As PSPC continues to spread, it is important to take the right steps to evaluate their share agreements and determine whether their financial statements reflect accurate balances, classifications and related information. While each agreement has a unique level of complexity, accounting treatment and risk, PSPC must assure potential investors that the company`s financial information is accurate and consistent with their business objectives. Policyholders also have a different role to play. In order to complete a business combination transaction with an operational objective, PSPC generally requires additional equity. Typically, this capital is raised in the form of a forward purchase agreement or a “private investment in public shares” or a PIPE transaction. (See below.) Syndicated banks will play a key role in identifying and organising the sale of equity to investors in order to participate in this subsequent capital increase. Box A: The first step in this analysis is to determine whether the warrants are considered stand-alone or integrated. The warrants and common share instruments are part of an FSA agreement and have not been contractually agreed separately. The requirement to issue common shares and warrants is not legally redeemable in the sense that the common shares and warrants are issued together. Therefore, mandates are not legally separable.
The Warrant component is an integrated feature and not a stand-alone instrument. In addition to the contracts and documents described above, PSPC also issues articles as part of its formation, which are relatively standardized among Delaware PSCS and contain customary provisions for a publicly traded Delaware corporation. PSPC also enters into an Investment Management Trust Agreement with a trustee that governs the investment and release of funds held in the escrow account after the IPO. Finally, PSPC usually enters into agreements with their directors and officers to provide them with contractual compensation in addition to the compensation provided for in the Charter. The proceeds of the forward purchase agreement and/or the PIPE transaction will be used to finance part of the purchase price of the business combination, to meet the minimum payment conditions necessary for the completion of the business combination (including offsetting the repurchase of public shares by outgoing investors) and to finance the working capital needs of the surviving company. PSPC should pay particular attention to the classification of units and warrants, as each agreement involves different levels of complexity. In accordance with ASC 815-40, the terms of agreements must be analyzed to determine the correct classification of instruments sold as equity or liabilities. For instruments classified as liabilities, PSPC will encounter an additional level of complexity as these instruments must be accounted for at fair value at each balance sheet date using complex fair value methods. Stock exchange rules do not always require a vote by PSPC shareholders, but the structure of the PSPC transaction (for example. B if PSPC does not survive a merger or moves its head office to another jurisdiction) may require a vote, and if more than 20% of the voting shares of spaC are issued as part of the PSPC transaction (to the seller of the target transaction, pipe investors or a combination), stock exchange rules require a shareholder vote. This leads to most of PSPC`s transactions, which involve a public vote of PSPC`s shareholders, which includes filing a proxy circular with the SEC, reviewing and commenting with the SEC, sending the proxy circular to PSPC shareholders, and holding a shareholders` meeting. The power of attorney process may take three to five months or more from the date of signature of the final agreement for the PSPC-transaction.
A PSPC generally needs to raise additional capital to complete the transaction in order to complete PSPC`s business combination transaction. These subsequent capital increases usually take the form of a forward purchase agreement or a PIPE bond. The limited partner is often a new limited liability company established solely for the purpose of sponsoring PSPC. The owners of the sponsor (e.B. a private equity fund and spaC`s independent management team) may document their relationship and relative involvement in PSPC, for example. B the relative amount of the purchase price of the seed warrants that everyone will finance, and the beneficial ownership of the start-up warrants and founder`s shares in the governing documents. Standard FSA agreements do not provide for cash settlement. If the above capital classification requirements are met, the application of CSA 815-40-55-13 would result in the classification of the FSA as an equity instrument. The primary objective of forward purchase agreements is to ensure that PSPC has the minimum capital required to enter into a business combination.
To the extent that any of spaC`s contacts and documents are not terminated by its terms in the PSPC-transaction, they are often modified as part of the PSPC-transaction. For example, the mandate agreement may be modified by a vote of warrant holders, the registration rights agreement may be replaced by a shareholders` agreement, charters and articles of association are often amended, etc. As part of the closing of the IPO, spaC will fund an escrow account of an amount generally equal to 100% [1] or more of the gross proceeds of the IPO, with approximately 98% of the amount financed by public investors and 2% or more by the promoter. Funds in the escrow account are typically invested in short-term U.S. Treasury bonds [2] or held in cash and are used to fund (i) the business combination, (ii) the repurchase of common shares under a mandatory issuer bid (as described below in “PSPC-Buyback Offer Process”), (iii) the payment of the deferred subscription discount, and (iv) if amounts remain, to cover the Company`s transaction costs and Working Capital following the PSPC-transaction. The escrow agreement generally allows for the deduction of interest held in the escrow account to fund franchise and income tax, and sometimes allows for the withdrawal of a limited amount of interest (p.B.e., $750,000 per year) from working capital. Typically, PSPC enters into forward purchase agreements, which are written as stand-alone financial instruments in accordance with CSA 815 and may be exercised conditionally as part of a merger transaction. The proxy circular or registration statement is generally prepared during negotiations on the business combination transaction agreement between PSPC and the target company. Shortly after the announcement of the transaction, spaC will file a preliminary proxy statement or registration statement, including a preliminary proxy circular prospectus, with the SEC for review and comment on the filing.
The process can take three to five months from the date of signature of the business combination agreement, but in most cases it is even shorter than the corresponding review of an IPO registration statement. The Limited Partner and PSPC enter into a securities purchase agreement that provides for the issuance of the founding shares to the Limited Partner for an amount of $25,000. The number of founding shares represents 25% of the number of public shares initially registered in the registration statement, but it is increased or decreased by a share split, dividend or expiry in order to bring the founding shares to 25% of the number of public shares ultimately sold. The option must first be analyzed to determine whether it is a stand-alone or on-board instrument. The option is self-contained if it can be transferred separately from the associated units. Conversely, if the promoter option and its associated units cannot be separated, the option is considered a feature built into the FSA host. In general, the sponsor`s option to purchase additional shares cannot be separated from the host and is therefore considered integrated. PSPC and the Sponsor enter into an agreement under which the Sponsor acquires the founder`s guarantees. The purchase price will be financed one business day before the closing of the IPO and again one business day before the end of a green shoe exercise.
PSPC and the transfer agent enter into a warrant agreement that sets out the terms of the warrants. The warrant agreement also contains the obligation for spaC to register the issue of public shares when exercising the public warrants. The mandate agreement provides that the terms of the public warrants may generally be amended with the consent of the holders of 50% of the public warrants. The question arose as to how PSPC futures purchase agreements under U.S. GAAP should be considered. There is a standard set of contracts and documents entered into as part of the creation of PSPC and the PSPC IPO. Some, such as the Charter of Incorporation and the Registration Rights Agreement, have analogues in traditional IPOs of operating companies, while others are unique to PSPC. Under a forward purchase agreement, the promoter`s affiliates or institutional investors undertake or have the opportunity to acquire equity in connection with the PSPC transaction […].
