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ABFM MODULE -D
Chapter :25 SPECIAL PURPOSE ACQUISITION COMPANIES
What we will study?
* All about Special Purpose Acquisition Companies?
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INTRODUCTION:
A company that does not carry any commercial operations
and is incorporated purely for the purpose of raising capital
through an Initial Public Offering (IPO) or is incorporated for
the goal of acquiring or merging with an existing company,
is known as a special purpose acquisition company (SPAC).
A company, structured in this way, enables investors to
contribute money to a fund, which is subsequently used for
the acquisition of one or more unnamed enterprises, which
are only revealed after the IPO.
They first came into existence in the 1980s, during a time
when they were poorly regulated and, as a consequence,
investors lost money due to fraud.
Blank Cheque Companies is another name for these
businesses.
They have seen a rise in popularity just recently.
According to reports, in the year 2020, about 250 SPACs
were established, most of which were in the United States,
and $80 billion was invested.
Approximately 600 SPAC initial public offerings took place in
2021.
The Indian regulatory framework does not allow the
creation of blank cheque companies.
The Companies Act, 2013 stipulates that the Registrar of
Companies can strike off a company if it does not
commence operations within a year of incorporation.
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Recently, ReNew Power, an Indian company, had a business
transaction for combining with a company situated in the
United States, called RMG Acquisition Corporation II, which
is a SPAC or a blank cheque company.
After the transaction, the combined company was named
ReNew Energy Global PLC and was publicly listed on
NASDAQ.
This is the first major overseas listing of an Indian company
via the SPAC.
Videocon d2h and online travel agency Yatra earlier had
SPAC deals.
Because of the flexibility of SPACs to attract industries
based on changing market fundamentals and also because
SPAC IPO investors have the downside protection of
redemption decisions, SPACs have recently become very
popular as a result of the market disruption caused by the
Covid-19 pandemic.
This is one of the reasons why SPACs have become so
popular.
In 2019, there were just 59 new SPACS introduced to the
market with an investment of $13 Billion.
SPAC investors can be private equity funds or even well-
known figures in the public eye.
They have a deadline of two years to successfully complete
a purchase; if they miss it, they will be required to repay the
money to the investors.
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SPACs are organisations that are formed by investors or
sponsors who have experience in a specific industry or
business sector with the purpose of pursuing business
opportunities in that field.
In most cases, the investors have at least one acquisition
target in mind at the time of the company's establishment;
however, this information is not disclosed at the time of the
IPO in order to streamline the disclosure process.
Investors in an IPO do not have any information about the
company in which they will ultimately be investing.
Before issuing their shares to the general public, SPACs
must first get underwriters and institutional investors.
The money that are collected by SPAC are placed in a trust
account that earns interest on the funds.
These funds can only be used for acquisitions or, in the
event that the SPAC is dissolved, for the purpose of
returning money to investors.
In a select few instances, the interest that is accrued from
the trust account may be applied toward the aim of
providing the SPAC with working capital.
After an acquisition has been completed, a SPAC will
typically apply to be listed on one of the stock exchanges.
Not every SPAC will be successful and accomplish their
milestone goals; in fact, some of them will fail entirely,
causing investors to lose their investment capital.
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Despite this, they plan to continue operating in the sector
since they provide investors and targets new alternatives
for funding that are in direct competition with later stage
venture capital, private equity, direct listing, and the
traditional IPO process.
They result in an influx of capital for a range of new
businesses and other enterprises, which in turn fuels
innovation and business expansion.
Today, the majority of SPACs place an emphasis on
companies that are causing disruption in consumer,
technology, or biotech areas.
The vast majority of these businesses are extremely
speculative, have massive capital requirements, and are
able to provide very little assurance on their revenue and
profitability in the near term.
It's possible that India will launch its own "blank cheque
firm" in the near future.
The market regulator SEBI is likely to permit the listing of
Special Purpose Acquisition Companies, much as they do in
the United States.
The Securities and Exchange Board of India (SEBI) is
reported to have informed the Parliamentary standing
committee, according to news reports published in May
2022, that
“The sub group of the principal market advisory committee
(PMAC) is in the process of finalising the report on SPACS."
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After that, a consultation document on the topic that invites
feedback from the general public might be distributed.
Consultation with the PMAC is required before any actions
can be taken respecting the SPACS framework.
The company law committee report of the Ministry of
Corporate Affairs (MCA) for February 2022 advocated the
introduction of an enabling provision to recognise SPAC
