The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with our unaudited financial
statements and the notes related thereto which are included in "Item 1.
Financial Statements" of this Quarterly Report on Form 10Q.
Cautionary note regarding forward-looking statements
All statements other than statements of historical fact included in this
Quarterly Report on Form 10Q including, without limitation, statements under
this "Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's financial position, business strategy and
the plans and objectives of management for future operations, are
forward-looking statements. When used in this Quarterly Report on Form 10Q,
words such as "anticipate," "believe," "estimate," "expect," "intend" and
similar expressions, as they relate to us or the Company's management, identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of management, as well as assumptions made by, and information currently
available to, the Company's management. Actual results could differ materially
from those contemplated by the forward-looking statements as a result of certain
factors detailed in our filings with the SEC. All subsequent written or oral
forward-looking statements attributable to us or persons acting on the Company's
behalf are qualified in their entirety by this paragraph.
Overview
We are a blank check company incorporated on June 12, 2019 as a Delaware
corporation and formed for the purpose of effecting a Business Combination with
one or more target businesses. We completed our Public Offering on January 28,
2020.
We presently have no revenue, have had losses since inception from incurring
formation costs and have had no operations other than the active solicitation of
a target business with which to complete a Business Combination and work towards
completing the Proposed Business Combination. We have relied upon the sale of
our securities and loans from our officers and directors to fund our operations.
We intend to effectuate our Business Combination using cash from the proceeds of
our Public Offering and the sale of the Private Placement Warrants, our capital
stock, debt, or a combination of cash, stock and debt.
As more fully described in the section entitled "-Recent Developments-Proposed
United Wholesale Mortgage Business Combination," on September 22, 2020, we
entered into a Business Combination Agreement (as defined below) pursuant to
which we will complete the Proposed Business Combination (as defined below).
Recent Developments
Proposed United Wholesale Mortgage Business Combination
On September 22, 2020, Gores Holdings IV, Inc. (the "Company") entered into a
Business Combination Agreement (the "Business Combination Agreement"), by and
among the Company, SFS Holding Corp., a Michigan corporation ("SFS Corp."),
United Shore Financial Services, LLC (d/b/a United Wholesale Mortgage), a
Michigan limited liability company and a wholly-owned subsidiary of SFS Corp.
("UWM"), and UWM Holdings, LLC, a newly formed Delaware limited liability
company and a wholly-owned subsidiary of SFS Corp. ("UWM LLC" and, together with
SFS Corp. and UWM, the "UWM Entities."). The transactions contemplated by the
Business Combination Agreement will constitute a "Business Combination" within
the meaning of the Company's Amended and Restated Certificate of Incorporation.
Such transactions are hereinafter referred to as the "Proposed Business
Combination."
Pursuant to the Business Combination Agreement, as described in more detail
below, (a) SFS Corp. will contribute UWM into UWM LLC, (b) the Company will
acquire Class A Common Units in UWM LLC (the "UWM Class A Common Units") and SFS
Corp. will acquire Class B Common Units in UWM LLC (the "UWM Class B Common
Units"), and (c) the Company will issue to SFS Corp. shares of a new
non-economic Class D common stock of the Company (the "Class D Common Stock"),
which will entitle the holder to 10 votes per share. Following
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the consummation of the transactions contemplated by the Business Combination
Agreement (the "Closing"), the Company will be organized in an "Up-C" structure
in which all of the business of UWM will be held directly by UWM LLC and the
Company's only direct assets will consist of the UWM Class A Common Units. The
Company is expected to own approximately 6% of the combined Common Units in UWM
LLC and will control UWM LLC as the sole manager of UWM LLC in accordance with
the terms of the amended and restated limited liability agreement of UWM LLC to
be entered into in connection with the Closing. SFS Corp. is expected to retain
approximately 94% of the combined Common Units in UWM LLC. Each UWM Class B
Common Unit to be held by SFS Corp. may be exchanged, along with the stapled
Class D Common Stock, for either, at the option of the Company, (a) cash or (b)
one share of the Company's Class B common stock, par value $0.0001 per share
(the "Class B Common Stock"), which will be identical to the Company's Class A
common stock, par value $0.0001 per share (the "Class A Common Stock") except
that it will entitle the holder to 10 votes per share. Each share of Class B
Common Stock is convertible into one share of Class A Common Stock upon the
transfer or assignment of such share from SFS Corp. to a non-affiliated
third-party.
