The
The following provides a brief summary of the
I. BACKGROUND
SPACs are formed by sponsors in order to raise funds through an IPO with the express purpose of using the funds to complete one or more business combination transactions. Once the
The funds raised through the SPAC IPO are held in trust until the business combination transaction occurs. If the
Sponsors are typically compensated through receipt of a percentage of
We have seen an explosion in
II. GUIDANCE REGARDING DISCLOSURES AT TIME OF IPO
In the guidance, the
Oftentimes,
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The sponsors', directors' and officers' potential conflicts of interest;
- Whether any conflicts relating to other business activities include fiduciary or contractual obligations; how these activities may affect the ability of sponsors, directors and officers to evaluate and present a potential business combination opportunity to the
SPAC and its shareholders; and how any potential conflicts will be addressed; and - Whether the
SPAC may pursue a business combination with a target in which sponsors, directors, or officers have an interest, and if so, how theSPAC will consider potential conflicts of interest. - A description of any concurrent offering of securities to the sponsors and their affiliates, the amount of those securities, the price to be paid and how that price compares to the public offering price in the IPO;
- A description of the conflicts of interest that result from sponsors', directors', and officers' securities ownership, compensation arrangements or relationships with affiliated entities that may create financial incentives to complete a business combination transaction even if the transaction may not be in the best interest of other shareholders; and
- Whether and how sponsors, directors, and officers may be compensated for services to the
SPAC , including whether any payments will be contingent on the completion of a business combination transaction and the amount of any such contingent payments. - The amount of control that
SPAC sponsors, directors and officers and their affiliates will have over approval of a business combination transaction; - Whether, and if so how, the
SPAC may amend provisions in its governing instruments to facilitate the completion of a business combination transaction, including whether shareholder approval is required, and if so, the requisite voting standard for approval and whether the sponsors have sufficient voting power to approve it; - Whether, and if so how, the
SPAC may extend the time it has to complete a business combination transaction, including whether shareholders may redeem their shares in connection with any proposal to extend the time period; and - If applicable, a balanced disclosure about the
SPAC sponsors', directors', and officers' priorSPAC experience, including the outcome of presented and completed business combination transactions and liquidations. - The material terms of any convertible debt held by the sponsors, directors and officers, including when the debt is convertible, the maximum number of securities they may acquire through conversion and any contingencies on conversion;
- Whether the
SPAC plans to seek, or has obtained, additional funding, how the terms of securities issued or to be issued in private offerings compare to the terms of securities offered in the IPO, and whether the sponsors, directors and officers may participate in or have an interest with respect to such financing; and - Whether the
SPAC has entered into a forward purchase agreement allowing the purchaser to invest in theSPAC at the time of a business combination transaction, and if so, a clear description of the terms of the agreement, including whether the forward purchaser's commitment to purchase the securities is irrevocable, and any potential dilutive impact on other shareholders. - If the terms of additional financing involve the issuance of securities, how the price and terms of those securities compare to and differ from the price and terms of the securities sold in the IPO;
- Whether sponsors, directors and officers are participating in any additional financing; and
- If convertible securities will be issued, the material terms for conversion and any material impact on the beneficial ownership of the combined company.
- How the nature and amount of consideration the
SPAC will pay to acquire the target was determined, including a clear description of the negotiations regarding the amount of consideration and a clear explanation of all material terms of the transaction; - A clear description of any conflicts of interest of the sponsors, directors and officers in presenting this opportunity to the
SPAC , how theSPAC addressed these conflicts of interest, and how the board of directors evaluated the interests of sponsors, directors and officers; - Whether the sponsors, directors and officers have an interest in the acquisition target, including, if material, the approximate dollar value of any such interest and when the interest was acquired and the price paid;
- Detailed information regarding how the sponsors, directors and officers will benefit from the transaction, including by quantifying any material payments they will receive as compensation, the return they will receive on their initial investment, and any continuing relationship they will have with the combined company;
- The total percentage ownership interest the
SPAC sponsors, directors, officers and affiliates may hold in the combined company, including through the exercise of warrants and conversion of convertible debt; and - Whether the
SPAC has waived any provisions of any policy regarding conflicts of interest, and the reasons for any such waiver. - Whether payment for any such additional services will be conditioned on the completion of a business combination transaction; and
- Any conflict of interest the underwriter may have in providing such services if IPO underwriting compensation is to be deferred until the completion of a business combination transaction.
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The securities owned by sponsors, directors, and officers including the price paid for the securities and how that price compares to the public offering price in the IPO;
A
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The financial incentives of
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The terms of securities held by sponsors, directors and officers, including how the rights of those classes of securities compare to and differ from the rights and terms of securities offered in the IPO, as well as the resulting risks to public shareholders;
III. DISCLOSURES RELATING TO A BUSINESS COMBINATION TRANSACTION
In the guidance, the
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Any additional financing necessary to complete the business combination transaction and how the terms of such financing may impact public shareholders;
Because
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Detailed information about how it evaluated and decided to propose the identified transaction, including why the target company was selected as opposed to alternative candidates and who initiated contact, including what material factors the board of directors considered in its determination to approve the transaction;
IV. UNDERWRITER DISCLOSURES
The underwriter for the SPAC IPO may agree to defer a portion of its compensation until the closing of the business combination transaction and may also provide additional services to the
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Whether the underwriter of the IPO may provide additional services such as identifying potential targets, providing financial advisory services, acting as a placement agent in a private offering or underwriting or arranging debt financing and what fees the
V. CONCLUSION
As the
Footnotes
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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