under the Companies Act and allowing a SPAC formed in
India to trade on domestic and global markets.
ADVANTAGES OF SPAC:
When compared to an initial public offering (IPO), going
public through a SPAC merger has the following primary
advantages:
Speedier Execution:
A SPAC merger typically takes place within 3 to 6 months on
average, but an initial public offering (IPO) often takes
between 12 and 18 months to complete.
Discovery of the price up front:
While the price of your IPO will be determined by the state
of the market at the time of listing, you will negotiate the
price with the SPAC before the transaction is finalised.
This is a far more favourable strategy in an unstable market.
The possibility of raising additional capital:
SPAC sponsors will raise debt or PIPE (private investment in
public equity) funding in addition to their initial capital in
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order to not only finance the transaction but also to fuel
growth for the combined company.
PIPE stands for "private investment in public equity."
Even in the event that certain SPAC investors decide to cash
out their shares, it is still expected that the transaction
would be successfully concluded thanks to the backstop
debt and equity.
Reduced Marketing Cost:
Decreased costs associated with marketing as a result of the
fact that a SPAC merger is not required to attract interest
from investors in public exchanges by means of a
comprehensive roadshow (although raising PIPE involves
targeted roadshows).
Ease of access to specialised operational knowledge:
The individuals that sponsor SPACs are typically seasoned
business and financial experts.
They can provide their managerial knowledge by drawing
on their extensive network of contacts, or they can
volunteer to serve on the board themselves.
The following is a list of the additional benefits:
* It shortens the time it takes for a company to become
publicly traded.
* Both valuations and finances will be raised as well.
* It grants a greater degree of control over the stipulations
of the transaction.
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* There is less regulatory oversight of SPACS.
* When compared to an IPO, the process of going public
with a high-leverage company is made much simpler by the
availability of SPACS.
DISADVANTAGES OF SPAC:
When compared to an initial public offering (IPO), going
public via merger of SPACs suffers from the following
disadvantages:
Inability to Track Use:
An investor in a SPAC IPO has no idea about where his funds
will be invested and may lose his investments because there
is doubt on whether its promoter will be successful in
acquiring or merging with a suitable target company in the
future.
The narrow degree of oversight from the regulators,
coupled with an absence of disclosure from the SPAC,
means that the retail investors have the risk of hampering
with an investment that could be overhyped or occasionally
even fraudulent.
Poor Returns:
Returns may be below the expectations from the SPACs
when the initial hype has worn off.
Goldman Sachs strategists noted in September 2021, that
out of the 172 SPACs that had closed the deal since the start
of 2020, the median SPAC had outperformed the Russel
3000 index from its IPO; but in the 6 months after the deal
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closure, the Median SPAC had underperformed the Russel
3000 index by 42 % points.
Low Market Cap:
According to Renaissance Capital Strategist, nearly 70% of
SPACs that had their IPO in 2021 were trading below $10
offer price as of Sept 15, 2021.
This desolate performance could mean that the SPAC
Bubble might be in the process of bursting.
Increasing Regulatory Oversight:
It is evident, that SPACs have lost some of their dazzle in
late 2021 and early 2022 due to increased regulatory
oversight and less than exceptional performance.
Increased Disclosure Norms:
New accounting regulation issued by the Securities and
Exchange Commission in April 2021 has led to a drop in the
new SPAC filings in the second quarter as compared to the
first quarter.
Shareholding dilution:
SPAC sponsors typically own a 20 % stake in the SPAC
through founder shares or "promote" as well as warrants to
purchase additional shares.
This is in addition to the warrants that allow them to
purchase additional shares.
SPAC sponsors also benefit from an earnout component,
which enables them to receive more shares when the stock
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price achieves a specified target over a certain time frame.
However, this could result in further dilution for the
investors who initially invested in the SPAC.
Deficiency in available capital:
This can happen due to the possibility of redemption Initial
SPAC investors may choose to redeem their shares.
In the event that redemptions are higher than anticipated,
the availability of cash will become uncertain, which will
force SPACs to seek PIPE financing in order to fill the
resulting shortfall.
Compact Timeframe for Compliances:
Although the SPAC sponsor may offer assistance during the
merger process, target company is typically responsible for
the bulk of the preparation for required financials in the SEC
filings as well as the establishment of public company
functions such as investor relations and internal controls
within a much shorter timeframe than in an IPO.
Narrow Scope Scope for Financial diligence:
The SPAC process does not require the stringent due
diligence of a traditional IPO, which could lead to potential
restatements, incorrectly valued businesses, or even
lawsuits.
This is because the scope of the financial diligence
performed is narrower.
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Absence of underwriting and comfort letter:

In a traditional initial public offering (IPO), the underwriter
is responsible for ensuring that all of the regulatory
requirements are met; however, because the target
company in a SPAC is already public, it does not have an
underwriter.
SPAC FORMATION & TIMELINES:
The initial public offering (IPO) of a special purpose
acquisition company (SPAC) is typically predicated on an
investment thesis that is concentrated on a particular
industry and geographical region, such as the intention to
acquire a technology company in North America, or the
experience and history of a sponsor.
After the initial public offering (IPO), the proceeds are
deposited into a trust account, and the SPAC normally has
between 18 and 24 months to find and finalise a merger
with a target firm.
This process is frequently referred to as de-SPACing.
In the event that the SPAC is unable to accomplish a merger
within the specified amount of time, the SPAC will be
liquidated, and the profits from the IPO will be distributed
back to the public shareholders.
The public shareholders of the SPAC have the option to vote
against the deal once a target firm has been found and an
announcement of a merger has been made.
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Alternatively, they may choose to redeem their shares.

If the SPAC needs additional finances to complete a merger,
it may choose to issue debt or additional shares through a
transaction known as a private investment in public equity
(PIPE) agreement.
Alternatively, the SPAC may sell additional assets.

* For illustrative purposes, the SPAC life cycle presented is

based on a 24 month timeline to complete a merger
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THE SPAC MERGER:

After its formation, the SPAC will normally be required to
seek the permission of shareholders for a merger, and it will
also prepare and file a proxy statement (or a joint
registration and proxy statement on Form S-4 if it intends to
register new securities as part of the merger).
This document will contain a description of the proposed
merger as well as aspects pertaining to governance, all of
which will be seeking approval from the shareholders.
Additionally, it will include a plethora of financial
information about the company that is the target of the
merger, such as pro forma financial statements
demonstrating the effects of the merger, historical financial
statements, and management's discussion and analysis
(MD&A).
The merger will be finalised and the target business will
transition into a publicly traded firm as soon as
shareholders provide their consent to the SPAC merger and
all regulatory issues are resolved.
Within four business days of the closing, a Form 8-K must be
filed with the United States Securities and Exchange
Commission (SEC).
This Form 8-K, which is commonly referred to as the Super
8-K, must contain information that is equivalent to what
would be required in a Form 10 filing of the target company.
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STAKEHOLDERS:
Typically, special purpose acquisition companies (SPACs)
have three different stakeholder groups: sponsors,
investors, and targets.
Every one of them is unique in the demands, worries, and
viewpoints that they have.
Sponsors:
The process of creating a SPAC is started by sponsors.
Their contributions to SPAC, which take the form of non-
refundable fees to bankers, attorneys, and accountants, are
intended to cover the costs of running the organisation.
In the event that the Sponsor is unable to form a
combination within a period of 2 years, the SPAC will have
to be dissolved, and the investors will be entitled to a full
refund of their money.
Therefore, sponsors run the risk of losing their risk capital in
the event that the transaction is unsuccessful; however, if
the transaction is successful, sponsors receive the sponsor's
shares in the combined corporation, which frequently
amount to as much as 20 % of the equity raised from
investors.
Example:
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A sponsor establishes a SPAC with the intention of raising a
total of $500 million in capital and makes an initial
investment of approximately $7 million to $8 million to
fund the administrative costs of the enterprise.
These costs include underwriting, attorney, and due
diligence fees.
At a price of $10 per share, the SPAC sells investors a total
of 50 million shares.
Additionally, the sponsor purchases certain shares of the
company at a nominal price.
This purchase accounts for approximately 20% of the total
outstanding shares, or 12.5 million shares.
If the sponsor is successful in meeting the goal of
completing the merger within 2 years, then the founder's
share will be vested at the price of 10 dollars per share,
giving the stake a value of 125 million dollars.
The only way for sponsors to be eligible for these awards is
if they have a powerful concept and are able to effectively
attract investors, locate a suitable target, and convince him
of the financial and strategic benefits of the business
combination.
In order to avoid losing the investors along the way, they
will need to discuss the parameters of the deal during the
entire process.
However, competition among sponsors for targets and
investors has heated up, which has led to an increase in the
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possibility that a sponsor will lose both the risk capital it has
invested and the time it has invested.
CHARACTERISTICS OF SPACS:
Once the public offering is complete, SPACs are often
traded on stock exchanges as units, or as distinct common
shares and warrants, depending on the structure of the
offering.
Because of the liquidity in the trading market, investors
have the option of easily exiting their positions.
The corporation is obligated to provide the stockholders of
the target business with full disclosure, which must include
comprehensive audited financial statements and the terms
of the proposed business combination.
This is done to enable the stakeholders to make an
informed decision regarding whether or not they wish to
approve the business combination.
All of the stakeholders of the SPAC are given voting rights at
a shareholder meeting so that they can either agree to or
disagree with the proposed combination of the two
companies.
The SPAC is often led by an experienced management team
that includes at least three people who have previous
expertise in private equity, mergers and acquisitions,
and/or operating roles.
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In most cases, the management team of the SPAC is entitled
to receive 20% of the equity of the vehicle, excluding the
value of any warrants that may be issued.
Prior to the business merger, the management team did not
receive any cash compensation in the form of wages,
finder's fees, or other types of cash compensation.
In the event that the management team is unable to
successfully complete a business combination, they will not
be included in the distribution of assets that results from
the liquidation.
PROCESS:

