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United States securities and exchange commission logo
February 2, 2023
Kevin Nazemi
Chief Executive Officer
Digital Transformation Opportunities Corp.
10207 Clematis Court
Los Angeles, California 90077
Re: Digital
Transformation Opportunities Corp.
Preliminary Proxy
Statement on Schedule 14A
Filed January 6,
2023
File No. 001-40177
Dear Kevin Nazemi:
We have reviewed your filing and have the following comments. In
some of our
comments, we may ask you to provide us with information so we may better
understand your
disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your response and any amendment you may file in
response to these
comments, we may have additional comments.
Preliminary Proxy Statement on Schedule 14A filed January 6, 2023
Summary Term Sheet, page 2
1. We note your disclosure
on pages 4 and 14 relating to the expected ownership percentages
in the combined company
of DTOC s public stockholders, the Sponsor and other Initial
Stockholders, the PIPE
investors and AON equityholders. To the extent applicable,
disclose the total
expected ownership of the Sponsor following the transaction, inclusive
of any investments the
Sponsor plans to make through the financing transactions, such as
the PIPE investment.
Kevin Nazemi
FirstName LastNameKevin Nazemi Corp.
Digital Transformation Opportunities
Comapany2,NameDigital
February 2023 Transformation Opportunities Corp.
February
Page 2 2, 2023 Page 2
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Q: What are the specific Proposals on which I am being asked to vote at the
Special Meeting?,
page 12
2. Revise to clarify that the proposal for the election of directors who
will be the directors of
the combined company after the business combination is a proposal that
can only be
approved by the holders of DTOC Class B common stock, and explain that
the Sponsor
and other Initial Stockholders hold such shares.
Questions and Answers about the Proposals for our stockholders and the Special
Meeting, page
12
3. Please revise your disclosure in this section and elsewhere in the
prospectus as appropriate
to highlight the material risks to public warrant holders, including
those arising from
differences between private and public warrants. Clarify whether
recent common stock
trading prices exceed the threshold that would allow the company to
redeem public
warrants. Clearly explain the steps, if any, the company will take to
notify all
shareholders, including beneficial owners, regarding when the warrants
become eligible
for redemption.
Q: What equity stake will current stockholders of DTOC, PIPE Investors, and AON
hold in us
after the Closing?, page 14
4. Please disclose the Sponsor and its affiliates total potential
ownership interest in the
combined company, assuming exercise and conversion of all securities.
5. Revise your disclosure to show the potential impact of redemptions on
the per share value
of the shares owned by non-redeeming shareholders by including a
sensitivity analysis
showing a range of redemption scenarios, including at least one
interim redemption level.
6. Please revise to disclose all possible sources and extent of dilution
that shareholders who
elect not to redeem their shares may experience in connection with the
business
combination. Provide disclosure of the impact of each significant
source of dilution,
including the amount of equity held by founders, convertible
securities, including warrants
retained by redeeming shareholders, at each of the redemption levels
detailed in your
sensitivity analysis, including any needed assumptions.
Q: If I am a holder of warrants, can I exercise redemption rights with respect
to my warrants?,
page 18
7. Quantify the value of warrants, based on recent trading prices, that
may be retained by
redeeming stockholders assuming maximum redemptions and identify any
material
resulting risks.
Kevin Nazemi
FirstName LastNameKevin Nazemi Corp.
Digital Transformation Opportunities
Comapany2,NameDigital
February 2023 Transformation Opportunities Corp.
February
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Summary of the Proxy Statement, page 25
8. Please revise to expand your descriptions of DTOC and AON in this
section. Please
expand your disclosure to discuss the types of products and services
AON provides and
how it generates revenue. Please also balance your disclosure to
include equally
prominent disclosure of the limitations and challenges you face in
implementing your
business strategy, including but not limited to, your net income
(loss) for the year ended
December 31, 2021 and your dependence on a limited number of payors.
Please also
disclose that the audit opinion for DTOC includes a paragraph related
to substantial doubt
about the ability of DTOC to continue as a going concern.
9. We refer to your organizational structure chart of New AON following
the consummation
of the business combination on page 32. Please revise include the
variable interest
entities, American Oncology Partners, P.A. and American Partners of
Maryland, P.A., as
well as American Oncology Management Company, LLC, the primary
beneficiary, as
identified on page 158. Please also revise to indicate the entity that
owns the equity in
each depicted entity. In the revised presentation, please highlight
that these entities are
variable interest entities.
