SPAC IPO. The SPAC is required to complete an initial business combination, referred to as a de-SPAC transaction, typically within 18 to 24 months following the SPAC IPO date. These funds are used solely to acquire an operating company, referred to as a target, in a business combination transaction. Regardless of whether the merger qualifies as tax-free, any consideration received other than SPAC voting stock, i.e., cash or other property (referred to as boot), will be taxable to the target shareholders. 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. View image. This primer provides you with an introduction to SPACs. The timing of the issuance of the founders shares should be carefully planned to avoid undesirable tax consequences for the sponsors. The target companys shareholders exchange stock constituting control of the target company for voting stock of the SPAC; At least 80% of the total consideration paid to the target companys shareholders is SPAC voting stock; and. 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). Some sponsors compensate the independent directors of the SPAC through the sale of founder shares, at cost. COVID-19 national emergency and public health emergency both end May 11, 2023. SPACs are founded by "sponsors," people or entities set up by people, hedge funds, or private equity groups that pick or serve on the SPAC's board of directors and bring a SPAC public through an IPO to raise money. As is typical in PIPE transactions, the SPAC agrees to register for resale the SPAC securities acquired in the PIPE by the investors. Most SPACs list on the Nasdaq Capital Market, but there are those that list on the New York Stock Exchange. the SPAC's merger agreement with Perella Weinberg.10 The plaintiff shareholders argued that FinTech's . Google signed an agreement with an Iowa wind farm to buy 114 megawatts of power for 20 years. In return, the parties would receive 200,000 sponsor shares if We may have further comment. (go back), 9The target business financial statements must be audited for the most recent year only to the extent practicable, and earlier years need not be audited if they were not previously audited. The sponsor team will consist of the sponsor, a management team and the directors of the SPAC. In fact, there have been instances where a sponsor has multiple SPACs that are simultaneously seeking a business combination. We use cookies on this website to optimize user experience and site functionality and to give you the best possible experience. 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. Therefore, gain may be avoided if the shares are sold immediately after the exchange. For federal income tax purposes, the warrants received are treated as investment warrants as long as the issuance of the warrants is not dependent on the sponsors employment status or in exchange for services provided as an employee of the SPAC. 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,. The sponsor manages the IPO process, including the selection of the lead underwriters to conduct the IPO, the auditors for the SPAC and counsel to prepare and file the Form S-1 registration statement with the SEC. Sponsors and their investors get the opportunity to invest in a growth stage company or other attractive target, carefully selected to match their investment criteria, with substantial upside opportunity. The restrictions apply to SPACs and former SPACs for varying periods depending on the specific rule. Contract Type . 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). There are three distinct phases in the life of a SPAC: SPAC formation and IPO, SPAC target search, and the SPAC merger (de-SPAC). Why are SPACs so popular? Upon consummation of the IPO, the units begin to trade on the applicable stock exchange. A SPAC is a company formed to raise capital in a public offering, with the offering proceeds serving as a blind pool of funds held in trust to finance the acquisition of one or several unidentified targets. Unlike the public shares, the founder shares are subject to contractual transfer restrictions, and their resale would either need to be registered under the Securities Act or be made in reliance on an exemption from registration. In most cases, a vote of the shareholders of the SPAC will be solicited to approve the business combination transaction with the target. SPACs are required to have a majority of independent board members under stock exchange listing requirements, subject to the same phase-in exceptions as are applicable to all newly public companies. Depending on the timing of the transaction, the proxy statement or tender offer materials are required to include two or three years of audited [9] financial statements of the target business, plus unaudited interim financial statements. There are certain tradeoffs to choosing a de-SPAC over an IPO. Both, however, are 15% of the base offering size. Sponsors may earn a substantial return on their at-risk capital and promote, in return for identifying suitable operating business combination targets. Northern Star III and