SPECIAL Ownership
PARENT PURPOSE TARGGET
COMPANY ACQUISITION COMPANY
COMPANY
Acquisition

P FUNDS

INVESTORS INVESTORS
INVESTORS
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When the SPAC obtains the funds through the IPO, the
money is placed in a trust and kept there for a
predetermined amount of time or until the acquisition is
completed, whichever comes first.
The Special Purpose Acquisition Company (SPAC) is
obligated to repay the funds to investors after deducting
bank and broker costs in the event that the planned
acquisition is not completed or the legal requirements are
not yet complete.
A Special Purpose acquisition company is made up of
seasoned business leaders who are self-assured about their
reputation in the industry and the fact that they have the
knowledge necessary to assist them in locating a lucrative
company to purchase.
When seeking financial backing from investors, the
founders of a company are the primary selling point.
The company's founders are the ones that contribute the
startup funding, and they stand to benefit financially from
the large interest in the purchased business.
After the company's founders have provided the initial
money and paid a minimal price for a portion of the
company's stock, the management team will approach an
investment bank to execute the initial public offering (IPO).
Both the investment bank and the management team will
collect a fee equivalent to around 10% of the IPO's total
value.
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During an initial public offering (IPO), the securities are sold
at a price per unit that corresponds to one or more shares
of the common stock.
If the business requires additional funding, the sponsors
have the option of lending the necessary money to the
SPAC in the form of a loan.
Due to the fact that the company has a shorter history and
lower revenues, the prospectus of the SPAC places more
emphasis on the investors.
The money obtained from an initial public offering (IPO) is
placed in a trust account until a private firm is selected as a
possible acquisition target.
After successfully raising cash through an initial public
offering, the SPAC's management team has between 18 and
24 months to find an acquisition target and successfully
close on it.
The time period could be different depending on the
company and its history.
The target company's enterprise value at the time of
acquisition should represent at least 80 % or more of the
trust's total assets.
Following the completion of the acquisition of the target
company, the founders of the new company will reap the
benefits of their ownership in the business, and the other
investors will receive equity interests proportional to the
amount of capital they contributed.
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In the event that the acquisition of the target firm cannot
be completed within the allotted amount of time, the funds
that have been deposited into the trust account will be
distributed back to the investors.
Before the transaction is finalised, it is against the rules for
the management team to collect their salary.
In order to fund a portion of the purchase price for the
business combination, the SPAC will first organise
committed debt or equity financing, such as a Private
Investment in Public Equity (PIPE) commitment, prior to
signing the acquisition agreement.
Afterwards, it will declare publicly both the acquisition
agreement and the committed finance.
After the acquisition has been announced, the SPAC is
required to either conduct a tender offer process or hold a
mandatory vote of the shareholders.
In either case, the investors will be given the right to return
their public shares to the SPAC in exchange for cash that is
approximately equivalent to the IPO price paid for those
shares.
The business combination will be carried out if the
shareholders provide their consent to the transaction, the
financial requirements are met, and all other conditions
outlined in the purchase agreement are satisfied.
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This will result in the formation of a publicly traded
operating company as a result of the combination of SPAC
and the target firm.
SPAC CAPITAL STRUCTURE:
To raise the necessary funds to finish the acquisition of a
private company, a SPAC typically conducts an IPO.
The funds are often gathered from institutional and retail
investors and are kept in a trust account.
In exchange for their investment, investors get units of
SPAC, each of which contains a share of common stock and
a warrant to buy more shares at a later time.
After the IPO, the units can be split up into warrants and
shares of common stock that can be sold on the open
market.