Interests of DTOC Directors and Officers and Others in the Business
Combination, page 43
10. Please revise your disclosure to include the current value of
out-of-pocket expenses for
which the Sponsor and DTOC s officers and directors and their
affiliates are awaiting
reimbursement.
11. We note your disclosure that the Sponsor and each of the members of
the DTOC Board
and executive management team have agreed to waive their redemption
rights in
connection with the consummation of the Business Combination with
respect to any
shares of DTOC common stock held by them. Please describe here and
elsewhere in the
prospectus any consideration provided in exchange for this agreement.
Please also revise
your disclosure summarizing the background of the business combination
to discuss the
negotiation of this agreement.
12. It appears that underwriting fees remain constant and are not adjusted
based on
redemptions. Revise your disclosure to disclose the effective
underwriting fee on a
percentage basis for shares at each redemption level presented in your
sensitivity analysis
related to dilution.
13. We note your disclosure on page 121 that DTOC s current charter
waives the corporate
opportunities doctrine. Please address this potential conflict of
interest and whether it
impacted your search for an acquisition target here and elsewhere in
the proxy statement.
Kevin Nazemi
FirstName LastNameKevin Nazemi Corp.
Digital Transformation Opportunities
Comapany2,NameDigital
February 2023 Transformation Opportunities Corp.
February
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DTOC's Sponsor and certain of its directors and officers have potential
conflicts of interest...,
page 76
14. Please revise to highlight the risk that the Sponsor will benefit from
the completion of a
business combination and may be incentivized to complete an
acquisition of a less
favorable target company or on terms less favorable to shareholders
rather than liquidate.
Please also clarify if the Sponsor and its affiliates can earn a
positive rate of return on their
investment, even if other SPAC shareholders experience a negative rate
of return in the
post-business combination company.
Risks Related to DTOC and the Business Combination, page 76
15. Disclose the material risks to unaffiliated investors presented by
taking the company
public through a merger rather than an underwritten offering. These
risks could include
the absence of due diligence conducted by an underwriter that would be
subject to liability
for any material misstatements or omissions in a registration
statement.
We may be required to call another special meeting of its stockholders to
request an
amendment..., page 84
16. Please update your disclosure here to clarify that the Sponsor has
elected to exercise, in its
sole discretion, the extension option to extend the combination period
to complete an
initial business combination to June 30, 2023 and describe the loan
from the Sponsor
relating to the additional extension period.
Unaudited Pro Forma Condensed Combined Balance Sheet, page 98
17. We reference in Note (i) that you are currently evaluating the
accounting treatment related
to the noncontrolling interest and that it is subject to change based
on final agreements.
Please revise to disclose how the accounting treatment could change.
Unaudited Pro Forma Condensed Combined Statement of Operations, page 99
18. Please show us how the pro forma adjustments for income tax expense
(benefit) in
Notes 3.(cc) and 4.(hh) were determined.
Unaudited Pro Forma Condensed Combined Statement of Operations, page 100
19. Please explain to us the source of the transaction expenses attributed
to AON and tax
expense attributed to AON in Note 4.(ii).
Notes to Unaudited Pro Forma Condensed Combined Financial Information
Note 5. Earnings per Share Information, page 105
20. Explain to us how you calculated net income per share attributable to
Class A common
stockholders Diluted of .14 and .26 for the Nine Months Ended
September 30, 2022.
The amounts based on the diluted weighted average common shares
outstanding appears
Kevin Nazemi
FirstName LastNameKevin Nazemi Corp.
Digital Transformation Opportunities
Comapany2,NameDigital
February 2023 Transformation Opportunities Corp.
February
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to be .12 and .20.
Information about American Oncology Network, LLC, page 130
21. You disclose that AON does not direct or have control over the medical
and clinical
decisions of the Network Practices. We also note your references to a
physician advisory
board on pages 130 and 144. If material, please include disclosure
that describes the role
or function of your physician advisory board, whether there are any
rules of procedures
governing this board, as well as how the physician advisors are
selected and compensated.
Market Overview, page 131
22. We note your reference to a $177 billion oncology care market that is
expected to grow to
$314 billion by 2026. Please specify the portion of this amount that
represents the type of
services AON provides to its customers.