Northern Star IV for the second time in three days announced further non-redemption agreements to shore up their finances ahead of extension votes.In the latest agreements, identical to both SPACs, participating investors will hold onto 800,000 shares through the extension vote. Most SPACs seek domestic targets, and those that do are organized in Delaware. The Investment Company Act restriction does not mean that the SPAC investors have to own 50% of the voting stock of the surviving company, as the Investment Company Act merely requires that the public company control its operating subsidiaries (or have another means for exclusion from the Investment Company Act), and is indifferent to how much of the public company the owners of the SPAC comprise. In 2019, SPAC IPOs raised $13.6 billion. . In its IPO, the SPAC offers units, with each unit comprising one share of common stock, typically designated as class A shares, and either a fraction of a warrant to purchase a share of common stock, or one warrant to purchase a fraction of one share of common stock. If no De-SPAC transaction occurs, the deferred 3.5% discount is never paid to the underwriters and is used with the rest of the trust account balance to redeem the public shares. The promissory note covers any organizational or offering expenses until the SPAC can repay the loan from the proceeds of the IPO and sale of the founder warrants at the closing of the IPO. The sponsor will pay a nominal amount (usually $25,000) for a number of founder shares that equals 25% of the number of shares being registered for offer to the public, inclusive of the traditional 15% green shoe. As a practical matter, SPACs typically target business combination targets that are at least two to three times the size of the SPAC in order to mitigate the dilutive impact of the 20% founder shares. If the SPAC had a target in mind, the SEC would require disclosure of the name of the target and information (financial and otherwise) about the target. Rule 144 provides a means by which persons who might otherwise be considered statutory underwriters (and therefore required to register their offer of equity under the Securities Act prior to their public sale) may sell their equity without registration, typically after a six-month holding period. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. Recent SPAC IPOs suggest that sponsors are increasingly agreeing to a smaller percentage of promote. The U.S. capital markets have seen record levels of merger and acquisition activity over the last few years, including record use of special purpose acquisition companies (SPACs) to facilitate initial public offerings (IPOs). This will result in a more involved transaction structure and may introduce complex tax issues. At formation, sponsors usually purchase (1) whole warrants in the SPAC ("sponsor warrants") for an amount of cash equal to the IPO expenses, plus a specied amount for future operating expenses of the SPAC, and (2) shares of common stock of the SPAC ("sponsor shares") for nominal consideration equal to 20% of the post-IPO share count. The de-SPAC transaction may also require registration under the Securities Act if the business combination transaction is structured as a share exchange and if new securities are required to be registered. The target entity that can be a party to a traditional de-SPAC transaction reorganization is normally an S corporation or a C corporation. There are no historical financial results to be disclosed or assets to be described, and business risk factors are minimal. (See KL Alert: SEC Provides Disclosure Guidance on SPAC IPO and Subsequent Business Combination Transactions (January 6, 2021).). 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. The common stock included in the units sold to the public is sometimes classified as Class A common stock, with the sponsor purchasing Class B or Class F common stock. The SEC often requires [8] disclosure in the IPO prospectus to the effect that the SPAC currently does not have any specific business combination under consideration and that the SPACs officers and directors have neither individually selected nor considered a target business for the business combination nor have they had any discussions regarding possible target businesses among themselves or with underwriters or other advisors. The office was designed and built specially for Google, . 139. 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. 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. However, within 52 days after the IPO, the units are severed, and the class A shares, often referred to as the public shares, and the warrants, often referred to as the public warrants, may be traded separately. Recipients of compensatory warrants generally do not recognize taxable income upon the grant of the warrant as long as the warrant provides for a fair market value (FMV) exercise price. (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[. H & H TRAILERS, LLC. From the decision to proceed with a SPAC IPO, the entire IPO process can be completed in as little as eight weeks. If the business combination transaction closes, investors choosing to remain with their investment will enjoy potential upside both in their shares and their warrants. As a result, they will collectively own a significant stake in the surviving company, as they would if the target had conducted an IPO. 