |
543,570
|
| |
—
|
| |
—
|
| |
—
|
| |
39,158(6)
|
| |
582,728
|
|
(1)
|
For fiscal year 2022, other compensation for Mr. Schonherz includes $16,800 for an automobile allowance.
|
|
(2)
|
For fiscal year 2021, other compensation for Mr. Schonherz includes $14,769 for an automobile allowance.
|
|
(3)
|
Reported amount consists of performance payment paid to Dr. Divers in connection with his performance as a practicing
physician. Dr. Divers was appointed to Chief Medical Officer on April 1 2022.
|
|
(4)
|
As of October 31, 2022, Mr. Prechtl is no longer an executive officer of AON.
|
|
(5)
|
For fiscal year 2022, other compensation for Mr. Prechtl includes $44,185 for an automobile allowance and severance benefits
totaling $166,183, consisting of $118,982 in cash payment and $47,201 in COBRA benefits as further disclosed under the section titled “Potential Payments Upon Termination or Change in Control”
below.
|
|
(6)
|
For fiscal year 2021, other compensation for Mr. Prechtl includes $32,600 for an automobile allowance.
|
95
Narrative Disclosure to Summary Compensation Table
The following describes the material elements of our compensation
program for the fiscal year ended December 31, 2022 as applicable to our named executive officers and reflected in the Summary Compensation Table above.
Base Salary
Base salaries for our executive officers were established
primarily based on individual negotiations with the executive officers when they joined us. In determining compensation for our executive officers, we considered salaries provided to executive officers of similarly situated companies in the
healthcare industry, each executive officer’s anticipated role criticality relative to others at the Company and our determination of the essential need to attract and retain these executive officers.
Employee Benefits and Perquisites
We provide health, dental, vision, life and disability insurance
benefits to our named executive officers, on the same terms and conditions as provided to our other employees. We provide an automobile allowance to select executive officers as well as small incidental reimbursements for certain personal
expenses such as travel costs and mobile devices.
Retirement Benefits
401(k) Plan. We maintain a 401(k) plan that provides eligible U.S.
employees with an opportunity to save for retirement on a tax advantaged basis. Eligible employees are able to defer eligible compensation up to certain Code limits, which are updated annually. Contributions are allocated to each participant’s
individual account and are then invested in selected investment alternatives according to the participants’ directions.
Employees are immediately and fully vested in their own
contributions. The Company may elect to make matching or other contributions into participant’s individual accounts, but made no such contributions during our 2022 fiscal year. The 401(k) plan is intended to be qualified under Section 401(a) of
the Code, with the related trust intended to be tax exempt under Section 501(a) of the Code. As a tax-qualified retirement plan, contributions to the 401(k) plan are deductible by us when made, and contributions and earnings on those amounts
are not taxable to the employees until withdrawn or distributed from the 401(k) plan.
Employment Agreements
On April 1, 2021, we entered into an employment agreement with
Mr. Schonherz (the “Schonherz Employment Agreement”), pursuant to which he agreed to serve as our Chief Executive Officer. The Schonherz Employment Agreement has an initial term through March 31, 2026 and automatically renews for one-year
periods thereafter, unless terminated in advance by either party in accordance with the terms of the agreement. Pursuant to the Schonherz Employment Agreement, Mr. Schonherz is entitled to receive an annual base salary of $675,000 per year (the
“Base Salary”). Mr. Schonherz’s Base Salary is increased on an annual basis in the amount of three percent of the previous calendar year’s Base Salary on January 1 of each year during the term and any renewal term under the Schonherz Employment
Agreement.
The Schonherz Employment Agreement also provides that
Mr. Schonherz is eligible for an annual cash bonus based upon achievement of annual performance goals for Mr. Schonherz and/or the Company determined by the Board each year. Mr. Schonherz’s annual fully-earned bonus opportunity is equal to a
minimum of $275,000 for 2021 and will be determined by the Board for subsequent years.
We do not have an employment agreement with Dr. Divers in
connection with employment as Chief Medical Officer.
On July 28, 2020, we entered into an offer letter with David
Gould, pursuant to which he agreed to serve as our Chief Financial Officer with a start date of September 17, 2020 (the “Gould Offer Letter”). Under the Gould Offer Letter, Mr. Gould is eligible for a base salary of $300,000. The Gould Offer
Letter also provides that Mr. Gould is eligible for an annual cash bonus based upon achievement of annual performance goals for Mr. Gould and/or the Company of up to 20% of Mr. Gould’s base salary, with a stretch opportunity up to 25% of
Mr. Gould’s base salary.
On April 1, 2021, we entered into an employment agreement with
Mr. Prechtl (the “Prechtl Employment Agreement”), pursuant to which he agreed to serve as our President and Chief Development Officer, and which
96
remained in effect through October 31, 2022, the date of his termination of
employment. Pursuant to the Prechtl Employment Agreement, Mr. Prechtl was entitled to receive an annual base salary of $650,000. As of October 31, 2022, Mr. Prechtl is no longer an executive officer of AON.
Potential Payments Upon Termination or Change in Control
Todd Schonherz
Under the terms of his employment agreement, if Mr. Schonherz’s
employment is terminated by AON without cause or by Mr. Schonherz for good reason (as such terms are defined in the Schonherz Employment Agreement), then Mr. Schonherz will become eligible to receive the following benefits for a period of
twelve (12) months after the effective date of his termination or until he obtains and commences other employment, whichever occurs first:
|
•
|
monthly payments equal to (a) his monthly base salary in effect immediately prior to termination, plus (b) an amount equal to
one-twelfth of his performance bonus which was paid or is to be paid to him under the Schonherz Employment Agreement for prior calendar year; and
|
|
•
|
monthly insurance stipend payments equal to aggregate insurance premiums paid by AON to provide health, dental, vision, and
disability insurance benefits for him of the effective date of termination, calculated as a monthly amount.
|
Stephen “Fred” Divers
No payments are due to Dr. Divers upon a termination or change in
control.
David Gould
Under the terms of his employment letter, upon a termination
without cause, Mr. Gould is entitled to 12 months of base salary.
Brad Prechtl
Mr. Prechtl resigned from his employment with AON effective
October 31, 2022. Pursuant to the terms of his resignation, Mr. Prechtl received his base salary paid through December 30, 2022 and an amount equal to 12 months of COBRA family medical and dental premiums determined based on open enrollment.
The total value paid to Mr. Prechtl was $166,183, consisting of $118,982 in cash payment and $47,201 in COBRA benefits.
Outstanding Equity Awards at Fiscal Year-End
There were no outstanding equity awards held by our NEOs as of
December 31, 2022.
Equity Plans
Overview
The Company’s 2023 Incentive Equity Plan (the “2023 Plan”), was
adopted on September 19, 2023. The 2023 Plan allows us to provide equity awards as part of our compensation program, an important tool for motivating, attracting and retaining talented employees and for creating stockholder value.
Key Plan Provisions
The 2023 Plan will continue until terminated by the Board (or a
committee of the Board), but (i) no incentive stock options may be granted after September 19, 2033 and (ii) the 2023 Plan’s automatic share reserve increase (as described below) will operate only until such date.
The 2023 Plan provides for the grant of stock options, both
incentive stock options and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, and performance awards.
The 2023 Plan is administered by the Board or, if designated by the
Board, the a committee of the Board.
97
Description of the 2023 Equity Incentive Plan
The following paragraphs provide a summary of the principal
features of the 2023 Plan and its operation. However, this summary is not a complete description of all of the provisions of the 2023 Plan and is qualified in its entirety by the specific language of the 2023 Plan.
Purposes of the 2023 Plan
The purposes of the 2023 Plan are to attract and retain personnel
for positions with AON, any parent or subsidiary, and any entity that is in control of, is controlled by or is under common control with AON, including American Oncology Partners of Maryland, P.A. and American Oncology Partners, P.A. and their
majority-owned subsidiaries (such entities are referred to herein as the “Company Group”); to provide additional incentive to employees, directors, and consultants; and to promote the success of AON’s business. These incentives will be provided
through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, and performance awards as the administrator of the 2023 Plan may determine.
Eligibility
The 2023 Plan provides for the grant of incentive stock options,
within the meaning of Section 422 of the Code, to employees of AON or any of its parent corporations or subsidiary corporations, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation
rights and performance awards to employees, directors and consultants of AON or any member of the Company Group.
Authorized Shares
Initially, 5.3 million shares of our Class A Common Stock have
been authorized for issuance pursuant to awards that may be granted under the 2023 Plan.
The 2023 Plan provides for an automatic share reserve increase
feature, whereby the share reserve will automatically be increased on the first day of each fiscal year beginning with the 2024 fiscal year, in an amount equal to the lesser of (i) 5% of the total number of shares of all classes of our common
stock outstanding on the last day of the immediately preceding fiscal year, and (ii) the number of shares as determined by the administrator (the “evergreen provision”).
Subject to certain adjustment provisions contained in the 2023
Plan, the maximum number of shares of our Class A Common Stock that may be issued pursuant to awards under the 2023 Plan is 30,000,000 shares, after taking into account the additional shares authorized pursuant to the evergreen provision
described in the preceding paragraph.
The 2023 Plan provides that the evergreen provision will operate
only until the Plan terminates on September 19, 2033 or upon the earlier of termination of the Plan by the Board or a committee of the Board.
Generally, if an award expires or becomes unexercisable without
having been exercised in full, is surrendered under an exchange program described below, or, with respect to restricted stock, restricted stock units or performance awards, is forfeited to or reacquired by us due to the failure to vest, the
unpurchased shares (or for awards other than options or stock appreciation rights, the forfeited or repurchased shares) that were subject to such awards will become available for future grant or sale under the 2023 Plan (unless it has
terminated). With respect to stock appreciation rights, only shares actually issued will cease to be available.
Shares that actually are issued under the 2023 Plan under any
award will not be returned to the 2023 Plan and will not become available for future issuance under the 2023 Plan. Shares used to pay the exercise price of an award or to satisfy the tax withholding obligations related to an award will become
available for future issuance. To the extent an award is paid out in cash rather than shares, such cash payment will not reduce the number of shares available for issuance.
The maximum number of shares that may be issued pursuant to the
exercise of incentive stock options is 15,900,000. To the extent permitted under Section 422 of the Code, shares underlying other awards that may be returned to the Plan may also become available for issuance pursuant to the exercise of
incentive stock options.
If any extraordinary dividend or other extraordinary distribution
(whether in cash, shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, reclassification, repurchase, or exchange of shares or
other securities of AON, other change
98
in the corporate structure of AON affecting the shares, or any similar equity
restructuring transaction, as that term is used in Statement of Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any of its successors) affecting the shares occurs (including a change in control of AON), the
administrator, to prevent diminution or enlargement of the benefits or potential benefits intended to be provided under the 2023 Plan, will adjust the number and class of shares that may be delivered under the 2023 Plan and/or the number,
class, and price of shares covered by each outstanding award, and the numerical share limits contained in the 2023 Plan.
Plan Administration
The Board or a committee appointed by the Board will administer
the 2023 Plan and are referred to as the administrator. Different administrators may administer the 2023 Plan with respect to different groups of service providers. The full Board may retain the authority to concurrently administer the 2023
Plan and revoke the delegation of some or all authority previously delegated.
Subject to the terms of the 2023 Plan and applicable laws, the
administrator generally will have the power, in its sole discretion, to make any determinations and perform any actions deemed necessary or advisable for administering the 2023 Plan. The administrator will have the power to administer the 2023
Plan, including but not limited to the power to construe and interpret the 2023 Plan and awards granted under the 2023 Plan, and determine the terms of awards, including but not limited to the exercise price (if any), the number of shares of
our Class A Common Stock subject to each award, the time when awards may vest or be exercised (including the ability to accelerate the vesting and exercisability of awards), and the form of consideration payable upon exercise, if applicable.
The administrator may select the service providers to whom awards may be granted and approve forms of awards agreements under the 2023 Plan. The administrator will also have the authority to amend awards (including but not limited to the
discretionary authority to extend the post-termination exercisability period of awards and to extend the maximum term of an option) and to temporarily suspend the exercisability of an award if the administrator deems such suspension to be
necessary or appropriate for administrative purposes, subject to the provisions of the 2023 Plan. The administrator may institute and determine the terms and conditions of an exchange program under which (i) outstanding awards are surrendered
or cancelled in exchange for awards of the same type (which may have higher or lower exercise prices and different terms), awards of a different type, and/or cash, (ii) participants have the opportunity to transfer any outstanding awards to a
financial institution or other person or entity selected by the administrator, and/or (iii) the exercise price of an outstanding award is increased or reduced. Unless a participant is on an approved leave of absence, the administrator will have
sole discretion to determine the date on which a participant stops actively providing services to AON or the Company Group. The administrator’s decisions, determinations, and interpretations are final and binding on all participants and any
other holders of awards.
Stock Options
Options with respect to our Class A Common Stock may be granted
under the 2023 Plan. Subject to the provisions of the 2023 Plan, the administrator will determine the terms and conditions of options, including when such options vest and become exercisable (and the administrator will have the discretion to
accelerate the time at which such options will vest or become exercisable) and the acceptable forms of consideration for exercising an option. The per share exercise price of any option generally must be at least 100% of the fair market value
of a share on the date of grant, and the term of an incentive stock option may not be more than 10 years. However, with respect to any incentive stock option granted to an individual who owns 10% of the voting power of all classes of our stock
or any of AON’s parent or subsidiary corporations, the term of such option must not exceed 5 years, and the per share exercise price of such incentive stock option must be at least 110% of the fair market value of a share on the grant date.
After a participant’s service terminates, he or she generally may exercise the vested portion of his or her option for the period of time stated in his or her option agreement. In no event may an option be exercised later than the expiration of
its term, except in certain circumstances where the expiration occurs during a period where exercise is not permitted under applicable law, as described more fully in the 2023 Plan. Subject to the provisions of the 2023 Plan, the administrator
will determine the other terms of options, including but not limited to the acceptable forms of consideration for exercising an option.
Stock Appreciation Rights
Stock appreciation rights may be granted under the 2023 Plan.
Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our Class A Common Stock between the exercise date and the date of grant. Subject to the provisions of the 2023 Plan, the administrator will
determine the terms and conditions
99
of stock appreciation rights, including when such rights vest and become
exercisable (and the administrator will have the discretion to accelerate the time at which such rights will vest or become exercisable) and whether to pay any increased appreciation in cash, shares, or a combination of both. The per share
exercise price of a stock appreciation right must be at least 100% of the fair market value a share on the date of grant with respect to U.S. taxpayers, and the term of a stock appreciation right may not exceed 10 years. After a participant’s
service terminates, he or she generally may exercise the vested portion of his or her stock appreciation right for the period of time stated in his or her award agreement. However, in no event may a stock appreciation right be exercised later
than the expiration of its term, except in certain circumstances where the expiration occurs during a period where exercise is not permitted under applicable law, as described more fully in the 2023 Plan.
Restricted Stock
Restricted stock may be granted under the 2023 Plan. Restricted
stock awards are grants of shares of our Class A Common Stock that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted stock granted to any employee,
director or consultant. The administrator may impose prior to grant whatever conditions to vesting it determines to be appropriate (for example, the administrator may set restrictions based on the achievement of specific performance goals or
continued service to us or members of the Company Group), and the administrator will have the discretion to accelerate the time at which any restrictions will lapse or be removed at any time. Recipients of restricted stock awards generally will
have voting but will not have dividend rights with respect to such shares upon grant without regard to the restriction, unless the administrator provides otherwise. Shares of restricted stock as to which the restrictions have not lapsed are
subject to our right of repurchase or forfeiture.
Restricted Stock Units
Restricted stock units may be granted under the 2023 Plan pursuant
to terms and conditions established by the administrator. A restricted stock units is a bookkeeping entry representing an amount equal to the fair market value of one share of our Class A Common Stock. The administrator will determine the terms
and conditions of restricted stock units including the vesting criteria (which may include accomplishing specified performance criteria or continued service to us or members of the Company Group) and the form and timing of payment. The
administrator will have the discretion to accelerate the time at which any restrictions will lapse or be removed and to settle earned restricted stock units in cash, shares, or a combination of both.
