SEC Company Response from GRID DYNAMICS HOLDINGS, INC. (GDYN) (CIK 0001743725) (GDYN) — Jan 3, 2020
GRID DYNAMICS HOLDINGS, INC. (GDYN) (CIK 0001743725)
Date: Jan. 3, 2020 · CIK: 0001743725 · Accession: 0001213900-20-000203
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File numbers found in text: 001-38685
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CORRESP
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140 Scott Drive
Menlo Park, California 94025
Tel: +1.650.328.4600 Fax: +1.650.463.2600
www.lw.com
FIRM / AFFILIATE OFFICES
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Washington, D.C.
January 3, 2020
VIA EDGAR AND FEDERAL EXPRESS
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549
Attention: Bernard Nolan, Staff Attorney
Re: ChaSerg Technology Acquisition Corp.
Preliminary Proxy Statement on Schedule 14A
Filed November 27, 2019
File No. 001-38685
Dear Mr. Nolan:
On behalf of our client,
ChaSerg Technology Acquisition Corp. (the “Company”), this letter sets forth the Company’s responses
to the comments of the staff (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”)
set forth in your comment letter, dated December 23, 2019, regarding the preliminary proxy statement mentioned above (the “Proxy
Statement”). In connection with this letter, the Company is filing via EDGAR amendment no. 1 to the Proxy Statement
(the “Revised Proxy Statement”).
For ease of review,
we have reproduced the Staff’s comments in bold face type below and have provided the Company’s response following
each comment. Defined terms used but not defined in this letter are used with the meanings assigned to them in the Revised Proxy
Statement.
Preliminary Proxy Statement on Schedule
14A
Letter to Shareholders, page i
1. We encourage you revise the
forepart of the proxy statement so that it describes the business combination transaction, its purpose and its effect in plain
English rather reciting the complex and technical details of the merger transactions. Similarly, please explain the reasons why
the cash and stock components of the merger consideration can be adjusted, as this will allow shareholders to better understand
how the adjustments will operate and the circumstances that could lead to the adjustments.
Response: In
response to the Staff’s comment, the Company has revised the disclosure in the forepart of the Revised Proxy Statement, including
the letter to the Company’s stockholders and notice of special meeting.
January 3, 2020
Page 2
2. Prominently
highlight throughout the proxy statement that the acquisition of Grid Dynamics is an affiliated transaction because ChaSerg’s
President and Chief Financial Officer, Eric Benhamou, is a director on both companies’ boards and has direct and indirect
ownership interests in both companies.
Response: In response
to the Staff’s comment, the Company has revised the disclosure in the forepart of the Revised Proxy Statement and on pages
8, 21, 48, 99 and 137 of the Revised Proxy Statement.
Cautionary Note Regarding Forward-Looking
Statements, page 4
3. You
disclose that the proxy statement includes forward-looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. Section 27A(b)(1)(B) of the Securities Act and Section 21E(b)(1)(B)
of the Exchange Act expressly state that the safe harbor for forward-looking statements is not available in connection with an
offering of securities by a blank check company. Please delete the references to these safe harbor provisions or clarify that they
do not apply to your company.
Response: In
response to the Staff’s comment, the Company has revised the disclosure on page 4 of the Revised Proxy Statement.
Question and Answers About
the Proposals for Stockholders, page 5
4. Please
provide a Q&A describing what will happen if more than the maximum number of shares allowed for by the conditions to the Merger
Agreement are redeemed. In this regard, you state on page 51 that if a larger number of shares are submitted for redemption than
you initially expected, you may need restructure the transaction to reserve a greater portion of the cash in the Trust Account
or arrange for third-party financing.
Response: In
response to the Staff’s comment, the Company has revised the disclosure on page 11 of the Revised Proxy Statement.
Summary of the Proxy Statement
Parties to the Business Combination,
page 14
5. Please
disclose that Grid Dynamics is currently majority owned by Automated Systems Holding Limited, a publicly traded Bermuda company
on the Hong Kong Exchange that is a subsidiary of Beijing Teamsun Technology Co., Ltd., a publicly traded Chinese company on the
Shanghai Stock Exchange. Disclose that Grid Dynamics was acquired by ASL in April 2017.
Response: In
response to the Staff’s comment, the Company has revised the disclosure on page 15 of the Revised Proxy Statement.
January 3, 2020
Page 3
6. Please
consider providing organizational charts of ChaSerg and Grid Dynamics before and after the business combination in light of the
current ownership of Grid Dynamics, the ownership of the Successor after the business combination and the control over the Successor
company by Sponsor, ASL, BGV and other parties to the Stockholders’ Agreement.