Our Network Physician Practices, page 131
23. We note your disclosure that you operate your physician practices
through management
services agreements between American Oncology Management Company, LLC
and its
variable interest entities, American Oncology Partners, P.A. and
American Partners of
Maryland, P.A. Please expand your disclosure of the material terms of
such agreements,
including but not limited to, the terms and management fees.
Our Value Proposition, page 132
24. We note your disclosure relating to AON s leading clinical
reputation on page 132, that
AON is "one of the only true national oncology platforms" on page 143
and that AON
provides "first-class" cancer care on page 130. Please revise here and
elsewhere in the
prospectus to clarify your basis for these claims and any other
statements of leadership.
Competition, page 135
25. We refer to your disclosure on page 130 that AON offers an
innovative model of
physician-led community-based oncology management that incorporates
features, such
as diagnostics, specialty pharmacies and clinical laboratories onsite
across its Network
Practices. Please disclose whether any of your competitors, such as US
Oncology
Network, Inc. and OneOncology, Inc., also offer similar features for
their oncology
physician practices.
Government Regulation, page 135
26. We note your disclosure that AON s platform operates in 71 locations
across sixteen
states. We also refer to your disclosure on page 136 related to state
regulations that
prohibit direct or indirect payments to, or entering into
fee-splitting arrangements with,
physicians and that AON has structured its arrangements to comply with
relevant state
law. Please expand your disclosure, where applicable, to identify the
states in which you
Kevin Nazemi
FirstName LastNameKevin Nazemi Corp.
Digital Transformation Opportunities
Comapany2,NameDigital
February 2023 Transformation Opportunities Corp.
February
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generate material revenue and discuss how the state laws in these
jurisdictions apply to
your business, including your corporate structure and contractual
arrangements.
Payor Relationships, page 135
27. You disclose on page 135 that AON s operations are dependent on a
concentrated number
of payers with whom its Network Practices have entered into long-term
contracts,
including Anthem and United Healthcare. Please revise to provide a
brief description of
the material terms of such long-term contracts.
Information about American Oncology Network LLC
Employees and Human Capital Resources, page 140
28. Please revise to separately disclose the number of employees of the
Company and of the
managed practices. Clarify whether the physicians and advanced
practice providers are
employees of the managed practices.
AON Management's Discussion and Analysis of Financial Condition and Results of
Operations
Our Adjusted EBITDA for recent comparative periods is presented as follows,
page 152
29. Explain to us the nature of the non-GAAP adjustments to adjusted
EBITDA of operational
transformation expenses and insourcing transition expenses and why you
believe these
adjustments are not costs incurred in the ordinary course of your
business. Refer to the
guidance in Item 10(e)(1)(ii)(b) of Regulation S-K and Question 100.01
of the
Compliance and Disclosure Interpretations on Non-GAAP Financial
Measures.
Professional Liability, page 160
30. Please revise to clarify whether the managed practices including the
physicians and
advanced practice providers also maintain separate professional
malpractice insurance.
Security Ownership of Certain Beneficial Owners and Management, page 166
31. Please revise to identify the natural persons who are the beneficial
owners of the shares
held by Digital Transformation Sponsor LLC, as well as the address of
each such natural
person.
Management of New AON after the Business Combination, page 169
32. Please revise to disclose the specific experience, skills,
qualifications and attributes of
each director nominee that led you to the conclusion that each such
director should serve
as one of the directors of the combined company.
The Business Combination and the Business Combination Agreement, page 173
33. We note that you have arranged to sell additional securities to raise
funds to satisfy the
minimum cash required to complete the business combination transaction
after returning
Kevin Nazemi
FirstName LastNameKevin Nazemi Corp.
Digital Transformation Opportunities
Comapany2,NameDigital
February 2023 Transformation Opportunities Corp.
February
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funds to redeeming stockholders. We also refer to your disclosure on
page 181 that
DTOC and AON have committed to cooperate with each other to obtain
subscriptions
from investors in connection with the PIPE Investment. Please clarify
the current status of
discussions and negotiations regarding the contemplated PIPE
Investment. Revise the
disclosure to discuss the key terms of any convertible securities and
to disclose the
potential impact of those securities on non-redeeming shareholders, as
applicable. To the
extent that negotiation and marketing processes for a PIPE are
ongoing, please disclose
material details of those processes, including who selected the
potential PIPE investors,
the relationships the PIPE investors have to DTOC, the Sponsor, AON
and their affiliates,
and the placement agent and how the terms of the PIPE transaction were
determined, as
applicable.
