U.S. GAAP refers to the above FPA agreements as Forward Sales Agreements (ASPs) because the shares are sold to the sponsor from the issuer`s perspective. ASPs are defined in more detail in CSA 815-40-55-13. In addition to the contracts and documents described above, spaC also issues laws in connection with its formation, which are relatively standardized in Delaware PSCS and contain customary provisions for a publicly traded Delaware company. PSPC also enters into an investment management escrow 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. There are some advantages to pursuing a PSPC transaction over an IPO. It offers greater price certainty at an earlier stage of the process. In a traditional IPO, the issue price is set at the time of the IPO after a lengthy SEC review and roadshow process and is subject to full market risk during this process. In the case of a PSPC transaction, the price is determined at an early stage by negotiation. Pricing is complete once the agreements for the business combination and pipe transaction are finalized, which can be done within four to six weeks of signing a letter of intent. It is only after the pricing has been set that PSPC files a power of attorney or registration statement and undergoes a review by the SEC with respect to the target company`s information. Questions were raised about how PSPC futures purchase agreements should be accounted for in accordance with U.S.
GAAP. Although private companies typically have the ability to approve a transaction once the merger agreement is signed, target companies typically wait today with a shareholder vote until the S-4 registration/proxy circular is effective. The postponement of the vote until the registration statement comes into effect allows target shareholders to receive registered shares and gives the target company the flexibility to approve an alternative transaction during the period between signature and closing if the target company receives an offer that the board of directors considers to be a superior proposal. For target companies that are not required to obtain shareholder approval immediately after signing, PSPC requires officers, directors and, if they can, major shareholders to enter into support agreements in which they agree to vote for their shares in the transaction. These support agreements often contain features that “reduce” the number of shares pledged in the event that the target company receives a global offer or if the target company`s board of directors changes its recommendation regarding the PSPC transaction. 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. PSPC and the Sponsor (or an affiliate of a Sponsor) enter into an agreement under which the Sponsor (or the Sponsor`s affiliate) provides PSPC with offices, utilities, administrative support and administrative services for a monthly fee (typically $10,000 per month). As mentioned earlier, PIPE will be used to secure committed financing prior to the signing of a definitive acquisition agreement. Funds raised through PIPE provide additional consideration for the closing of the DESCOP transaction and/or the replenishment of funds paid to PSPC shareholders who choose to repurchase their shares and who are often required to obtain the amount of money required to meet the minimum cash flow requirement at closing. (See Part III FAQ 3: “What happens after signing the business combination agreement?” for more information on the minimum cash closing requirement.) In addition to providing additional financing, PIPE investors play a role in validating the valuation of the target company negotiated as part of the PSPC transaction, as the limited partner and target company often market and negotiate with these investors within the period between the signing of a letter of intent and the signing of the definitive agreement in order to concurrently with the signing of the PSPC transaction. Conclude subscription contracts to invest.
Conclusions: PSPC futures contracts are likely to be considered stand-alone financial instruments linked to shares. ASPs are unlikely to be classified as ASC 480 assets or liabilities. The FSA, which is required to issue warrants duly classified as liabilities, will not be considered to be linked to the Company`s own shares. These ASPs are classified at the recognised fair value of the liability or asset first and thereafter until the date of settlement or expiry of the contract. As part of the initial recognition, reporting companies should allocate the proceeds of the IPO to the FSA classified as a liability and thus reduce the equity income reported in the company`s equity (additional paid-up capital). Private equity managers considering sponsoring a PSPC face unique considerations, including the location of the sponsor in the fund structure and whether the fund documents permit the formation of a PSPC. A common question is whether the sponsor should be a holding company of one or more existing funds or a subsidiary of the investment manager. Fund agreements may limit the investment manager`s ability to form a PSPC outside of an existing fund. Alternatively, the types of assets that PSPC is expected to pursue may not be part of the overall investment mandate of an existing fund.
In addition, the private equity manager will likely need to consider how to allocate investment opportunities between PSPC and existing funds. The FSA comes into force at the same time as the IPO and is therefore linked to the underlying transactions of the IPO. Therefore, some believe that the FSA has not been registered separately from other financial instruments. In general, the FSA Terms do not allow the transfer of the underlying rights and obligations. Therefore, if the instrument is considered to be registered in conjunction with another transaction, it is likely to be considered integrated and non-autonomous. PSPC cannot identify acquisition targets prior to the completion of the IPO. If PSPC had considered a specific objective at the time of the IPO, detailed information on the registration statement of the target IPO, possibly including the target companies, should be included in the closing, thus delaying the IPO and resembling a traditional IPO in form and content. The SEC often requires [8] in the IPO prospectus that spaC is not currently considering a specific business combination and that PSPC`s officers and directors have not individually selected or considered a target company for the business combination, or discussed potential target companies among themselves or with underwriters or other advisors. To the extent that the spaC contacts and documents do not end with the PSPC transaction by their terms, they are often modified as part of the PSPC-transaction. For example, the mandate agreement may be amended by a vote of warrant holders, the registration rights agreement may be replaced by a shareholders` agreement, charters and articles of association are frequently amended, etc. Reclassification is often triggered by changes in facts and circumstances relevant to the host of the FSA, the underlying warrants or common shares.
For example, the classification of warrants may change due to changes in the terms of warrants. Compliance with additional capital classification requirements, and in particular the requirement of sufficient availability of shares, may be affected by the issuance of the Company`s common shares. PSCS are activated using three key sources: (i) shares sold to the public at the time of the IPO, (ii) shares sold to sponsor spaC in private placements, and (iii) shares sold to sophisticated private investors in PIPE. (1) Does not require the exercise of a guarantee. (2) Assumes that each unit sold in connection with the IPO contains one third of a warrant. (3) The Limited Partner shall acquire the Founder`s Warranties at a total purchase price, which will generally be equal to 2% of the gross proceeds of the IPO plus approximately $2 million to cover the costs of the Offering. (4) Provides for a $250 million PIPE selling 25,000,000 shares for $10 per share, excluding warrant coverage. .