Performance Awards
Performance awards may be granted under the 2023 Plan pursuant to
terms and conditions established by the administrator. Performance awards are awards that will result in a payment to a participant only if objectives established by the administrator are achieved or the awards otherwise vest. The administrator
will establish organizational or individual performance objectives in its discretion, which, depending on the extent to which they are met, will determine the value of the payout for the performance awards to be paid out to participants. The
administrator will have the discretion to reduce or waive any performance objectives or other vesting provisions for performance awards. Performance awards will have a threshold, target, and maximum payout value established by the administrator
on or before the grant date. The administrator will have the discretion to pay earned performance awards in the form of cash, shares of our Class A Common Stock, or a combination of both.
Non-Employee Directors
The 2023 Plan provides that any non-employee director, in any
fiscal year, may not be paid, issued or granted cash retainer fees and equity awards (including awards under the 2023 Plan) with an aggregate value of more than $750,000, increased to $1,500,000 in connection with the non-employee director’s
initial service, with the value of each equity award based on its grant date fair value. For purposes of this limitation, the grant date fair value is determined in accordance with U.S. generally accepted accounting principles. Any cash
compensation or equity awards granted under the 2023 Plan to a non-employee director for his or her services as an employee, or for his or her services as a consultant (other than as a non-employee director), will not count for purposes of the
limitation. The maximum limit does not reflect the intended size of any potential compensation or equity awards to our non-employee directors.
Non-Transferability of Awards
Unless the administrator provides otherwise, the 2023 Plan
generally does not allow for the transfer or disposal of awards and only the recipient of an award may exercise an award during his or her lifetime. Any unauthorized transfer will be void.
100
Dissolution or Liquidation
If there is a proposed liquidation or dissolution of AON, the
administrator will notify participants at such time before the effective date of such event as the administrator determines and all awards, to the extent that they have not been previously exercised, will terminate immediately before the
consummation of such event.
Merger or Change in Control
The 2023 Plan provides that if there is a merger or a “change in
control” (as defined under the 2023 Plan) of AON, each outstanding award will be treated as the administrator determines (subject to the following paragraph) without a participant’s consent, including that an award be continued by the successor
corporation or that vesting of awards may accelerate automatically upon consummation of the transaction. The administrator will not be required to treat all awards, portions of awards or participants similarly and may modify awards, subject to
the provisions of the 2023 Plan.
If the successor corporation does not continue an award (or some
portion of such award), the administrator may provide that the participant will fully vest in (and have the right to exercise) 100% of then-unvested shares subject to his or her outstanding options and stock appreciation rights, all
restrictions on 100% of the participant’s outstanding restricted stock and restricted stock units will lapse, and, regarding 100% of participant’s outstanding awards with performance-based vesting, all performance goals or other vesting
criteria will be treated as achieved at 100% of target levels and all other terms and conditions will be deemed met. In no event will vesting of an award accelerate as to more than 100% of the award. Unless otherwise provided in an award
agreement, if options or stock appreciation rights are not continued when a change in control or a merger of AON with or into another corporation or other entity occurs, the administrator will notify the participant in writing or electronically
that the participant’s vested options or stock appreciation rights (after considering the foregoing vesting acceleration, if any) will be exercisable for a period of time determined by the administrator in its sole discretion and all of the
participant’s options or stock appreciation rights will terminate upon the expiration of such period (whether vested or unvested).
With respect to awards held by a non-employee director, in the
event of a change in control, the non-employee director will fully vest in and have the right to exercise his or her options and/or stock appreciation rights, all restrictions on his or her restricted stock and restricted stock units will
lapse, and, with respect to awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met, unless specifically provided otherwise
under the applicable award agreement or other written agreement with the participant.
Forfeiture and Clawback
All awards granted under the 2023 Plan will be subject to
recoupment under any clawback policy that we are required to adopt under applicable law or listing standards. In addition, the administrator may impose such other clawback, recovery or recoupment provisions in an award agreement as the
administrator determines necessary or appropriate, including without limitation to any reacquisition right regarding previously acquired shares or other cash or property. In addition, the administrator may provide in an award agreement that the
recipient’s rights, payments, and benefits with respect to such award shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of specified events, in addition to any otherwise applicable vesting or performance
conditions of an award.
Amendment or Termination
The 2023 Plan will continue in effect until terminated by the
administrator, but (i) no incentive stock options may be granted after September 19, 2033 and (ii) the 2023 Plan’s evergreen provision (as described above) will operate only until September 19, 2033. In addition, AON’s Board will have the
authority to amend, suspend, or terminate the 2023 Plan, but such action generally may not materially impair the rights of any participant without his or her written consent.
Summary of U.S. Federal Income Tax Consequences
The following summary is intended only as a general guide to the
U.S. federal income tax consequences of participation in the 2023 Plan. The summary is based on existing U.S. laws and regulations as of the date hereof, and there can be no assurance that those laws and regulations will not change in the
future. The summary does not purport
101
to be complete and does not discuss the tax consequences upon a participant’s
death, or the provisions of the income tax laws of any municipality, state or foreign country in which the participant may reside. As a result, tax consequences for any particular participant may vary based on individual circumstances.
Incentive Stock Options
A participant recognizes no taxable income for regular income tax
purposes as a result of the grant or exercise of an option that qualifies as incentive stock option under Section 422 of the Code. If a participant exercises the option and then later sells or otherwise disposes of the shares acquired through
the exercise of the option after both the two-year anniversary of the date the option was granted and the one-year anniversary of the exercise, the participant will recognize a capital gain or loss equal to the difference between the sale price
of the shares and the exercise price, and we will not be entitled to any deduction for federal income tax purposes.
However, if the participant disposes of such shares either on or
before the two-year anniversary of the date of grant or on or before the one-year anniversary of the date of exercise (a “disqualifying disposition”), any gain up to the excess of the fair market value of the shares on the date of exercise (or,
if less, the amount received upon sale of such shares) over the exercise price generally will be taxed as ordinary income, unless the shares are disposed of in a transaction in which the participant would not recognize a gain (such as a gift).
Any gain in excess of that amount will be a capital gain. If a loss is recognized, there will be no ordinary income, and such loss will be a capital loss. Any ordinary income recognized by the participant upon the disqualifying disposition of
the shares generally should be deductible by us for federal income tax purposes, except to the extent such deduction is limited by applicable provisions of the Code.
For purposes of the alternative minimum tax, the difference
between the option exercise price and the fair market value of the shares on the exercise date is treated as an adjustment item in computing the participant’s alternative minimum taxable income in the year of exercise. In addition, special
alternative minimum tax rules may apply to certain subsequent disqualifying dispositions of the shares or provide certain basis adjustments or tax credits for purposes.
Nonstatutory Stock Options
A participant generally recognizes no taxable income as the result
of the grant of such an option. However, upon exercising the option, the participant normally recognizes ordinary income equal to the amount that the fair market value of the shares on such date exceeds the exercise price. If the participant is
an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of the shares acquired by the exercise of a nonstatutory stock option, any gain or loss (based on the difference between the
sale price and the fair market value on the exercise date) will be taxed as capital gain or loss. Any ordinary income recognized by the participant upon exercise of nonstatutory option generally should be deductible by us for federal income tax
purposes, except to the extent such deduction is limited by applicable provisions of the Code. No tax deduction is available to us with respect to the grant of a nonstatutory stock option or the sale of the shares acquired through the exercise
of the nonstatutory stock option.
Stock Appreciation Rights
In general, no taxable income is reportable when a stock
appreciation right is granted to a participant. Upon exercise, the participant generally will recognize ordinary income in an amount equal to the fair market value of any shares received or the amount of cash paid upon settlement. Any
additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss. Any ordinary income recognized by the participant upon exercise of a stock appreciation right generally should be deductible by us for
federal income tax purposes, except to the extent such deduction is limited by applicable provisions of the Code.
Restricted Stock Awards
A participant acquiring shares of restricted stock generally will
recognize ordinary income equal to the fair market value of the shares on the vesting date. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. The participant may elect,
pursuant to Section 83(b) of the Code to accelerate the ordinary income tax event to the date of acquisition by filing an election with the IRS no later than thirty days after the date the shares are acquired. Upon the sale of shares acquired
pursuant to a restricted stock award, any gain or loss, based on the difference between the sale price and the fair market value on the date the
102
ordinary income tax event occurs, will be taxed as capital gain or loss. Any
ordinary income recognized by the participant upon vesting in shares of restricted stock (or upon filing an election under Section 83(b) of the Code) generally should be deductible by us for federal income tax purposes, except to the extent
such deduction is limited by applicable provisions of the Code.
Restricted Stock Unit Awards
There are no immediate tax consequences of receiving an award of
restricted stock units. A participant who is awarded restricted stock units generally will be required to recognize ordinary income in an amount equal to the fair market value of shares issued to such participant at the end of the applicable
vesting period or, if later, the settlement date elected by the administrator or a participant. Any additional gain or loss recognized upon any later disposition of any shares received would be capital gain or loss. Any ordinary income
recognized by the participant upon the issuance of shares pursuant to a restricted stock unit award generally should be deductible by us for federal income tax purposes, except to the extent such deduction is limited by applicable provisions of
the Code.
Performance Awards
A participant generally will recognize no income upon the grant of
a performance award. Upon the settlement of such awards, participants normally will recognize ordinary income in the year of receipt in an amount equal to the cash received and the fair market value of any unrestricted shares received. If the
participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market
value on the date the ordinary income tax event occurs, will be taxed as capital gain or loss. Any ordinary income recognized by the participant upon settlement of a performance award generally should be deductible by us for federal income tax
purposes, except to the extent such deduction is limited by applicable provisions of the Code.
Section 409A
Section 409A of the Code provides certain requirements for
non-qualified deferred compensation arrangements with respect to an individual’s deferral and distribution elections and permissible distribution events. Awards granted under the 2023 Plan with a deferral feature will be subject to the
requirements of Section 409A. If an award is subject to and fails to satisfy the requirements of Section 409A, the recipient of that award may recognize ordinary income on the amounts deferred under the award, to the extent vested, which may be
prior to when the compensation is actually or constructively received. Also, if an award that is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on compensation
recognized as ordinary income, as well as interest on such deferred compensation.
Tax Effect for AON
AON generally will be entitled to a tax deduction in connection
with an award under the 2023 Plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, upon the exercise of a nonstatutory stock option) except to the extent
such deduction is limited by applicable provisions of the Code. Special rules limit the deductibility of compensation paid to our chief executive officer and certain “covered employees” as determined under Section 162(m) and applicable
guidance. Under Section 162(m), the annual compensation paid to any of these specified individuals will be deductible only to the extent that it does not exceed $1,000,000.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT
OF U.S. FEDERAL INCOME TAXATION UPON PARTICIPANTS AND AON WITH RESPECT TO AWARDS UNDER THE 2023 PLAN. IT DOES NOT PURPORT TO BE COMPLETE AND DOES NOT DISCUSS THE IMPACT OF EMPLOYMENT OR OTHER TAX REQUIREMENTS, THE TAX CONSEQUENCES OF A
PARTICIPANT’S DEATH, OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE, OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.
103
Non-Employee Director Compensation
During the year ended December 31, 2022, AON LLC did not have a
formal non-employee director compensation program. The following table provides total compensation paid or awarded in 2022 to its AON LLC’s non-employee directors who served on the AON Board of Managers of AON LLC during 2022 based on our
informal compensation program. Compensation to AON LLC directors consisted of a $1,500 hourly rate to its board chair for all board meetings attended, with $1,000 hourly rate for all other directors for their attendance at board meetings.
Additionally, all directors were compensated at a rate of $375 per hour for all advisory and committee hours contributed throughout the year. Further, AON LLC reimburse non-employee members of its Board of Managers for reasonable costs and
expenses incurred in attending board meetings.
|
|
| |
Fees Earned
or Paid in
Cash
|
|
Name(1)
|
| |
($)
|
|
Stephen Orman
|
| |
34,243
|
|
Vipul Patel
|
| |
20,188
|
|
Daniel Spitz
|
| |
18,788
|
|
Douglas Heldreth
|
| |
16,938
|
|
Shalin Shah
|
| |
15,188
|
|
Craig Reynolds
|
| |
2,688
|
|
Richard Knipe(2)
|
| |
2,475
|
|
Roy Ambinder
|
| |
2,475
|
|
Ryan Olson(2)
|
| |
2,475
|
|
Vance Wright-Browne(2)
|
| |
2,475
|
|
David Wright(2)
|
| |
1,725
|
|
(1)
|
Mr. Reynolds left the Board of Managers during 2022.
|
|
(2)
|
Such individuals did not serve as directors on the Board of Managers of AON during 2022, but served on certain ad hoc
committees of the AON Board of Managers. Compensation disclosed herein with respect to such individuals reflects compensation in connection with such service.
|
104
The table below sets forth information regarding the beneficial
ownership of AON common stock as of October 1, 2023, a recent practicable date prior to the date of this prospectus for:
|
•
|
each person known who is the beneficial owner of more than 5% of the outstanding shares of AON Class A Common Stock, Class B
Common Stock and Series A Preferred Stock;
|
|
•
|
each member of the Board and each of AON’s named executive officers (including former executive officer Bradley Prechtl, who
is a Named Executive Officer of AON as of the end of the last fiscal year;
|
|
•
|
all current executive officers and directors of the Company, as a group
|
Beneficial ownership is determined according to the rules of the
SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security or the right to acquire such power within 60 days.
As of October 1, 2023 were (i) 9,532,354 shares of AON Class A
Common Stock issued and outstanding immediately following the consummation of the Business Combination, which includes the Sponsor Earnout shares of 2,918,125, (ii) 25,109,551 shares of AON Class B Common Stock issued and outstanding, which
excludes 3,000,245 shares of Class B Warrants and (iii) 6,651,610 shares of Series A Preferred Stock issued and outstanding, which votes on an as-converted basis equal to 6,651,610 shares of Class A Common Stock.