The Business Combination Agreement and the Proposed Business Combination were
unanimously approved by the Board of Directors of the Company (the "Board") on
September 22, 2020.
The Merger Agreement
At the Closing, a series of transactions will occur, including the following:
(a) UWM LLC will issue to SFS Corp. a number of UWM Class B Common Units equal
to the quotient of the Company Equity Value divided by $10.00, minus the number
of outstanding shares of Class F Common Stock of the Company as of immediately
prior to Closing; (b) the Company will contribute to UWM LLC an amount in cash
equal to the Closing Cash Consideration, which is expected to be approximately
$896,000,000 assuming no redemptions by the Company's stockholders; (c) UWM LLC
will issue to the Company the number of UWM Class A Common Units equal to the
number of issued and outstanding shares of the Class A Common Stock as of
immediately prior to the Closing; and (d) the Company will issue to SFS Corp. a
number of shares of the Class D Common Stock equal to the number of UWM Class B
Common Units issued by UWM LLC to SFS Corp. pursuant to clause (a) above. The
Company Equity Value is defined in the Business Combination Agreement as
$16,052,000,000 minus (i) Available Cash, minus (ii) an amount, if any, by which
Closing Cash is less than the Closing Cash Target, plus (iii) an amount, if any,
by which Closing Cash exceeds the Closing Cash Target, which for purposes of
clause (iii) shall not exceed $200,000,000.
In addition to the consideration to be paid at the Closing, SFS Corp. will be
entitled to receive an additional number of earn-out shares from the Company,
issuable in shares of Class D Common Stock and UWM Class B Common Units as
provided in the Business Combination Agreement, if the price of the Company's
Class A Common Stock exceeds certain thresholds during the five-year period
following the Closing. The maximum number of shares to be issued in connection
with the earn-out will not exceed 6% of the Company Equity Value, divided by
$10.00, assuming each of the price thresholds is achieved during the earn-out
period.
The Business Combination Agreement may be terminated at any time prior to the
Closing (whether before or after the required Company stockholder vote has been
obtained) by written consent of the Company, SFS Corp. and UWM LLC or by the
Company, on the one hand, and SFS Corp. and UWM LLC on the other hand in
specified circumstances, including if the transactions have not been consummated
by March 31, 2021 (subject to extension as set forth in the Business Combination
Agreement) and the delay in closing beyond such date is not due to the breach of
the Business Combination Agreement by the party seeking to terminate.
Private Placement Subscription Agreements
On September 22, 2020, the Company entered into subscription agreements (each, a
"Subscription Agreement" and collectively, the "Subscription Agreements") with
certain investors, including certain individuals (each, an "Individual Investor
Subscription Agreements"), institutional investors (each, an "Institutional
Investor Subscription Agreement") and Gores Sponsor IV LLC (the "Sponsor"),
pursuant to which the investors have agreed to purchase an aggregate of
50,000,000 shares of Class A Common Stock in a private placement for $10.00 per
share (the "Private Placement"). The proceeds from the Private Placement will be
used to partially fund the cash consideration to be paid to UWM LLC at the
Closing.
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Each Subscription Agreement will terminate with no further force and effect upon
the earliest to occur of: (a) such date and time as the Business Combination
Agreement is terminated in accordance with its terms; (b) upon the mutual
written agreement of the parties to such Subscription Agreement; or (c) if any
of the conditions to closing set forth in such Subscription Agreement are not
satisfied on or prior to the Closing and, as a result thereof, the transactions
contemplated by such subscription agreement are not consummated at the Closing.