34. Please highlight material differences in the terms and price of
securities issued at the time
of the IPO as compared to private placements contemplated at the time
of the business
combination. Disclose if the SPAC s Sponsor, directors, officers or
their affiliates will
participate in the private placement.
Background of the Business Combination, page 189
35. We note your disclosure on page 190 that DTOC delivered letters of
intent to nine
potential business combination targets, other than AON. Please expand
your disclosure of
these nine potential business combination targets the DTOC Board
considered and discuss
the Board s reasons in reaching its conclusion not to pursue each of
the potential business
combination target.
36. Please identify the individuals and/or parties who participated in the
meetings and
discussion described throughout this section. By way of example only,
please identify the
representatives of DTOC and AON and their advisors. We also refer to
your disclosure
on page 191 that DTOC representatives were introduced to AON by an
investment bank
that DTOC had requested to identify and make introductions to
potential high growth
targets in the healthcare services industries. Please revise your
disclosure to identify this
investment bank and any other financial advisors that provided
additional services to
DTOC in connection with the transaction, such as for a private
placement and related fees,
and whether such fees are conditioned on the completion of the
transaction.
37. Please revise your disclosure in this section to describe how the DTOC
Board arrived at a
valuation of $300 million for AON. Please address in your revisions
the methodology
employed in reaching the valuation. We note your disclosure that DTOC
presented an
analysis of the valuation of AON based on comparable valuations of
publicly traded
companies. Please revise to explain the extent to which the DTOC Board
considered such
analysis in reaching the valuation and if material, discuss the
analysis, its conclusions and
underlying assumptions. Additionally, we note your disclosure that
DTOC sent an initial
draft letter of intent to AON in which it proposed the terms of a
business combination.
Please revise to clarify how the transaction structure and
consideration evolved during the
negotiations, including the proposals and counter-proposals made
during the course of the
Kevin Nazemi
FirstName LastNameKevin Nazemi Corp.
Digital Transformation Opportunities
Comapany2,NameDigital
February 2023 Transformation Opportunities Corp.
February
Page 8 2, 2023 Page 8
FirstName LastName
negotiations with respect to the material terms of the merger,
including changes to the
AON enterprise valuation, the termination provision and cap on
transaction expenses.
38. We note that on May 13, 2022, representatives of DTOC delivered to AON
a slide deck
indicating preliminary terms, with a valuation based on certain
analyses. Please disclose
the selection criteria for comparable valuations of publicly traded
peer companies
referenced on page 191, how the criteria was chosen, and whether any
companies meeting
the selection criteria were excluded from the analysis. Disclose the
multiples for each
company in the analysis, as well as the financial data used to derive
such multiples, and
explain how DTOC applied the analysis to determine the valuation for
AON.
39. We note your references that the initial drafts of the Business
Combination Agreement did
not contemplate an Up-C structure, and that the Up-C transaction
structure was introduced
during the negotiations. Revise your disclosures to clearly discuss
the evolution of the
proposed transaction structure, and expand your discussion to further
explain why the
parties agreed to an Up-C structure, including negotiations regarding
the tax aspects of the
structure. In this regard, briefly explain how the UP-C structure and
reorganization
transactions achieves the tax benefits that is intended. If material,
also disclose at an
appropriate section the attendant risks associated with an Up-C
structure.
Recommendation of the DTOC Board and Reasons for the Business Combination, page
194
40. We note the disclosure on page 195 that the DTOC Board also considered
factors such as
AON s outlook, financial plan and capital structure in recommending
the initial business
combination with AON. Revise to disclose the outlook, financial plan
and capital
structure that DTOC Board considered in making its determination. In
this regard, please
revise to disclose all the material factors and analyses, along with
any related
assumptions, considered by the Board.
