View image. Most SPACs are formed as Delaware corporations, but several have been formed in foreign jurisdictions (most frequently the Cayman Islands, but occasionally the British Virgin Islands or the Marshall Islands). The letter agreement may include, among other things, a voting agreement obligating the officers, directors and sponsor to vote their founder shares and public shares, if any, in favor of the De-SPAC transaction and certain other matters, a lock-up agreement, an agreement from the sponsor to indemnify the SPAC for certain claims that may be made against the trust account, an obligation to forfeit founder shares to the extent the green shoe is not exercised in full, and an agreement not to sponsor other SPACs until the SPAC enters into a definitive agreement for a De-SPAC transaction. The letter agreement also documents the agreement of the officers, directors and sponsor to waive any redemption rights that they may have with respect to their founder shares and public shares, if any, in connection with the De-SPAC transaction, an amendment to the SPACs charter to extend the deadline to complete the De-SPAC transaction or the failure of the SPAC to complete the De-SPAC transaction in the prescribed timeframe (although the officers, directors and sponsor are entitled to redemption and liquidation rights with respect to any public shares that they hold if the SPAC fails to complete the De-SPAC transaction within the prescribed timeframe). If the SPAC needs additional capital to pursue the business combination or pay its other expenses, the sponsor may loan additional funds to the SPAC. SPACs are publicly traded companies formed for the sole purpose of raising capital through an IPO and using the proceeds to acquire one or more unspecified businesses at a future date. SPACs: What You Need to Know - Harvard Business Review Although SPACs can provide advantages over other deal structures, the SPAC IPO process and the de-SPAC transaction are highly regulated and complex transactions that require intensive planning and preparation. We do so with your approval. The SPAC Sponsor Handbook (2022 Update) - ClearThink Capital Many have been chief executive officers of public companies, M&A dealmakers and industry experts. The sponsors may also receive warrants to purchase additional SPAC shares. Since the funds in the trust account are to be used solely to redeem the public shares, counterparties typically waive their rights to seek recourse against the trust account in the absence of a business combination closing. In addition, if the SPAC hits the outside date for consummating the De-SPAC transaction or seeks to amend its charter documents to permit an extended period to consummate the De-SPAC transaction, it will be required to redeem the public shares (or offer to redeem, in the case of a charter amendment) for their pro rata portion of the amount held in the trust account. The SPAC Explosion: Beware the Litigation and Enforcement Risk The de-SPAC transaction is generally structured to be tax-free to the target shareholders, provided the merger meets the statutory requirements needed to qualify as a tax-free reorganization for federal income tax purposes. Documentation relating to subscription for founders' shares and warrants Insider Letter Agreement (entered into by sponsor, officers and directors) lock-up agreement of insiders For that amount, the sponsor purchases founder warrants at a price of $1.50, $1.00 or $0.50 per warrant, depending on whether each unit sold in the IPO includes 1/3, 1/2 or 1 public warrant, respectively. In addition, each SPAC's warrant agreement amendment thresholds may vary. The absence of any promote in the Pershing . If the business combination is approved by the shareholders (if required) and the financing and other conditions specified in the acquisition agreement are satisfied, the business combination will be consummated (referred to as the De-SPAC transaction), and the SPAC and the target business will combine into a publicly traded operating company. In a SPAC IPO, the typical discount structure is for 2% of the gross proceeds to be paid at the closing of the IPO, with another 3.5% deposited into the trust account and payable to the underwriters on closing of the De-SPAC transaction. In a de-SPAC transaction, the transit time through the SEC involving a review of either a proxy statement for a shareholder vote on the de-SPAC transaction or a registration statement to register shares received by the target equity holders in the transaction is usually significantly shorter, and, as noted above, this review process takes place during the pricing. A SPAC investment has certain attractions for these investors. The IPO proceeds will be held in a trust account until released to fund the business combination or used to redeem shares sold in the IPO. IPO investors focus on the track record of the sponsor, the experience of the management team and the industry in which the SPAC proposes to identify a target. Responsible for the coordination and execution of observational or non-interventional research studies (including Post Authorization studies), in compliance with Good Pharmacoepidemiology