Unless otherwise indicated, the Company believes that all persons
named below have sole voting and investment power with respect to the voting securities indicated in the table below and the corresponding footnotes as being beneficially owned by them.
|
Name and Address of Beneficial Owner(1)
|
| |
Number of
shares of
AON
Class A
Common
Stock
|
| |
% of
Class A
Common
Stock
|
| |
Number of
shares of
AON
Class B
Common
Stock
|
| |
% of
Class B
Common
Stock
|
| |
Voting
Power(5)
|
| |
% Voting
Power(5)
|
|
AON Directors and Named Executive
Officers
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Todd Schonherz
|
| |
—
|
| |
—
|
| |
869,459
|
| |
3.46%
|
| |
869,459
|
| |
2.11%
|
|
Bradley Prechtl (former President and Chief Development
Officer)
|
| |
—
|
| |
—
|
| |
1,428,065
|
| |
5.69%
|
| |
1,428,065
|
| |
3.46%
|
|
David Gould
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
*%
|
|
Stephen “Fred” Divers, MD
|
| |
—
|
| |
—
|
| |
63,857
|
| |
*%
|
| |
63,857
|
| |
*%
|
|
James Stith
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
*%
|
|
Bradley Fluegel
|
| |
25,000
|
| |
*%
|
| |
—
|
| |
—
|
| |
—
|
| |
*%
|
|
Ravi Sarin
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
*%
|
|
Erica Mallon
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
*%
|
|
All Directors and Executive Officers as a group (seven
individuals)(2)
|
| |
25,000
|
| |
*%
|
| |
933,316
|
| |
3.72%
|
| |
958,216
|
| |
2.32%
|
|
AON Five Percent Holders:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Digital Transformation Sponsor LLC(3)
|
| |
14,225,833
|
| |
90.9%
|
| |
—
|
| |
—
|
| |
14,225,833
|
| |
30.0%
|
|
AEA Growth Funds(4)
|
| |
501,702
|
| |
4.99%
|
| |
—
|
| |
—
|
| |
6,651,610
|
| |
16.11%
|
|
*
|
Less than one percent.
|
|
(1)
|
Unless otherwise noted, the business address of each of the directors and officers will be c/o American Oncology Network,
Inc., 14543 Global Parkway, Suite 110, Fort Myers, FL 33913
|
|
(2)
|
Excludes Bradley Prechtl, AON’s former President and Chief Development Officer.
|
|
(3)
|
The shares reported above are held in the name of the Sponsor. The amount disclosed includes 6,113,333 shares issuable upon
exercise of private placement warrants and includes 2,918,125 shares that are subject to earnout. The Sponsor is managed by Kevin Nazemi, and Mr. Nazemi has sole voting and dispositive power with respect to the shares held of record by
the Sponsor and thus is the beneficial owner of the shares owned by the Sponsor. The business address of the Sponsor is 10250 Constellation Blvd, Suite 23126 Los Angeles, CA 90067.
|
|
(4)
|
The shares reported as beneficially owned consist of 501,702 shares issuable to AEA Growth Equity Fund LP and AEA Growth
Equity Fund (Parallel) LP (collectively, the “AEA Growth Funds”) upon conversion of the AON Series A Preferred Stock at an initial conversion price of $10.00 per share, taking into account that certain Conversion Restriction
Agreement dated October 12, 2023, which provides, among other things, that the AON Series A Preferred Stock and any other securities beneficially owned or subsequently acquired by the AEA Growth
|
105
Funds which are exercisable for, convertible into or otherwise exchangeable for
Class A Common Stock may convert into a number of Class A Common Stock to the extent that, upon such exercise, conversion or exchange, the AEA Growth Funds (together with its affiliates, any other persons acting or who could be deemed to be
acting as a group (as that term is used in Section 13(d) of the Exchange Act and as defined in Rule 13d-5 thereunder), and any persons whose beneficial ownership of Class A Common Stock would or could be aggregated with the AEA Growth Funds’
and the other Attribution Parties’ (as defined in the Conversion Restriction Agreement) for purposes of Section 13) do not beneficially own in excess of 4.99% of outstanding shares of Class A Common Stock, immediately following the exercise,
conversion or exchange thereof. Notwithstanding the Conversion Restriction Agreement, the AEA Growth Funds may vote its shares of AON Series A Preferred Stock on a fully-converted basis, or voting power equal to 6,651,610 shares as of the date
of this prospectus. The general partner of each of the AEA Growth Funds is AEA Growth Equity Partners LP. The general partner of AEA Growth Equity Partners LP is AEA Growth Equity GP LLC. The sole member of AEA Growth Equity GP LLC is AEA
Management UGP LLC. Brian Hoesterey is a managing member of AEA Management UGP LLC. As a result, Mr. Hoesterey may be deemed to share voting and dispositive power with respect to the shares held of record by the AEA Growth Funds. Mr. Hoesterey
expressly disclaims beneficial ownership of the shares held by the AEA Growth Funds. Mr. Sarin and Mr. Stith, each a member of the AON board of directors, are partners of AEA Growth but do not hold voting or dispositive power over the shares
held by the AEA Growth Funds. The address for the AEA Growth Funds is 520 Madison Avenue, 40th Floor, New York, New York 10022.
|
(5)
|
Voting power and percentage voting power represents the voting power with respect to the Class A Common Stock, Class B Common
Stock and Series A Preferred Stock on an aggregate basis.
|
106
This prospectus relates to the resale by the Selling
Securityholders of (a) 51,161,832 shares of Class A Common Stock and (b) 6,113,333 private placement warrants to purchase Class A Common Stock. The Selling Securityholders may from time to time (after the expiration of any applicable lock-up
period), offer and sell any or all of the shares of Class A Common Stock and/or Private Placement Warrants set forth below pursuant to this prospectus and any accompanying prospectus supplement. When we refer to the “Selling Securityholders” in
this prospectus, we mean the persons listed in the table below, together with any additional selling securityholders listed in a subsequent amendment to this prospectus and their pledgees, donees, transferees, assignees, successors, designees
and others who later come to hold any of the Selling Securityholders’ interest in the Class A Common Stock other than through a public sale. We cannot advise you as to whether the Selling Securityholders will in fact sell any or all of such
shares of Class A Common Stock or Private Placement Warrants. In addition, the Selling Securityholders may sell, transfer or otherwise dispose of, at any time and from time to time, the shares of Class A Common Stock and/or Private Placement
Warrants in transactions exempt from the registration requirements of the Securities Act after the date of this prospectus. See “Plan of Distribution.” For purposes of this table, we have assumed that
all of the Earnout Shares have been vested to the Sponsor in accordance with the terms of the Business Combination Agreement and the Selling Securityholders will have sold all of the securities covered by this prospectus upon the completion of
the offering.
The following table sets forth, as of the date of this filing, (i)
the aggregate number of shares of Class A Common Stock and warrants that the Selling Securityholders hold, including any Class A Common Stock underlying convertible securities, (ii) the aggregate number of shares of Class A Common Stock and
warrants that the Selling Securityholders may offer pursuant to this prospectus and (iii) the number of shares of Class A Common Stock and warrants held by the Selling Securityholders after the sale of the securities offered hereby.
A Selling Securityholder may sell or otherwise transfer all, some
or none of such shares in this offering. Except as set forth in the footnotes below, the address of each Selling Securityholder is c/o American Oncology Network, Inc. 14543 Global Parkway, Suite 110, Fort Myers, FL 33913.
|
|
| |
Before the Offering
|
| |
Number of
Shares of
Common
Stock
Being
Offered
|
| |
Number of
Private
Placement
Warrants
Being
Offered
|
| |
After the Offering
|
|||||||||
|
Selling Securityholder
|
| |
Shares of
Class A
Common
Stock
(including
underlying
shares of
Class A
Common
Stock)(1)
|
| |
Number of
Private
Placement
Warrants
|
| |
Number of
Shares of
Common
Stock
(including
underlying
shares of
Class A
Common
Stock)
|
| |
% of
Class A
Common
Stock(2)
|
| |
Number of
Private
Placement
Warrants
|
||||||
|
Digital Transformation Sponsor LLC(3)
|
| |
14,225,833
|
| |
6,113,333
|
| |
14,225,833
|
| |
6,113,333
|
| |
—
|
| |
—
|
| |
—
|
|
Kyle Francis(4)
|
| |
150,000
|
| |
|
| |
150,000
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Bradley Fluegel(5)
|
| |
25,000
|
| |
|
| |
25,000
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Jim Moffatt(5)
|
| |
25,000
|
| |
|
| |
25,000
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Heather Zynczak(5)
|
| |
25,000
|
| |
|
| |
25,000
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
AEA Growth Equity Fund LP(6)
|
| |
4,132,878
|
| |
|
| |
4,132,878
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
AEA Growth Equity Fund (Parallel) LP(7)
|
| |
1,556,970
|
| |
|
| |
1,556,970
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Healthquest Tactical Opportunities Fund, L.P(8)
|
| |
2,646,687
|
| |
|
| |
2,646,687
|
| |
|
| |
|
| |
|
| |
|
|
KRP Investments Inc.(9)
|
| |
3,000,245
|
| |
|
| |
3,000,245
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Ahmed Al-Hazzouri, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Amit I. Shah, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Ananth Krishnan Iyer, M.D.(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Andres W. Bhatia, M.D. and Jennifer Bhatia(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Andrew J. Lipman Revocable Trust dated 5/20/2008(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Arthur Joseph Matzkowitz, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Avram Jonathan Smukler, M.D. Revocable Trust(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Christopher L. Alexander, D.O(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Christopher Miles McCanless, M.D.(10)
|
| |
85,059
|
| |
|
| |
85,059
|
| |
|
| |
—
|
| |
—
|
| |
—
|
107
|
|
| |
Before the Offering
|
| |
Number of
Shares of
Common
Stock
Being
Offered
|
| |
Number of
Private
Placement
Warrants
Being
Offered
|
| |
After the Offering
|
|||||||||
|
Selling Securityholder
|
| |
Shares of
Class A
Common
Stock
(including
underlying
shares of
Class A
Common
Stock)(1)
|
| |
Number of
Private
Placement
Warrants
|
| |
Number of
Shares of
Common
Stock
(including
underlying
shares of
Class A
Common
Stock)
|
| |
% of
Class A
Common
Stock(2)
|
| |
Number of
Private
Placement
Warrants
|
||||||
|
Craig Reynolds, M.D(10) (11)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Daniel L. Spitz Revocable Trust(10) (12)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Daniel L. Spitz, M.D.(10) (12)
|
| |
247,753
|
| |
|
| |
247,753
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
David T. Wenk, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Don Luong, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Douglas D. Heldreth, M.D. and Regina Heldreth(10) (14)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Fadi Kayali, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Flora E. Melgen Revocable Trust(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Flora E. Ndum(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Gajanan A. Kulkarni, M.D. and Hemalata G. Kulkarni, TBE(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Geethanjali K. Akula, M.D(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Gerald Patrick Miletello, M.D.(10)
|
| |
85,059
|
| |
|
| |
85,059
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Gordan Family Irrevocable Trust, UAD August 30, 2018(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Gordan Family Irrevocable Trust, UAD August 30, 2018,
William Porter,Trustee(10)
|
| |
247,753
|
| |
|
| |
247,753
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Gregoire H. Bergier, M.D(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Gustavo A. Fonseca, M.D., FACP(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Hafeez Tajuddin Chatoor, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Hitesh C. Patel, M.D. and Anjni Patel(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Howard Goodman, M.D. and Caroline R. Goodman, TBE(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Ivor Percent Revocable Trust dated 1/10/2012(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
JA Investments of Tampa II(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Jay Wang, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Jaydev Avashia, M.D. and Bhairavi J. Avashia, TBE(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Jeanna L. Knoble, M.D.(10)
|
| |
36,358
|
| |
|
| |
36,358
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Jeffrey Zangmeister, M.D.(10)
|
| |
36,358
|
| |
|
| |
36,358
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Jennifer L. Ball-Englert, D.O(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Jennifer L. Cultrera, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Jerry W. Mitchell, M.D.(10)
|
| |
36,358
|
| |
|
| |
36,358
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Joe’s Own, LLC(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Joel Grossman Co-Trustee of the Joel S. Grossman
Revocable Trust dated October 15, 2013(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Jorge Ayub Trust(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Jose Alemar, M.D. and Ciara Rios, TBE(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Julia A. Cogburn, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Kapisthalam S. Kumar, M.D. and Katherine L. Kumar, TBE(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Karin P. Bigman, M.D(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Kathleen B. Doughney, M.D(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Kerry E. Chamberlain, D.O. and Linda Chamberlain, TBE(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Knipe Spousal Beneficiary Trust(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
108
|
|
| |
Before the Offering
|
| |
Number of
Shares of
Common
Stock
Being
Offered
|
| |
Number of
Private
Placement
Warrants
Being
Offered
|
| |
After the Offering
|
|||||||||
|
Selling Securityholder
|
| |
Shares of
Class A
Common
Stock
(including
underlying
shares of
Class A
Common
Stock)(1)
|
| |
Number of
Private
Placement
Warrants
|
| |
Number of
Shares of
Common
Stock
(including
underlying
shares of
Class A
Common
Stock)
|
| |
% of
Class A
Common
Stock(2)
|
| |
Number of
Private
Placement
Warrants
|
||||||
|
Kosloff AON, LLC(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Koteshwar Rao Telukuntla, M.D(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Laura C. Dickerson, M.D.(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Laura M. Rodriguez Trust(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Li Li, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Luis Vaccarello, M.D.(10)
|
| |
36,358
|
| |
|
| |
36,358
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Lynn F. Cleveland, TOD David M. Cleveland(10)
|
| |
63,857
|
| |
|
| |
63,857
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Maen A. Hussein, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Magda Melchert, M.D(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Malhotra, LLLP(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Mamta T. Choksi, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Manish R. Patel AON, LLC(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Marays Veliz, M.D(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Marc L. Segal, M.D.(10)
|
| |
36,358
|
| |
|
| |
36,358
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Maria Regina Flores Trust(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Mark H, Knapp, M.D.(10)
|
| |
36,358
|
| |
|
| |
36,358
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Mark S. Robbins Revocable Trust u/a/d June 3, 2020(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Mary M. Li, LLC(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Matthew A. Fink, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Michael Diaz, M.D. and Stephanie Jo Diaz, TBE(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Michael G. Raymond, M.D. and Etleva Raymond, TBE(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Michael J. Castine, III, M.D.(10)
|
| |
85,059
|
| |
|
| |
85,059
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Michael J. McCleod Trust(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Moideen Family Revocable Trust(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Neal E. Rothschild, M.D(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Noel Maun, M.D., Ph.D. and Erica B. Maun, TBE(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Noor M. Merchant, M.D. and Sulkayna Merchant(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Nuruddin Jooma, M.D., P.L.L.C(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Oncology Platform, LLC(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
P. Bhaichand Investments, LLC(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
P. Kothai Sundaram, M.D.(10)
|
| |
36,358
|
| |
|
| |
36,358
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Pablo C. Reyes, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Padmaja and Rajesh Kumar Sai Revocable Living Trust
Dated September 7, 2005(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Patrick Acevedo, M.D. and Kelly Acevedo(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Patrick C. Elwood, M.D.(10)
|
| |
36,359
|
| |
|
| |
36,359
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Paul M. Dodd, III, M.D. and Faith A. Dodd(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Philip H. Dunn, M.D(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Plover Investments, LLC(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Prechtl Family Trust U/T/A Dated November 21, 2017(10)
(16)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
109
|
|
| |
Before the Offering
|
| |
Number of
Shares of
Common
Stock
Being
Offered
|
| |
Number of
Private
Placement
Warrants
Being
Offered
|
| |
After the Offering
|
|||||||||
|
Selling Securityholder
|
| |
Shares of
Class A
Common
Stock
(including
underlying
shares of
Class A
Common
Stock)(1)
|
| |
Number of
Private
Placement
Warrants
|
| |
Number of
Shares of
Common
Stock
(including
underlying
shares of
Class A
Common
Stock)
|
| |
% of
Class A
Common
Stock(2)
|
| |
Number of
Private
Placement
Warrants
|
||||||
|
Prechtl Family Trust U/T/A Dated November 21, 2017,
Christopher Thomas Prechtl, Trustee(10) (16)
|
| |
1,238,765
|
| |
|
| |
1,238,765
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
R. Timothy Webb, Trustee FBO Tim Webb Revocable Trust(10)
|
| |
63,857
|
| |
|
| |
63,857
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Ralph Gousse, M.D.(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Ramana Dutt, M.D(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Rambabu Tummala, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Ramesh Kantilal Shah, M.D(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Raul E. Storey-Rojas, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Robert T. Muldoon, TOD Caroline E. Muldoon(10)
|
| |
63,857
|
| |
|
| |
63,857
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Robert W. Weaver, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Rohatgi FCS Investments, LLC(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Roy M. Ambinder, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Roy M. Ambinder, M.D.(10)
|
| |
247,753
|
| |
|
| |
247,753
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Rubin AON, LLC(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Ryan Olson, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Sachin S. Kamath, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
SALLYKIMMIE, LLC Marilyn M. Raymond, M.D and Robert
Raymond, , TBE Members and Managers(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Sandeep K. Thaper, M.D(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Sarah Cevallos(10)
|
| |
250,077
|
| |
|
| |
250,077
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Sawsan G. Bishay, M.D. and Adel A. Bishay(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Schonherz Family Trust(10) (15)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Schonherz Family Trust, Brian Schonherz, Trustee(10)
(15)
|
| |
743,259
|
| |
|
| |
743,259
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Servillano E. Dela Cruz, Jr., M.D(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Shachar Peles, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Shalin Ramesh Shah, D.O(10) (13)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Shyani, LLC(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Silvia A. Romero Revocable Trust dated 5/16/2011(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Stefani L. Capone, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Stephen G. Divers, Trustee FBO Fred Divers Family Trust(10)
(20)
|
| |
63,857
|
| |
|
| |
63,857
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Stephen V. Orman Trust Agreement 42795(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Stephen V. Orman Trust Agreement March 1, 2017, Stephen
V. Orman, Trustee(10) (19)
|
| |
247,753
|
| |
|
| |
247,753
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Sumithra Vattigunta-Gopal, M.D., FACP(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Sunil G. Gandhi, M.D., FACP(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Syed Zafar, M.D(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
SYNIK , an Irrevocable Complex Business Trust(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Taral Patel, M.D.(10)
|
| |
36,359
|
| |
|
| |
36,359
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Tarek A. Chidiac, M.D.(10)
|
| |
36,359
|
| |
|
| |
36,359
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
The 2021 AJVS Irrevocable Trust(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
110
|
|
| |
Before the Offering
|
| |
Number of
Shares of
Common
Stock
Being
Offered
|
| |
Number of
Private
Placement
Warrants
Being
Offered
|
| |
After the Offering
|
|||||||||
|
Selling Securityholder
|
| |
Shares of
Class A
Common
Stock
(including
underlying
shares of
Class A
Common
Stock)(1)
|
| |
Number of
Private
Placement
Warrants
|
| |
Number of
Shares of
Common
Stock
(including
underlying
shares of
Class A
Common
Stock)
|
| |
% of
Class A
Common
Stock(2)
|
| |
Number of
Private
Placement
Warrants
|
||||||
|
The Rao Family Joint Revocable Trust(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Thomas P. Clark(10)
|
| |
370,403
|
| |
|
| |
370,403
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Thomas P. Clark and Patricia Clark, TBE(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Timothy D. Moore, M.D.(10)
|
| |
36,359
|
| |
|
| |
36,359
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Todd A. Gersten, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Tyjote, LLC(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Uday B. Dandamudi, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
V. Upender Rao, M.D., FACP(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Vance M. Wright-Browne, M.D. and Edward M. Browne, TBE(10)
(17)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Vasundhara G. Iyengar, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Vijay Patel, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Vipul Patel, M.D(10) (18)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Vivian D. Griffin, M.D(10)
|
| |
126,200
|
| |
|
| |
126,200
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
William Harwin, M.D.(10)
|
| |
618,156
|
| |
|
| |
618,156
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
William N. Harwin 2012 Gift Trust f/b/o Daniel Harwin
dated 11/19/2012(10)
|
| |
22,716
|
| |
|
| |
22,716
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
William N. Harwin 2012 Gift Trust f/b/o Jeffrey Harwin
dated 11/19/2012(10)
|
| |
22,716
|
| |
|
| |
22,716
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
William N. Harwin 2012 Gift Trust f/b/o Kristen Harwin
dated 11/19/2012(10)
|
| |
22,716
|
| |
|
| |
22,716
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
William N. Harwin 2012 Gift Trust f/b/o Peter Harwin
dated 11/19/2012(10)
|
| |
22,716
|
| |
|
| |
22,716
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
William N. Harwin 2012 Gift Trust f/b/o Daniel Harwin
dated 11/19/2012(10)
|
| |
154,539
|
| |
|
| |
154,539
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
William N. Harwin 2012 Gift Trust f/b/o Jeffrey Harwin
dated 11/19/2012(10)
|
| |
154,539
|
| |
|
| |
154,539
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
William N. Harwin 2012 Gift Trust f/b/o Kristin Harwin
dated 11/19/2012(10)
|
| |
154,539
|
| |
|
| |
154,539
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
William N. Harwin 2012 Gift Trust f/b/o Peter Harwin
dated 11/19/2012(10)
|
| |
154,539
|
| |
|
| |
154,539
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
William N. Harwin Trust dated 7/14/1994(10)
|
| |
95,912
|
| |
|
| |
95,912
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Wright Investment Holdings, LLC(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Yallappa Nadiminti Spousal Limited Access Trust(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
Yon Kyu Peter Park, M.D(10)
|
| |
189,300
|
| |
|
| |
189,300
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
TIFF Private Equity Partners 2022, L.P.(21)
|
| |
264,668
|
| |
|
| |
264,668
|
| |
|
| |
—
|
| |
—
|
| |
—
|
|
(1)
|
“Shares of Class A Common Stock (including underlying shares of Class A Common Stock)” includes , including any Class A Common
Stock underlying Class B Common Stock, Warrants to purchase Class B Common Stock, Series A Preferred Stock and/or privates warrants to purchase Class A Common Stock.