Interests of DTOC Directors and Officers and Others in the Business
Combination, page 199
41. We note disclosure here that at any time prior to the special meeting,
the Sponsor,
DTOC s officers and directors, AON or AON stockholders and/or their
respective
affiliates may purchase shares from institutional and other investors
who vote, or indicate
an intention to vote, against the business combination proposal, or
execute agreements to
purchase shares from such investors in the future, or they may enter
into transactions with
such investors and others to provide them with incentives to acquire
shares of DTOC
common stock. You further state that the purpose of the share
purchases could be to vote
in favor of the business combination. Please provide your analysis on
how such purchases
comply with Rule 14e-5.
Certain Material U.S. Federal Income Tax Considerations, page 207
42. Please revise to include a tax opinion covering the material tax
consequences of the
redemption and state that the disclosure in this section represents
the opinion of counsel.
Please also remove language stating that generally certain tax
consequences will apply
Kevin Nazemi
FirstName LastNameKevin Nazemi Corp.
Digital Transformation Opportunities
Comapany2,NameDigital
February 2023 Transformation Opportunities Corp.
February
Page 9 2, 2023 Page 9
FirstName LastName
or assuming certain consequences. For further guidance, see Staff
Legal Bulletin No. 19.
Consolidated Financial Statements of American Oncology Network, LLC
Note 1. Basis of Presentation , page F-48
43. We note your reference to voting interest entity or a VIE on pages
F-48 and F-74. If you
are referring to variable interest entity please correct the
disclosure.
Note 2. Revenue Recognition, page F-49
44. Please explain to us your consideration of the disaggregated revenue
disclosure
requirements of ASC 606-10-50-5 to 7. For example, we note from page
146 that patient
service revenue is from several sources, including (i) commercial
insurers; (ii) pharmacy
benefit managers; (iii) the federal government under the Medicare
program administered
by the Centers for Medicare and Medicaid Services; (iv) state
governments under
Medicaid and other programs, including managed Medicare and Medicaid;
and (v)
individual patients.
45. Revise to disclose your system and estimation process for recording
Medicare net patient
service revenue and estimated recoupments discussed on page F-50.
Note 2. Professional Liability, page F-54
46. Revise to clarify the meaning of the disclosure that you maintain an
insurance policy for
exposure to professional malpractice insurance risk beyond selected
retention levels.
Note 11. Income Taxes, page F-64
47. Please revise MD&A or the financial statements to explain the
significant variances in the
effective tax rate each period, including the significant change in
state taxes, nontaxable
passthrough LLC income and the increase in valuation allowance.
Note 16. Earnings (Loss) Per Unit, page F-67
48. Please revise to disclose how you determined the allocation of
undistributed net income
(loss) each period.
Unaudited Condensed Consolidated Financial Statements of American Oncology
Network, LLC
Note 4. Business Acquisitions, page F-79
49. We note from page F-74 that you acquired 6 physician practices during
the nine months
ended September 30, 2022. Please explain to us how you determined that
the disclosures
of ASC 805 were not material.
General
50. With a view toward disclosure, please tell us whether your sponsor is,
is controlled by, has
any members who are, or has substantial ties with, a non-U.S. person.
If so, please revise
Kevin Nazemi
Digital Transformation Opportunities Corp.
February 2, 2023
Page 10
your filing to include risk factor disclosure that addresses how this
fact could impact your
ability to complete your initial business combination. For instance,
discuss the risk to
investors that you may not be able to complete an initial business
combination with a
target company should the transaction be subject to review by a U.S.
government entity,
such as the Committee on Foreign Investment in the United States (CFIUS),
or ultimately
prohibited. Disclose that as a result, the pool of potential targets with
which you could
complete an initial business combination may be limited. Further,
disclose that the time
necessary for government review of the transaction or a decision to
prohibit the
transaction could prevent you from completing an initial business
combination and require
you to liquidate. Disclose the consequences of liquidation to investors,
such as the losses
of the investment opportunity in a target company, any price appreciation
in the combined
company, and the warrants, which would expire worthless.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
You may contact Jeanne Bennett at 202-551-3606 or Brian Cascio at
202-551-3676 if
you have questions regarding comments on the financial statements and related
matters. Please
contact Jane Park at 202-551-7439 or Loan Lauren Nguyen at 202-551-3642 with
any other
questions.
Sincerely,
FirstName LastNameKevin Nazemi Division of Corporation
Finance
Office of Industrial
Applications and
Comapany NameDigital Transformation Opportunities Corp.
Services
February 2, 2023 Page 10
cc: David Hernand, Esq.
FirstName LastName