Sponsor
Public
(Individuals/ SPAC investors
Organisations)
TURST DEED

Founder
Shares/Warrants

Sponsor
TRUSTEES
Holding
Company
IPO PROCEEDS
(Invested in Short-Term Govt.
Securities)
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COMPOSITION OF SHAREHOLDING AFTER IPO:
Public Shares 80% Founder Shares 20%
TRUST ACCOUNT:
In connection with the closure of the IPO, a sum equal to or
greater than 100% of the gross proceeds of the IPO is used
to finance the trust account, with roughly 95% of the funds
coming from the general public and 5% from the sponsors.
The money in the trust account is invested in government
securities, or it is kept as cash, to pay for the business
combination, the redemption of common stock under a
compulsory redemption offer, the payment of the deferred
underwriting discount, any transaction costs, and the
company's working capital following the De-SPAC
transaction.
WARRANTS:
The warrants are purchased in their whole by the sponsor,
whereas the units offered for sale to the general public
often include only a portion of a single warrant.
In larger initial public offerings (IPOs) these days, the
issuance of one-third of the warrant is more prevalent;
nonetheless, the standard practise is to issue - half of the
warrant.
In every circumstance, the entirety of the warrants can be
put to use.
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In most cases, the share price at the time of the first public
offering will serve as the basis for determining the strike
price of the warrant.
The public warrants are typically settled in cash, with the
investor being required to pay an amount equal to the
warrant's strike price in exchange for a share of the
company's stock.
On the other hand, the founder warrants are net settled,
meaning that the founder is not required to make a
payment in cash but rather receives a number of shares of
stock with a fair market value equal to the difference
between the trading price of the stock and the warrant's
strike price.
It is possible for the public warrants to be net settled in the
event that there is not yet an active registration statement
covering the common stock that will be issued upon the
exercise of the warrants, or at the discretion of the
management.
If the public warrants are exercisable and the public shares
are traded at a price that is higher than the fixed price for a
predetermined amount of time, then the company will be
able to redeem the public warrants, which will require the
warrant holders to exercise their warrants or risk losing the
value of their warrants
On the other hand, the founder warrants cannot be
redeemed for cash.
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FORWARD PURCHASE:
Affiliates of the sponsor or institutional investors engage
into a forward purchase agreement with the SPAC, devoted
to purchase equity (stock or units) in conjunction with the
De-SPAC transaction to the extent that the additional funds
are necessary to complete the transaction.
In situations in which a private equity fund or another
investor with a limited investment mandate commits
forward purchase, it may be appropriate to condition the
obligation of the investor on the De-SPAC Transaction
satisfying the investment mandate of the investor.
This is because private equity funds and other investors
with limited investment mandates often make forward
purchase commitments.
IPO AGREEMENTS:
The establishment of the SPAC as well as the initial public
offering of the SPAC both involve the customary signing of a
series of contracts and other documents.
There are a few documents that are universal to all SPACs,
such as the registration rights agreement and the certificate
of incorporation.
The remaining documents are specific to SPACs and cannot
be found elsewhere.
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Charter:
The SPAC Charter is the document that establishes the
public shares as well as the founder shares and includes an
anti-dilution modification to the conversion ratio for the
founder shares.
Additionally, it places limitations on the use of the money in
the trust account, limiting its applications to only the
repurchase of public shares and the determination of a
minimum size requirement for the business that would be
acquired in a De-SPAC transaction.
Securities Purchase Agreement:
The Sponsor and the SPAC enter into a Securities purchase
Agreement, which provides for the issue of founder shares
to the Sponsor of the SPAC.
The number of founder shares is typically set at 25% of the
total amount of publicly traded shares that are initially
registered on the registration statement.
However, the number of founder shares may be decreased
or increased through a stock split, dividend, or forfeiture in
order to size the founder shares to the initially agreed upon
percentage of 25%.
Warrant Agreement:
The SPAC and the transfer agent both sign the warrant
agreement, which outlines the parameters of the warrant
and must be done so before the warrant may be issued.
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The warrant specifies that the SPAC will be required to
comply with an obligation to register the issuing of public
shares in the event that the public warrants are exercised.
To change the conditions of the warrant agreement,
approval is required from fifty percent of the warrant
holders.
Promissory Note:
With the funds raised through the initial public offering
(IPO) as well as the sale of founder shares and founder
warrants, SPAC is able to cover all of the costs associated
with putting on the offering as well as organising the
offering.
The legal fees, travel and road show fees, accounting fees,