|
|
(2)
|
After the Offering -- Percentage of Shares of Class A Common Stock” based on a total of 52,356,686 shares of common stock,
which number includes (i) 9,532,354 shares of Class A Common Stock outstanding as of the date of this prospectus, plus (ii) 28,109,796 shares of Class A Common Stock issuable upon the exchange of a corresponding number of Class B Common
Stock or Class B Warrants (together with AON LLC common units), plus (iii) 8,601,203 shares of Class A Common Stock issuable upon conversion of outstanding shares of Series A Preferred Stock (including non-cash dividends payable at
AON’s election) and plus (iv) 6,113,333 shares of Class A Common Stock which may be acquired upon exercise of the Company warrants.
|
|
(3)
|
The Selling Securityholder’s address is 10250 Constellation Blvd., Suite 23126, Los Angeles CA 90067. Class A Common Stock
held before the offering and offered pursuant to this prospectus consists of (i) 8,112,500 shares of Class A Common Stock, which includes 2,839,375 shares that are subject to earnout, and (ii) 6,113,333 shares of Class A Common Stock
issuable upon exercise of private placement warrants.
|
111
|
(4)
|
The Selling Securityholder’s address is 10250 Constellation Blvd STE 23126, Los Angeles CA 90067. Class A Common Stock held
before the offering and offered pursuant to this prospectus consists of 150,000 shares of Class A Common Stock. The Selling Securityholder is managed by Kevin Nazemi, and Mr. Nazemi has sole voting and dispositive power with respect to
the shares and warrants held of record by the Sponsor.
|
|
(5)
|
The Selling Securityholder’s address is 10250 Constellation Blvd STE 23126, Los Angeles CA 90067. Class A Common Stock held
before the offering and offered pursuant to this prospectus consists of 25,000 shares of Class A Common Stock.
|
|
(6)
|
The Selling Securityholder’s address is 520 Madison Avenue 40th Floor, New York, NY 10022. Class A Common Stock held before
the offering and offered pursuant to this prospectus consists of shares of Class A Common Stock issuable upon conversion of 3,196,099 shares of Series A Preferred Stock, including an assumed amount of non-cash dividends that may accrue
on the shares of Series A Preferred Stock and increase the number of shares of Class A Common Stock issuable upon conversion of the Series A Preferred Stock pursuant to their terms.
|
|
(7)
|
The Selling Securityholder’s address is 520 Madison Avenue 40th Floor, New York, NY 10022. Class A Common Stock held before
the offering and offered pursuant to this prospectus consists of shares of Class A Common Stock issuable upon conversion of 1,204,059 shares of Series A Preferred Stock, including an assumed amount of non-cash dividends that may accrue
on the shares of Series A Preferred Stock and increase the number of shares of Class A Common Stock issuable upon conversion of the Series A Preferred Stock pursuant to their terms.
|
|
(8)
|
The Selling Securityholder’s address is 555 Twin Dolphin Drive, Suite 370, Redwood City, CA 94065. Class A Common Stock held
before the offering and offered pursuant to this prospectus consists of shares of Class A Common Stock issuable upon conversion of 2,046,775 shares of Series A Preferred Stock, including an assumed amount of non-cash dividends that may
accrue on the shares of Series A Preferred Stock and increase the number of shares of Class A Common Stock issuable upon conversion of the Series A Preferred Stock pursuant to their terms.
|
|
(9)
|
The Board of Directors of KRP Investments, Inc. (``KRP''), comprised of three individuals, has discretionary authority to vote
and dispose of the shares held by KRP. All decisions of the Board of Directors of KRP are determined on a majority basis, and no individual on the Board of Directors of KRP has sole authority to vote or dispose of the shares held by
KRP. The principal business address of KRP is c/o American Oncology Network, Inc. 14543 Global Parkway, Suite 110, Fort Myers, FL 33913.
|
|
(10)
|
Class A Common Stock held before the offering and offered pursuant to this prospectus consists of shares of Class A Common
Stock issuable upon exchange of an equal number of Class B Common Stock together with an equal number of AON LLC common units.
|
|
(11)
|
Craig Reynolds was, within the past three years, a member on AON LLC’s Board of Managers.
|
|
(12)
|
Daniel L. Spitz was, within the past three years, a member on AON LLC’s Board of Managers.
|
|
(13)
|
Shalin Ramesh Shah is a former member on our Board of Directors.
|
|
(14)
|
Douglas D. Heldreth was, within the past three years, a member on AON LLC’s Board of Managers.
|
|
(15)
|
Schonherz Family Trust and Schonherz Family Trust, Brian Schonherz, Trustee hold the shares of Class A Common Stock that are
being registered pursuant to this prospectus for the benefit of Todd Schonherz, our Chief Executive Officer and member on the Board of Directors.
|
|
(16)
|
Prechtl Family Trust U/T/A Dated November 21, 2017 Dated November 21, 2017 and Prechtl Family Trust U/T/A Dated November 21,
2017, Christopher Thomas Prechtl, Trustee hold the shares of Class A Common Stock that are being registered pursuant to this prospectus for the benefit of Bradley Prechtl, our former President and Chief Development Officer.
|
|
(17)
|
Vance M. Wright-Browne is a former member on our Board of Directors.
|
|
(18)
|
Vipul Patel is a former member on our Board of Directors.
|
|
(19)
|
Stephen V. Orman was, within the past three years, a member on AON LLC’s Board of Managers.
|
|
(20)
|
Stephen G. Divers, Trustee FBO Fred Divers Family Trust hold the shares of Class A Common Stock that are being registered
pursuant to this prospectus for the benefit of Stephen “Fred” Divers, our Chief Medical Officer and member on the Board of Directors.
|
|
(21)
|
The Selling Securityholder’s address is 170 N. Radnor Chester Road, Suite 300, Radnor, PA 19087. Class A Common Stock held
before the offering and offered pursuant to this prospectus consists of shares of Class A Common Stock issuable upon conversion of 204,677 shares of Series A Preferred Stock, including an assumed amount of non-cash dividends that may
accrue on the shares of Series A Preferred Stock and increase the number of shares of Class A Common Stock issuable upon conversion of the Series A Preferred Stock pursuant to their terms.
|
112
American Oncology Network
Prior to the Business Combination, since January 1, 2022, AON LLC
did not engage in any related party transactions that are required to be reported under the provisions of Item 404 of Regulation S-K. Following the Business Combination, the Company did not engage in any related party transactions under the
provisions of Item 404 of Regulation S-K.
DTOC Related Party Transactions Prior to the Business Combination
Founder Shares
On January 8, 2021, DTOC issued an aggregate of 7,187,500 shares
of Class B Common Stock to the Sponsor for an aggregate purchase price of $25,000 in cash, or approximately $0.003 per share. The number of shares of Class B Common Stock issued was determined based on the expectation that such shares would
represent 20% of the outstanding shares of common stock upon completion of the IPO. On March 9, 2021, DTOC effected a stock dividend of 0.2 shares for each share of Class B Common Stock outstanding, resulting in the Sponsor holding an aggregate
of 8,625,000 shares of Class B Common Stock. The Sponsor subsequently transferred 25,000 shares of Class B Common Stock to each of DTOC’s independent directors, and 150,000 shares of Class B Common Stock to Kyle Francis, DTOC’s Chief Financial
Officer. Up to 1,125,000 shares of Class B Common Stock were subject to forfeiture by the Sponsor depending on the extent to which the underwriter’s over-allotment option was exercised. On March 12, 2021, the underwriter partially exercised its
over-allotment option, hence, 837,500 shares of Class B Common Stock were no longer subject to forfeiture. On March 15, 2021, the underwriter forfeited the remaining over-allotment option, and hence 287,500 shares of Class B Common Stock were
subsequently forfeited.
On March 7, 2023, in connection with the approval of the Extension
Amendment Proposal, the Sponsor and Mr. Francis converted all of their respective Founder Shares into an aggregate of 8,262,500 shares of DTOC Class A Common Stock.
The Initial Stockholders agreed, subject to limited exceptions,
not to transfer, assign or sell any of the Founder Shares until the earlier to occur of: (1) one year after the completion of the initial business combination; and (2) subsequent to the initial business combination (x) if the last reported sale
price of the Class A Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any twenty (20)-trading days within any 30-trading day period commencing
at least 150 days after the initial Business Combination or (y) the date on which we complete a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the public stockholders having the
right to exchange their shares of common stock for cash, securities or other property.
Private Placement Warrants
Simultaneously with the closing of DTOC’s IPO, DTOC consummated
the private placement of 6,113,333 Private Placement Warrants at a price of $1.50 per Private Placement Warrant to the Sponsor, generating proceeds of $9.17 million.
Each whole Private Placement Warrant is exercisable for one whole
share of DTOC Class A Common Stock at a price of $11.50 per share, subject to adjustment. A portion of the proceeds from the sale of the Private Placement Warrants was added to the proceeds from DTOC’s IPO held in the Trust Account. The Private
Placement Warrants are non-redeemable for cash (except in certain limited circumstances) and exercisable on a cashless basis so long as they are held by the Sponsor or its permitted transferees.
The Sponsor and DTOC’s officers and directors agreed, subject to
limited exceptions, not to transfer, assign or sell any of their Private Placement Warrants until 30 days after the completion of the initial business combination.
Registration Rights
The holders of Founder Shares and Private Placement Warrants (and
any shares of DTOC Class A Common Stock issuable upon the exercise of the Private Placement Warrants), are entitled to registration rights pursuant to the amended and restated registration rights agreement. The amended and restated registration
rights agreement will terminate on the earlier of (i) the tenth anniversary of the date of the Registration Rights Agreement and (ii) with respect to the Sponsor or any holder of registrable securities party thereto, the date that such person
no longer holds any registrable securities.
113
Related Party Notes
On January 8, 2021, DTOC issued an unsecured promissory note to
the Sponsor for an aggregate of up to $300,000 to cover expenses related to the IPO. This loan was non-interest bearing and payable on the earlier of December 31, 2021 or the completion of the IPO. During the period from January 8, 2021 to
March 12, 2021, DTOC had borrowed $212,215 under the promissory note. On March 12, 2021, DTOC paid the balance on the note from the proceeds of the IPO.
Upon the Closing of the Business Combination on September 20,
2023, the Company reimbursed the Sponsor an aggregate amount of $300,000 for payments made by the Sponsor in connection with its exercise of its options to extend the date by which DTOC is required to complete its initial business combination.
In connection with such reimbursement, the obligations of the Company under certain non-interest bearing, unsecured promissory note issued in favor of the Sponsor were extinguished.
In addition, in order to fund working capital deficiencies,
finance transaction costs in connection with a business combination, or financing extension payments to the trust account in order to exercise of the option to extend the date by which DTOC is required to complete its initial business
combination, the Sponsor or an affiliate of the Sponsor, or certain of DTOC officers and directors may, but are not obligated to, make Working Capital Loans. If DTOC completes a business combination, DTOC may repay the Working Capital Loans out
of the proceeds of the Trust Account released to DTOC. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a business combination does not close, DTOC may use a portion of
proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. The Working Capital Loans would either be repaid upon consummation of a
business combination or, at the lenders’ discretion, up to $2.0 million of such Working Capital Loans may be convertible into warrants of the post business combination entity at a price of $1.50 per warrant. The warrants would be identical to
the Private Placement Warrants, including as to exercise price, exercisability and exercise period. Upon the closing of the Business Combination, the Company repaid Working Capital Loans in the aggregate amount of $573,877.
Certain Other Payments
The Sponsor, executive officers and directors, or any of their
respective affiliates has been reimbursed for any out-of-pocket expenses incurred in connection with activities on DTOC’s behalf such as identifying potential target businesses and performing due diligence on suitable business combinations.