Practice (GPP) and Standard Operating Procedures (SOPs). There is a standard set of contracts and documents entered into in connection with the formation of the SPAC and the SPAC IPO. (See below.) (go back), 2Other investments raise Investment Company Act considerations for the SPAC during the period before it completes its De-SPAC transaction, as well as risk issues around whether the trust account will have sufficient cash to return $10.00 per public share to public shareholders on a redemption or liquidation. In addition to the contracts and documents described above, the SPAC also adopts bylaws in connection with its formation, which are relatively standardized among Delaware SPACs and contain customary provisions for a publicly traded Delaware corporation. No software installation. Following the IPO, the units become separable, such that the public can trade units, shares, or whole warrants, with each security separately listed on a securities exchange. As a result, they will collectively own a significant stake in the surviving company, as they would if the target had conducted an IPO. SPAC Industry: Looking Ahead. Psyence Biomed, also referred to as "Psyence Therapeutics", is a division of Psyence, which is developing natural psilocybin medicinal formulations and treatment protocols for the treatment of. SPACs enter into a letter agreement with their officers, directors and sponsor. Copyright 2023 BDO USA LLP. Recognizing the potential in SPACs, private equity firms and professionals have been assuming the role of SPAC sponsors in recent years. However, the excess of the FMV of the warrant over its exercise price generally is taxable income to the sponsor at the time the warrant becomes transferable or is not subject to a substantial risk of forfeiture (generally when the warrant is exercised). On June 21, 2002, upon completion of claimant's orientation, he signed and dated an agreement entitled "MAVERICK TRANSPORTATION, INC. Maverick Transportation Orientation. Corporate law of foreign jurisdictions, such as the Cayman Islands, is not as well developed as its Delaware analog, and Cayman Islands law notably does not expressly permit waiver of the corporate opportunity doctrine. The sponsor pays a minimal amount, typically $25,000, for founder shares, referred to as the promote. The process can take three to five months from the date the business combination agreement is signed to complete, but in most cases is still shorter than the corresponding review of an IPO registration statement. It's time to organize your fishing gear in an orderly fashion that will maximize storage and improve access. The underwriters also have another role to play. (go back), 10SPACs are similar to blank check companies, which the SEC describes as a development stage company that has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies, or other entity or person[. The sponsor will purchase founder shares prior to the SPAC filing or submitting a registration statement with the sec in connection with the SPACs IPO. In addition, the publicly traded shares will have a stepped-up basis when subsequently sold in the market. In a number of examples, the forward purchase commitment has been subject to approval by the forward purchaser or has been styled expressly as an option of the forward purchaser. (go back), 7Some SPACs have shorter periods to consummate the De-SPAC transaction, with examples as short as 12 months, or more frequently 18 or 21 months. For example, in several recent SPAC IPOs, the sponsor transferred between 30,000 and 40,000 founder shares to each of the SPACs independent directors. (go back), 8For example, Please expand [your] disclosure, if accurate, to affirmatively confirm that no agent or representative of the registrant has taken any measure, direct or indirect, to locate a target business at any time, past or present. Upon consummation of the IPO, the units begin to trade on the applicable stock exchange. The sponsors are generally granted an initial, separate class of "founders shares" for a nominal cost, which normally convert to public shares on the completion of the de-SPAC transaction. The audited financial statements of the target business in the proxy statement or tender offer materials may be audited under the American Institute of Certified Public Accountants (AICPA) rules, but the Super 8-K (discussed below) is required to have three years of audited financial statements of the target business audited in compliance with the Public Company Accounting Oversight Board (the PCAOB) rules. Our family-run single estate vineyard, winery and distillery located in Essendine, Rutland is home to over 11,000 vines; the first of which were planted in 2019. This post is based on a Vinson and Elkins publication by Mr. Layne, Ms.Lenahan,Terry Bokosha, Mariam Boxwala, and Zach Swartz. This letter agreement (this "Agreement") by and among 10X Capital Venture Acquisition Corp. II (the "Company") and 10X Capital SPAC Sponsor II LLC (the "Sponsor"), dated as of the date hereof, will confirm our agreement that, commencing on the date the securities of the Company are first listed on The Nasdaq Capital Market (the . All rights