Response: In response
to the Staff’s comment, the Company has revised the disclosure on pages 16 to 17 of the Revised Proxy Statement.
Conditions to Closing of the Business
Combination, page 15
7. We
note that each party’s obligations are subject to the satisfaction or written waiver by the parties of the listed conditions.
Please disclose whether the parties can waive the maximum redemption condition under the merger agreement that leaves ChaSerg with
70% of the Trust Account Balance at Signing. If so, revise your disclosure throughout the proxy statement so that it also contemplates
a maximum redemption amount that leaves ChaSerg with at least $5,000,001 in tangible net assets in the Trust Account. Also disclose
how you will inform each company’s stockholders if this condition is waived.
Response: In response
to the Staff’s comment, the Company has revised the disclosure on pages 11, 26, 52, 53, 55 and 65 of the Revised Proxy Statement.
Interests of Certain Persons in the
Business Combination, page 18
8. Please
provide quantified disclosure of Eric Benhamou’s interest in the business combination as a director and shareholder in each
party. Also disclose that Mr. Benhamou’s affiliate, BGV Opportunity Fund, L.P. made a $15 million investment in common and
preferred stock in Grid Dynamics in May 2019. Disclose the value of the merger consideration he will receive for this investment.
Response: In
response to the Staff’s comment, the Company has revised the disclosure on page 99 of the Revised Proxy Statement.
January 3, 2020
Page 4
Risk Factors
Grid Dynamics’ revenues
are highly dependent on a limited number of clients..., page 27
9. Please
disclose the dollar amount of backlog believed to be firm, separately indicating the portion thereof not expected to
be filled within the current year. Refer to Item 101(c)(1)(viii) of Regulation S-K.
Response: The
Company acknowledges the Staff’s comment and has considered that Item 101(c)(1)(viii) of Regulation S-K requires, to the
extent material to an understanding of the registrant’s business, disclosures related to the dollar amount of backlog orders
believed to be firm, together with an indication of the portion of that backlog which the registrant does not reasonably expect
to be filled within the current fiscal year. In response to the Staff’s comment, the Company respectfully advises the Staff
that Grid Dynamics derives substantially all of its revenue through time and materials contracts, which are mostly short-term in
nature, and backlog qualifying as firm at any given date will typically represent a small fraction of the company’s revenue
targets for subsequent periods. For these reasons, backlog is currently not a metric used by Grid Dynamics to manage its business
and is not currently systematically tracked, and Grid Dynamics does not believe that backlog is material to an investor’s
understanding of Grid Dynamics’ business taken as a whole. However, Grid Dynamics expects to establish a process to track
and report backlog in connection with its adoption of ASC Topic No. 606 and to the extent that the amount of backlog becomes material
to an investor’s understanding of the Successor’s business taken as a whole following the Business Combination, the
Successor will reconsider the disclosure required by Item 101(c)(1)(viii) of Regulation S-K.
Material weakness has been identified
in Grid Dynamics’ internal control over financial reporting, page 31
10. Please
expand your disclosures to describe the steps that Grid Dynamics is currently taking to enhance its internal control environment
and the additional steps they plan on taking to remediate the identified material weakness.
Response: In
response to the Staff’s comment, the Company has revised the disclosure on page 33 of the Revised Proxy Statement.
Provisions in our amended and restated certificate of
incorporation and Delaware law..., page 49
11. You
state that your amended and restated certificate of incorporation will provide for a staggered board of directors. Please enhance
this risk factor by also disclosing that directors may be removed from office by the stockholders only for cause and that the board
of directors will have the exclusive right to fill any vacancy resulting from removal. Also, provide a cross-reference to the corresponding
disclosure on pages 108 and 192.
Response: In response
to the Staff’s comment, the Company has revised the disclosure on pages 51 to 52 of the Revised Proxy Statement.
January 3, 2020
Page 5
Unaudited Pro Forma Condensed
Combined Financial Information
Notes to Unaudited Pro Forma Condensed Combined Financial
Information, page 59
12. You
state that the income tax adjustments in note (CC) reflect the tax impact on the pro forma adjustments at the estimated
statutory tax rate of 28%. Please explain how you determined the pro forma tax expense. In this regard, we note that Grid Dynamics
had a statutory tax rate of 21% for 2018 and there is a significant difference in the historical effective tax rates
for the periods presented in the pro forma statements of income.