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. The sponsor and the SPACs officers and directors will waive redemption rights with respect to their founder shares (and any public shares they may purchase) in connection with the De-SPAC transaction or a charter amendment to permit an extended period to consummate the De-SPAC transaction, effectively agreeing to stay invested in the SPAC through the closing of the De-SPAC transaction or until liquidation. Historically, SPAC Sponsors needed to raise an amount to serve as risk capital or "sponsor capital" equal to between 3% and 5% of the projected public capital raise for the SPAC. Blank check companies are subject to Rule 419 of the Securities Act. 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. There is also inherent uncertainty as a result of the SPAC investors' redemption rights, which could result in the surviving company having insufficient cash to fund its operational needs of the surviving company or a shortfall in the cash consideration, if any, owed to the selling stockholders. 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. Much of the information in the Super 8-K will already have been included in the SPACs proxy statement or tender offer materials for the De-SPAC transaction, but the Super 8-K may require additional financial statement information for the target business. The team will also discuss the industry in which the SPAC intends to seek a target and the growth potential of companies in the industry. Mallard Pointe 1951 LLC is the ownership entity of Mallard Pointe and is a partnership of local families. After the sponsors disgorged the profitspurportedly in response to plaintiffs' demand lettersplaintiffs . As described below, the De-SPAC transaction will require a proxy statement meeting the requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act), or tender offer materials containing substantially the same information. The holders of the founder shares will agree, to the extent the green shoe is not exercised in full, to forfeit a number of shares so that their number of founder shares continues to equal 25% of the number of public shares actually sold to the public. 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. SPAC Industry: Looking Ahead. 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. The sponsor will typically purchase founder shares prior to the SPAC IPO filing. The directors will be chosen on the basis of their experience in M&A transactions and deal sourcing. A SPAC is formed by a group of sponsors, often well-known investors, private equity firms or venture capitalists. 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 owners of the sponsor (e.g., a private equity fund and the independent management team of the SPAC) may document their relationship and relative participation in the SPAC, such as the relative amount of the founder warrant purchase price each will fund, and economic ownership of the founder warrants and founder shares in the constituent documents. 2023 Each unit is customarily priced at $10.00 per unit, and the warrant is usually priced out of the money, with an exercise price greater than the per unit price offered in the IPO, typically $11.50 per share. SPAC Organizational Documentation (charter, bylaws) Sponsor Constituent Documents (LLC agreement, etc.) To attract capital, the sponsor must be a sophisticated and experienced investor that is well known in private equity circles and the financial markets. 2. The choice is up to you. Maverick Transportation is an outstanding company as recognized in 2018 and 2019 by receiving the honor of being one of the "Best Fleets To Drive. Prior to the closing of the IPO, the SPAC does not have sufficient cash to pay such fees, so the sponsor enters into a promissory note with the SPAC to loan funds to the SPAC until completion of the SPACs IPO. The trust agreement typically permits withdrawals of interest earned on the funds held in the trust account to fund franchise and income taxes and occasionally permits withdrawal of a limited amount of interest (e.g., $750,000 per year) for working capital. The primary capital pool for SPAC investments comes from institutional investors. If the target holders cash out a portion of their equity in the de-SPAC transaction, this would be the equivalent of a secondary offering in conjunction with an IPO. SPACs, as registrants with assets consisting solely of cash and cash equivalents, are shell companies under the Securities Act of 1933, as amended (the Securities Act), and forms and regulations thereunder. However, in recent years companies such as Whisker Seeker and Team Catfish have stepped up to the mark and filled a well-undeserved space the big name brands are lagging far behind. Sign up to receive the latest BDO news and insights. (go back), Posted by Ramey Layne and Brenda Lenahan, Vinson & Elkins LLP, on, 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 rules, but the, Harvard Law School Forum on Corporate Governance, on Special Purpose Acquisition Companies: An Introduction, Three Years of Audited Financial Statements, Quantitative and Qualitative Disclosures About Market Risk, Director and Executive Officer Biographical Information, Security Ownership of 5% Owners, Directors and Executive Officers, Description of the Registrants Securities. The absence of any promote in the Pershing Kramer Levin Naftalis & Frankel LLP. 