Great to know. Especially that 5,000,001 deal thing. Interesting stuff. That explains why they knocked it all down to 5,000,000. Good planning. Loved that thing about 2021. Especially 2021 they said. Crazy stuff eh folk. Too sexy for this shirt. Hula Hula Cuckoo
Deadline Extensions for De-SPAC Transactions
The vast majority of SPAC charters contain a deadline by which a SPAC must complete a business combination. If a SPAC has not completed a business combination by the deadline, the SPAC must cease all operations except for the purpose of winding up. In that case, SPACs are required to return the funds remaining in the IPO trust account (net of any amounts permitted by the charter to be removed for taxes and dissolution expenses) to public stockholders via redemption. To avoid this result, SPACs that are approaching their deadline can seek to extend their deadline by obtaining stockholder approval to amend their charter and obtain more time to complete a business combination.11 In order to compensate public stockholders for the additional time requested, SPACs often offer to deposit additional funds into their trust accounts on the theory that eventually (upon completion of a business combination or a later dissolution) public stockholders will have the opportunity to acquire these funds via redemption.
The first quarter of 2023 remained on trend with many SPACs seeking such extensions. Extensions have become more common as many SPACs that were formed during the SPAC boom years of 2020 and especially 2021 are now approaching their deadlines.
When a SPAC seeks shareholder approval for a charter extension amendment, it is obligated to offer public stockholders the opportunity to redeem their shares upon adoption of the amendment. However, SPAC charters also provide that no redemption may occur to the extent that it would result in the SPAC having less than $5,000,001 in net tangible assets.12 When the number of stockholders exercising their redemption rights is high, it can lead to a “catch-22” where a SPAC has the votes necessary13 to effect a charter amendment for an extension, but the number of redemptions would reduce a SPAC’s net tangible assets below the required amount. In that case, a SPAC may be legally unable to adopt the amendment necessary to extend its deadline, and the SPAC would be forced to liquidate instead. SPACs facing this situation have undertaken a variety of maneuvers and transactions designed to avoid this result, including entering into non-redemption agreements with certain shareholders or forward purchase agreements with new or existing investors, seeking waivers to significant deferred liabilities and obtaining additional capital from the SPAC’s sponsor. These strategies have differing advantages and disadvantages and there are many factors to consider, not least of which is the SPAC’s ability to satisfy the continued listing requirements of the NYSE or Nasdaq and its prospects for timely consummating a de-SPAC transaction. The best course of action for any particular SPAC considering an extension will depend on the SPAC’s objectives and the surrounding circumstances.