insurance premium, and other incidental charges are
included in these costs.
Because the SPAC does not have adequate cash to pay off
such expenses prior to the completion of the IPO, the
sponsor agrees to engage into a promissory note with the
SPAC in order to lend funds to the SPAC in the form of a
loan until the completion of the SPAC's first public offering.
Sponsor Constituent Document:
Often, a new limited liability company is established for the
sole purpose of acting as the sponsor for the special
purpose acquisition company (SPAC).
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In the constituent documents, the owners of the sponsors
put their relationship with one another and their relative
participation in the SPAC in writing.
For example, they specify the proportionate amount of the
founder warrant purchase price that each will fund as well
as their economic ownership of the founder warrants and
founder shares.
Letter Agreement:
The SPAC reaches a letter agreement with its officers,
directors, and sponsor before moving forward with the
process.
The letter agreement may include a lock up agreement, an
indemnification from the sponsor towards SPAC for certain
claims that may be made against the trust account, a voting
agreement obligating the officer, directors, and sponsor to
vote their founder shares and public shares, if any, in favour
of the De-SPAC transaction, an obligation to forfeit founder
shares to the extent that green shoe is not exercised in full,
and an agreement to not sponsor other SPACs until the De-
SPAC transaction has been completed.
All of these provisions.
Registration Rights Agreement:
For the benefit of the sponsor and any other holders of
founder shares and founder warrants, the SPAC enters into
a registration rights agreement granting the sponsor and
such other holders broad registration rights with respect to
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the founder shares, founder warrants, and any other equity
held by the sponsor and such other holders in the SPAC.
Private Placement Warrants Purchase Agreement:
In accordance with the terms of the Private placement
warrants purchase agreement that it has signed with the
SPAC, the sponsor has agreed to purchase founder
warrants.
The financing of the purchase price occurs one business day
before the conclusion of the initial public offering (IPO), as
well as one business day before the closing of any exercise
of the green shoe option.
Securities Assignment Agreement:
The compensation for independent directors is provided by
the SPAC in the form of the cost-plus sale of founder shares.
Since the directors are not paid any fees in any other way,
this is the only method that they can receive their
remuneration.
Administrative Service Agreement:
A monthly charge is paid by the SPAC to the sponsor in
exchange for the sponsor providing utilities, office space,
secretarial support, and other administrative services in
accordance with an administrative service agreement
between the sponsor and the SPAC.
In addition to this, the SPAC makes use of its regulations in
the process of its formation.
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After the initial public offering (IPO), it will also sign into an
Investment management trust agreement with the trustee.
This agreement will control the investment and release of
the funds that will be held in the trust account.
DE-SPAC PROCESS:
The following procedures make up each stage of the De-
SPAC process:
●Requirements for Shareholder Approval
●Founder Approbation Votes
●Disclosure of Material on a Super 8-k Form
●Redemption Offer
Shareholder Approval:
The procedure of de-SPACing is quite similar to that of
merging two public companies, with the exception that the
buyer, in this case the SPAC, needs to get approval from the
shareholders.
On the other hand, voting by shareholders is not necessary
for stock exchanges.
Founder Vote Requirements:
At the time of the initial public offering (IPO), the founder
shareholders, also known as the sponsor or any other
holders, will make a commitment to vote in favour of the
De-SPAC transaction for any founder shares owned by them
as well as any public shares purchased during or after the
IPO.
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Therefore, at least 20 percent of the outstanding shares of
the SPAC will be committed to voting in support of the De-
SPAC Transaction, and as a result, just 37.5% of the public
shares are necessary to accomplish the goal of the majority
vote and approve the transaction.
Redemption Offer:
SPACs are desirable because they give owners of public
shares the option to exchange those shares for a
proportional share of the profits stored in a trust account.
This is one of the reasons why public share ownership is
desirable.
The redemption offer will not be valid for public warrants
until such time as those warrants are either exercised,
exchanged, or otherwise voided in accordance with the
terms of a vote.
If the time limit to finish the SPAC transaction passes, and
the company wants to change its charter documents to
allow for a longer period of time to carry out the De-SPAC
transaction, then it will be required to redeem the public
shares for their proportional share of the amount that is
held in the trust account.
This must be done before the company can make the
change.
If the De-SPAC deal does not go through, however, the
money will be returned to the public shareholders, but the
public warrants, founder shares, and founder warrants will
all lose their value and expire.
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