reserved. However, most will not be prohibited from pursuing businesses or assets in any industry sector or geography. Here is an incomplete list of SPAC sponsors: Citigroup alum Michael Klein Chinh Chu, formerly of Blackstone Group Gary Cohn, formerly of the Trump administration and Goldman Sachs Reid Hoffman,. In determining to pursue a de-SPAC transaction, target equity holders will have to weigh these factors against the benefits of taking the de-SPAC route. The warrants become exercisable on the later of 30 days after the consummation of the business combination or 12 months from the IPO closing, and expire five years after the business combination. However, the transaction will need to be structured in a manner so that the SPAC does not become an investment company under the Investment Company Act of 1940. These follow-on equity raises customarily take the form of a forward purchase agreement or a PIPE commitment. PDF SPAC Lifecycle and Considerations for Private Companies - Troutman The balance of the discount is deposited in the SPACs trust account and is deferred and payable to the underwriters at the closing of the business combination. On any device & OS. After the staff has signed off on the public filing, the sponsor can move quickly to have the registration statement declared effective, most often with limited amendments. A SPAC is formed by a group of sponsors, often well-known investors, private equity firms or venture capitalists. .Northwestern University admitted approximately 25 percent of early decision applicants to the Class of 2023. There is no maximum size of transaction for the De-SPAC transaction. Formed by individuals with experience and reputations to allow them to identify and acquire one or more target businesses that will ultimately be successful public company/s. Effectively, if the De-SPAC transaction never occurs, the public shareholders get their money back and the public warrants, founder shares and founder warrants expire without value. As a result, the SEC comments are usually few and not particularly cumbersome. donors, and sponsors. Connecting with our core purpose through a renewed lens. Accordingly, SPACs expressly state in their registration statements that they have not identified a target. SPACs are blank-check companies formed by sponsors who believe that their experience and reputations will allow them to identify and complete a business combination transaction with a target company that will ultimately be a successful public company. They also limit the ability of the SPAC to utilize funds in the trust account, (excepting certain specified uses), require the SPAC to offer to redeem the public shares, and set the minimum size for the target business in a De-SPAC transaction. The 2023 BDO CFO Outlook Survey offers critical insights to support strategic decision-making and help your company thrive. Management teams need to plan ahead and be prepared for the financial reporting and SEC filing . In 2006, Google moved into about 300,000 square feet (27,900 m 2) of office space at 111 Eighth Avenue in Manhattan, New York City. For ease of reference, this primer refers to the shares and warrants included in the units sold to the public as the public shares and public warrants, and the shares and warrants sold to the sponsor as the founder shares and the founder warrants. The public shares and founder shares vote together as a single class and are usually identical except for certain anti-dilution adjustments described below. After an acquisition, a SPAC is usually listed on one of the major stock exchanges. The funds in the trust account are typically invested in short-term U.S. government securities [2] or held as cash and are released to fund (i) the business combination, (ii) redemption of common stock pursuant to a mandatory redemption offer (as described below in De-SPAC ProcessRedemption Offer), (iii) payment of the deferred underwriting discount and (iv) if any amounts remain, to cover transaction expenses and working capital of the company post-De-SPAC transaction. The sponsor and the SPAC enter into a securities purchase agreement providing for the issuance to the sponsor of the founder shares for $25,000. In most cases, a vote of the shareholders of the SPAC will be solicited to approve the business combination transaction with the target. On the other hand, the De-SPAC transaction involves many of the same requirements as would be applicable to an IPO of the target business, including audited financial statements and other disclosure items which may not otherwise be applicable if the target business were acquired by a public operating company. What Is A SPAC? - Forbes Advisor Joint Filing Agreement February 14th, 2023 SHUAA SPAC Sponsor I LLC Blank checks. The offshore structure will introduce other tax issues, such as passive foreign investment company issues. Psyence Announces Business Combination between Wholly Owned Subsidiary In a remarkable departure from the 20% promote model, the sponsor (Pershing Square TH Sponsor, LLC) of a recent SPAC (Pershing Square Tontine Holdings, Ltd.) has not taken any founder shares. Claims That SPAC Directors, Sponsor Breached Fiduciary Duties Survive