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. A SPAC is a "blank check company" that raises capital through an IPO from investors in order to finance a future merger with a target company that has yet to be identified. Too many investors heading for the exits will jeopardize the success of the transaction. A SPAC will go through the typical IPO process of filing a registration statement with the U.S. Securities and Exchange Commission (SEC), clearing SEC comments, and undertaking a road show followed by a firm commitment underwriting. SPACs cannot identify acquisition targets prior to the closing of the IPO. Historically, most SPACs have listed on the NASDAQ because the NYSE listing rules were considerably more restrictive than the NASDAQ rules. Shareholders of the target receive SPAC stock in exchange for their target shares. 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). It's time to organize your fishing gear in an orderly fashion that will maximize storage and improve access. That acquisition or combination is known as the initial business combination . In a traditional IPO, the issuance price is determined at the time of the IPO after a lengthy SEC review process and roadshow, and is subject to full market risk during this process. The warrant agreement provides that the terms of the public warrants generally can be amended with the approval of holders of 50% of the public warrants. For example, the warrant agreement can be amended by a vote of the warrant holders, the registration rights agreement can be superseded by a stockholders agreement, charters and bylaws are often amended, etc. This SPONSOR FORFEITURE AGREEMENT (this "Agreement") is made and entered into as of August 15, 2022, by and among Founder SPAC, a Cayman Islands exempted company ("Founder"), Founder SPAC Sponsor LLC, a Delaware limited liability company ("Sponsor"), and Rubicon Technologies, LLC, a . A diversity, equity and inclusion video series. These latter requirements include, among others, that (i) within 36 months of the effective date of its IPO, the SPAC must complete one or more business combinations having an aggregate fair market of at least 80% of the value of the SPACs trust account, (ii) if the SPAC holds a shareholder vote on the business combination, the business combination must be approved by a majority of votes cast by public shareholders, with the NYSE excluding votes of shareholders who are officers, directors or hold more than 10% of the SPACs outstanding shares, and Nasdaq requiring approval by a majority of the SPACs independent directors, and (iii) holders of the public shares must have the right to redeem their public shares for a pro rata share of the aggregate amount held in the SPACs trust account if the business combination is consummated, regardless of whether such shareholders previously voted to approve the business combination. The private equity group and the management of the SPAC will often negotiate a private arrangement (usually contained in the organizational documents of the sponsor) dealing with, among other things, how much each of the parties will fund of the at risk capital, relative participation in forward purchase commitments (as described below), and vesting of equity (including incentive equity). For one, the target equity holders will suffer a measure of dilution on account of the founder shares and private placement warrants in the surviving company held by the sponsor and any PIPE investors, and on account of the warrants issued to the SPAC IPO investors. This is inaccurate. Our Clinical Research and Pharmacovigilance . Under the Up-C/Up-SPAC structures, either a C corporation or a SPAC raises funds through an IPO, which are then used to acquire an interest in the target partnership. Unlike an investment in the IPO of a typical operating company in which the IPO stock price may rise or fall after the IPO, an investment in a SPAC IPO benefits from downside protection through the closing of the business combination. 