As of the date hereof, the shares of Class A Common Stock to be issued pursuant
to the Subscription Agreements have not been registered under the Securities
Act. The Company will, within 30 days after the Closing, file with the SEC a
registration statement (the "Post-Closing Registration Statement") registering
the resale of such shares of Class A Common Stock and will use its commercially
reasonable efforts to have such Post-Closing Registration Statement declared
effective as soon as practicable after the filing thereof.
The Sponsor's subscription agreement (the "Sponsor Subscription Agreement") is
substantially similar to the Individual Investor Subscription Agreements, except
that the Sponsor has the right to syndicate the Class A Common Stock purchased
under the Sponsor Subscription Agreement in advance of the Closing. The
Institutional Investor Subscription Agreement is substantially similar to the
Individual Investor Subscription Agreement, except that it contains additional
representations and warranties on the part of the Company and restrictions
regarding the Company's ability to delay or suspend a Post-Closing Registration
Statement filed pursuant to the registration rights provided under the
Institutional Investor Subscription Agreements.
Tax Receivable Agreement
At the Closing, the Company will enter into a Tax Receivable Agreement, a form
of which is attached as an exhibit to the Business Combination Agreement (the
"Tax Receivable Agreement"), with SFS Corp. The Tax Receivable Agreement will
generally provide for the payment, upon the satisfaction of certain conditions,
by the Company to SFS Corp. of 85% of the net cash savings (calculated using
certain simplifying assumptions), if any, in U.S. federal, state and local
income tax that the Company actually realizes (or is deemed to realize in
certain circumstances) in periods after the Closing as a result of (a) certain
increases in tax basis resulting from transactions contemplated by the Business
Combination Agreement; (b) certain increases in tax basis resulting from
exchanges of UWM Class B Common Units; (c) imputed interest deemed to be paid by
the Company as a result of payments it makes under the Tax Receivable Agreement;
(d) certain increases in tax basis resulting from payments the Company makes
under the Tax Receivable Agreement; and (e) disproportionate allocations (if
any) of tax benefits to the Company as a result of section 704(c) of the Code.
The Company will retain the benefit of the remaining 15% of these cash savings.
Amended & Restated Registration Rights and Lock-Up Agreement
At the Closing, the Company will enter into the Amended & Restated Registration
Rights & Lock-Up Agreement (the "A&R Registration Rights Agreement"), with the
Gores Holders (as defined therein) and SFS Corp. (collectively, the "Restricted
Stockholders"). Pursuant to the terms of the A&R Registration Rights Agreement,
(a) any outstanding share of Class A Common Stock or any other equity security
(including the Private Placement Warrants and including shares of Class A Common
Stock issued or issuable upon the exercise of any other equity security) of the
Company held by a Restricted Stockholder as of the date of the A&R Registration
Rights Agreement or thereafter acquired by a Restricted Stockholder upon
conversion of the Founder Shares, upon exercise of any Private Placement
Warrants and upon conversion of any Class B Stock that SFS Corp. may receive in
any future UWM Unit Exchanges and (b) any other equity security of the Company
issued or issuable with respect to any such share of Class A Common Stock by way
of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise will be entitled to registration rights (collectively, "Registrable
Securities").
The A&R Registration Rights Agreement provides that the Company will, within 30
days after the consummation of the transactions contemplated by the Proposed
Business Combination Agreement, file with the SEC a shelf registration statement
registering the resale of the shares of Class A Common Stock held by the
Restricted Stockholders and will use its reasonable best efforts to have such
registration statement declared effective as soon as practicable after the
filing thereof, but subject to SEC review and comment, in no event later than 60
days following the filing deadline. The Gores Holders and SFS Corp. are each
entitled to make up to three demands for registration, excluding short form
demands, that the Company register shares of Registrable Securities held by
these
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parties. In addition, the Restricted Stockholders have certain "piggy-back"
registration rights. The Company will bear the expenses incurred in connection
with the filing of any registration statements filed pursuant to the terms of
the A&R Registration Rights Agreement. The Company and the Restricted
Stockholders agree in the A&R Registration Rights Agreement to provide customary
indemnification in connection with any offerings of Registrable Securities
effected pursuant to the terms of the A&R Registration Rights Agreement.