DTOC’s audit committee will review on a quarterly basis all payments that were made to the Sponsor, executive officers or directors, or DTOC’s or their affiliates. The total amount of out-of-pocket expenses incurred by DTOC’s officers and
directors is less than $1,500.
Sponsor Support Agreement
AON and DTOC entered into an amended and restated sponsor support
agreement (the “Sponsor Support Agreement”) with the Sponsor and DTOC’s Chief Executive Officer (together with the Sponsor, the “Supporting Sponsor Shareholders”) pursuant to which the Supporting Sponsor Shareholders agreed not to transfer any
shares of AON Class A Common Stock held by it until the twelve month anniversary of the Closing (the “Sponsor Lock-Up Period”).
In addition, under the Sponsor Support Agreement, the Sponsor has
agreed to subject 2,918,125 of the shares of AON Class A Common Stock held by it as of the Closing (the “Sponsor Earnout Shares”) to the following vesting and forfeiture provisions for the five-year period following the Closing: (i) the Sponsor
Earnout Shares will vest when the volume-weighted average price of the AON Class A Common Stock equals or exceeds $13.50 per share for any 20 trading days within any 30 trading day period beginning after the Closing and ending 5 years following
the Closing, (ii) all of the Sponsor Earnout Shares will be released immediately upon the consummation of a change of control transaction within the 5-year period following the Closing, and (iii) if the Sponsor Earnout Shares are not released
pursuant to the foregoing provisions on or before the date that is 5 years after the Closing, then the Sponsor Earnout Shares will be forfeited immediately following such date.
The Sponsor Support Agreement will terminate in its entirety, and
be of no further force or effect, upon the earlier to occur of (i) the expiration of the Sponsor Lock-Up Period, and (iii) the written agreement of the Sponsor and AON.
114
Capital Stock
The following summary of the material terms of the securities of
AON. This summary is not intended to be a complete summary of the rights and preferences of such securities. We urge you to read our Charter in its entirety for a complete description of the rights and preferences of our securities.
Authorized and Outstanding Stock
Our charter authorizes the issuance of 325,000,000 shares of
capital stock, consisting of 300,000,000 shares of common stock, consisting of (i) 200,000,000 shares of Class A Common Stock, $0.0001 par value per share and (ii) 100,000,000 shares of Class B Common Stock, $0.0001 par value per share and (b)
25,000,000 shares of preferred stock, par value $0.0001 per share.
Common Stock
AON Class A Common Stock
Voting Power
Except as otherwise required by law or as otherwise provided in
any certificate of designation for any series of preferred stock, under the Charter, each holder of AON Class A Common Stock will be entitled to one vote for each share of Class A Common Stock held of record as of the applicable record date by
such holder on all matters on which stockholders generally are entitled to vote. The holders of AON Class A Common Stock and AON Class B Common Stock, voting together as a single class, shall have the exclusive right to vote for the election of
directors (other than with respect to the Preferred Director) and on all matters properly submitted to a vote of stockholders, unless otherwise required by Delaware law or the Charter (as it may be amended from time to time). Notwithstanding
the foregoing, except as otherwise required by law or the Charter (including any preferred stock designation), holders of shares of any series of common stock shall not be entitled to vote on any amendment to the Charter (including any
amendment to any preferred stock designation) that relates solely to the terms of one or more outstanding series of preferred stock or other series of common stock if the holders of such affected series of preferred stock or common stock, as
applicable, are entitled exclusively, either separately or together with the holders of one or more other such series, to vote thereon.
Dividends
Subject to the rights, if any, of the holders of any outstanding
shares of preferred stock, under the Charter, holders of AON Class A Common Stock will be entitled to receive such dividends and other distributions, if any, as may be declared from time to time by the AON Board in its discretion out of funds
legally available therefor and shall share ratably (based on the number of shares of AON Class A Common Stock held) in such dividends and distributions.
Liquidation, Dissolution and Winding Up
In the event of the voluntary or involuntary liquidation,
dissolution or winding-up of AON under the Charter, or any liquidation event, after payment or provision for payment of the debts and other liabilities of AON and of the preferential and other amounts, if any, to which the holders of preferred
stock having a preference over the AON Class B Common Stock, the holders of shares of AON Class B Common Stock shall be entitled to receive $0.0001 per share, and upon receiving such amount, such holders of shares of AON Class B Common Stock,
as such, shall not be entitled to receive any other assets or funds of AON. Thereafter, the holders of all outstanding shares of AON Class A Common Stock shall be entitled to receive the remaining assets of AON available for distribution
ratably in proportion to the number of shares held by each such stockholder.
Preemptive or Other Rights
Under the Charter, holders of AON Class A Common Stock will have
no preemptive or other subscription rights and there will be no sinking fund or redemption provisions applicable to AON Class A Common Stock.
115
AON Class B Common Stock
Voting Power
Except as otherwise required by law or as otherwise provided in
any certificate of designation for any series of preferred stock, under the Charter, the holders of AON Class B Common Stock will be entitled, as applicable, to one (1) vote per share held of record as of the applicable record date by such
holder on all matters on which stockholders generally or holders of Class B Common Stock as a separate class are entitled to vote (whether voting separately as a class or together with one or more classes of AON’s capital stock). The holders of
AON Class A Common Stock and AON Class B Common Stock, voting together as a single class, shall have the exclusive right to vote for the election of directors and on all matters properly submitted to a vote of stockholders, unless otherwise
required by Delaware law or the Charter (as it may be amended from time to time). Notwithstanding the foregoing, except as otherwise required by law or the Charter (including any preferred stock designation), holders of shares of any series of
common stock shall not be entitled to vote on any amendment to the Charter (including any amendment to any preferred stock designation) that relates solely to the terms of one or more outstanding series of preferred stock or other series of
common stock if the holders of such affected series of preferred stock or common stock, as applicable, are entitled exclusively, either separately or together with the holders of one or more other such series, to vote thereon.
Dividends
Holders of AON Class B Common Stock will not be entitled to receive
dividends and other distributions.
Liquidation, Dissolution and Winding Up
In the event of the voluntary or involuntary liquidation,
dissolution or winding-up of AON under the Charter, the holders of AON Class B Common Stock will be entitled to receive $0.0001 per share, and upon receiving such amount, such holders of shares of Class B Common Stock, as such, shall not be
entitled to receive any other assets or funds of AON.
Preemptive or Other Rights
Under the Charter, holders of AON Class B Common Stock will have
no preemptive or other subscription rights and there will be no sinking fund or redemption provisions applicable to AON Class B Common Stock.
Restrictions on Transfers
Holders of AON Class B Common Stock may transfer or assign shares
of Class B Common Stock only to a permitted transferee of such holders under the AON Amended and Restated LLC Agreement, and only if the transferor also simultaneously transfers an equal number of such transferor’s common units to such
permitted transferee in compliance with the transfer restrictions in the AON Amended and Restated LLC Agreement.
Cancellation and Conversion
Holders of AON Class B Common Stock (other than AON) will have the
right to require AON to redeem all or a portion of their common units, together with the cancellation of an equal number of shares of AON Class B Common Stock, for (i) an equal number of shares of AON Class A Common Stock, provided however
that, a holder of common units may not exchange their common units for AON Class A Common Stock that would result in such holder owning more than 4.99% of the outstanding AON Class A Common Stock immediately after such redemption (the
“Beneficial Ownership Limitation”) and no more than 4.99% of the voting power of AON when combined with any securities of AON or any securities convertible into AON; provided however, that upon notice to the AON, the holder may increase or
decrease the Beneficial Ownership Limitation, provided that any increase or decrease in the Beneficial Ownership Limitation will not be effective until 61 days following notice of such change from the holder to AON or (ii) at AON’s election and
solely in connection with AON’s completion of a substantially concurrent public offering or private sale of shares of AON Class A Common Stock within ten business days of the delivery of a redemption notice to AON, a corresponding amount of
cash, in each case contributed to AON by AON. In lieu of a redemption, AON may elect to effect a direct exchange of cash or shares of AON Class A Common Stock for common units (rather than contributing the share or cash amounts, as applicable,
to AON for purposes of AON redeeming the redeemed units from the redeeming equityholder). As the AON equityholders cause their common units to be
116
redeemed or exchanged, holding other assumptions constant, AON’s membership
interest in AON will correspondingly increase, the number of shares of AON Class A Common Stock outstanding will increase, and the number of shares of AON Class B Common Stock (whether held directly or indirectly through Class B Prefunded
Warrants) will decrease.
AON Series A Preferred Stock
Dividends
The AON Series A Preferred Stock accrues dividends at the annual
rate of 8.0% of the original price per share, plus the amount of previously accrued, but unpaid dividends, compounded semi-annually, and participates with the AON Common Stock on all other dividends (the “Accrued Dividends” which, together with
the aggregate investment by the AON Class C Preferred Investor, will be referred to as the “Accrued Value”). The Accrued Dividends may be paid in cash or accumulate and compound into Accrued Value.
Liquidation Rights and Preference
Upon any liquidation, winding-up or dissolution or deemed
liquidation event, the holders of AON Series A Preferred Stock will be entitled to receive out of the available proceeds, before any distribution is made to holders of AON Common Stock or any other junior securities, an amount per share equal
to the greater of (i) the original price per share multiplied by the Applicable Percentage (as defined below) plus any Accrued Dividends on such share of AON Series A Preferred Stock (including all dividends that have previously accreted to
Accrued Value, as described above) or (ii) such amount per share as would have been payable had all shares of AON Series A Preferred Stock been converted into AON Common Stock immediately prior to the liquidation event, winding up or
dissolution. After the payment in full to the holders of AON Series A Preferred Stock of the amounts provided for above, the holders of shares of AON Series A Preferred Stock as such shall have no right or claim to any remaining assets of the
Company in respect of their ownership of AON Series A Preferred Stock. “Applicable Percentage” means a percentage equal to (a) one hundred twenty five percent (125%) if a liquidation, winding-up or dissolution of AON or any Deemed Liquidation
Event (as defined in the Certificate of Designation) occurs prior to June 7, 2024, (b) one hundred twenty percent (120%) if a liquidation, winding-up or dissolution of AON or any Deemed Liquidation Event occurs after June 7, 2024, but on or
prior to June 7, 2025, (c) one hundred fifteen percent (115%) if a liquidation, winding-up or dissolution of AON or any Deemed Liquidation Event occurs after June 7, 2025, but on or prior to June 7, 2026, (d) one hundred ten percent (110%) if a
liquidation, winding-up or dissolution of AON or any Deemed Liquidation Event after June 7, 2026, but on or prior to June 7, 2027, (e) one hundred five percent (105%) if a liquidation, winding-up or dissolution of AON or any Deemed Liquidation
Event occurs after June 7, 2027, but on or prior to June 7, 2028, (f) one hundred percent (100%) if a liquidation, winding-up or dissolution of AON or any Deemed Liquidation Event occurs after June 7, 2028.
Voting
The AON Series A Preferred Stock votes together with the AON
Common Stock on an as- converted basis, except as required by law and as noted below under “Protective Provisions.” Each holder of AON Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of
AON Common Stock into which the shares of AON Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter or, if no record date is established, at the date such
vote or consent is taken. The holders of the AON Series A Preferred Stock are also entitled to elect one director the AON Board (the “Preferred Director”), as long as the holders hold 5% or more of the voting power of all then-outstanding
shares of capital stock of AON entitled to vote generally at an election of directors. The Preferred Director may be removed without cause by, and only by, the affirmative vote of such holders and will be a Class I director.
Protective Provisions
For as long as 50% of the shares of AON Series A Preferred Stock
issued and outstanding as of the Issue Date are outstanding, AON shall not, without the affirmative vote or action by written consent of holders of a majority of the then-outstanding shares of AON Series A Preferred Stock (the “Requisite
Holders”), voting together as a separate class, take any of the following actions: (i) amend, alter, or repeal any provision of the certificate of incorporation of AON, the AON Series A Certificate of Designations, bylaws of AON, the operating
agreement of AON or the certificate of formation of AON in a manner that either adversely affects the rights, privileges or preferences
117
(economic or otherwise) of the AON Series A Preferred Stock or materially modifies
the rights, privileges, or preferences (economic or otherwise) of any class or series of equity security of AON; (ii) amend, alter, or changes the rights, preferences or privileges of the preferred stock of AON; (iii) reclassify, alter or amend
any Junior Stock (as defined in the AON Series A Certificate of Designations) in a manner which renders such Junior Stock senior to or on parity with the AON Series A Preferred Stock or Parity Stock (as defined in the AON Series A Certificate
of Designations) in a manner which renders such Parity Stock senior to the AON Series A Preferred Stock; (iv) issue or obligate itself to issue any AON shares which are senior to or pari passu with (or any equity security or debt instrument
that is exercisable for or convertible into equity securities of AON that are senior to or pari passu with) the AON Series A Preferred Stock as to liquidation preferences, redemption, distributions, dividend rights or rights upon the
liquidation, winding-up or dissolution of the AON or AON; (v) incur or refinance any indebtedness that either (1) results in AON having a ratio of total leverage (calculated as its net debt) to its trailing twelve-month Adjusted EBITDA (as
defined in the AON Series A Certificate of Designations) at any time following the incurrence of such indebtedness that is more than three times, (2) provides for security over AON’s assets that is broader than outstanding indebtedness at the
Issue Date, or (3) has materially more restrictive covenants than indebtedness outstanding as of the Issue Date; (vi) make any redemption, repurchase, dividend, or distribution (other than tax distributions) on any equity securities, or permit
any of its subsidiaries to take any such action, other than redemptions of or dividends or distributions on the AON Series A Preferred Stock, and repurchases of equity securities from former service providers in connection with the cessation of
such service at no greater than the original purchase price; (vii) with respect to AON or AON or any of their subsidiaries (other than subsidiaries with de minimis assets and operations), (1) initiate or commence an insolvency proceeding,
including any state or federal insolvency proceeding, (2) effectuate an assignment for the benefit of creditors, or (3) elect to dissolve, liquidate or otherwise wind-up affairs; (viii) enter into any transaction between AON or any of its
subsidiaries on one hand, and any member of the board of directors, executive officer or member of senior management of AON or any of its subsidiaries, or securityholder of AON or any of its subsidiaries, or their affiliates, on the other hand,
other than ordinary course equity compensation grants; (ix) change the tax classifications of AON or any of its subsidiaries; (x) increase or decrease the authorized number of directors constituting the AON Board; or (xi) remove the
then-serving AON chief executive officer from the AON Board or approve the proposed replacement of the then-current AON chief executive officer on the AON Board
Conversion
Each share of AON Series A Preferred Stock will be convertible at
the holder’s option into shares of AON Common Stock at an initial conversion ratio determined by dividing the Accrued Value of such shares of AON Series A Preferred Stock by the conversion price per share, which will initially be based on the
deemed original purchase price per share of each share of AON Series A Preferred Stock and subject to adjustment in accordance with the terms of the AON Series A Certificate of Designations. No fractional shares of AON Common Stock or
securities representing fractional shares of AON Common Stock will be issued upon conversion or in respect of dividend payments made in AON Common Stock on the AON Series A Preferred Stock. Instead, the number of shares of AON Common Stock to
be issued to any particular holder of AON Series A Preferred Stock upon conversion will be rounded up to the next whole share.
Mandatory Conversion
At any time three years after the Closing, if the 30-Day VWAP of
the AON Class A Common Stock is greater than $16.00, then AON may, at its option, elect to cause all (but not less than all) of the outstanding shares of AON Series A Preferred Stock to be converted into AON Class A Common Stock at the
conversion ratio then in effect, with such adjustment or cash payment for fractional shares as AON may elect.
Public Stockholders’ Warrants
Redeemable Warrants
Each whole warrant entitles the registered holder to purchase one
share of AON Class A Common Stock at a price of $11.50 per share, subject to adjustment as discussed below, at any time commencing on the later of 30 days after the completion of the Business Combination. Pursuant to the warrant agreement, a
warrant holder may exercise its warrants only for a whole number of shares of AON Class A Common Stock. The warrants will expire at 5:00 p.m., New York City time, on the fifth anniversary of the completion of the Business Combination, or
earlier upon redemption or liquidation.