Response: In
response to the Staff’s comment, the Company has revised its calculation of the pro forma tax expense on pages 59 and 60
of the Revised Proxy Statement. The estimated statutory tax rate of 28% is a blended federal and state statutory rate, and it was
determined using a federal statutory tax rate of 21% and a California state statutory rate of 6.98%. The Company has revised the
income tax adjustment in note (CC), which was calculated as follows for the nine months ended September 30, 2019 and the year ended
December 31, 2018:
Nine months
ended
September 30,
2019
Year ended
December 31,
2018
Total pro forma adjustments
$ (3,554 )
$ (1,058 )
Statutory tax rate
27.98 %
27.98 %
Pro forma adjustment (note (CC))
$ (995 )
$ (296 )
13. Please
tell us why your calculation of pro forma weighted shares outstanding excludes 1,200,000 Sponsor Shares that are held in escrow.
In this regard, you state that while such shares are in escrow, the Sponsor shall have full ownership rights, including the right
to vote such shares and receive dividends and distributions thereon. Therefore, tell us how you considered the guidance in ASC
260-10-45-59A – 60A in your pro forma per share calculations.
Response: In
response to the Staff’s comment, the Company has revised its calculation of pro forma earnings per share to reflect the 1,200,000
Sponsor Shares held in escrow as participating securities. The two-class method was applied and income was apportioned between
the Class A common shares and the Sponsor Shares, which will convert to Class A common shares and be held in escrow. As such, the
Company has revised the disclosures on pages 27, 56, 59, 60, 64 and 66 of the Revised Proxy Statement.
Background of the Business Combination, page 82
14. Given
the affiliated nature of the transaction through Eric Benhamou’s board seats and ownership interests in both ChaSerg and
Grid Dynamics, provide a more detailed discussion regarding ChaSerg’s efforts to find targets, contacts with other potential
candidates and discussions held with potential targets. Disclose the general business of the potential targets, the extent of negotiations
and whether the board considered a merger with any of the targets a viable alternative to a transaction with Grid Dynamics. Disclose
when and why each target was rejected in favor of a transaction with Grid Dynamics. Disclose when ChaSerg determined to negotiate
exclusively with Grid Dynamics.
Response: In
response to the Staff’s comment, the Company has revised the disclosure on pages 83 to 87 of the Revised Proxy Statement.
January 3, 2020
Page 6
15. You
disclose that, on November 19, 2018, Mr. Benhamou facilitated an introductory meeting between advisors of ChaSerg and Grid Dynamics’
chief executive officer and board member to discuss a potential business transaction with ChaSerg. Disclose in which capacity Mr.
Benhamou was acting in arranging this introductory meeting and why he initiated contact.
Response: In
response to the Staff’s comment, the Company has revised the disclosure on page 84 of the Revised Proxy Statement.
16. Disclose
the extent to which Mr. Benhamou was involved in the discussions and negotiations of the merger for each party.
Response: In
response to the Staff’s comment, the Company has revised the disclosure on page 84 of the Revised Proxy Statement.
17. Expand
your discussion of the parties’ negotiation of material aspects of the proposed transaction, including the specific,
material terms proposed in each letter of intent and draft of the merger agreement, the terms and conditions of the final
merger agreement, the determination of the final structure of the proposed transaction, and the ultimate amount and form of consideration.
Response: In response
to the Staff’s comment, the Company has revised the disclosure on pages 85 to 88 of the Revised Proxy Statement.
18. Please
include in the timeline the May 2019 purchase by BGV, Mr. Benhamou’s affiliate, of $15 million common and preferred shares
of Grid Dynamics.
Response: In
response to the Staff’s comment, the Company has revised the disclosure on page 86 of the Revised Proxy Statement.
Proposal No. 1: The Business Combination
Proposal
Opinion of ChaSerg’s Financial Advisor,
page 85
19. Please
disclose the enterprise value of Grid Dynamics implied by the merger consideration when comparing the results of each analysis.
Response: In response
to the Staff’s comment, the Company has revised the disclosure on pages 93 to 94 of the Revised Proxy Statement.
January 3, 2020
Page 7
Board of Directors’
Reasons for the Approval of the Business Combination, page 92
20. Please
discuss the board’s consideration of the affiliated nature of the business combination, including the $15 million investment
in Grid Dynamics by BGV, Mr. Benhamou’s affiliate, during the negotiations.
Response: In response
to the Staff’s comment, the Company has revised the disclosure on pages 95 and 99 of the Revised Proxy Statement.
Unaudited Financial Projections of Grid
Dynamics, page 94
21. You
generally refer to assumptions on which the projected financial information of Grid Dynamics is based. Please disclose the basis
for and material assumptions underlying the projections, including the main growth assumptions underlying the pro