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. Partners that materially participate in the business can avoid the net investment income tax on the exchange of their partnership interest for the publicly traded shares. After this date COVID-19 cannot be the reason to make tax free "qualified disaster relief payment under IRC Sec. This results in most De-SPAC transactions involving a public vote of the SPACs shareholders, which involves the filing of a proxy statement with the SEC, review and comment by the SEC, mailing of the proxy statement to the SPACs shareholders and holding a shareholder meeting. The per unit purchase price is almost always $10.00. In connection with the De-SPAC transaction, SPACs are required to offer the holders of public shares the right to redeem their public shares for a pro rata portion of the proceeds held in the trust account, which typically results in a redemption amount equal to approximately $10.00 per public share. All rights reserved. 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 number of recent SPAC IPOs, affiliates of the sponsor or institutional investors have entered into a forward purchase agreement with the SPAC, committing to purchase equity (stock or units) in connection with the De-SPAC transaction to the extent the additional funds are necessary to complete the transaction. Finally, SPACs typically enter into agreements with their directors and officers to provide them with contractual indemnification in addition to the indemnification provided for in the charter. Most private companies either do not have audited financial statements or have financial statements audited under the AICPA rules. donors, and sponsors. Connecting with our core purpose through a renewed lens. adjustments. At least for the period while the search for the target is ongoing and prior to its acquisition, investors enjoy downside risk mitigation. A SPAC typically needs to raise additional capital to complete the de-SPAC business combination transaction. EX-10.16 12 rubicontech_ex10-16.htm EXHIBIT 10.16 . In a typical SPAC IPO, the public investors are sold units, each comprised of one share of common stock and a fraction [3] of a warrant to purchase a share of common stock in the future. (See below.) If the SPAC is affiliated with a private equity group, the IPO prospectus will typically include disclosure indicating that members of the SPAC management team are employed by the private equity group, which is continuously made aware of potential business opportunities, one or more of which the SPAC may desire to pursue for a business combination. SPAC SPONSOR, LLC is a Delaware Limited-Liability Company filed on June 13, 2016. (The common percentage is 20%, while SPACs set up by Shanda Consult provide the sponsors with 25% founder shares.) Newcourt SPAC Sponsor LLC ("Sponsor") Sponsor is organized under the laws of the State of Delaware. SPAC Sponsors Receive SPAC Founder Shares In return for sponsoring a SPAC in its pre-IPO stage, sponsors receive 25% of the SPACs founder shares. SPAC . In a traditional IPO, the underwriters typically receive a discount of 5%-7% of the gross IPO proceeds, which they withhold from the proceeds that are delivered at closing. In a number of recent SPAC IPOs, affiliates of the sponsor or institutional investors have entered into a forward purchase agreement with the SPAC, committing to purchase equity (stock or units) in connection with the De-SPAC transaction to the extent the additional funds are necessary to complete the transaction. 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. Only after pricing is determined does the SPAC file a proxy or registration statement and undergo SEC review with respect to the target company information. SPAC represents and warrants to Company Holder that this Agreement is in substantially the same form and substance (including with respect to the types and percentage of holdings of securities subject to this Agreement, the time periods for the transfer restrictions, and carve-outs from the transfer restrictions, which shall in each case be LLC, a global public speaking coaching company. "As previously reported, on November 16, 2022, Sagaliam Acquisition Corp., a Delaware corporation ("Sagaliam"), entered into a Business Combination Agreement (the "Business Combination Agreement") by and among Sagaliam, Allenby Montefiore Limited, a private company limited by shares organized and existing under the Laws of the Republic of Cyprus ("PubCo"), AEC Merger Sub Corp., a . They do, however, disclose the industry or geographic focus of the target business(es) they will pursue and the experience of their management in the relevant industry. In those cases, the sponsor purchases founder warrants at a price of $1.50, $1.00 or $0.50 per warrant, depending on whether the public warrants are exercisable for 1/3, 1/2 or 1 share, respectively. If the public warrants are exercisable and the public shares trade above a fixed price (usually $18.00 per share) for a period of time, the public warrants will become redeemable by the company for nominal consideration, effectively forcing holders of the public warrants to exercise or lose the value of the warrants. The sponsor will pay a minimal amount (e.g., $25,000) for the founder shares. In addition, stockholders of former SPACs are required to hold their equity for a period of twelve months, measured from the date of the filing of the Super 8-K, before they can rely on Rule 144 under the Securities Act.