118
AON will not be obligated to deliver any shares of AON Class A
Common Stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of AON Class A Common Stock issuable
upon exercise of the warrants is then effective and a prospectus relating thereto is current, subject to AON satisfying AON’s obligations described below with respect to registration, or a valid exemption from registration is available,
including in connection with a cashless exercise permitted as a result of a notice of redemption described below under “Redemption of warrants when the price per share of AON Class A Common Stock equals or
exceeds $10.00.” No warrant will be exercisable for cash or on a cashless basis, and AON will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is
registered or qualified under the securities laws of the state of the exercising holder, or an exemption is available. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a warrant, the
holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In the event that a warrant is not exercisable, the purchaser of a unit containing such warrant will have paid the
full purchase price for the unit solely for the share of AON Class A Common Stock underlying such unit.
No public warrants will be exercisable for cash unless AON has an
effective and current registration statement covering the warrant shares issuable upon exercise of the warrants and a current prospectus relating to such warrant shares. Notwithstanding the foregoing, if a registration statement covering the
issuance of the warrant shares issuable upon exercise of the public warrants is not effective within 60 days from the Closing, warrant holders may, until such time as there is an effective registration statement and during any period when AON
shall have failed to maintain an effective registration statement or a current prospectus, exercise warrants on a cashless basis pursuant to an available exemption from registration under the Securities Act. If an exemption from registration is
not available, holders will not be able to exercise their warrants on a cashless basis. In no event will AON be required to net cash settle any warrant, or issue securities or other compensation in exchange for the warrants in the event that
AON is unable to register or qualify the shares underlying the warrants under the Securities Act or applicable state securities laws.
Redemption of warrants when the price per share of AON Class A
Common Stock equals or exceeds $18.00
Once the warrants become exercisable, AON may redeem the warrants
(except as described herein with respect to the Private Placement Warrants):
|
•
|
in whole and not in part;
|
|
•
|
at a price of $0.01 per warrant;
|
|
•
|
upon not less than 30 days’ prior written notice of redemption to each warrant holder (the “30-day redemption period”);
|
|
•
|
if, and only if, the last reported sale price of AON’s Class A Common Stock for any 20-trading days within a 30-trading day
period ending on the third trading day prior to the date on which AON send the notice of redemption to the warrant holders (which AON refers to as the “Reference Value”) equals or exceeds $18.00 per share (as adjusted for adjustments to
the number of shares issuable upon exercise or the exercise price of a warrant).
|
AON will not redeem the warrants as described above unless a
registration statement under the Securities Act covering the issuance of the shares of AON Class A Common Stock issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of AON Class A Common
Stock is available throughout the 30-day redemption period. If and when the warrants become redeemable by us, AON may exercise AON’s redemption right even if AON are unable to register or qualify the underlying securities for sale under
applicable state securities laws.
AON has established the last of the redemption criterion discussed
above to prevent a redemption call unless there is at the time of the call a significant premium to the warrant exercise price. If the foregoing conditions are satisfied and AON issue a notice of redemption of the warrants, each warrant holder
will be entitled to exercise his, her or its warrant prior to the scheduled redemption date. However, the price of the AON Class A Common Stock may fall below the $18.00 redemption trigger price (as adjusted for adjustments to the number of
shares issuable upon exercise or the exercise price of a warrant as well as the $11.50 (for whole shares) warrant exercise price after the redemption notice is issued).
119
Redemption of warrants when the price per share of AON Class A
Common Stock equals or exceeds $10.00
Once the warrants become exercisable, AON may redeem the
outstanding warrants:
|
•
|
in whole and not in part;
|
|
•
|
at $0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption to each warrant holder provided that
holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to the table below, based on the redemption date and the “fair market value” of AON
Class A Common Stock except as otherwise described below;
|
|
•
|
if, and only if, the Reference Value equals or exceeds $10.00 per share (as adjusted for adjustments to the number of shares
issuable upon exercise or the exercise price of a warrant); and
|
|
•
|
if the Reference Value is less than $18.00 per share (as adjusted for adjustments to the number of shares issuable upon
exercise or the exercise price of a warrant), the Private Placement Warrants must also be concurrently called for redemption on the same terms as the outstanding public warrants, as described above.
|
Holders may elect to exercise their warrants on a cashless basis
at any time after AON has given the notice of redemption and prior to the applicable redemption date. The numbers in the table below represent the number of shares of AON Class A Common Stock that a warrant holder will receive upon such
cashless exercise in connection with a redemption by us pursuant to this redemption feature, based on the “fair market value” of AON Class A Common Stock on the corresponding redemption date (assuming holders elect to exercise their warrants
and such warrants are not redeemed for $0.10 per warrant), determined for these purposes based on volume weighted average price of AON Class A Common Stock during the ten trading days immediately following the date on which the notice of
redemption is sent to the holders of warrants, and the number of months that the corresponding redemption date precedes the expiration date of the warrants, each as set forth in the table below. AON will provide AON’s warrant holders with the
final fair market value no later than one business day after the ten-trading day period described above ends.
The share prices set forth in the column headings of the table
below will be adjusted as of any date on which the number of shares issuable upon exercise of a warrant or the exercise price of a warrant is adjusted as set forth under the heading “— Anti-dilution
Adjustments” below. If the number of shares issuable upon exercise of a warrant is adjusted, the adjusted share prices in the column headings will equal the share prices immediately prior to such adjustment, multiplied by a fraction, the numerator of which is the number of shares deliverable upon exercise of a warrant immediately prior to such adjustment and the denominator of which is the number of shares deliverable upon
exercise of a warrant as so adjusted. The number of shares in the table below shall be adjusted in the same manner and at the same time as the number of shares issuable upon exercise of a warrant. If the exercise price of a warrant is adjusted,
(a) in the case of an adjustment pursuant to the fifth paragraph under the heading “— Anti-dilution Adjustments” below, the adjusted share prices in the column headings will equal the unadjusted share
price multiplied by a fraction, the numerator of which is the higher of the Market Value and the Newly Issued Price as set forth under the heading “— Anti-dilution
Adjustments” and the denominator of which is $10.00 and (b) in the case of an adjustment pursuant to the second paragraph under the heading “— Anti-dilution Adjustments” below, the adjusted
share prices in the column headings will equal the unadjusted share price less the decrease in the exercise price of a warrant pursuant to such exercise price adjustment.
|
|
| |
Fair Market Value of AON Class A Common Stock
|
||||||||||||||||||||||||
|
Redemption Date (period to
expiration of warrants)
|
| |
≤10.00
|
| |
11.00
|
| |
12.00
|
| |
13.00
|
| |
14.00
|
| |
15.00
|
| |
16.00
|
| |
17.00
|
| |
≥18.00
|
|
60 months
|
| |
0.261
|
| |
0.281
|
| |
0.297
|
| |
0.311
|
| |
0.324
|
| |
0.337
|
| |
0.348
|
| |
0.358
|
| |
0.361
|
|
57 months
|
| |
0.257
|
| |
0.277
|
| |
0.294
|
| |
0.310
|
| |
0.324
|
| |
0.337
|
| |
0.348
|
| |
0.358
|
| |
0.361
|
|
54 months
|
| |
0.252
|
| |
0.272
|
| |
0.291
|
| |
0.307
|
| |
0.322
|
| |
0.335
|
| |
0.347
|
| |
0.357
|
| |
0.361
|
|
51 months
|
| |
0.246
|
| |
0.268
|
| |
0.287
|
| |
0.304
|
| |
0.320
|
| |
0.333
|
| |
0.346
|
| |
0.357
|
| |
0.361
|
|
48 months
|
| |
0.241
|
| |
0.263
|
| |
0.283
|
| |
0.301
|
| |
0.317
|
| |
0.332
|
| |
0.344
|
| |
0.356
|
| |
0.361
|
|
45 months
|
| |
0.235
|
| |
0.258
|
| |
0.279
|
| |
0.298
|
| |
0.315
|
| |
0.330
|
| |
0.343
|
| |
0.356
|
| |
0.361
|
|
42 months
|
| |
0.228
|
| |
0.252
|
| |
0.274
|
| |
0.294
|
| |
0.312
|
| |
0.328
|
| |
0.342
|
| |
0.355
|
| |
0.361
|
|
39 months
|
| |
0.221
|
| |
0.246
|
| |
0.269
|
| |
0.290
|
| |
0.309
|
| |
0.325
|
| |
0.340
|
| |
0.354
|
| |
0.361
|
|
36 months
|
| |
0.213
|
| |
0.239
|
| |
0.263
|
| |
0.285
|
| |
0.305
|
| |
0.323
|
| |
0.339
|
| |
0.353
|
| |
0.361
|
120
|
|
| |
Fair Market Value of AON Class A Common Stock
|
||||||||||||||||||||||||
|
Redemption Date (period to
expiration of warrants)
|
| |
≤10.00
|
| |
11.00
|
| |
12.00
|
| |
13.00
|
| |
14.00
|
| |
15.00
|
| |
16.00
|
| |
17.00
|
| |
≥18.00
|
|
33 months
|
| |
0.205
|
| |
0.232
|
| |
0.257
|
| |
0.280
|
| |
0.301
|
| |
0.320
|
| |
0.337
|
| |
0.352
|
| |
0.361
|
|
30 months
|
| |
0.196
|
| |
0.224
|
| |
0.250
|
| |
0.274
|
| |
0.297
|
| |
0.316
|
| |
0.335
|
| |
0.351
|
| |
0.361
|
|
27 months
|
| |
0.185
|
| |
0.214
|
| |
0.242
|
| |
0.268
|
| |
0.291
|
| |
0.313
|
| |
0.332
|
| |
0.350
|
| |
0.361
|
|
24 months
|
| |
0.173
|
| |
0.204
|
| |
0.233
|
| |
0.260
|
| |
0.285
|
| |
0.308
|
| |
0.329
|
| |
0.348
|
| |
0.361
|
|
21 months
|
| |
0.161
|
| |
0.193
|
| |
0.223
|
| |
0.252
|
| |
0.279
|
| |
0.304
|
| |
0.326
|
| |
0.347
|
| |
0.361
|
|
18 months
|
| |
0.146
|
| |
0.179
|
| |
0.211
|
| |
0.242
|
| |
0.271
|
| |
0.298
|
| |
0.322
|
| |
0.345
|
| |
0.361
|
|
15 months
|
| |
0.130
|
| |
0.164
|
| |
0.197
|
| |
0.230
|
| |
0.262
|
| |
0.291
|
| |
0.317
|
| |
0.342
|
| |
0.361
|
|
12 months
|
| |
0.111
|
| |
0.146
|
| |
0.181
|
| |
0.216
|
| |
0.250
|
| |
0.282
|
| |
0.312
|
| |
0.339
|
| |
0.361
|
|
9 months
|
| |
0.090
|
| |
0.125
|
| |
0.162
|
| |
0.199
|
| |
0.237
|
| |
0.272
|
| |
0.305
|
| |
0.336
|
| |
0.361
|
|
6 months
|
| |
0.065
|
| |
0.099
|
| |
0.137
|
| |
0.178
|
| |
0.219
|
| |
0.259
|
| |
0.296
|
| |
0.331
|
| |
0.361
|
|
3 months
|
| |
0.034
|
| |
0.065
|
| |
0.104
|
| |
0.150
|
| |
0.197
|
| |
0.243
|
| |
0.286
|
| |
0.326
|
| |
0.361
|
|
0 months
|
| |
—
|
| |
—
|
| |
0.042
|
| |
0.115
|
| |
0.179
|
| |
0.233
|
| |
0.281
|
| |
0.323
|
| |
0.361
|
The exact fair market value and redemption date (calculated for
purposes of the table as the period to expiration of the warrants) may not be set forth in the table above, in which case, if the fair market value is between two values in the table or the redemption date is between two redemption dates in the
table, the number of shares of AON Class A Common Stock to be issued for each warrant exercised will be determined by a straight-line interpolation between the number of shares set forth for the higher and lower fair market values and the
earlier and later redemption dates, as applicable, based on a 365 or 366-day year, as applicable. For example, if the volume weighted average price of AON Class A Common Stock during the ten trading days immediately following the date on which
the notice of redemption is sent to the holders of the warrants is $11.00 per share, and at such time there are 57 months until the expiration of the warrants, holders may choose to, in connection with this redemption feature, exercise their
warrants for 0.277 shares of AON Class A Common Stock for each whole warrant. For an example where the exact fair market value and redemption date are not as set forth in the table above, if the volume weighted average price of AON Class A
Common Stock during the ten trading days immediately following the date on which the notice of redemption is sent to the holders of the warrants is $13.50 per share, and at such time there are 38 months until the expiration of the warrants,
holders may choose to, in connection with this redemption feature, exercise their warrants for 0.298 shares of AON Class A Common Stock for each whole warrant. In no event will the warrants be exercisable in connection with this redemption
feature for more than 0.361 shares of AON Class A Common Stock per warrant (subject to adjustment). Finally, as reflected in the table above, if the warrants are out of the money and about to expire, they cannot be exercised on a cashless basis
in connection with a redemption by us pursuant to this redemption feature, since they will not be exercisable for any shares of AON Class A Common Stock.
This redemption feature differs from the typical warrant
redemption features used in some other blank check offerings, which typically only provide for a redemption of warrants for cash (other than the Private Placement Warrants) when the trading price for the AON Class A Common Stock exceeds $18.00
per share for a specified period of time. This redemption feature is structured to allow for all of the outstanding warrants to be redeemed when the shares of AON Class A Common Stock are trading at or above $10.00 per share, which may be at a
time when the trading price of AON Class A Common Stock is below the exercise price of the warrants. AON has established this redemption feature to provide us with the flexibility to redeem the warrants without the warrants having to reach the
$18.00 per share threshold set forth above under “— Redemption of warrants when the price per share of AON Class A Common Stock equals or exceeds $18.00.” Holders choosing to exercise their warrants in
connection with a redemption pursuant to this feature will, in effect, receive a number of shares for their warrants based on an option pricing model with a fixed volatility input. This redemption right provides us with an additional mechanism
by which to redeem all of the outstanding warrants, and therefore have certainty as to AON’s capital structure as the warrants would no longer be outstanding and would have been exercised or redeemed. AON will be required to pay the applicable
redemption price to warrant holders if AON choose to exercise this redemption right and it will allow us to AON proceed with a redemption of the warrants if AON determine it is in AON’s best interest to do so. As such, AON would redeem the
warrants in this manner when AON believes it is in AON’s best interest to update AON’s capital structure to remove the warrants and pay the redemption price to the warrant holders.
As stated above, AON can redeem the warrants when the shares of
AON Class A Common Stock are trading at a price starting at $10.00, which is below the exercise price of $11.50, because it will provide certainty with respect
121
to AON capital structure and cash position while providing warrant holders with
the opportunity to exercise their warrants on a cashless basis for the applicable number of shares. If AON chooses to redeem the warrants when the shares of AON Class A Common Stock are trading at a price below the exercise price of the
warrants, this could result in the warrant holders receiving fewer shares of AON Class A Common Stock than they would have received if they had chosen to exercise their warrants for shares of AON Class A Common Stock if and when such shares of
AON Class A Common Stock were trading at a price higher than the exercise price of $11.50.
No fractional shares of AON Class A Common Stock will be issued
upon exercise. If, upon exercise, a holder would be entitled to receive a fractional interest in a share, AON will round down to the nearest whole number of the number of shares of AON Class A Common Stock to be issued to the holder.
Redemption Procedures.
A holder of a warrant may notify AON in writing in the event it
elects to be subject to a requirement that such holder will not have the right to exercise such warrant, to the extent that after giving effect to such exercise, such person (together with such person’s affiliates), to the warrant agent’s
actual knowledge, would beneficially own in excess of 9.8% (or such other amount as a holder may specify) of the shares of AON Class A Common Stock issued and outstanding immediately after giving effect to such exercise.