The A&R Registration Rights Agreement further provides that SFS Corp. is subject
to restrictions on the transfer of Class A Common Stock that it owns for 180
days after the completion of the Proposed Business Combination.
Our Initial Stockholders entered into letter agreements pursuant to which they
agreed to restrictions on the transfer of their securities issued in the
Company's initial public offering, which (a) in the case of the Founder Shares
and the Class A Common Stock underlying the Founder Shares is 180 days after the
completion of a Business Combination, and (b) in the case of the Private
Placement Warrants and the respective Class A Common Stock underlying the
Private Placement Warrants is 30 days after the completion of a Business
Combination.
Results of Operations
For the nine months ended September 30, 2020, we had net loss of ($4,880,878).
Our business activities during the quarter mainly consisted of identifying and
evaluating prospective acquisition candidates for a Business Combination and
activity in connection with the Proposed Business Combination. We believe that
we have sufficient funds available to complete our efforts to effect a Business
Combination with an operating business by January 28, 2022. However, if our
estimates of the costs of identifying a target business, undertaking in-depth
due diligence and negotiating a Business Combination, or transaction costs in
connection with the Proposed Business Combination are less than the actual
amount necessary to do so, we may have insufficient funds available to operate
our business prior to a Business Combination.
As indicated in the accompanying unaudited financial statements, at September
30, 2020, we had $222,372 in cash and deferred offering costs of $14,875,000.
Further, we expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete our Business
Combination, including the Proposed Business Combination, will be successful.
Liquidity and Capital Resources
On July 16, 2019, our Sponsor purchased an aggregate of 11,500,000 Founder
Shares for an aggregate purchase price of $25,000, or approximately $0.002 per
share. Subsequently, our Sponsor transferred an aggregate of 75,000 Founder
Shares to our independent directors. On March 9, 2020, following the expiration
of the unexercised portion of the underwriter's over-allotment option, our
Sponsor forfeited 875,000 Founder Shares so that the remaining Founder Shares
held by our Initial Stockholders represented 20.0% of the outstanding shares
upon completion of our Public Offering.
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On January 28, 2020, we consummated our Public Offering of 42,500,000 Units at a
price of $10.00 per Unit, including 2,500,000 Units as a result of the
underwriter's partial exercise of its over-allotment option, generating gross
proceeds of $425,000,000. On the IPO Closing Date, we completed the private sale
of an aggregate of 5,250,000 Private Placement Warrants, each exercisable to
purchase one share of Class A Common Stock at $11.50 per share, to our Sponsor,
at a price of $2.00 per Private Placement Warrant, generating gross proceeds,
before expenses, of $10,500,000. After deducting the underwriting discounts and
commissions (excluding the Deferred Discount, which amount will be payable upon
consummation of the Business Combination, if consummated) and the estimated
offering expenses, the total net proceeds from our Public Offering and the sale
of the Private Placement Warrants were $426,055,000, of which $425,000,000 (or
$10.00 per share sold in the Public Offering) was placed in the Trust Account.
The amount of proceeds not deposited in the Trust Account was $1,055,000 at the
closing of our Public Offering. Interest earned on the funds held in the Trust
Account may be released to us to fund our Regulatory Withdrawals, subject to an
annual limit of $1,100,000, for a maximum of 24 months and/or additional amounts
necessary to pay our franchise and income taxes.
On July 16, 2019, the Sponsor agreed to loan the Company an aggregate of
$300,000 by the issuance of an unsecured promissory note (the "Note") issued by
the Company in favor of the Sponsor to cover organizational expenses related to
the Public Offering. On July 16, 2019, the Company borrowed $150,000 against the
Note, and on January 25, 2019, the Company borrowed an additional $150,000. This
Note was non-interest bearing and payable on the earlier of June 30, 2020 or the
completion of the Public Offering. These Notes were repaid in full upon the
completion of the Public Offering.
On September 29, 2020, the Sponsor made available to the Company a loan of
$1,000,000 pursuant to a promissory note issued by the Company to the Sponsor.