Anti-dilution Adjustments
If the number of issued and outstanding shares of AON Class A
Common Stock is increased by a stock dividend payable in shares of AON Class A Common Stock, or by a split-up of shares of AON Class A Common Stock or other similar event, then, on the effective date of such stock dividend, split-up or similar
event, the number of shares of AON Class A Common Stock issuable on exercise of each warrant will be increased in proportion to such increase in the issued and outstanding shares of AON Class A Common Stock. A rights offering made to all or
substantially all holders of AON Class A Common Stock entitling holders to purchase shares of AON Class A Common Stock at a price less than the “historical fair market value” (as defined below) will be deemed a share dividend of a number of
shares of AON Class A Common Stock equal to the product of (1) the number of shares of AON Class A Common Stock actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering that are
convertible into or exercisable for shares of AON Class A Common Stock) and (2) one minus the quotient of (x) the price per share of AON Class A Common Stock paid in such rights offering divided by (y) the historical fair market value. For
these purposes, (1) if the rights offering is for securities convertible into or exercisable for shares of AON Class A Common Stock, in determining the price payable for AON Class A Common Stock, there will be taken into account any
consideration received for such rights, as well as any additional amount payable upon exercise or conversion and (2) “historical fair market value” means the volume weighted average price of AON Class A Common Stock during the ten-trading day
period ending on the trading day prior to the first date on which the shares of AON Class A Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.
In addition, if AON, at any time while the warrants are
outstanding and unexpired, pay to all or substantially all of the holders of AON Class A Common Stock a dividend or make a distribution in cash, securities or other assets to the holders of AON Class A Common Stock on account of such shares of
AON Class A Common Stock (or other securities into which the warrants are convertible), other than (a) as described above, (b) certain ordinary cash dividends, (c) to satisfy the redemption rights of the holders of DTOC Class A Common Stock in
connection with the Business Combination, or (d) in connection with the redemption of DTOC’s public shares upon our failure to complete the Business Combination, then the warrant exercise price will be decreased, effective immediately after the
effective date of such event, by the amount of cash and/or the fair market value of any securities or other assets paid on each share of AON Class A Common Stock in respect of such event.
If the number of issued and outstanding shares of AON Class A
Common Stock is decreased by a consolidation, combination, reverse stock split or reclassification of shares of AON Class A Common Stock or other similar event, then, on the effective date of such consolidation, combination, reverse stock
split, reclassification or similar event, the number of shares of AON Class A Common Stock issuable on exercise of each warrant will be decreased in proportion to such decrease in issued and outstanding shares of AON Class A Common Stock.
Whenever the number of shares of AON Class A Common Stock
purchasable upon the exercise of the warrants is adjusted, as described above, the warrant exercise price will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which
will be the number of shares of AON
122
Class A Common Stock purchasable upon the exercise of the warrants immediately
prior to such adjustment and (y) the denominator of which will be the number of shares of AON Class A Common Stock so purchasable immediately thereafter.
In case of any reclassification or reorganization of the issued
and outstanding shares of AON Class A Common Stock (other than those described above or that solely affects the par value of such shares of AON Class A Common Stock), or in the case of any merger or consolidation of us with or into another
corporation (other than a merger or consolidation in which we are the continuing corporation and that does not result in any reclassification or reorganization of the issued and outstanding shares of AON Class A Common Stock), or in the case of
any sale or conveyance to another corporation or entity of the assets or other property of AON as an entirety or substantially as an entirety in connection with which AON is dissolved, the holders of the warrants will thereafter have the right
to purchase and receive, upon the basis and upon the terms and conditions specified in the warrants and in lieu of the shares of AON Class A Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights
represented thereby, the kind and amount of shares, stock or other equity securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or
transfer, that the holder of the warrants would have received if such holder had exercised their warrants immediately prior to such event. However, if such holders were entitled to exercise a right of election as to the kind or amount of
securities, cash or other assets receivable upon such merger or consolidation, then the kind and amount of securities, cash or other assets for which each warrant will become exercisable will be deemed to be the weighted average of the kind and
amount received per share by such holders in such merger or consolidation that affirmatively make such election, and if a tender, exchange or redemption offer has been made to and accepted by such holders (other than a tender, exchange or
redemption offer made by AON in connection with redemption rights held by stockholders of the company as provided for in the current charter or as a result of the redemption of shares of AON Class A Common Stock by AON if a proposed initial
business combination is presented to the stockholders of AON for approval) under circumstances in which, upon completion of such tender or exchange offer, the maker thereof, together with members of any group (within the meaning of
Rule 13d-5(b)(1) under the Exchange Act) of which such maker is a part, and together with any affiliate or associate of such maker (within the meaning of Rule 12b-2 under the Exchange Act) and any members of any such group of which any such
affiliate or associate is a part, own beneficially (within the meaning of Rule 13d-3 under the Exchange Act) more than 50% of the issued and outstanding shares of AON Class A Common Stock, the holder of a warrant will be entitled to receive the
highest amount of cash, securities or other property to which such holder would actually have been entitled as a stockholder if such warrant holder had exercised the warrant prior to the expiration of such tender or exchange offer, accepted
such offer and all of the shares of AON Class A Common Stock held by such holder had been purchased pursuant to such tender or exchange offer, subject to adjustment (from and after the consummation of such tender or exchange offer) as nearly
equivalent as possible to the adjustments provided for in the warrant agreement. Additionally, if less than 70% of the consideration receivable by the holders of AON Class A Common Stock in such a transaction is payable in the form of common
stock in the successor entity that is listed for trading on a national securities exchange or is quoted in an established over-the-counter market, or is to be so listed for trading or quoted immediately following such event, and if the
registered holder of the warrant properly exercises the warrant within 30 days following public disclosure of such transaction, the warrant exercise price will be reduced as specified in the warrant agreement based on the per share
consideration minus Black-Scholes Warrant Value (as defined in the warrant agreement) of the warrant. The purpose of such exercise price reduction is to provide additional value to holders of the warrants when an extraordinary transaction
occurs during the exercise period of the warrants pursuant to which the holders of the warrants otherwise do not receive the full potential value of the warrants in order to determine and realize the option value component of the warrant. This
formula is to compensate the warrant holder for the loss of the option value portion of the warrant due to the requirement that the warrant holder exercise the warrant within 30 days of the event. The Black-Scholes model is an accepted pricing
model for estimating fair market value where no quoted market price for an instrument is available.
The warrants will be issued in registered form under a warrant
agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that (a) the terms of the warrants may be amended without the consent of any holder for the purpose of (i) curing any
ambiguity or correct any mistake, including to conform the provisions of the warrant agreement to the description of the terms of the warrants and the warrant agreement, or defective provision or (ii) adding or changing any provisions with
respect to matters or questions arising under the warrant agreement as the parties to the warrant agreement may deem necessary or desirable and that the parties deem to not adversely affect the rights of the registered holders of the warrants
and
123
(b) all other modifications or amendments require the vote or written consent of
at least 50% of the then outstanding public warrants and, solely with respect to any amendment to the terms of the private placement warrants or any provision of the warrant agreement with respect to the Private Placement Warrants, at least 50%
of the then outstanding Private Placement Warrants. You should review a copy of the warrant agreement for a complete description of the terms and conditions applicable to the warrants.
The warrant holders do not have the rights or privileges of
holders of AON Class A Common Stock and any voting rights until they exercise their warrants and receive shares of AON Class A Common Stock. After the issuance of shares of AON Class A Common Stock upon exercise of the warrants, each holder
will be entitled to one (1) vote for each share held of record on all matters to be voted on by holders of AON Class A Common Stock.
No fractional shares will be issued upon exercise of the warrants.
If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number of shares of AON Class A Common Stock to be issued to the warrant holder.
Private Placement Warrants
The private placement warrants (including the AON Class A Common
Stock issuable upon exercise of the private placement warrants) will not be transferable, assignable or salable until thirty (30) days after the Business Combination (except in limited circumstances) and they will not be redeemable by AON for
cash so long as they are held by the Sponsor, members of the Sponsor or their permitted transferees.
The initial purchasers of the private placement warrants, or their
permitted transferees, have the option to exercise the private placement warrants on a cashless basis. Except as described in this section, the private placement warrants have terms and provisions that are identical to those of the warrants
sold in the Business Combination, including that they may be redeemed for shares of AON Class A Common Stock. If the private placement warrants are held by holders other than the Sponsor or their permitted transferees, the private placement
warrants will be redeemable by AON and exercisable by the holders on the same basis as the warrants included in the units being sold in the Business Combination.
Class B Prefunded Warrants
A Class B Prefunded Warrant was issued to any holder of AON
membership units who have elected to receive such warrant to purchase AON Class B Common Stock in lieu of shares of AON Class B Common Stock that such holder would otherwise be entitled to receive as consideration in connection with the
Business Combination. The Class B Prefunded Warrant has an initial exercise price per share equal to $0.01 per share of AON Class B Common Stock. The Class B Prefunded Warrant is exercisable at any time upon issuance. The exercise price and
number of shares of AON Class B Common Stock issuable upon exercise is subject to appropriate adjustment in the event of stock dividends. A holder of the Class B Prefunded Warrant (together with its affiliates) may not exercise any portion of
the Class B Prefunded Warrant to the extent that the holder would own more than 4.99% of the outstanding AON Class B Common Stock (the “Beneficial Ownership Limitation”) immediately after exercise or more than 4.99% of the voting power of AON
when combined with any securities of AON or any securities convertible into AON. Notwithstanding the foregoing, upon notice to the AON, such holder may increase or decrease the Beneficial Ownership Limitation, provided that any increase or
decrease in the Beneficial Ownership Limitation will not be effective until 61 days following notice of such change from the holder to AON.
In the event of a fundamental transaction (which includes any
reorganization, recapitalization or reclassification of our Class B Common Stock, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the
acquisition of more than 50% of our outstanding Class B Common Stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by AON common stock), the holders of the Class B Prefunded Warrants will be
entitled to receive upon exercise of the Class B Prefunded Warrants the kind and amount of securities, cash or other property that such holders would have been entitled to receive had they exercised the Class B Prefunded Warrants immediately
prior to such fundamental transaction.
Certain Anti-Takeover Provisions of Delaware
Law, the Charter and Amended and Restated Bylaws
Provisions of the DGCL and the Charter and Amended and Restated
Bylaws could make it more difficult to acquire the post-combination company by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, are intended to discourage
coercive takeover
124
practices and inadequate takeover bids and to encourage persons seeking to acquire
control of the post-combination company to first negotiate with the board of directors. We believe that the benefits of these provisions outweigh the disadvantages of discouraging certain takeover or acquisition proposals because, among other
things, negotiation of these proposals could result in an improvement of their terms and enhance the ability of the AON Board to maximize stockholder value. However, these provisions may delay, deter or prevent a merger or acquisition of us
that a stockholder might consider is in its best interest, including those attempts that might result in a premium over the prevailing market price of the AON common stock.
In addition, the Charter provides for certain other provisions that
may have an anti-takeover effect:
|
•
|
There is no cumulative voting with respect to the election of directors.
|
|
•
|
The AON Board is divided into three staggered classes of directors. At each annual meeting of its stockholders, a class of
directors will be elected for a three-year term to succeed the same class whose term is then expiring, as follows:
|
|
•
|
the Class I director, whose terms will expire at the annual meeting of stockholders to be held in 2024, is James Stith, and
there is one vacancy;
|
|
•
|
the Class II directors, whose terms will expire at the annual meeting of stockholders to be held in 2025, is Fred” Divers and
there are two vacancies; and
|
|
•
|
the Class III directors, whose terms will expire at the annual meeting of stockholders to be held in 2026, will be Todd
Schnoherz, Bradley Fluegel, and Ravi Sarin.
|
|
•
|
The AON Board is empowered to appoint a director to fill a vacancy created by the expansion of the AON Board or the
resignation, death, or removal of a director in certain circumstances. AON intends to fill the vacancies prior to the next annual meeting of stockholders.
|
|
•
|
A prohibition on stockholders calling a special meeting and the requirement that from and after the Closing, a meeting of the
stockholders may only be called by the AON Board acting pursuant to a resolution adopted by a majority of the authorized directors of the AON Board, by our Chief Executive Officer or by our Chairman, which may delay the ability of our
stockholders to force consideration of a proposal or to take action, including the removal of directors.
|
|
•
|
Subject to any limitations imposed by the listing standards of Nasdaq (or another securities exchange on which AON equity
securities are then listed for trading), the authorized but unissued common stock and preferred stock will be available for future issuances without stockholder approval and could be utilized for a variety of corporate purposes,
including future offerings to raise additional capital, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
|
|
•
|
AON is subject to the provisions of Section 203 of the DGCL, which we refer to as “Section 203,” regulating corporate
takeovers. Section 203 prevents certain Delaware corporations, under certain circumstances, from engaging in a “business combination” with (a) a stockholder who owns 15% or more of our outstanding voting stock (otherwise known as an
“interested stockholder”);
|
|
•
|
an affiliate of an interested stockholder or (c) an associate of an interested stockholder, in each case, for three years
following the date that such stockholder became an interested stockholder. A “business combination” includes a merger or sale of more than 10% of our assets. However, the above provisions of Section 203 do not apply if:
|
|
•
|
the AON Board approves the transaction that made the stockholder an “interested stockholder,” prior to the date of the
transaction;
|
|
•
|
after the completion of the transaction that resulted in the stockholder becoming an interested stockholder, that stockholder
owned at least 85% of AON voting stock outstanding at the time the transaction commenced, other than statutorily excluded shares of common stock; or
|
125
|
•
|
on or subsequent to the date of the transaction, the business combination is approved by the AON Board and authorized at a
meeting of our stockholders, and not by written consent, by an affirmative vote of at least two-thirds of the outstanding voting stock not owned by the interested stockholder.
|
Advance notice requirements for stockholder proposals and director
nominations
The proposed Amended and Restated Bylaws provide that stockholders
seeking to bring business before the annual meeting of the stockholders, or to nominate candidates for election as directors at the annual meeting of the stockholders AON must provide timely notice of their intent in writing. To be timely, a
stockholder’s notice will need to be received by the company secretary at our principal executive offices not later than the close of business on the ninetieth (90th) nor earlier than the close of business on the one hundred twentieth (120th)
day prior to the anniversary date of the immediately preceding annual meeting of the stockholders. Pursuant to Rule 14a-8 of the Exchange Act, proposals seeking inclusion in our annual proxy statement must comply with the notice periods
contained therein. The proposed Amended and Restated Bylaws also specify certain requirements as to the form and content of a stockholders’ meeting.
These provisions may preclude AON stockholders from bringing
matters before our annual meeting of the stockholders or from making nominations for directors at our annual meeting of the stockholders.
Exclusive Forum
Our charter provides that, unless AON consents to the selection of
an alternative forum, any (a) derivative action or proceeding brought on behalf of AON, (b) action asserting a claim of breach of a duty (including any fiduciary duty) owed by any current or former director, officer, stockholder, employee or
agent of AON to AON or its stockholders, (c) action asserting a claim against AON or its directors, officers or employees governed by the internal affairs doctrine shall, to the fullest extent permitted by law, be exclusively brought in the
Court of Chancery of the State of Delaware or (d) action asserting a claim against AON or any current or former director, officer, employee or agent of AON arising pursuant to any provision of the DGCL or the Charter or the Amended and Restated
Bylaws. Additionally, the Charter also provides that, to the fullest extent permitted by law, unless AON otherwise consents in writing to the selection of an alternative forum, the federal district courts of the United States of America will be
the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of AON shall be deemed to have notice
of and consented to the forum provisions in the Amended and Restated Bylaws. This exclusive forum provision will not apply to claims under the Exchange Act, but will apply to other state and federal law claims including actions arising under
the Securities Act. Section 22 of the Securities Act, however, creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations
thereunder. Accordingly, there is uncertainty as to whether a court would enforce such a forum selection provision as written in connection with claims arising under the Securities Act, and investors cannot waive compliance with the federal
securities laws and the rules and regulations thereunder.
Limitations on Liability and Indemnification of
Officers and Directors
The DGCL authorizes corporations to limit or eliminate the
personal liability of directors and stockholders of corporations for monetary damages for breaches of directors’ fiduciary duties, subject to certain exceptions. Our charter includes a provision that eliminates, to the fullest extent permitted
by the DGCL (as currently in effect or as it may in the future be amended), the personal liability of AON’s directors for damages for any breach of fiduciary duty as a director.
Our charter provides that, to the fullest extent permitted by the
DGCL (as currently in effect or as it may in the future be amended), AON must indemnify and hold harmless and advance expenses to any of its directors and officers who is involved in any action, suit or proceeding by reason of the fact that he
or she is or was a director or officer of AON or, while serving as a director or officer of AON, is or was serving at the request of AON as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust,
enterprise or nonprofit entity. AON also is expressly authorized to carry directors’ and officers’ liability insurance providing indemnification for AON’s directors, officers, and certain employees for some liabilities. AON believes that these
indemnification and advancement provisions and insurance are useful to attract and retain qualified directors and executive officers.
The limitation of liability, advancement and indemnification
provisions in the Charter and the proposed Amended and Restated Bylaws may discourage stockholders from bringing lawsuits against AON’s directors for
126
breach of their fiduciary duty. These provisions also may have the effect of
reducing the likelihood of derivative litigation against AON’s directors and officers, even though such an action, if successful, might otherwise benefit AON and its stockholders. In addition, your investment in AON may be adversely affected to
the extent that AON pays the costs of settlement and damage awards against directors and officer pursuant to these indemnification provisions.
Transfer Agent and Warrant Agent
Continental Stock Transfer & Trust Company is the transfer
agent for AON Class A Common Stock, AON Class B Common Stock and AON Series A Preferred Stock and the warrant agent for AON warrants.
Listing of Securities
AON Class A Common Stock and AON warrants are listed on the Nasdaq
under the symbol “AONC” and “AONCW,” respectively.
127
Resales under Rule 144
Under the Securities Act, securities may be sold only if the sale
is registered under the Securities Act or qualifies for an exemption from registration, including an exemption under Rule 144 under the Securities Act (“Rule 144”).
Rule 144(b)(1) provides a safe harbor pursuant to which certain
persons may sell shares of AON Common Stock that constitute “restricted securities” as defined in Rule 144 without registration under the Securities Act. “Restricted securities” include, among other things, securities acquired directly or
indirectly from the issuer, or from an affiliate of the issuer, in a transaction or chain of transactions not involving any public offering. In general, the conditions that must be met for a person to sell shares of AON Common Stock pursuant to
Rule 144(b)(1) are as follows: (i) the person selling the shares must not be an affiliate of AON at the time of the sale, and must not have been an affiliate of AON during the preceding three months, and (2) either (A) at least one year must
have elapsed since the date of acquisition of the restricted securities from AON or any of its affiliates or (B) if AON satisfies the current public information requirements set forth in Rule 144, at least six months have elapsed since the date
of acquisition of the restricted securities from AON or any of its affiliates.
Rule 144(b)(2) provides a safe harbor pursuant to which persons
who are affiliates of AON may sell shares of its stock, whether restricted securities or not, without registration under the Securities Act if certain conditions are met. In general, the conditions that must be met for a person who is an
affiliate of AON (or has been within three months prior to the date of sale) to sell shares of stock of AON pursuant to Rule 144(b)(2) are as follows (1) if the shares being sold are restricted securities, at least six months must have elapsed
since the date of acquisition of the shares of stock from AON or any of its affiliates, (2) the seller must comply with volume limitations, manner of sale restrictions and notice requirements and (3) AON must satisfy the current public
information requirements set forth in Rule 144. In order to comply with the volume limitations, a seller may not sell, in any three month period, more than the following number of shares:
|
•
|
1% of the total number of Class A Common Stock then outstanding;
|
|
•
|
the average weekly reported volume of trading in AON Common Stock on all national securities exchanges and/or reported
through the automated quotation system of a registered securities association during the four calendar weeks preceding the filing of the notice required to be filed by the seller under Rule 144 or if no such notice is required, the date
of receipt of the order to execute the transaction by the broker or the date of execution of the transaction directly with a market maker; or
|
|
•
|
the average weekly volume of trading in such securities reported pursuant to an effective transaction report plan or an
effective national market system plan, as defined in Regulation NMS under the Exchange Act, during the four week period described in the preceding bullet.
|
Restrictions on the Use of Rule 144 by Shell Companies or Former
Shell Companies
Rule 144 is not available for the resale of securities initially
issued by shell companies (other than business combination related shell companies) or issuers that have been at any time previously a shell company unless the following conditions are met:
|
•
|
the issuer of the securities that was formerly a shell company has ceased to be a shell company;
|
|
•
|
the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
|
|
•
|
the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the
preceding twelve months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and
|
|
•
|
at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting
its status as an entity that is not a shell company.
|
As a result, the holders of AON securities will be able to sell
their securities in the absence of an effective registration covering such sales, pursuant to Rule 144 one year after the Business Combination.
128
Lock-up Restrictions
Lockup of AON LLC Common Equityholders
Following the earlier of (a) the date that is the six month
anniversary of the Closing and (b) the date after the Closing on which AON consummates a change of control transaction that results in all of AON’s stockholders having the right to exchange their Class A Common Stock for cash securities or
other property (the period commencing on the Closing and expiring on such date, the “AON Lock-Up Period”), AON LLC common equityholders have the right to require AON to redeem all or a portion of their common units, together with the
cancellation of an equal number of shares of AON Class B Common Stock (or the partial or full cancellation of a Class B Prefunded Warrant, as applicable), for an equal number of shares of AON Class A Common Stock; provided however that, a
holder of AON LLC common units may not exchange their common units for AON Class A Common Stock that would result in such holder owning more than 4.99% of the outstanding AON Class A Common Stock immediately after such redemption (the
“Beneficial Ownership Limitation”) and no more than 4.99% of the voting power of AON when combined with any securities of AON or any securities convertible into AON, subject to certain exceptions. As the AON LLC common equityholders cause their
common units to be redeemed or exchanged, holding other assumptions constant, AON’s membership interest in AON will correspondingly increase, the number of shares of AON Class A Common Stock outstanding will increase, and the number of shares
of AON Class B Common Stock (whether held directly or indirectly through Class B Prefunded Warrants) will decrease.
Sponsor Support Agreement
Contemporaneously with the execution and delivery of the Business
Combination Agreement, DTOC and AON entered into an amended and restated sponsor support agreement (the “Sponsor Support Agreement”) with Digital Transformation Sponsor LLC (the “Sponsor”) and DTOC’s Chief Executive Officer (together with the
Sponsor, the “Supporting Sponsor Shareholders”) pursuant to which the Sponsor, DTOC’s former directors and officers, certain affiliates of the Sponsor and their permitted transferees agreed not to transfer any shares of AON Class A Common Stock
held by them until the twelve month anniversary of the Closing (the “Sponsor Lock-Up Period”).
In addition, under the Sponsor Support Agreement, the Sponsor has
agreed to subject 2,918,125 of the shares of AON Class A Common Stock held by it as of the Closing (the “Sponsor Earnout Shares”) to the following vesting and forfeiture provisions for the five-year period following the Closing: (i) the Sponsor
Earnout Shares will vest when the volume-weighted average price of the AON Class A Common Stock equals or exceeds $13.50 per share for any 20 trading days within any 30 trading day period beginning after the Closing and ending 5 years following
the Closing, (ii) all of the Sponsor Earnout Shares will be released immediately upon the consummation of a change of control transaction within the 5-year period following the Closing, and (iii) if the Sponsor Earnout Shares are not released
pursuant to the foregoing provisions on or before the date that is 5 years after the Closing, then the Sponsor Earnout Shares will be forfeited immediately following such date.
The Sponsor Support Agreement will terminate in its entirety, and
be of no further force or effect, upon the earlier to occur of (i) the expiration of the Sponsor Lock-Up Period, and (iii) the written agreement of AON, the Sponsor and AON.
129
This prospectus relates to from time to time the resale of (a) an
aggregate of 51,161,832 shares of Class A Common Stock of the Company and (b) 6,113,333 private placement warrants to purchase shares of Class A Common Stock by certain of the Selling Securityholders named in this prospectus.
We will not receive any of the proceeds from the sale of the
securities by the Selling Securityholders.
Upon effectiveness of the registration statement of which this
prospectus forms a part, the securities beneficially owned by the Selling Securityholders covered by this prospectus may be offered and sold from time to time by the Selling Securityholders. The term “Selling Securityholders” includes donees,
pledgees, transferees or other successors in interest selling securities received after the date of this prospectus from a Selling Securityholder as a gift, pledge, partnership distribution or other transfer. The Selling Securityholders will
act independently of us in making decisions with respect to the timing, manner and size of each sale. Such sales may be made on one or more exchanges or in the over-the-counter market or otherwise, at prices and under terms then prevailing or
at prices related to the then current market price or in negotiated transactions. Each Selling Securityholder reserves the right to accept and, together with its respective agents, to reject, any proposed purchase of securities to be made
directly or through agents. The Selling Securityholders and any of their permitted transferees may sell their securities offered by this prospectus on any stock exchange, market or trading facility on which the securities are traded or in
private transactions.
Subject to the limitations set forth in any applicable
registration rights agreement, the Selling Securityholders may use any one or more of the following methods when selling the securities offered by this prospectus:
|
•
|
purchases by a broker-dealer as principal and resale by such broker-dealer for its own account pursuant to this prospectus;
|
|
•
|
ordinary brokerage transactions and transactions in which the broker solicits purchasers;
|
|
•
|
block trades in which the broker-dealer so engaged will attempt to sell the securities as agent but may position and resell a
portion of the block as principal to facilitate the transaction;
|
|
•
|
an over-the-counter distribution in accordance with the rules of the applicable exchange;
|
|
•
|
settlement of short sales entered into after the date of this prospectus;
|
|
•
|
agreements with broker-dealers to sell a specified number of the securities at a stipulated price per share;
|
|
•
|
in “at the market” offerings, as defined in Rule 415 under the Securities Act, at negotiated prices, at prices prevailing at
the time of sale or at prices related to such prevailing market prices, including sales made directly on a national securities exchange or sales made through a market maker other than on an exchange or other similar offerings through
sales agents;
|
|
•
|
directly to purchasers, including through a specific bidding, auction or other process or in privately negotiated
transactions;
|
|
•
|
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
|
|
•
|
through a combination of any of the above methods of sale; or
|
|
•
|
any other method permitted pursuant to applicable law.
|
In addition, a Selling Securityholder that is an entity may elect
to make a pro rata in-kind distribution of securities to its members, partners or stockholders pursuant to the registration statement of which this prospectus is a part by delivering a prospectus with a plan of distribution. Such members,
partners or stockholders would thereby receive freely tradeable securities pursuant to the distribution through a registration statement. To the extent a distributee is an affiliate of ours (or to the extent otherwise required by law), we may
file a prospectus supplement in order to permit the distributees to use the prospectus to resell the securities acquired in the distribution.
The Selling Securityholders also may transfer the securities in
other circumstances, in which case the transferees, pledgees or other successors-in-interest will be the selling beneficial owners for purposes of this
130
prospectus. Upon being notified by a Selling Securityholder that a donee, pledgee,
transferee, other successor-in-interest intends to sell our securities, we will, to the extent required, promptly file a supplement to this prospectus to name specifically such person as a Selling Securityholder.
In offering the securities covered by this prospectus, the Selling
Securityholders and any underwriters, broker-dealers or agents who execute sales for the Selling Securityholders may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. Any discounts,
commissions, concessions or profit they earn on any resale of those securities may be underwriting discounts and commissions under the Securities Act.
In order to comply with the securities laws of certain states, if
applicable, the securities must be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states the securities may not be sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification requirement is available and is complied with.
We have advised the Selling Securityholders that the
anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the Selling Securityholders and their affiliates. In addition, to the extent applicable we will make copies of
this prospectus (as it may be supplemented or amended from time to time) available to the Selling Securityholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The Selling Securityholders may
indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.
131
Dentons US LLP, New York, New York has passed upon the validity of
the common stock and warrants offered by this prospectus and certain other legal matters related to this prospectus.
The financial statements of Digital Transformation Opportunities
Corp. as of December 31, 2022 and 2021 and for each of the two years in the period ended December 31, 2022, appearing in this prospectus have been audited by Marcum LLP, an independent registered accounting firm, as stated in their report
thereon and included in this prospectus (which report expresses an unqualified opinion and contains an explanatory paragraph as to Digital Transformation Opportunities Corp.’s ability to continue as a going concern), in reliance upon such
report and upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of American Oncology
Network, LLC (“AON LLC”) as of December 31, 2022 and 2021 and for each of the three years in the period ended December 31, 2022 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an
independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
As disclosed on a Current Report on Form 8-K, filed with the SEC
on September 26, 2023, on September 20, 2023, the Board dismissed Marcum LLP (“Marcum”), DTOC’s independent registered public accounting firm prior to the Business Combination, effective immediately.
The report of Marcum on DTOC’s financial statements as of
December 31, 2022 and 2021, and for the years then ended, did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainties, audit scope or accounting principles, except that the report
contained an explanatory paragraph relating to substantial doubt about the ability of DTOC to continue as a going concern as described in Note 1 to the financial statements.
During the years ended December 31, 2021 and December 31, 2022,
and the subsequent period through September 20, 2023, there were no disagreements with Marcum on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of Marcum, would have caused it to make a reference to the subject matter of the disagreement in connection with its report covering such period. In addition, no “reportable events,” as defined in Item 304(a)(1)(v)
of Regulation S-K, occurred within the period of Marcum’s engagement and the subsequent period through September 20, 2023, except for the control deficiency disclosed as a material weakness in DTOC’s Annual Report on Form 10-K.
AON provided Marcum with a copy of the foregoing disclosures prior
to the filing of that Current Report and requested that Marcum furnish a letter addressed to the SEC, which is incorporated herein by reference as Exhibit 16.1, stating whether it agrees with such disclosures, and, if not, stating the respects
in which is does not agree.
On September 20, 2023, the audit committee of the Board approved
the engagement of PricewaterhouseCoopers LLP (“PwC”) as AON’s independent registered public accounting firm to audit AON’s consolidated financial statements for the year ending December 31, 2023. PwC served as the independent registered
public accounting firm of AON LLC prior to the Business Combination.
During the years ended December 31, 2021 and December 31, 2022,
and the interim period through September 20, 2023, DTOC did not consult with PwC with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that
might be rendered on the Company’s financial statements, and no written report or oral advice was provided to the Company by PwC that PwC concluded was an important factor considered by the Company in reaching a decision as to an accounting,
auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement, as that term is described in Item 304(a)(1)(iv) of Regulation S-K under the Exchange Act and the related instructions to Item 304 of
Regulation S-K under the Exchange Act, or a reportable event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K under the Exchange Act.
132
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. This prospectus is part of the registration statement, but does not contain all of the information included in the registration statement or the exhibits. Our SEC filings are available to the public on the
internet at a website maintained by the SEC located at www.sec.gov. Those filings are also available to the public on, or accessible through, our website under the heading “Investors” at www.aoncology.com. The information on our web site, however, is not, and should not be deemed to be, a part of this prospectus.
133
INDEX TO CONSOLIDATED FINANCIAL INFORMATION
|
|
| |
Page
|
|
Consolidated Financial Statements of American Oncology
Network, LLC
|
| |
|
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
|
|
| |
|
|
Financial Statements (Unaudited)
|
| |
|
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
|
|
| |
|
|
Financial Statements of Digital Transformation
Opportunities Corp.
|
| |
|
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
| | | ||
|
|
| |
|
|
Financial Statements (Unaudited)
|
| |
|
| | | ||
| | | ||
| | | ||
| | | ||
| | |
F-1