The proceeds from the note will be used for on-going operational expenses and
certain other expenses in connection with the Proposed Business Combination. The
note is unsecured, non-interest bearing and matures on the earlier of: (i) June
30, 2021 or (ii) the date on which the Company consummates the Proposed Business
Combination. As of September 30, 2020, the outstanding amount of the loan by
Sponsor to the Company was $1,000,000.
As of September 30, 2020 and December 31, 2019, we had cash held outside of the
Trust Account of approximately $222,372 and $1,120, respectively, which is
available to fund our working capital requirements. Additionally, interest
earned on the funds held in the Trust Account may be released to us to fund our
Regulatory Withdrawals, subject to an annual limit of $1,100,000, for a maximum
of 24 months and/or additional amounts necessary to pay our franchise and income
taxes.
At September 30, 2020 and December 31, 2019, the Company had current liabilities
of $4,502,000 and $426,496 and working capital of ($4,028,767) and ($14,002),
respectively, largely due to amounts owed to professionals, consultants,
advisors and others who are working on seeking a Business Combination. Such work
is continuing after September 30, 2020 and amounts are continuing to accrue.
We intend to use substantially all of the funds held in the Trust Account,
including interest (which interest shall be net of Regulatory Withdrawals and
taxes payable) to consummate a Business Combination. Moreover, we may need to
obtain additional financing either to complete a Business Combination or because
we become obligated to redeem a significant number of shares of our Class A
Common Stock upon completion of a Business Combination. Subject to compliance
with applicable securities laws, we would only complete such financing
simultaneously with the completion of a Business Combination. If we are unable
to complete our Business Combination because we do not have sufficient funds
available to us, we will be forced to cease operations and liquidate the Trust
Account. In addition, following a Business Combination, if cash on hand is
insufficient, we may need to obtain additional financing in order to meet our
obligations. To the extent that our capital stock or debt is used, in whole or
in part, as consideration to consummate a Business Combination, the remaining
proceeds held in our Trust Account, if any, will be used as working capital to
finance the operations of the target business or businesses, make other
acquisitions and pursue our growth strategy.
Off-balance sheet financing arrangements
We had no obligations, assets or liabilities which would be considered
off-balance sheet arrangements at September 30, 2020. We do not participate in
transactions that create relationships with unconsolidated entities or
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financial partnerships, often referred to as variable interest entities, which
would have been established for the purpose of facilitating off-balance sheet
arrangements.
We had not entered into any off-balance sheet financing arrangements,
established any special purpose entities, guaranteed any debt or commitments of
other entities, or entered into any non-financial agreements involving assets.
Contractual obligations
As of September 30, 2020 and December 31, 2019, we did not have any long-term
debt obligations, capital lease obligations, operating lease obligations,
purchase obligations or long-term liabilities. In connection with the Public
Offering, we entered into an administrative services agreement to pay monthly
recurring expenses of $20,000 to The Gores Group for office space, utilities and
secretarial support. The administrative services agreement terminates upon the
earlier of the completion of a Business Combination or the liquidation of the
Company.
The underwriter is entitled to underwriting discounts and commissions of 5.5%
($23,375,000), of which 2.0% ($8,500,000) was paid at the closing of the Public
Offering, and 3.5% ($14,875,000) was deferred. The Deferred Discount will become
payable to the underwriter from the amounts held in the Trust Account solely in
the event that the Company completes a Business Combination, subject to the
terms of the underwriting agreement. The underwriter is not entitled to any
interest accrued on the Deferred Discount.
Significant Accounting Policies
See Note 2, Significant Accounting Policies for a description of our significant
accounting policies.
Recently issued accounting pronouncements not yet adopted
Management does not believe that any recently issued, but not yet effective,
accounting pronouncements, if currently adopted, would have a material effect on
the Company's financial statements based on current operations of the
Company. The impact of any recently issued accounting standards will be
re-evaluated on a regular basis or if a business combination is completed where
the impact could be material.
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GORES HOLDINGS IV, INC. 